ADA-ES  (Nasdaq:ADES)

Comment:  In Q1 report, CEO Durham said "With our interim AC [activated carbon] facility near start up and the construction of our AC manufacturing facility moving forward on schedule, we remain extremely enthusiastic about our market position and our prospects for recurring revenues along with substantial growth beginning mid-year 2010."

StarLIMS Technologies (LIMS)

Comment: In Q1 report, CFO Friedman said "Our strong revenue performance, combined with our focus on cost containment and services margin improvement, enabled us to significantly expand our operating margins. We continue to gain market share by leveraging our strong product portfolio and balance sheet, and for the full year we believe we can achieve ongoing growth even in the current IT spending environment."

Omnova Solutions (OMN)

Comment:  Up 600% from recent lows, Omnova Solutions shows no signs of slowing down.  It just took out a major technical resistance line (in gray below).

CFS Bancorp (CITZ)

Comment:  who says all banks must be shunned like the plague?  CFS looks pretty good, from a purely technical perspective.

Vical Inc. (VICL)

Comment: Vical looks like it is coiling here, creating what Adam Hewison calls "energy fields" for a big move up.

You can run the Century Club scan, or get updated signals and trend analysis, with a risk free trial of MarketClub.

DISCLOSURE: No positions in stocks mentioned.

Stocks trading that thinly require a whole new level of patience, but can be quite rewarding.  Today is a good case in point.  With volume edging over 60,000 shares — a heavy day for HIHO but a pittance for most stocks — shares rose over 23%.  The leap even put the stock on this afternoon’s Century Club scan,

Get an updated  HIHO trend analysis or a risk free trial of MarketClub (unlimited live, real-time signals with audio interpretation) courtesy of Ino.

I have no idea what catalyst caused today’s action, but its easy to see why HIHO shares were more likely to rise than fall.  Even after today’s jump, HIHO trades below its cash position of $1.80 per share.  Shareholder equity is nearly $3.00 per share, and while results have suffered along with the global company, Highway Holdings was profitable last quarter.  Roland Kohl, President and CEO gave this outlook:

Despite a worldwide economic slowdown, the company was able to achieve an increase in net sales in fiscal 2009 and return to profitability. However, demand for manufacturing services in the short term is still weak and is not expected to regain momentum until our international customers gradually start increasing their orders to restore depleted inventories to meet anticipated consumer demand as the global economy slowly recovers. The business environment, near term, therefore, continues to be challenging and unpredictable — with sales for the first fiscal quarter expected to be soft, based on current order flow. Nonetheless, we believe that the company is well-positioned to capitalize on its solid financial footing and operational strengths to maintain and hopefully increase existing business, as well as capture business from those competitors that may not be able to survive the turmoil.

HIHO’s move could have legs.  With one of the lowest enterprise value-to-sales ratios in the microcap universe, even a small operational improvement could dramatically effect earnings. 

DISCLOSURE:  Long HIHO.  Also long one worn copy of Highway 61Revisited, and deeply apologetic for the title to this post.

Deep value screens today identify stocks with one foot in the grave, or at least with a set of shareholders ready to unload into any pop.  So I ditched the old screens, and set about developing new new tools to identify microcaps that may be in the early stages of a significant move.  This approach requires use of a technical analysis screener as a first pass, followed by fundamental analysis.

I’ve toyed around with a number of technical screeners, but with the right tweaks none are better for microcaps than MarketClub’s "Smart Scan."  Don’t use the out of the box settings.  The default screen uses an indicator called directional movement index (DMI) that is not  tuned for smaller stocks.

I shift the scan setting to "Chart +100."  This will identify stocks with a perfect +100 score on MarketClub’s objective technical analysis scoring.  To focus in on microcaps, I limit the universe to stocks under $10.

The results of this scan — which I call the Century Club — are almost always worth further investigation.  Keep in mind that the scan is only the first step.  I follow it up with  a look at the fundamentals and news flow.

Each scan pulls up around 50-100 stocks.  Here are a few from a scan I ran at the end of business Tuesday, June 23:

Beacon Enterprise Solutions  (BEAC)

Commercial Vehicle Group (CVGI)

Evolving Systems (EVOL)

Evotec AG (EVTC)

La-Z-Boy (LZB)

DISCLOSURE: No positions in stocks mentioned. Besides being a heavy user of MarketClub’s smart scan, I’m also an affiliate.

After dropping well under $1, Diedrich Coffee has turned into the hottest stock in the nation, shooting up over 2000% to top $18.

Get an updated  DDRX trend analysis or a risk free trial of MarketClub (unlimited live, real-time signals with audio interpretation) courtesy of Ino.

The business has transformed as well.  Diedrich Coffee is selling its remaining Gloria Jean’s stores and will focus now on expanding its manufacturing of K-Cups, the single serving thingies that fit into the Keurig brewing system developed by Green Mountain Roasters (Nasdaq:GMCR).   Diedrich’s Coffee People K-Cups are one of the most popular grocery items on Amazon.com.

Last quarter, the new focus really hit the bottom line.  Diedrich reported earnings of $.25 per share, versus a loss of $.39 in the year-ago quarter. 

While the stock’s quick rise has polarized investors, neither the bulls nor the bears know at this point whether the strong results and operating margins will be sustained.  All eyes will be focused on the company’s next report to see if Diedrich continues to deliver. 

