For Beginners…

About 2-3 months ago, a friend treated me to a great Jamaican meal…to pick my brain on stock investing. I am definitely NOT a professional. But, after our meal, I sent him an email listing a few links from one of my favorite websites. Since that day, I have ironically approached by several others asking how to learn about stock investing. So, I simply forwarded that same email. Eventually, I sent it out to my personal “Investors” email list and the BlackStockExchange Yahoogroup. Yet, I just realized that I never uploaded it to my blog. So, below is an excerpt from the email I sent to my email list. You may also want to read the next blog article below…about how I invest. Enjoy.

The following email excerpt was originally sent out on June 4, 2015.

OK…last week, I sent one of you a few links about the stock market. Over the past 5+ years, I would always tell folks that would ask how to “get into investing” to start with the beginner tutorials on www.Investopedia.com. But, truth-be-told…I have never gone through the tutorials, myself. So, something told me to check to see if they were, at least, still organized by Beginner, Intermediate, Advanced, etc sections. Well, they’re not! So, I apologize to those of you that I just referred to that site’s tutorials…as it’s hard to figure out where to start nowadays. (I guess many of you never went to the site or through any tutorials…as there is no “Beginners” section. :-) Anyway, below are a few links that I picked out for my friend last week and figured I’d share some of them with you. Here goes…I tried to put them into a decent order. (I may, eventually, write and sell a guide to give more “color” to all this info. :-)

Oh…yep…you gotta read! Feel free to ask me any questions you may have. But, read the info AND the associated articles. You should get a lot from them. Please note that I use Scottrade…hence, the link above about their platform. There are many other platforms available. Investopedia has additional tutorials on most of them. So, feel free to search their tutorials for that information. (Now, if you plan to set up Scottrade, please let me know. I think they still have a referral program that allows you AND me to receive a few free trades.)

Some of my favorite books include:

Rich Dad, Poor Dad & Cashflow Quadrant – Robert Kiyosaki (Get Your Mind Right.)

How To Make Money In Stocks – William J. O’Neil (Best stock investing system…imo.)

One Up On Wall Street – Peter Lynch

Rule The Freakin’ Markets – Michael Parness

All of Jim Cramer’s books.

ALSO…for those of you really into business history…definitely check out The Men Who Built America on the History Channel!!! It’s a 4 part (2 hours per episode) series…TRULY FASCINATING! It mainly focuses on Vanderbilt, Carnegie, Rockefeller, Morgan and Ford…with a little Frick, Edison, Telsa and others mixed in. I thoroughly enjoyed this series!!!

*NOTE: Now, PLEASE read my blog article below!

How To Invest & BLUE Follow-Up

In case you were wondering whether I’m a genius or idiot for holding my BLUE shares through the 7AM (today) release of preliminary sickle cell anemia data for 1 patient…turns out I’m a genius…at least for today. :-) If you rode this along with me, sell. (Full disclosure…although the saying goes, “never turn a trade into an investment”, I sold 80% of my position at the market open and plan to keep the remaining 20% long term.) Stock analysts have been raising price targets over the past week or so…and will probably continue to do so in coming weeks. Plus, there’s a 10% short position that needs to cover. Therefore, the stock “should” continue higher…after traders sell out of their positions. This company has no debt and $334M in cash on hand. I’m sure there will be buyout speculation sometime in the future…not to mention the company’s current and future pipeline from it’s platform. But, aside from BLUE’s June 13th full conference presentation and June 15th conference call, it’ll be quite awhile before other catalytic events occur. I’ll just forget about the remaining shares for a year or two…unless a buyout bid comes our way. Anyway, if you played along…Congrats! I got in around $88/sh and sold most of my position at $183/sh…after 3-4 months…that’s a 108% return on the trade. But more importantly, this treatment could/should be nothing short of ground-breaking for all (mostly, African-American and those of African-descent…as it was a natural human adaptation to combating malaria) that suffer from this disease.

Now, I realized that I have added several new folks to my personal list, lately. I probably need to send out an email on “how to read my emails”. Let me just briefly reiterate the difference between a trade and an investment. A trade is a short-term (less than a year) stock position…from buy-to-sell. I tend to discuss mostly trades in my notes. An investment is a stock position lasting for a year or longer. I hope to discuss investments more often. In fact, let me quickly go into one right now. Here’s ONE WAY that I might get into an investment position.
1.    Get An Idea. Ideas can come from anywhere! Most people have great ideas. They just don’t know how to turn them into successful investments. Almost every tip that I’ve gotten from you all on this personal email list have turned into GREAT (not just good) ideas and investments. I like to look at major US and world trends. I like biotechs (medicine) because they play directly into the Baby Boom generation trend…that has been so successful to so many. (Just figure out what Baby Boomers are spending money on…duh.) Healthcare spending should rise as Baby Boomers get older. Well, let’s take it one step further…actually to the last step. Death. I’ve mentioned this in an email during the 2008-09 financial crisis and I’ll mention it again. Funerary services (funeral homes) should make good long term investments…as everyone, including all Baby Boomers, WILL die. That will be that generation’s last expenditure…so-to-speak. Who’s the largest publicly-traded funeral home? Basic online research via Google, YahooFinance, or ask a funeral home director…yields SCI. In fact, a few years ago, I mentioned in a previous note that SCI bought out their nearest competitor. OK…this idea already seems like a no-brainer. One could stop right here and take a position without any research. Of course, I wouldn’t recommend it…as that’s simple gambling to me. But, that’s your starting point.
2.    Fundamental Analysis. OK…this can get very in-depth. But, as for me, I accomplish this on YahooFinance. It only takes me about 5-10 minutes. I tend to focus on the Key Statistics page. But, depending on the company, I check out a lot more. I’m not going to get into how to interpret all that data. But, I basically told myself that I wanted to know what every number and data point on YahooFinance meant. So, one-by-one, I went through the data points and looked up the definitions and explanations on www.investopedia.com and via Google searches. I already knew how to read financial statements, so that helped a lot. The key, that YahooFinance does not provide, is revenue and, especially, earnings growth numbers. You can often find this info via Investors Business Daily info…though, you often have to pay for it…as with other professional services. If I need that data, I will read articles and/or bring the investment up at one of my monthly investor meetups…with professional traders. (You can find these groups in almost any city. I found mine on Google after about 2 minutes.) I’m too cheap to pay for info, so I’ll bring it up at a meeting and the moderators pulls up the data. I jot down everything. As a bonus, I get to listen to professionals discuss my li’l idea. :-) Now, granted, I don’t do this much any more…because the small biotechs I now trade don’t have any revenues or earnings histories to track…or examine for accelerating growth rates. Briefly looking at SCI, this company is loaded with $3.05B of debt with $217.13M in cash. Normally, I shy away from companies with huge debt loads. But, as I read about the actual company, I see that it’s business model lends itself to a lot of debt. I would study it more closely, though, if I was looking to take a position. The company does make a lot of money from financing its services. Hence, the positive Operating and Free cash flow. That makes me feel better. The current ratio is 0.7…wish it was 1.0 or higher. But, that’s not bad given the debt load. Last quarter’s revenue growth was only 0.4%, but earnings grew at 49.3%. That’s not bad. Of course, I’d read to figure out why that happened. Institutions own 83% of the company, which tells me that the professionals like this company. They even pay a modest 1.3% dividend with an ROE of 14.16%. It’s good to look at all these numbers…and I can throw many more at you. But, it’s better to figure out the “trend” of these numbers. Are they getting better or worse quarter-to-quarter and year-to-year. Three of the more important numbers I review are the trailing P/E (31.82); forward P/E (21.42); and, PEG (2.33). I won’t go into any detail with these numbers. But, go through the first few online beginner tutorials at investopedia.com to learn about P/E ratios. That goes straight to my recent notes on valuation techniques. Granted, I’d prefer lower P/Es and PEG (as I like PEGs under 2.0)…but, you rarely find a perfect company via fundamental analysis. I would want to know if there’s a chance to get that PEG under 2…via increased earnings growth estimates in future years. Trust me…I just scratched the surface above. There is a lot more data on YahooFinance, let alone other info sources out there. Those of you familiar with the “CAN SLIM” process should definitely use it at this step. Keep in mind…Sector (Industry) Analysis is key…as 50% of a stock’s movement is based on it’s sector performance! (That’s why I love the biotech sector. :-)
3.    Technical Analysis. This normally takes me about 5 minutes. I simply look at the stock’s price chart for specific patterns. I will also review certain statistical and mathematical data points to figure out certain things. The yearly chart obeys the 50 and 200 day sma (simple moving averages) beautifully. Institutions usually buy on these lines. The 5-yr chart is equally beautiful. I remember discussing this stock with someone when it was selling under $5/sh. Now, it’s over $28/sh…that’s a 460% return over the past 5-6 years. I don’t notice any recent chart patterns to trade. This is a steady-as-it-goes chart…that movies higher; consolidates; moves higher; etc. Possibly good long term stock.
*NOTE: Fundamental Analysis tells you “what to buy”. Technical Analysis tell you “when to buy”.
4.    Management. If I still like a stock for an investment, I’ll research the management team. Check out their backgrounds. It’s all listed on the company’s website. Google the main characters. You’ll be surprised at what you can find. Check out their salaries….are they paying themselves too much? Actually, I start this research during the Fundamental Analysis phase. But, I often dig deeper at this point. Have they been meeting/beating Wall St expectations via their quarterly reports? (You can quickly figure that out via the Analyst Estimates page on YahooFinance.)
5.    The Story. You have to know the “story”. Basically, this is when I’m going deep into my research. I often spend an hour or more simply reading articles written about the company over the previous year. I may listen to quarterly conference calls…and check out SEC filings. With biotechs, I watch and listen to various medical conference presentations and read through FDA drug trial data. (I have no background in medicine, but I tend to learn things quickly.) This is when you get a sense of what’s going on inside the company and what’s going on with the company’s product/service!
6.    Monitor. Now, you monitor the company…whether or not you’ve already taken a position. You want to know what’s expected of the company and what’s happening to the company at all times. You can get email alerts from the company or any business news source. You can get stock alerts indicating interesting actions with the stock, itself. Plus, you should read articles about the company regularly. If you own shares, you’re an owner of the company…pure and simple!
When you buy into a position, have a plan. How long will you hold the stock? What is your price target? Know the key metrics that determine the success/failure of your company. Know the “axe”…that’s the best Wall St stock analyst for your specific sector or company. S/he will provide the best information available. Watch out for competition. If your company fails to buy out or kill a strong competitor, the stock will stall out or sell off. I could go on and on. But, I just thought I’d give a general run-down on ONE way to analyze stock positions. Yes, there are many others. But, I noted the basics above. This is where Capitalism is so beautiful…yet, can be so ugly if you don’t know what you’re doing. Some of you may simply choose to play one or more stock indexes. That’s fine. If you think the general market is going up in the future, buy a fund that tracks the S&P 500…i.e. SPX, etc. If you like a specific sector, find an ETF that tracks that sector. These are ways to get diversification and leave the detailed corporate analyses to a professional. But, if you want to get in the game, take the time to learn. (It’s fun, but it ain’t for everyone.)
Let’s get it! Got any new ideas?
Oh…Have a safe and enjoyable Memorial Day Weekend…which, ironically, was started in it’s modern form in my hometown of Charleston SC by Blacks. In fact, it was started in Hampton Park after the US Civil War, right across the street from where I grew up. :-) OK…I’m done.

