Martek Banks On Algae Eaters
John Dobosz 03.26.08, 5:20 PM ET
Nate Pile, editor of Nate's Notes, recommends buying shares of one of his long-time holdings, Market Biosciences. He added to his newsletter's model portfolio holdings of MATK on March 20.
Based in Columbia, Md., Martek (nasdaq: MATK - news - people ) develops and commercializes products from microalgae, fungi and other microbes. Its docosahexaenoic acid (DHA) and arachidonic acid (ARA) compounds are sources of omega-3 and omega-6 fatty acids, respectively, and are used as nutritional oils in baby formula and other food products.
Research studies show that DHA and ARA enhance mental and visual development in infants, and that they also enable proper brain functioning and reduce the risk of cardiovascular disease. Brand names from Martek include life'sDHA, DHASCO, Neuromins, ARASCO and life'sARA.
Martek shares are up 55% in the past year, far better than the 6.6% drop in the S&P 500. At around $30, shares trade for 29.4 times expected fiscal year 2008 (ending Oct. 31) earnings of $1.02 per share.
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Earnings were up 215% in the quarter ended Jan. 31, compared to a year before. Sales were 18% higher. Over the past four quarters, Martek has earned $37.9 million on sales of $319.4 million.
Pile has several thematic stocks in his model portfolio like Apple (nasdaq: AAPL - news - people ), NVIDIA (nasdaq: NVDA - news - people ) and Celgene (nasdaq: CELG - news - people ). Martek is another--and the one he currently views as most attractive.
Even as Pile is a true believer, Martek has its fair share of detractors and shorts, many of whom may remember that in early 2004 Martek was a $70 stock that still has to more than double in value to get back to its old high. As of Feb. 26, more than 19% of the float was sold short. Nonetheless, the stock has been in an uptrend since the middle of 2007 and has traded above its 200-day moving average since June of last year.
"Martek's stock has been acting superbly throughout the recent market turmoil, thanks in part to an ever increasing stream of news related to the signing of 'significant' customers for the company's life'sDHA," says Pile.
"Along with new overseas customers, Martek also recently announced that Oroweat will be incorporating life'sDHA into its 9 Grain Bread," he adds. "And, while these deals should translate into higher sales, and thus a higher stock price, the fact that the stock is acting well in the face of an excessive short position at the same time we are entering a period when additional clinical studies showing the benefits of DHA will start to be released could really help move the stock."
Pile calls MATK a "strong buy" under $30 and a "buy" under $34.
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