I’m always tempted to short stocks with this large a rise, but I won’t short Diedrich here for four reasons:

1. technically, Diedrich is on fire.  Its very close to new all-time highs and shows no signs that the action over the last week or so was anything more than a pause in the rally.  Its just not safe to short here without an objective sign of weakness.
2. low float.  With a float of only 3.01 million shares, shorts can get squeezed hard. 
3. fundamentally, Diedrich appears to be executing its transformation well.  No reason to believe that this changes over the coming few months.
4. market cap is not that high.  Yes, the rise has been dizzying.  But even now, Diedrich is only worth around $100 million.  Another few good quarters and it could easily grow into its current, or even a higher, valuation. 

Bottom line:  I have no position in Diedrich (DDRX) but will consider playing this from the long side as long as (a) Diedrich maintains technical strength by an objective measure (I use trade triangles but certainly another measure like 50-day MA could be used); and (b) Keurig continues to do well, which I’ll measure by both  Amazon.com sales rankings and Green Mountain Coffee Roasters (GMCR) stock prices.

DISCLOSURE:  No position.

Remember, approximately half of the names in the Russell Microcap Index are also in the Russell 2000, so these names may also appear on the Russell 2000 preliminary addition list.

Most notable is the number of stocks entering the microcap index the hard way — formerly large companies that became microcaps because they have lost so much market value.  Every year there are a few, but this year’s new class of microcaps is full of (once) big names such as Acco Brands (ABD), American Axle (AXLE), ArvinMeritor (ARM), Belo (BLC), Doral Financial (DRL), Glimcher Realty (GLT), Great Atl. & Pacific Tea Co. (GAP), Hovnanian (HOV), Lear (LEA), Pier 1 (PIR), PMI Group (PMI), Radian Group (RDN), RAIT Financial (RAS), Revlon (REV), Sealy (ZZ), YRC Worldwide (YRCW), and Zales Corp. (ZALE).

The deletion list is available here.

DISCLOSURE: No positions.

The standard play for these stocks is to anticipate the additions and buy them before the list comes out, or before the actual reconstitution day when the Russell 2000 ETFs need to buy.  My preference is to scan the deletion list for potential value buys after the reconstitution.   For a good overview of the index deletion strategy, check out Trade Like a Hedge Fund: 20 Successful Uncorrelated Strategies & Techniques to Winning Profits (Wiley Trading)

DISCLOSURE:  No position.

DISCLOSURE: Long UXG

Another reader, Moe, commented that I was “picking the wrong horse” by focusing on Biovest rather than Accentia.  To be clear I haven’t picked either for my personal portfolio, but his point is well taken.  Both are on my watchlist.  Here is a chart of Accentia:

Get an updated  ABPIQ trend analysis or a risk free trial of MarketClub (unlimited live, real-time signals with audio interpretation) courtesy of Ino.

DISCLOSURE: no positions.

Biovest presented in the plenary session of ASCO last Sunday – a notable achievement in its own right for a penny stock.  According to Biovest,

an eight year pivotal, randomized, multi-center, double-blind, controlled Phase III clinical study has shown that BiovaxID® (personalized therapeutic anti-cancer vaccine) significantly prolonged disease-free survival in follicular non-Hodgkin’s lymphoma. The study, which is being featured at today’s American Society of Clinical Oncology (ASCO) Annual Meeting Plenary Session, found that patients who received BiovaxID experienced a median disease-free survival of 44.2 months compared to 30.6 months for those who received a control vaccine – an increase of 47 percent. In the study, with a median follow-up of 4.7 years, patients receiving BiovaxID experienced a 38% lower risk of disease recurrence compared to patients receiving the control vaccine. BiovaxID is the first ever vaccine targeting lymphoma to demonstrate such a disease-free survival benefit.

Some question marks remain.   The study apparently used an unorthodox method of computing survival time (per Adam Feuerstein of TheStreet.com), and even then the survival differential was just under the threshold of establishing statistical significance.  

Get an updated BVTI trend analysis or a risk free trial of MarketClub (unlimited live, real-time signals with audio interpretation) courtesy of Ino.

But there’s no denying that the market viewed the presentation positively.  BVTI opened up on Monday up nearly 200% and traded over 5 million shares.  And then it dropped.  BVTI gave up about half of its gains during that first trading day, and another chunk in the days that followed.  Biovest settled the week substantially above its pre-ASCO levels, but without the follow-through anticipated by Monday’s buyers.

That may be a problem.  All of the people who bought on the ASCO news are now underwater,  creating an overhang of resistance that will be tough to penetrate.  Even if the treatment holds potential — and for now lets assume that it does — what is the catalyst to force shares higher over the next several weeks? 

Two other wildcards concern me.  First, the parent company and majority owner of Biovest, Accentia Biopharmaceuticals (ABPIQ.PK), is in bankruptcy.  I don’t have a good sense of what will happen to the Biovest holdings in that restructuring.  Second, even if Accentia was doing fine, Biovest will still need to raise money.  That means more dilution — par for the course with biotechs, but  still a negative incremental factor.

Bottom line:  There may be a good trade here, but I’m going to wait for a better entry.  The chart looks like it is headed below $.50 before finding support, and may even fill that gap down to $.35.    I like the risk-reward a lot better at those levels.  Maybe I’ll take a shot if it gets there, but for now I’m content to watch this one from the sidelines.

DISCLOSURE:  No position.