Valuation & BLUE

This email was originally sent out on May 18, 2015. Part 2 of this email (below) was sent out on May 19, 2015.

Part 1

I’ve been sending out these stock investing/trading emails for almost 10 years now…maybe even more. I have no idea when or how I started doing this. Yet, I can not recall ever addressing one of the more important investing/trading principles – Valuation. Maybe I have…I just can’t recall. But, this principle played an interesting role in my call to sell some BLUE stock.

In case you haven’t noticed, I got lucky and called the near-term “top” in BLUE via my last email. After sending that note out, the stock started falling back lower…though not breaking the trendline. Why did I suggest you sell some (or even all, if you’re happy with your profits) at that time. Two reasons: 1.) The stock “spiked” higher very quickly. Most (probably 95%) quick spikes sending a chart parabolic are normally followed by a sell-off by traders taking their profits. (Remember to know the difference between investors and traders.) 2.) BLUE’s valuation reached over $5 billion…and they’re a company with no products or services for sale to the general public, yet. (Interpretation – no commercial revenues.) Yes, they posted about $25M in revenues “ttw”, but that money is mainly from upfront collaboration payments from CELG…not from selling to customers/patients. So, think about it…we have a $5B company with no commercial products/services…only the “hope” that it will eventually develop and sell products (drug treatments). That’s a high valuation…especially when compared to other similar companies.
That’s key…you must always compare prospective investments to other similar companies. As I focus on biotech stocks, I kinda “know” that a $1B market cap (market capitalization) is quite high for a company generating no revenues. Companies in Phase 1/2 testing, like BLUE, may be lucky to have a $300M valuation (market cap). So, just imagine the high expectations built up in BLUE at a $5B market cap. Sometimes, you have to take some profits…even in the early stages of an investment…as anything can happen. When I would visit a casino and play Blackjack, my first objective was to win enough to stash away my initial cash outlay. Then, just play with the “house’s” money. Now, I am a risk taker (which has made AND cost me a lot over the years). So, I still have cash on the table with BLUE. But, I know the story. I know the timeline…that they will release an abstract of their EHA Conference presentation this Thursday morning at 7AM. I realize that this data for sickle cell is based on only 1 (yes, one) patient. Again, this is a very speculative stock. You have to dig down and figure out if it’s proprietary gene therapy can work. We’ll surely find out even more about this data during the EHA (European Hematology Assn) conference, June 11-14. So, I’m not telling you to blindly jump into BLUE at this point. The easy money has already been made. But, when I saw BLUE’s valuation run up over $5B, I had to send out that previous note for you to sell some.
As I typed the info above, I realized that I have gone into detail explanations of various ways to calculate (figure out) valuations. That was probably a few years ago. So, I won’t go into that now. One basic thing to do is to compare Market Caps between your proposed stock and it’s closest competitor and/or the sector leader. That’s how you gain a relative perspective of your stock pick. Look at the trends. If the MCap is increasing, investors may just be on to something. Yet, you must ask yourself…if there’s any more room for the stock to run higher. (Note: MCap = Stock Price per Share x Total Outstanding Shares.) I used to always hear folks say to “Buy Low and Sell High”. Well, that’s hard to understand without comparative measurements. Valuation or Market Cap (which is one form of valuation) is just one way to figure out whether you’re actually buying “low”. I just came home from my local Rite Aid drug store. I noticed they had 6-pack chicken thighs (Tyson) selling for about $3.40. That’s the actual price, not price/lb. The price/lb was $0.99…which, to me, is just like comparing P/E ratios in the stock market. So, naturally, the lower the price/lb, the lower the actual cost or valuation…when compared to the same packs of 6 thighs selling across the street at my local Ingles grocery store for about $5.20 total…and a price/lb of $1.48 or more. Same principle; just different “markets”. OK…I hope I didn’t confuse you. Just thought about it after returning home, today, from Rite Aid. (Of course, I bought about 4 cartons of those Tyson 6-pack thighs! “Buy low”.
Last week, I went to a Facebook page and saw something very interesting…a button to buy/sell something. I quickly thought back to the time of FB’s IPO…when I indicated 2 main reasons, among all the detailed fundamental analysis, why I liked FB long-term. 1.) Sheryl Sandberg as new COO. 2.) The acquisition of the system, whose name I can’t recall, that would give FB the power to earn fees from transactions. That second point is coming to fruition…think Paypal’s solid profit contribution to eBay. (I wouldn’t be surprised to see Paypal spin-off into it’s on IPO within the next 10 years.) I gave hints, but did not go into any detailed ideas in my email from several years ago. But, just imagine…FB rolls out the ability for companies to accept payments within the Facebook environment. Then, eventually, allows individuals to do the same; they (we) can have our own “yard sales” in FB. We will all have the ability to sell some product/service to others…all within FB…and FB earns a small percentage from each transaction. Sure, local and state governments will try to get a cut via taxes…and possibly use that power to either force FB to comply or prohibit it’s  use. But, time will tell. I woke up this morning and read where GOOG plans to start placing “Buy” buttons on it’s search results pages. Genius. Of course, this may slightly damage the credibility of the actual search results. But, GOOG is now trying to get ahead of AMZN and all other merchants. Just imagine the possibilities.
BABA sure has disappointed a lot of investors, as of late. I’m not in it…as I wanted to let the issue of them selling counterfeit merchandise play out. It never quite fulfilled all those IBD IPO checkpoints. Now, I’m hearing that some US retailers plan to sue them. And The Beat Goes On. MCD’s new CEO is now planning to simplify their menu. I sure hate that their African-American former CEO, Don Thompson, couldn’t turn things around. Their era may be over, unless they find a way to re-make themselves. Investors want growth! Unless they start hitting the “fresh” ingredients, no preservatives/additives promotion period hard and strong, competition is simply preventing them from experiencing any sustained earnings growth. Law of big numbers, possibly, at play…as well. Carl Icahn just released a public letter to AAPL’s CEO, Tim Cook. Icahn took a stake in AAPL awhile ago…and has played the media very well by giving intermittent interviews of his relationship with Cook. Everyone expects Icahn to become an activist shareholder and push AAPL into doing something with his massive cash hoard – currently over $33B! But, Icahn seems to be allowing Cook to do-his-thang. I haven’t read his letter, yet. But, I hear he’s placed a $240/sh valuation on the stock…and is touting AAPL’s future new product entries into the TV and car lines. BBRY may have something to say about the car issues. But, AAPL has a strong eco-system now. They, like GOOG, are making in-roads into various sectors…trying to diversity their revenue and profit streams.
Financials seem to be gaining favor among traders as they wait for the Fed to raise interest rates. The 10 yr is now yielding 2.213%…holding steady above 2% now. Keep an eye on the entire yield curve. As the long-end (30 yr mortgages) rise faster than the short-end (1 yr or less bills/notes)…that curve will steepen…allowing banks to make more money. Banks borrow money on the short-end and lend on the long-end. That difference is their gross profit. Several “Whales” (big-bucks investors) have filed their 13-Fs showing new positions in financials from last quarter. Yet, a few others seemed to have cut back on a few positions. A close analysis of their holdings may reveal some trends and picks. That’s called “Whale Watching”. You may also want to watch that Dalia video again to understand debt cycles. It’s on my blog. Oil is still holding its own. I’m waiting for June to see if this over-supplied inventory thesis plays out. Goldman Sachs just cut it’s oil (price) outlook into 2020. For oil companies, just like banks, read their balance sheets to know how strong the individual companies are…compared to each other. Debt will cause a company’s stock to stall out quickly…even when the sector may be rallying overall due to environmental forces.
OK…went on longer than I had planned to do. The more I think about business and our world economy, the more I love my most recent FB post (from this morning)…  “Entrepreneurship regrows your brain from the damage school has done.” – Robert Kiyosaki. As investors/traders, we’re only a side-issue; entrepreneurs are at the core of the world economy. God Bless ‘em!

