U.S. stocks are down seven of the past eight sessions as the second-quarter earnings season has started out with a whimper. That said, I firmly believe investors will seek out and pay for above-average growth when investor sentiment becomes more rational. I have uncovered two low-dollar stocks that are consistently growing faster than their peers and which could ultimately trade up toward the double digits when the market notices them.
DepoMed (DEPO - Get Report), which is currently changing hands around $5.45. The company's core asset is its oral drug-delivery system, Acuform. The technology allows for extended and targeted release of a pill, which allows for improved dosing of a medicine.
DepoMed's lead product is Glumetza, which is prescribed for treating type 2 diabetes. Last fall, the company also released Gralise, which is a pain treatment for patients who have contracted shingles.DepoMed also has a potential treatment for menopausal hot flashes that management will likely submit to the Food and Drug Administration (FDA) for approval later this year. In addition, the company has licensed Acuform to a few drug giants, including Merck (MRK), to produce extended-release versions of existing products. With new products driving growth, DepoMed is expected to generate nearly 80% revenue growth in 2013. Even so, at current levels, the stock is nearly 20% off its April highs. The company has a debt-free balance sheet with $2.30 a share of cash and securities and is expected to return to profitability in 2013. As a result, the shares could move up toward the high-single digits over the coming quarters. Switching gears to the energy sector, SandRidge Energy (SD - Get Report) also appears attractive, as it is trading at $6.68 a share. The exploration-and-production firm's product mix is about half oil, half natural gas, and I believe the underlying commodity prices have bottomed out for the time being. SandRidge's above-average growth outlook is extremely attractive. With locations in the Permian Basin and other energy hotspots, the company is on track to deliver 40% annual production growth in 2012. Similar to DepoMed, SandRidge shares are currently trading 20% off their recent highs. But with visibility for several quarters of above-average production, I believe the stock can reclaim higher levels. Add in a recovery in energy prices, and SandRidge could ultimately trade back up toward the double digits.