Why Providence Service, Balchem, and Castlight Health Are Today's 3 Best Stocks

The S&P 500 explodes to a record high as Providence Service, Balchem, and Castlight Health all drive higher by double-digits.

Sean Williams
Sean Williams
Apr 1, 2014 at 5:15PM

Another day devoid of negative economic news was all the S&P 500 (SNPINDEX:^GSPC) needed to motor higher and push to yet another record intraday high and close.

Two pieces of economic data fueled the broad-based index to the upside today. First, the Institute for Supply Management manufacturing PMI for March came in at 53.7, up from a prior reading of 53.2 in February. Although this was slightly below the consensus, any positive expansion from the prior month in the manufacturing sector should be viewed positively by Wall Street and investors.

Second, construction spending for February inched higher by 0.1% after falling by 0.2% in January. Much of this improvement can likely be attributed to improved weather over much of the country (though don't tell that to the East Coast residents who got snow this week), which allowed residential and industrial construction to expand. Overall, though, I still find the sector on thin ice with the potential for lending rates to rise with Federal Reserve's quantitative easing being slowly wound down.

By day's end the S&P 500 roared to a new high, closing up 13.18 points (0.70%) at 1,885.52. The S&P 500 hit its previous closing high of 1,878.04 on March 7.

Simply shooting the S&P 500 to a new record wasn't enough for shareholders of specialty health-counseling and nonemergency transportation provider Providence Service (NASDAQ:PRSC) who witnessed their stock explode higher by 34.4%. The main catalyst was Providence Service's announcement that it would acquire U.K.-based Ingeus for $58 million in a combination of cash and restricted stock that will vest in four years. Based on certain earnings and performance thresholds, Providence may pay Ingeus up to $124 million in earn-out payments as well over the next five years. Over the past three years, Ingeus' revenue and adjusted EBITDA have grown by 28.6% and 18.7%, respectively. The purchase should allow Providence to take advantage of foreign opportunities and will be immediately accretive to earnings upon closing in the second quarter of this year.

Source: PublicDomainPictures, Pixabay.

Specialty ingredients producer for the food, pharmaceutical, and nutritional industries, Balchem (NASDAQ:BCPC), advanced 22.8% after it, too, announced an acquisition. According to a Balchem press release issued before the opening bell this morning, it agreed to acquire privately held SensoryEffects for $567 million in cash. The purchase price represents an EBITDA premium of 10.7 given expectations of $53 million in annual EBITDA. The deal itself should help Balchem greatly expand its product offerings to the food and beverage industry, ultimately reducing costs through synergies and expanding revenue and profit. Personally, though, with Balchem valued at 32 times forward earnings following today's move, I'd consider passing on this stock.

Finally, recent IPO Castlight Health (NYSE:CSLT), which supplies cloud-based software intended to help to businesses reduce or control their health-care costs, gained 13% despite a lack of company-specific news. The move, however, comes after shares dropped approximately 50% from an all-time high set during its market debut just over two weeks ago. Shares have been under heavy selling pressure as investors valued the company initially at close to $4 billion despite it having annual revenue of just $13 million and reporting an annual loss of $62.2 million in 2013. Many investors have dubbed the company overpriced, and I couldn't agree more. Any company falling day in and day out by about 50% without a rebound is likely to have volatile up moves like we're seeing today. But until genuine revenue growth and loss shrinkage is witnessed, I wouldn't consider touching this headline stock with a 10-foot pole.