Part 2

Someone asked me a great question. Why am I still in BLUE, if the valuation is over $5 billion and the company generates no sales revenues? Great question! That’s when “due diligence” comes into play. BLUE is a speculative biotech with a gene-editing/repairing process, delivered by a modified HIV virus through bone-marrow stem cells, to generate normal blood cells. (I did a lot of reading to understand this mechanism of action. Of course, I simplified the explanation.) Anyway, data from this new process was released last December for a handful of patients with Beta Thalassemia…and it exceeded all expectations. Granted, this is an early phase FDA trial. Nevertheless, expectations are even higher for the upcoming data from a sickle cell anemia patient. There are about 15,000 people in the US with Beta Thalassemia and about 100,000 people with sickle cell anemia. We’re not just talking about a treatment, here…we’re talking about a cure. So, how much sales revenue do you think BLUE can generate from this process, IF it proves successful? Well, simple math tells me that they can generate $1M if only half the sickle cell patients in the US pay $20 for this one-time treatment…(50,000 patients x $20). But, we all know that BLUE will charge more than $20…much, much more. So, let’s say they charge $50,000 for the process. (GILD is charging $93,000 for their 8-week Hepatitis C cure.) That’s $2.5 BILLION…for only treating half those diagnosed with sickle cell anemia! This is a life-saving treatment (if it works). Biotechs crave “Blockbuster Status” for drugs; that’s when they make $1 billion or more in sales revenues. We’re not even taking into account: 1.) Those with Beta Thalassemia. 2.) 100% of the US sickle cell market. 3.) Those outside the US, worldwide, with Beta Thalassemia or Sickle Cell. 4.) All the other experimental drugs in their pipeline…including a rare disease treatment for ALD and a CAR-T cancer treatment. Now, you see why I’m still in the position. That $2.5B is a 50% return on a $5B market cap (valuation). Just note that it’ll still take about 2-3 years for this process to become available to the public.

So, while the current situation shows no sales revenues (or profits)…the is the possibility that the treatment will work. If so, that valuation will rise higher. Since this is a small company, I wouldn’t be surprised if a larger biotech or pharmaceutical company tries to buy out BLUE…especially given all the drug patents set to expire in coming years. That’s how I look at it. Now, of course, if the data that comes out this Thursday and next month show safety issues or show that the treatment doesn’t work with Sickle Cell…then, everyone will sell their positions at the same time and the stock will plummet immediately…in a manner of seconds! It’ll be UGLY! That’s why a lot of traders got out of their positions last week…after BLUE crossed that $5B valuation. No need to take the risk. Only long-term investors and traders-with-guts will stay in position and hold through the data. We’ll either be “geniuses” or “idiots” come Thursday morning. :-) Now, if you’re in the stock and believe in the technology, hold through. But, that’s on you. I’d advise you to sell on the Thursday morning spike…if the data is good. I’m conservative with my notes…though, I may take chances, personally. Hedge your position, if you can. Buy some puts or figure out what biotech stands to gain if BLUE tanks…and take a minor position. (There is another biotech out there with a new treatment for sickle cell…I just can’t recall the name right now. It’s in my notes.) This is advanced stuff, so know what you’re doing. The company’s CMO stated today that they may get an accelerated approval path in Europe and the US for the BT indication. That sent the stock spiking again this afternoon. Needless to say, my adrenaline is flowing. Anyway, that’s the “speculative” part of valuing stocks. As a stock develops more and more ways to earn profits, the more valuable it becomes to investors/traders. Hence, the stock price will increase. And yes…the opposite will happen when a company hits obstacles and problems…or competition.
If you’re into understanding how the activist-investor, Carl Icahn, thinks…he gave a 25 min interview to CNBC this afternoon. I’m sure they have it up on their website. He discussed that open-letter to AAPL’s Tim Cook…after Cook indicated on yesterday that they supposedly “shelved” their TV project. Icahn is always fascinating when he uses the media.
Hmm. An oldie, but goodie – SRPT – is moving up 31% in after-hours trading. Looks like they got some good news from the FDA…which will let them start filing for approval. Long story. You can read the background details on my blog. (I must have written that article 1-2 years ago.) Anyway, the stock took a serious hit (after I sold out at the peak :-) as a competing drug started gaining momentum. Looks like they may go head-to-head via an Advisory Panel. Talk about drama!! Gotta luv this stuff. Gotta go.

2015 Thoughts & Biotech “Stories”

NOTE: The info below was originally distributed via 2 emails on January 13, 2015.

Since I sent out a note earlier that featured a discussion on biotechs, that I lessened in topic importance over the past year, I figured I’d discuss it a bit more…but, from a different angle. Sure, I can list out 10, 20, even 30 good biotechs off the top-of-my-head. Many of them have good science behind their experimental treatments. Some have decent fundamentals via their financial statements, ratios, potential market pool, etc. A few may even have good technical set-ups via specific chart patterns, etc. But, that does not guarantee good stock performance…specifically during various trading periods. You MUST know the “story” and continually follow it.

What do I mean by “story”? Every company and, in the case of biotechs…every drug treatment, has a story or sequence of events that make up the saga of the company’s or drug’s development. Learning and understanding this story is often very time-consuming, but can provide valuable insight into your investment. I normally learn these stories via stock-specific news articles/headlines (found on almost any stock site like YahooFinance, Google Finance and trading portals – Scottrade, TD Ameritrade, etc). I also simply use internet search engine(s)…like Google. Yes, you have to read through the articles and information. I often read back through at least a year or two of articles. I definitely key-in on any news that occurs around the date that I may notice dramatic stock price movements…to gain understanding of the company’s stock.

Let me give you a few brief examples. To date, my best biotech play was DNDN and it’s prostate cancer treatment – Provenge…about 5 years ago. As the company was going through an FDA advisory panel to gain a recommendation for approval by the FDA, the stock initially was rejected. But, later, it was published (though, I never confirmed) that one of the panel members that had close ties to a competing company. Then, later during this company’s saga, when they went up for FDA’s approval/rejection decision, I heard on mainstream network news about a Congressional hearing being held for prostate cancer advocates. I immediately realized that this hearing was being held on the same day that DNDN was set to hear from the FDA. That couldn’t have been a coincidence. Needless to say, I bought as many option contracts as I could and, well…you know…there was an overnight approval. The stock spiked like crazy…over $55/sh from $40/sh the night before…and from about $27/sh just a few months earlier. So, you can imagine how those options paid off! :-) As I always do, I sold everything on the FDA news announcement. Getting a drug approved and successfully bringing it to market are two completely different animals. DNDN had taken on too much debt and needed a corporate partner…that wasn’t there. So, as the mainstream media broke the story that night…to bring in the “rookie wanna-be traders” the next morning…the stock started it’s long fade down. Today, 5 years later, the stock is selling at 13 cents/share.

Speaking of Congress…I’m dealing with an interesting “story” right now. I took a stock position on ZGNX a few weeks ago. (I’m still in the position, but with a tight stop…as the stock is failing to break through strong resistance at $1.48 – $1.50 per share. So, I’m not recommending this trade.) Anyway, ZGNX received approval for Zohydro, a pure hydrocodone pain medication with an extended-release mechanism. But, last year, the company was pressured to stop selling it due to a wave of anti-opioid-abuse sentiment in the news. Who could have predicted this given other opioids used for pain, like morphine, oxycodone, etc. One of the main forces behind this wave was Sen. Joe Manchin (D-WV). A bill was even introduced to stop ZGNX from selling Zohydro unless it was abuse resistant. Well, guess who happens to be Joe Manchin’s daughter? Heather Bresch…the CEO of competing drug company Mylan. (Two years earlier, Mylan was forced to recall lots of their own hydrocodone drug, that was mixed with acetaminophen.) Coincidence? idk. Just telling the story, as best I know. You’re probably wondering why am I into the stock. Well, ZGNX has now developed an abuse-resistant version of Zohydro ER and is scheduled for an FDA decision on January 30th. I’m trying to play a run-up trade. But, may soon take my profits as the stock has been acting weak of late.

