Presidents Day Sale: 12 Unbeatable Trades at Sale Prices

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Questcor Pharmaceuticals (QCOR)

Knowing When the Price is Right

By Michael Shulman

Questcor (QCOR) is one of those stories that sounds like fiction or a scenario for a Harvard Business School case study -- but it is quite real. The company makes a gel approved for use to treat severe multiple sclerosis spasms but drives most of its sales from the gel being used to treat radical spasms in infants.

QCOR was losing money each day until it hired a new CEO who jacked the price of the gel sevenfold in the summer of 2007 on the theory even insurance companies won’t let infants die and -- voila! -- instant profitability.

He has been furiously buying back stock and, more importantly, hoarding cash rather than waste it. The stock is up 25% in the past year, and the company prints cash. In 2008, Questcor gave back almost $50 million to shareholders -- mostly in the form of stock buybacks -- yet still managed to boost its cash position considerably.

It is slowly pushing new sales for its Acthar Gel, and the stock is worth at least $10 on its own (it is currently at $7 and change) and maybe $12 to $15 to an acquirer.

Based on recent performance, the stock should not trade with the market if and when the market spikes down again.  I would buy the stock and immediately write August calls for $7.50 -- about a 15% gain if you get called out.

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