Biotech Stock #3 – Questcor Pharmaceuticals (QCOR)

Imagine a company with 90%-plus margins and huge cashflow that uses its cash to carefully expand its business and buy back stock — with a P/E under 8!

That's Questcor Pharmaceuticals (QCOR).

QCOR has a treatment that is approved for spasms from multiple sclerosis, but is mostly used to treat radical infantile spasms that kill or retard babies.

Best strategy: Buy the stock and wait for it to appreciate or for the company to get bought out. You could also buy the (illiquid) options, or buy the stock and sell the calls.

Biotech Stock #4 – Cepheid (CPHD)

When my son had a huge boil under his arm, it turned out that it was filled with the killer staph, MRSA. It also turns out that my (otherwise) great doctor used a traditional lab to process the test, which took a week to determine it was MRSA.

Cepheid (CPHD) manufactures the equipment and test that takes just two hours to do the same thing — and is better and cheaper than traditional tests.

CPHD wins 90%-plus of all competitive bids and its test could be available in low-tech facilities, such as doctors' offices or nursing homes, next year.

The big catalyst for this stock, however, is that Medicare will stop paying for all hospital-acquired infections except MRSA in October. So institutions need a quick test if they are going to be reimbursed for treatment.

The stock has fallen from $30 to around $9. It's worth $20-$22 to an acquirer.

Best strategy: Buy the call options.

Get two more biotech stocks with the potential to deliver life-changing profits here.