In a way, GILD provides another example. GILD developed a combo-treatment of Solvadi and Harvoni that essentially cures Hepatitis C. A major reason that traders/investors like biotechs is due to their pricing power. If they develop a relatively safe and effective treatment, they can often charge whatever they want…at least, here in the US. Thanks Capitalism. (Other countries have systems in place to negotiate drug prices.) Well, GILD decided to charge $84,000 for this 8-week curative treatment. Even though there are other treatments, that do not actually cure a disease, that cost more…somehow, a wave of criticism came out against GILD. A Congressman publicly inquired about their pricing process, which set off the news media. GILD held firm. Nevertheless, a competing company, ABBV, developed a competing treatment that basically cures Hep C over 12 weeks. Now, enter Medicare, private insurers and pharmacy benefit managers (PBMs). A few weeks ago, ABBV cut an exclusive deal with ESRX (a PBM) to be their treatment for Hep C, but ABBV had to agree to a discounted price relative to GILD. This sent shockwaves through biotech traders/investors…as we kinda see dark clouds on the pricing-power-horizon…that can cost other biotechs revenues. (Note: GILD just recently cut an exclusive deal with CVS…a natural PBM.) But today, at the JPM Healthcare conference, ESRX gave a presentation indicating that other new biotechs, like those immune-therapy companies, may have to negotiate with them. This is something to keep an eye on…as some price run-ups may be dampened a bit.

[F/U Insert from a January 14, 2015 email… Then, wouldn't you know...just as I send out those notes, yesterday, on upcoming biotechs...that f/u note I discussed about ESRX started bringing them down. This Pharmacy Benefit Mgr gave a presentation yesterday and overtly placed a target on the new cholesterol-lowering and cancer treatment companies. I mentioned something like this would happen; I just didn't know they would take such a direct shot. So, as I suggested, wait to let those companies fall back down before considering any trades/investments. Moreover, one old fly-by-night company scored big in the new Car-T cancer research space. ZIOP announced a sweet deal with another company (XON) and MD Anderson Cancer Clinic in TX. (Careful...the easy money has already been made in after/pre-market trading. It was crazy last night.) Personally, I was not very impressed with the early-stage data associated with their research. But, that small micro-cap biotech just garnered a lot of attention. Check the chart.]

I explain all of this to simply make you aware of the “stories” that you need follow. This is real-world stuff. Oft times, it ain’t pretty and can blindside you…which can cost you alot of money. After I take a position, I often do more research than leading up to the stock/option purchase. That is especially important with biotechs! I can’t stress that point enough.

The market sure started off strong today, but has weakened considerably. Not sure why. But, if you are interested in any of those biotechs I mentioned in my previous email, don’t chase them! Wait for the one you like to fall back hard. Many of those stocks have “gone parabolic”…which means they are due for a sell-off (hopefully). Just understand “why” they dropped before taking a position. As you can see…I’m always concerned when discussing risky speculative stocks…as I don’t want any novices trying to dip into this pool and wind up losing all his/her money. Know what you’re doing…and that includes fundamental research; technical analysis; understanding the science; and, knowing/following the story. Otherwise, look into something else.

LeVanza
(Not a professional)

P.S. I’ve been talking to a few of you, recently, about GPRO. A rumor hit the market today that AAPL had been granted (or trying to receive patents) for a similar technology. Hence, GPRO’s sell-off. I’ve often told folks that it should be only a matter of time before someone moves into GPRO’s “space”. If the rumor is true, that could hurt GPRO down the road. Yet, I did hear that GPRO was looking into expanding into drones. idk. To me, it’s just another video camera tied to a lifestyle with good marketing.

 

[My “previous email” referenced above that was sent out earlier on that same day – January 13, 2015.]

 

First, let me start off by wishing you a Happy and Financially-Lucrative New Year! Let’s Get It In!!

Oil continues its slide lower. I remember last month or so thinking that $75/barrel on WTI had to hold. NOT. Then, I thought $50/barrel would hold. NOT. Keep in mind, these were simple psychological/emotional price-points. Yet, I publicly indicated in my last 1-2 emails for you to watch the oil futures “curve” for the contango formation to start changing over into backwardation. I still stand by that. But, this time, instead of “thinking” on a price-point for oil to hold, I’m going to mention the $40/barrel mark right now. Looking over a long-term oil price chart, you can see that $40/barrel is an important support level. We’re currently at $44.75 right now. Granted, weeks ago, I heard experts stating that oil would go to $40…and even lower into the $30s. I didn’t pay much attention to those predictions, but it sure looks like we’re heading to (or close to) $40. If we go below, it may just be an overshoot. But, if we go below $40 and solidly stay there for awhile (as that support level immediately turns into resistance), we may become range bound for awhile. But, I’m thinking :-) that $40, give or take a few bucks, may become “a” or “the” bottom. But, you must confirm that with the futures curve pattern-shift noted above. If contango remains, then oil may go even lower…and “may” start affecting the general market even moreso…as investors start worrying about a deflationary environment.

OK…that’s all based on technical mumbo-jumbo. What fundamental factors could help stop oil’s slide? I don’t know. The explanation on what’s going on with oil, fundamentally, remains the same…as I described on my blog. But, the US economy remains relatively strong based on the recent jobs report. AA (Alcoa) just kicked off earnings season last evening and posted good numbers, in part, due to solid demand of aluminum from the auto and aerospace sectors. (Remember my call on BA based on the aircraft-upgrade supercycle. BTW – Airbus just announced this morning that they had record airplane deliveries for 2014!) Anyway, it seems as though oil production worldwide continues at its same pace, which will continue to create a glut in supply and hurt weak E&P (exploration and production) companies saddled with high debt and/or high operating costs. Nevertheless, I’m now wondering what may happen later this month…around the 22nd (I think) in Europe via the ECB. They have a meeting scheduled and I don’t think the “jawboning” by Mario Draghi about QE will continue working…as if it ever really worked on the world markets. If he pulls-the-trigger and fires off some big-guns (ala Ben Bernanke) to help inflate Europe’s economy, this could reverse the positions of oil speculators…as well as other sideline hesitant investors. Watch around that time (1/22/15) and listen to business news to know what’s going on across-the-pond.  It may just pay off for you, if you’re properly positioned in the market.

As an aside, keep an eye on the Greece elections about 2 weeks from now. If the current front-runner, who is somewhat anti-ECB-financing, wins…things may definitely change. There is talk that Greece may leave the European Union…thus throwing up “the finger” to the Euro and all the financing that it has obtained. Bank run rumors are already taking hold over there. Greeks are already notorious for not paying taxes. I don’t know the ramifications of a “Grexit” from the EU, but things could get a little interesting. In fact, some (like Germany’s Merkel) may actually want Greek to leave. idk. I haven’t followed this stuff closely. Just be aware.

I had a nice convo this past weekend with one of you (JC) about retail stocks and banks. You may (or may not) have noticed that I rarely discuss the retail sector. I’m not a shopper and really don’t get into sales trends. I seem to always find out after-the-move about strong retail stocks. So, I simply don’t discuss them much. But, you would think that based on this de facto US tax cut via lower gas prices that certain retail stocks should do well…or, at least, post strong fourth quarter numbers from this past holiday season. I’m not going to venture out and name any companies, though my friend likes BBY. If you can figure out the winners vs. losers, go for it.

As for the banks, which seemed to have stalled out a bit. I’m thinking that’s because of the interest rate “yield curve” or the continuum of short-term – to – long-term interest rate yields. I’ve discussed this in the past, but as world investors continue to flock-to-safety via US Treasuries, the yields on those Treasuries remain low. (Higher bond prices from increased demand mean lower “yields”.) Let’s face it…the US is the best house in a relatively bad economic neighborhood worldwide. This is why mortgage rates have remained low for so long. Banks make money by borrowing on the “short-end” of the yield curve (1-5 yr short-term bonds/Treasuries) and lending on the “long-end” of the yield curve (20-30 yr mortgages). As overall interest rates rise, the slope of that yield curve steepens…allowing banks to make more money. As the curve’s slope remains shallow, banks don’t earn as much. Of course, there are other factors to consider…like the number/demand for mortgages and business loans; housing sales trends; etc. So, by watching the slope of the yield curve, you can get a clue on when bank stocks may start moving higher. Just note that when an economy experiences a “flat” moving into an “inverted” yield curve…which inverts for quite awhile…just sell all your stocks. That’s often the first and most widely followed factor that precedes a recession (or worse). Remember…the bond market is MUCH larger and more influential than the stock market. Serious investors always monitor trends in that market…as well as in the currency (foreign exchange) market, which is even BIGGER than the bond market!

OK…I had a few more things to discuss. But, went a bit long above. So, please indulge me with some biotech stuff…as I’m now seeing biotech go mainstream. There’s ALOT of new money coming into the sector now…and for good reasons.

