Can Star Scientific Keep Smokin' in the Second Half?

With half of 2012 in the record books, it's important to take a look at whether the stocks that interest you can live up to their full potential. By making sure you know about a company's future plans and possible challenges, you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Star Scientific (Nasdaq: CIGX). As we saw in our look at Star Scientific last month, the tiny company has largely moved on from its initial attempt to sell alternative tobacco products. But with its dietary supplements starting to gain traction, investors have seen a glimmer of hope in the long-punished shares, which is why the stock has more than doubled so far this year. Let's take a quick look at Star Scientific's prospects for the rest of the year and beyond.

Stats on Star Scientific

Source: S&P Capital IQ.

What will the rest of 2012 bring for Star Scientific?
Traditionally, most investors have lumped Star Scientific into the same category as big tobacco stocks, owing to Star's attempts to create less carcinogenic tobacco. As a result, given the success that Altria (NYSE: MO), Reynolds American (NYSE: RAI), and Philip Morris International (NYSE: PM) have had in their shares recently, one might think Star Scientific's rise might be related to that general trend.

But Star Scientific's future prospects all hinge on its dietary supplement business. Revenue for Star's dissolvable tobacco products remains insignificant, but supplement sales have skyrocketed and will contribute nearly all of its growth going forward. With its distribution deal with GNC Holdings (NYSE: GNC), Star Scientific has a real opportunity finally to get on the map in terms of revenue.

In particular, most of the news recently has centered on the company's Anatabloc dietary supplement. Late last month, Star Scientific got a patent for producing anatabine, which is the supplement's active ingredient. At a presentation before a meeting of endocrine medical specialists, the company announced a study that suggests possible thyroid benefits from Anatabloc as well.

Looking forward, Star Scientific's ramp-up in sales could well lead more investors into the stock, even though profitability still seems a long way off. The key to look for is how well Star Scientific does in keeping costs down and preserving its cash rather than having to do dilutive stock offerings to raise capital.

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