There is a medical treatment revolution taking place right now. While many of these new treatments, if successful, won’t be available to the general public for a few more years…investors are jumping all over them right now! Let’s be clear…these are all very risky and speculative. So, I’m not suggesting that you just jump into any of them. But, I feel the need to mention them. (I may have briefly mentioned a few in previous notes.) There are so many…I’m not going to go into much detail. I just want to possibly pique your interest, if you’re into this sector. First, the biotech stalwarts…that I used to discuss 3-5 years ago…CELG, GILD, BIIB, REGN. I’d even throw in BMRN, AMGN, and NVS. If you don’t like investing/trading individual biotechs, there’s always the two main ETFs – IBB and XBI. Just know the specifics of whichever biotech or ETF you may happen to choose. Gotta do your deep research on this stuff or risk losing a lot of your money! But, if I was assembling my own biotech fund, I’d start with those aforementioned companies.

Now, there are some newcomers right now that are going crazy. NOTE: the easy money has already been made! Be very careful. I do like BLUE, which has developed a genetic therapy protocol to not just treat, but cure certain blood diseases…like beta thalasemmia and sickle cell. (Yep, you read right.) But, this therapy is still in its early phase. It must still prove itself on later-stage FDA trials. But, look at this stock’s 2014 performance after its IPO. (If you carefully read my previous notes, I mentioned this stock a couple of times last year. :-) Another strong new biotech is AGIO. This is one biotech that simply got away from me. This stock took off like a rocket and never looked back! This company is partnered with CELG and working on blood cancer treatments. Speaking of cancer treatments, there are a couple of new immuno-therapies that seem to be ground-breaking. I’ve hinted about them about 2-3 years ago, after catching an NBC news piece on the University of Pennsylvania’s medical breakthrough. Anyway, Univ of Penn licensed the technology to NVS. I think this immuno-therepy stuff (Car-T and PD-1 treatments…I’m tempted to explain in detail, but I’ll spare you :-) will totally change the way we deal with cancer in the next 5-10 years. Other biotechs to check out include JUNO and KITE…current stock-rockets. (Be careful…the easy money has been made.) There are a couple of even smaller biotechs attacking ALS and Parkinson’s, with promising early-stage data. I don’t feel comfortable mentioning them right now…as one has additional data coming public by the end of this month. VRTX is attacking Cystic Fibrosis. There’s a lot of buzz in the Hep B and NASH “space” after GILD and ABBV, both, have cures for Hep C. There’s an interesting gene therapy treatment being researched for Hemophilia B. I continue following 3 companies dealing with DMD. Whew! I could go on and on. We are definitely living in interesting times! But, again, let me emphasize that these speculative biotechs have, yet, to prove their treatments/cures. If you do not understand the science behind these experimental treatments, simply move on. Note: I still post a few of my spec trades on Twitter in close-to-real-time. But, I don’t post all. :-) Nevertheless, I’ll probably profile a few, in more detail, on my blog during the coming months…stay tuned.

[3/10/15 Note: Last week, I stumbled across a great HBO documentary, called Vibe: Killing Cancer, that gives terrific insight into some of the aforementioned new cancer therapies. Check it out - http://www.vice.com/read/watch-vice-on-hbos-special-report-on-killing-cancer-217.]

OK…thanks for indulging me. I’m still bullish on the US economy right now. It is a bit surprising that there is talk about the Fed waiting a bit longer before raising interest rates. But, I’m sure such a decision would be data-dependent. I’m still a Yellen fan. Gotta run! An important biotech conference, sponsored by JPM, is taking place this week. Lots of info/data coming out.

LeVanza
(Not a professional)

Crude Oil Thoughts

It has been awhile since I’ve posted information on this blog. But, I have been sending out several financial market emails during recent months. I have also been posting a few biotech trades on twitter (when I can remember to do so). Given the planned OPEC meeting this week, in which many investors are expecting them to announce production cuts Thursday, I thought I would post excerpts from a couple of my previous emails to provide some insight into that particular market. As always, please note the original email distribution dates to adjust your perspective. Currently, oil is probably near or at its bottom. It may go lower, but not by much. There are too many “players” that need crude oil prices higher. So, be aware of this new dynamic when reading the older information below. In fact, any recommendations, below, of trades on oil dropping may need to be reversed. Moreover, certain high-beta oil plays “may” be ready for long plays into next year. Two important things concern me, though.

1.  OPEC Cheating – The OPEC countries are known to lie about their oil production. So, like some Central Banks, OPEC may “jawbone” the issue by announcing a production cut on Thursday. But, many of their member-nations need revenues. So, some may maintain or even increase their crude production.

2.  Crude Futures Curve “Currently” in Contango – As of today (Nov 24, 2014), according to oil trader – Dennis Gartman – the futures curve is in contango for crude oil. (I amateur-ly explained contango vs. backwardation in a previous email a few years ago.) Normally, this futures contango price pattern implies that prices will continue to drop…as opposed to backwardation when traders tend to “go long” expecting rising prices. Just note that these price patterns change over time. I must recognize that Gartman expects OPEC countries to lie about any announced production cuts…which may cause some short-term price stabilization or spike, followed by even lower prices longer-term. (Sorry for getting a bit technical.)

As a brief update on the OPEC meeting…they did NOT agree to any production cuts. Wow. Guess oil goes lower. I do not know where the bottom will be, but if you thoroughly understand the oil futures markets…that may be the place to find a cue. When the contango price-curve pattern starts turning into backwardation, you may notice some price stabilization and/or the beginnings of an increase. Oil E&P producers, (CLR, EOG, WLL, etc) may show signs during that oil curve transition. Those guys have been slaughtered, recently. Just be careful. Below are some of my older email notes.

The following paragraph was distributed as part of a more comprehensive email to friends on October 15, 2014…

But, let me briefly mention crude oil prices. I’m sure you’ve noticed the drop in gasoline prices. Personally, I love it. But, as crude prices drop, so do oil and oil services stock prices drop…bringing down these various indices. We know the regular cycle of oil prices and the associated trades…I normally recommend buying in mid-Feb (as the oil companies start shifting to the more expensive summer-blend of gas) and selling in April/May before the Memorial Day Weekend. Well, in Sep/Oct, the oil companies start shifting back from the more expensive summer-blend to a cheaper winter-blend. That’s normal…plus, driving demand drops as we head into winter. But, there are now structural changes taking place in the oil market. Over the years, I’ve discussed the various crude oil finds around the country, specifically these shale finds (Bakken, Eagleford, etc). We’ve traded the oil E&P (exploration and production) stocks a lot. Well, the oil is finally hitting the refiners and creating an over-supply in the US, and worldwide. I won’t even get into the huge oil find that PBR is enjoying off the coast of Brazil…and other finds. So, we now have much more supply coupled with less demand worldwide (as Europe and China have slowed). That dynamic brings prices down. Now, you would think that suppliers would cut production to support oil prices. Yes, eventually…I think so. But, here’s one interesting theory that I heard. The Saudis, understandably, don’t want the US to become self-sufficient with oil. They make most of their money from us. So, they are showing no signs of cutting production as oil prices drop…as they want to force US oil producers to cut their own production. Different producers have different price points on oil to when the price drops below that point, they start losing money. This “game” can actually cause certain producers to take massive losses. This may be an interesting dynamic to watch…as these big-boys play a game of “chicken”. Nevertheless, after this morning’s oil price drop, it has bounced a bit. Could we be nearing a bottom? I have no idea. Let the market tell you over time.

The following 7 paragraphs were distributed as part of a more comprehensive email to friends on November 7, 2014…

Oil continues to drop…which, I’m sure, is scaring some domestic oil producers. Of course, consumers love these relatively low prices! Although the Saudis deny it, I still think that theory (from my Oct 15th note) is valid. To me, it’s quite obvious…especially given the Saudis reported world demand cut this morning. Keep in mind that I’m discussing the Saudis, not necessarily OPEC. You may recall that the Saudis promised their citizens a lot of financial perks years ago, to prevent widespread unrest during the Arab Spring. They have to keep a certain level of oil revenues coming in. But, this situation is about to get ruthless for US domestic oil producers. Why? Here’s the deal. For many domestic oil producers, it costs about $60 – $63 per barrel on average to find/extract/transport crude oil to refineries. In other words, that’s their cost-of-production. For the Saudis, that average cost of production is around $30/barrel. Get it now? The Saudis can deal with lower crude prices much better than US domestic producers. Just look at the CEO of CLR (one of our trading favorites from years ago…thanks to a simple comment from Rush Limbaugh). This CEO, Harold Hamm, has personally lost billions in stock value…as he owns a huge percentage of his company’s stock. (I won’t even get into his current divorce, which is slated to be the most expensive divorce settlement in world history!) We’ll have to see how long this oil price ”game” plays on. I must note that the Republican Congress may try to protect US oil producers somehow. But, they also want to move forward with the Keystone Pipeline project. Interesting situation.
One of you asked me about making money from this move in oil. Well, the easy money has already been made…as the major drop has already occurred. Once WTI crude broke $100/barrel, it was a lock to move lower. We’re now around $78/barrel. Of course, you can always play oil directly via the USO ETF. As oil goes lower, just short or play put options. For oil service stocks, the OIH is probably the largest ETF. But, there are many others out there. Just be careful of the leveraged (double and triple action) ETFs and inverse-ETFs. Understand how they are re-calibrated each day…as they are mainly used for short-term trading positions. Also, when playing this market, please understand contango and backwardation charts…and how to play them for future movements. They tip you off as to future price movements.
I’ve noticed over the years how important it is to figure out 1st and 2nd derivative (pin-action) plays…as everything is inter-related. Some of you may recall that term, derivative, from calculus classes. Well, without getting into any formulas or equations, that’s kinda what we need to do to make money. Oil is basically the life-blood of business. Just to give you a few ideas…which, by the way, have already played out to some extent…look at the refiners. Crude oil is their “input”; gasoline, diesel, jet fuel, etc are “outputs”. Years ago, I explained the refiners’ “crack-spread” in detail. (I’m sure you remember that. :-) Basically, it’s the difference between crude oil costs and output (gas/etc) prices…which is the refiners’ gross profit. So, when oil prices drop, refiners tend to make more money…even when the output prices drop a bit. Now, you still have to understand which refiners deal with sweet vs. sour crude to know whether to key off of the WTI (West Texas Intermediate or also referred to as Light Sweet Crude) vs. the Brent (North Sea) market prices. It also helps to know which refiners serve which geographical areas. In previous years, I used to play TSO…as it served the West Coast markets…and I always noticed that folks on the West Coast pay much more for gas than in other areas. (Sorry TJ. :-) If you check out the TSO chart, you’ll clearly see what I’m talking about. But, there are other public refiners to check out. Just research the differences.
Another basic oil derivative play, esp for traders, is an airline. Jet fuel is one of the largest expense items for airlines. So, it’s just common sense to play them long when oil prices drop. You gotta jump on it though, as this is a Trading 101 move. The pros move quickly on this play…often without much thought. It’s important to know which airlines have hedge contracts for fuel and which do not. A hedge contract is an agreement with a specified term that locks in a specified price for a company to pay another company for a specific product…in this case, jet fuel. So, as an example, if a refiner set up a jet fuel hedge contract last year for a 5 year term with an airline ”based on” $100/barrel crude…that refiner is doing very well now (as crude has dropped to $78/barrel) and the airline is losing out. Now, if oil prices had increased to $120/barrel, the airline would be in better shape while the refiner was losing out. For the record, I’ve heard that American Airlines is the only airline currently un-hedged. So, they are buying jet fuel based on current crude prices. That was a gutsy play by AAL. I’m sure that that airline’s market analysts are closely following crude’s price drop. As soon as they think the price will start rising again, they’ll sign some hedge deals to lock-in these lower prices for a few years to protect themselves. Anyway, that’s how traders play airlines via oil price fluctuations.
Some of you “Dow Theorists” may tend to track (should track) the Transports index. Well, you saw them, along with small-caps, lead the market lower recently, then spike back higher as oil prices dropped. Why? Gasoline and diesel outputs went down in price…which is also a huge expense for trucking companies, etc. Hence, another derivative play. To move into a 2nd derivative play, these transportation companies (let’s say, trucking companies) serving? Many are serving retail stores…delivering wholesale goods…or restaurants - delivering food. So, as competition forces trucking companies to lower prices (as they can do so due to lower gasoline input costs), the shipping costs to retailers decrease. Some retailers may be able and willing to lower their own prices to lure in more customers. This is why “some” traders will play retail stores, restaurants, etc…when oil prices drop. Personally, I haven’t been playing that game…as you have to really research these companies to figure out the winners and losers. Consumer trends can be fickle and tricky. Moreover, you don’t want a retailer to cut prices so low that it damages their profit margins…without making-up that margin cut with a lot more sales ( customer traffic).
These are just some of the ways the pros think through a simple trend of falling oil prices. Some experts are expecting crude to move into the $60 – $65 per barrel range. I’m not so sure, as I’m thinking that if we breach $75, some oil producers may be forced to cut production. But, I don’t follow the oil/energy markets closely. Oil pipeline plays can be done, but they normally don’t react much to the crude price market. Pipeline companies don’t make money from crude prices; they make money from the volume of oil moving through the pipes. Remember my previous note about how some of these shale plays are having problem transporting crude oil to refineries due to the shortage of oil tank trucks, etc? (I either mentioned this in one of my emails or posted an article on my Facebook page; I can’t remember.) Anyway, find out which public pipeline plays are building out from those shale areas and you may make some money. Still, another way to interpret crude oil price drops is their effect on alternative energy. Solar, wind, etc (new energy sources) often tend to lose momentum with investors once oil becomes more affordable. When oil prices rise, everyone looks for energy alternatives. As for Tesla, I’m thinking that it has now become cache’. I think they recently announced tightened supply/production issues, which hit the stock. But, I’m also hearing that there is a long waiting list for their electric vehicles. That’s always a “good” problem to have as a company. I don’t think they’ll start production on their Gen 3 cars for a few years though…after they build that new battery plant. OK…I went on a little tangent.
Just wanted to throw out some insight into this oil price trend. Granted, I probably should have sent this email out 1-2 months ago. :-) But, by understanding these derivative plays as oil prices drop, you can make money when these prices reverse trend and start rising…though, that may be awhile. I just tend to play in my “wheelhouse” of biotechs. (BTW – RMTI got a positive vote yesterday from their AdCom. I got out earlier, but if you’re still in…I’d sell most/all on this morning’s spike. I am a bit doubtful that the FDA will approve Triferic, at least without one or two more studies, in January. jmho.) BABA sure obeyed (and continues to obey) those IBD IPO rules! That’s an investment, not just a trade. They just presented their first quarterly report a few days ago; lots of info out now. Strong margins, as they hold no inventory (like Amazon does). I don’ anticipate their lock-up expiration being an issue.

 

Book Recommendation – June 2014

How The Poor Can Save Capitalism by John Hope Bryant

I saw this author on CNBC a few days ago. I TOTALLY agree with his solution for breaking the cycle of poverty…especially among African-Americans! He also has a supporting foundation, website, etc. I plan to purchase and read his book very soon.

Alibaba IPO & Yahoo

Please note that this post (email) was originally distributed to friends on May 22, 2014.
Over the past 4-6 months, I’ve briefly mentioned Alibaba in my notes. I’m not sure if you decided to do some follow-up research on this company. But, it’s upcoming IPO (Initial Public Offering) will probably be as anticipated, in business circles, as Facebook, Twitter…and other high-profile internet companies. Yet, most “regular” folk in the US probably don’t know anything about Alibaba. Very briefly…Alibaba is a Chinese internet company that, in a US framework, is a combination of Amazon, eBay and Paypal. Yet, Alibaba (by only serving the Chinese market, thus far) gets about twice the online transactional volume as Amazon through its network of companies/sites. Alibaba, the largest online marketplace in the world, controls 80% of the Chinese online shopping market and 50% of online payment transactions! Last year, on Singles Day (the Chinese version of Cyber-Monday), one company – Alibaba - grabbed $5.7 billion in sales…over TWICE the total take of American sites on Cyber-Monday. It’s 2013 4Q revenues grew 66% yoy…to $3 billion…of which $1.4 billion was profit! That’s a 47% profit margin!! I could go on…but, hopefully, you’ve “got the picture”. (If not, just do some basic demographic research on the Chinese market vs. the US market…to understand its potential.) So far, Alibaba is doing very well…from a small start-up by a Chinese English teacher (Jack Ma) in his apartment with $60,000 invested from 18 of his friends! Gotta luv it!!
Well, earlier this month, Alibaba filed an S-1 for an IPO. Professional investors have been waiting on this event for a few years now. I’ve been watching things develop and figured I’d highlight the company now. I may have mentioned that “word-on-the-street” had Alibaba’s IPO scheduled possibly for November. But, I’m now hearing that it could come as early as August. So, what does this have to do with Yahoo.
YHOO owns 24% of Alibaba. Depending on the actual valuation of Alibaba (which EVERYONE is now trying to figure out)…YHOO could soon see some additional value unlocked from its shares. Note, I used the word “could” in that last sentence…as some folks feel as though the value of Alibaba is already fairly reflected in YHOO’s current price. Personally, I beg to differ a bit. If anything…news hype should create a speculative environment that could push YHOO’s shares higher…as investors anticipate a strong IPO. No one will actually “know” Alibaba’s valuation until the number of shares to be offered are set and the IPO price is determined. This normally takes place the night before the actual IPO. Prior to that, speculation and leaked info will abound. To walk you through some decent numbers on Alibaba’s valuation, check out the article below:
If you do not understand the IPO process, you may want to research it for better understanding. As for that article, pay little (if any) attention to all the companies that YHOO has been buying-up lately…as I doubt professional investors are including any of their “projected” earnings into YHOO’s current valuation…if they ever achieve earnings. But, given that YHOO has to sell 9% of its stake, that’ll bring in a lot of cash for the company to purchase more companies. Hmm…could they be thinking like GOOG?
Granted, I have not done any “serious” research on YHOO or Alibaba (yet). I do like YHOO’s CEO, Marissa Mayer. If you’re interested in this saga, please do your own due diligence! Pay attention to the news flow…especially as we get closer to August. I like to trade other people’s emotions, so YHOO could be a decent trade into August…just sell prior to the IPO. I’ve seen/heard all kinds of Alibaba valuations…from $100 – 250 billion. I think the company valued itself around $109 billion as of this past April. But, we all know how that can change quickly…and probably will. Be mindful of the general market conditions. If we’re still climbing that “wall of worry” via a strong bull market around August (or whenever they schedule the IPO), that could help with the valuation and YHOO’s price run-up. If the market is flat or down-trending at that time, then be more cautious.
If you’re actually interested in investing in Alibaba…like any other IPO, you’ll have to contact your broker directly to try to get in at the IPO price. I fully suspect this company will become over-subscribed…thus, making it difficult to get shares. But, be nice and ask your broker. They’ll certainly try. I’m not sure if I’m going to get in on Alibaba…but, it does intrigue me. It may be worth checking out their S-1 and subsequent SEC filings, along with their road show for more details. But, keep an eye on YHOO. It’s shares were selling above $40 in late-Dec/early-Jan. I’m sure some of that was investors trying to get in for the Alibaba run-up. Now, YHOO shares are just above $34. I could see it going back to $40 by August (or whenever the Alibaba IPO gets scheduled). Time will tell.
LeVanza
(Not a professional)
P.S. Just a quick mention of a few biotechs. (Couldn’t resist. :-) How do you like my ITMN? I haven’t discussed it in awhile. After bringing out good P3 data, there are rumors of a possible buy-out. “Rumors”. Also, MNKD is an easy run-up into its FDA decision. I was somewhat surprised by the AdCom vote on Afrezza…which spiked the stock briefly. But, it ran right back down. Some wonder how its sales will be upon an FDA approval. Look at NKTR’s/PFE’s experience. While an inhalable insulin process would be great for the diabetes market, there is still some question as to how quickly medical doctors will adopt Afrezza. So, if it gets FDA approval in July, it “may” eventually run down. Yet, this was an easy run-up to play…if you’ve been following the story.
P.S.S. The market (S&P 500) continues to be choppy around its trendline and 50-day sma. I wish I could figure out how to embed the chart into this email. I believe I’ve done it in the past (though, not on this distribution list). I just can’t figure it out again. But, I’m attaching a png file; maybe you can see what I’m looking at daily. The white lines are trendlines that I’ve drawn; they’re fairly strong, as the market has bounced off of them many times over the past 1-2 years. The red line is the 50-day simple moving average. You’ll see the bull/bear battle now taking place. Although more and more experts are predicting a market correction (even overtly on CNBC and in other media), I’m still thinking contrarily via that “wall of worry”. [The market is climbing a wall-of-worry...converting Bears to Bulls.] It may take some [unexpected/unforeseen] event to trigger a sell-off [if it ever happens to any great degree this quarter or Summer]. Summer is about here; we’ll see how the market fares into August/September. Should be interesting.

A Couple of My Current Biotech Trades

It’s been several months since I posted anything in my blog. So, I figured I’d just share a couple of my current biotech trades with you. Please note that I am NOT a professional. Moreover, these trades are not for novices. Keep in mind that I am giving brief overviews. So, do your own due diligence. Also note that I, now, rarely (if ever) hold through specific catalysts; I play the run-ups. Therefore, if you plan to make any of these plays, it is very important for you to pre-determine proper entry AND exit points! (Please see my “Disclaimer” page for more important info.)

The first trade is VTUS. I bought some Mar call options last week or so…to patiently wait for a “move”. Well, looks like it started yesterday, as 1,019,700 shares traded from a 3-month volume average of only 178,213. VTUS basically has a late-stage Diltiazem cream (VEN-307) for anal fissures pain. I have not looked deeply into the commercial market potential of such a treatment. But, I noticed a small early run-up in late December 2013, that caught my attention. Two Phase 3 FDA trials have been conducted on this cream. The first trial went well and was statistically significant on three endpoints. Safety was commensurate with the control (placebo) group. The second Phase 3 trial became fully enrolled on 11/25/13, for a 4-week treatment regimen. Many traders expect data to be available sometime in February 2014…possibly near the end of the month. VTUS had at least $32M in cash and no debt, as of 9/30/13. Cash burn is not an issue for me on this trade. There is a very low short position of 1.2%. Small float of 13.4M with approximately 29M total shs o/s. Institutions comprise 64% of the shares and insiders make up 5%. (Baker Bros are involved…hint, hint.) Two analysts have a price target range of $6 – $10, giving a mean/median PT of $8/sh. My personal PT is $6 – $7; but, that may change. I’m playing options, so I plan to take what the market gives me…and, move on.

I would recommend reading a couple of articles for a good overview of VTUS, so that I don’t have to type so much info in this blog article. :-) Just please note each article date, to put the information in proper perspective.

http://seekingalpha.com/article/1864481-ventrus-bio-poised-for-run-up-into-second-round-of-phase-iii-results?source=yahoo

http://seekingalpha.com/article/1690212-shares-of-ventrus-biosciences-are-poised-to-return-to-12?source=yahoo

My second trade is SGYP. This stock also experienced an early run-up in late December 2013. As it started basing, I bought some Apr call options. But, started waiting for a nice price dip to buy some more at a cheaper price. This company has an experimental treatment for Irritable Bowel Syndrome (IBS) - Constipation. [You may have noticed the pattern of these two stock trades. :-) ] This company is expected to publish top-line data on a Phase 2b FDA trial sometime in “early 2Q” of this year, possibly April. Whlte there seemed to be some additional stock buys made in late-Dec/early-Jan, this stock has continued to base in recent weeks. As of 9/30/13, SGYP had $82M in cash with no debt. Cash burn is not an issue on this trade. Low-moderate float at 81.25M shs and a total share count of 90.18M. Institutions control 17% and insiders hold 8%. (Baker Bros are into this stock, too…hint, hint.) There is a 9% short position, but that does not bother me. Five analysts have price targets ranging from 8.50 – 25.00. Median PT – 10.50; Mean PT – 12.86. My personal PT is 6 – 7…with the possibility of an extended run-up into 9. I’ll just see how things go and probably set stricter mental “stops” if it goes above 7.

A good article to check out for more information on SGYP can be found below:

http://seekingalpha.com/article/1922041-biopharma-catalyst-and-investment-pick-in-focus-synergy-pharma?source=yahoo

Although I usually play run-ups, I may actually hold “some” calls/shares through these catalyst dates…as I do feel good about these companies and their treatments. But, to be safe on any biotech trade, it’s best to sell all/most of your position prior to the catalyst date! I have other positions on right now, like IGXT, HALO, APPY and ITMN. As I sell out of most of these, I “may” add to my VTUS and SGYP positions…provided they haven’t made any strong moves. Just be careful of any surprise capital raises or hit pieces in the biotech media (social and news). Oh, keep an eye on EXAS, as well.

Please note that I’ve been doing better at posting my actual trade moves on Twitter – @vanthetravelman or search for “LeVanza Breeland”.

My Most Confident Biotech Position (Right Now :-) – SRPT

 

I’ve been aware of this company for over a year now. I started writing about it in my stock emails in September 2012. I’ve built a core position in the low-mid $20s and traded around it (by selling some during its most recent run above $40/sh and buying back-in around $30/sh). This company is probably the most widely-known stock among biotech traders. So, I’m not going to get into much detail. I just realized that my blog has no mention of this stock. Therefore, I took a few minutes to list a few points below.

Sarepta Therapeutics (SRPT) is a small biotech with a ground-breaking drug, Eteplirsen, to treat Duchenne’s Muscular Dystrophy (DMD). Currently, there is no approved treatment for this disease, which affects young boys almost exclusively and results in death by their early-mid 20s. The drug basically works on the DNA/RNA level, via an exon-51 skipping technique. I won’t go any further into the mechanics of Eteplirsen, as there is ALOT of info online about this company and its drug. The company is currently seeking guidance/permission to file for Accelerated Approval from the FDA. Last month, the FDA asked SRPT to submit additional information to support this filing possibility. The key issue is for SRPT to successfully argue that the production of dystrophin, the protein lacking in DMD patients, as a substitute endpoint, as opposed to the 6MWT. (http://www.raredr.com/front-page-legislation/articles/sarepta-wants-change-way-we-do-business-fda.) So, to be clear…SRPT is seeking guidance from the FDA on whether or not the company should file for Accelerated Approval. SRPT has not formally filed, yet. However, due to the information request from the FDA, many feel that if the FDA recommends that SRPT file for Accelerated Approval, that will be a strong signal that the FDA will “approve” such a filing. (http://www.thestreet.com/story/11896384/1/a-proactive-fda-is-already-reviewing-sareptas-muscular-dystrophy-drug-updated.html?puc=yahoo&cm_ven=YAHOO.) Thus, allowing SRPT to bring this drug to market much earlier, as opposed to setting up and completing a Phase 3 drug trial – which would delay Eteplirsen’s possible approval by years. SRPT is due to meet with the FDA by the end of this month to discuss the AA filing. Results of this meeting should be made public soon. Hence, the recent stock run-up.

Pros

1.   Eteplirsen seems to work very well with little/no adverse side-effects in SRPT’s Phase 2b drug trial (n=12) using the 6-Minute Walk Test (6MWT). I’ve discussed this info in several of my stock emails. You can also find details on this information online very easily. I will try not to cover information that you probably know already. Suffice it to say that the general biotech trading community seems to believe that this drug will get FDA approval sooner (via AA) or later (via completion of a Phase 3 trial).

2.   A competing drug, Drisapersen, being developed by Prosensa & Glaxo-Smith-Kline has produced severe adverse side-effects causing a few hospitalizations of Phase 3 trial participants (n=186)…with over 300 boys studied. This drug uses the same exon-51 skipping technique, but with a different chemical compound. The difference in methodologies may prove to be important, as it has been reported that Prosensa/GSK’s trials used younger/healthier boys. The adverse side-effects issue will probably delay the timeline for Drisapersen by a year or more. A related and, IMO, very important story concerning the possible relationship between Prosensa and GSK can be found here – http://www.thestreet.com/story/11934489/1/prosensa-ipo-filing-looks-good-for-sarepta-therapeutics.html.

3.   Another competing drug, Ataluren by PTC Therapeutics, has a confirmatory Phase 3 drug that treats a DMD patient subset, but will not report topline data until mid-2015. This subset comprises nonsense mutation muscular dystrophy (nmDMD) patients (13% of DMD patients). Note: I have not done much research on this company or its drug. But, I am not worried about any effects on SRPT due to its timeline.

4.   This exon-51 skipping technique provides a platform blueprint for other exon-skipping drugs, that can treat other DMD patient subsets…and possibly other diseases.

5.   I seem to remember, but could not confirm this morning, an SEC filing by SRPT changing some of the duties of its officers and/or management team. This point is based purely on my memory and subsequent conjecture…as I am 90% sure I read such a filing for SRPT (and not another biotech). My point is…I wonder if SRPT may be setting itself up as a buyout candidate. I briefly tried to find the SEC filing headline via YahooFinance, but did not notice it. You may have better luck.

6.   Eteplirsen should easily sell for 6-figures and dominate its market, based on its ability to address such a rare disease…thus having a very good profit profile for SRPT.

7.   Patient groups, particularly consisting of parents of affected children, have organized in a very strong manner to lobby/pressure the FDA into approving Eteplirsen as soon as possible. This point can not be underestimated, given the fact that the Obama Administration has allowed the FDA to become more efficient in the way they approve new drugs. One of the leading parents in this “movement” was recently featured on NBC’s Today Show this past Monday morning. (Great timing, as SRPT meets with the FDA over AA this week!) You can view the news story here – http://www.today.com/health/moms-heartache-two-sons-have-deadly-disease-only-one-can-6C10077829?ocid=msnhp&pos=7.

Cons

1.   The sample size of SRPT’s Phase 2b trial is only 12! In other words, only 12 boys participated in the study. This is an extremely small study. Yet, I have read where other drugs have been approved on small sample sizes, when the drugs address unmet medical needs.

2.   The short position of SRPT is 28%, as of April 30, 2013. This is fairly high. Yet, I believe this is based solely on the AA filing decision, not on the efficacy or safety of the drug.

3.   If SRPT does not receive AA, the may need to raise funds. Currently, the company is in a decent cash position with $168M of on-hand cash and only $1.7M of debt. Their current ratio is 1.70 and debt/equity ratio is 1.99. Financial guidance for 2013 indicates an expected operating loss of $85M – $115M. If SRPT has to set up and complete an expensive Phase 3 trial without increased revenues from AA, the company may be forced to dilute shareholders (or take on more debt).

The saga of SRPT has taken many twists and turns. I could go into so much more detail concerning this stock. But, I’ll spare you. Just note that I’ve been long this stock for some time and I do trade around it. I have, yet, to get into the options…as they are fairly expensive (high IV). So, be careful. YahooFinance shows 13 brokers covering this stock, with price targets ranging from $9 – $63 per share. The median PT is $48 and the mean PT is $45.46. I agree with the mean PT, as a minimum level given AA…possibly reaching up to $50. I do not see a major run-down given AA, though there will be profit-taking (me, inclusive). Nevertheless, I may just hold on to a few shares for the long haul…as I remember playing around with ONXX when it was sub-$5/sh. I definitely should have held on to some of those shares!

Do your own due diligence!

UPDATE: July 5, 2013

This is just a brief update. SRPT recently announced (just prior to the July 4th holiday) an ATM (At-The-Money) agreement with Further Lane to sell up to $125 million worth of stock. You would think of this as a very negative event for the stock price. But, in pre-market this morning, I’ve only noticed the stock down about $1.50 or so. Currently, it’s only down 50 cents! This price action shows the confidence that investors and traders have in this company.

In reading the SEC filing and PR about this ATM, I noticed a couple of things. First,  SRPT has not met with the FDA about Accelerated Approval, yet. I thought this meeting took place last quarter. Unless this info is incorrect (which I doubt), SRPT plans to meet with the FDA during the 3rd quarter of this year. Second, I like the PR wording about the use of ATM funds…one, of which, is for the “planned confirmatory” phase 3 drug trial (implying the phase 3 trial will commence after FDA approval)…instead of a “pivotal” phase 3 trial (which implies the trial will take place before FDA approval). Now, this second point is probably not much of an issue at all, as the company “should” use this wording in their PR. Yet, it just adds to the positive ramp-up into FDA approval for SRPT.

I’ve also noticed on Twitter that Rep William Keating (D-MA) is hosting some type of Duchenne’s Muscular Dystrophy Congressional Briefing on July 9, 2013, at 1:30PM ET. One of the strongest patient-advocates (Jenn McNary) is asking people to urge their respective Congressmen to participate. This event “sort of” reminds me of the Congressional events that took place years ago for prostate cancer…just before DNDN received FDA approval of their ground-breaking drug. In fact, as I played DNDN options via the long side, I distinctly remember “going all in” with any/all extra money I had available at the time, to purchase as many DNDN call options as possible…simply because I figured out that the FDA PDUFA (decision) date was scheduled for the same week as a couple of Congressional Briefings on the subject. If memory serves me correctly, I think the FDA gave  DNDN approval one day earlier than expected…on the same day as a public Congressional meeting. (I also think that day may have been designated as National Prostate Cancer Awareness Day or something like that.) As soon as I figured this out, I just “went for it”! Looking back over the past 5+ years trying to daytrade, this DNDN play remains by best daytrading haul to-date. Now, I’m not suggesting that some important decision will be announced on July 9th. But, I’m just noticing the strong public involvement of DMD patient-advocates. With strong public opinion and Congressional support, I submit (though, can not prove) that the FDA finds “cover” for making “close-call” decisions…be it ground-breaking new therapies or, say, accelerated approval. (Pure conjecture on my part, here.)

 

*Addendum (9/24/13): Well, SRPT’s major competitor, RNA/GSK’s drug – Drisapersen, “blew up” last Friday! After a seemingly successful IPO by Prosensa (RNA) this past June…and having that stock rise from $20/sh to over $34/sh…the stock fell from last Thursday’s close of $24/sh to a low of $5.65/sh the next day. This was a direct result of Drisapersen failing to meet its primary endpoints in a Phase 3 trial. Subsequently, SRPT started spiking over $40/sh. Now, this turn-of-events has two points (IMO): 1.) SRPT’s Eteplersen is basically the only “game-in-town” for DMD treatment, right now. Investors/traders will pile into the stock. But, Drisapersen uses a similar treatment mechanism to Eteplersen…Exon-51 Skipping. Therefore, RNA/GSK’s failed Phase 3 trial may raise concerns with the FDA. Keep in mind, SRPT is trying to gain Accelerated Approval from the FDA based on a Phase 2b trial of only 12 participants.

Now, since initially posting this article, several things have happened in the SRPT saga. Without detailing everything, it is important to note that the FDA has requested additional information from SRPT, to prove the company’s assertion that dystrophin production can be used as a surrogate primary endpoint via their Phase 2b data…and, thus, qualify Eteplersen for Accelerated Approval. Drisapersen had decent Phase 2 results, but failed in Phase 3 trials. This may cause concern with the FDA in allowing Accelerated Approval for Eteplersen. Time will tell, of course. I do believe that SRPT has a superior drug…a bit more potent. If they can convince the FDA of using this surrogate primary endpoint, things may turn out fine for SRPT. (RNA/GSK plan to publish the details of their Phase 3 trial sometime later this year. This should provide additional insight on Drisapersen’s dystrophin production, etc.) Nevertheless, if SRPT is required to conduct a Phase 3 trial, I think it will come out fine. Naturally, traders will sell off the stock…which would make a great buying opportunity. The eventual drug allowance will just be delayed for some time…but, prior to the Ataluren read-out in mid-2015. (My opinion.) Now, SRPT could propose (or the FDA could require) some type of REMS program in association with an Accelerated Approval. Hmm. Even with an almost 40% short position (as of 8/30/13), I still like this stock!