FilthyRich Investing

ETFC: stock over sold.

2007-11-14T12:29:00.000-08:00

Notablecalls is out with summary of the analyst comment on Etrade. Amid the concerns that the company will have a significant writedown on the sub-prime loans, the company share plunged yesterday to less than $4, significantly down from mid-20’s that the share was once trading in the middle of this year. The share price is at this point reflecting the possibility of bankruptcy and the Etrade customers fleeing to other brokerage names such as Schwab and TD Ameritrade. I think although the possibility of filing bankruptcy cannot be ruled out, I deem this as a highly improbable scenario. I see buyers of Etrade asset emerging at this share price level. It will take some time for Etrade share to recover. However, the stock is trading with worst possible scenario and I see some opportunity here with the stock.

ETrade (NASDAQ:ETFC): Color on news

We have couple of firms commenting on ETrade (NASDAQ:ETFC) after the co said on Friday it expects further write-downs on its $3 billion asset-backed securities portfolio and the U.S. Securities and Commission is investigating.

- Banc of America is lowering their tgt to $10.50 from $12 while keeping Neutral rating on the stock.

- Citigroup is lowering their rating on ETFC to Sell from Hold and cutting tgt to $7.50 from $13 saying the continued negative news flow about charges resulting from its mortgage & CDO exposure, an SEC inquiry, and continued deterioration in its financial condition, all increase the likelihood of significant client attrition.

Firm estimates that trying to liquidate E*Trade's loan & ABS portfolio would result in over $5b of losses (more than wiping out tangible equity). Based on accounting convention, E*Trade is not required to mark-to-market certain loans and securities. However, in the event that it has to sell these assets as a result of losing its funding sources (e.g. deposits & repo lines), losses could be realized. Citi's haircuts to arrive at the $5b loss estimate include 10% on 1st lien loans, 20% on HELOCs, and 25% on its ABS portfolio.

They lowering 07/08/09 earnings est to $0.31, $0.90, $0.90. the tgt of $7.50, includes a 15% probability of bankruptcy.

Notablecalls: Citigroup's call is titled "Bankruptcy Risk Cannot Be Ruled Out". That's why we have the stock down 30% in pre-market and not 10% like it should be following Friday's news. And it would still be a bounce candidate!

This stuff sounds like '00-'02 when Guy Moszkowski was covering ETFC for Citi (then Salomon). Think he downgraded the stock to Sell around $4. Man, this is clueless stuff. Prashant, you should have seen this coming and should now be looking for reasons to UPGRADE this stock, not downgrade. Phew!

It's a buy around $6. Even if the mortgage positions end up worthless, ETFC is worth a lot more than what it is selling for right now.

current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan, Goldman Sachs, Bank Of America, Wachovia, Comerica, and PNC Financial), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

GS and JPM continues to be the best financial names.

2007-11-13T15:13:00.000-08:00

Citi bank analyst Keith Horowitz is out with a comment this morning saying that JPM has the extremely manageable exposure in the CDO and LBO loan market. He expects modest yet conservative writedown of 300 mil in Jan Q. He cuts the earning estimate by 8 cents due to the mark down to $1 for next Q. Unlike its counterparts such as Washington Mutual, B of A, C as well as WB, JPM superior risk management and conservative product position in the sub-prime market is helping the firm to fare much better than other financial institutions. In fact, GS and JPM are the two names that our investment group focused since last year, and they have performed the best in among the brokerage and large integrated bank names. I continue to recommend buying JPM and GS aggressively while the share price are down. With economy slowing, I see the money rotation out of the energy as well as tech which had seen large money influx due to investors' not having the alternative sectors to put money amid credit crunch debacle. With financial sectors beaten to death and clearly undervalued at this point, once people accept that the economic growth will slow down and earning in the energy and tech will also get impacted, the money will likely to flow into more conservative value names that include many of the financial names. I am even earning upto the story of Citibank as the valuation is getting compelling. If you want a full report of Citibank, email me via investorhives.com mail. I will send you the report. Below are the short synopsis of his comment.

ABS CDO Writedowns Expected To Be Very Manageable

We Estimate a Relatively Modest $300 mil Mark from CDOs — Unlike BAC or WB, we expect JPM to have a limited mark to market impact from ABS CDO writedowns since it was a very small player in this market. We view our $300 million mark as conservative, and note it includes estimated hits from subprime mortgage exposure that was effectively hedged in 3Q.

Assuming $400 million mark on Leverage Loan Commitments — While still early in the quarter, we are assuming JPM's $40.6 LBO loan book could see a 1% or $400 million negative mark in 4Q based on current market trends. Reducing 4Q estimates. Based on MTM adjustments, we are trimming our 4Q EPS estimate by $0.08 to $1.00.

We believe JP Morgan's strong capital position and improved risk management allow the firm to operate from a position of strength in a tough market, which should allow it to capitalize on the inevitable opportunities that will likely come about as more players are negatively impacted by credit and market headwinds. Reiterate Buy and $57 target price.

current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan, Goldman Sachs, Bank Of America, Wachovia, Comerica, and PNC Financial), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

Long term fundamentals intat for Apple.

2007-08-03T01:05:00.000-07:00

Notablecalls is out with another interesting comment on Apple. There has been some concerns lately on possible production cut by Apple on hot selling iPhone. Goldman is now defending Apple stock, citing short pullback that the stock experienced last two days as buying opportunity. It seems as though a little production pullback is natural after a huge ramp up in anticipation of the iPhone introduction. The demand will definitely subside as the initial fervor around iPhone abate. However, I know several people are already waiting for cheaper version of iPhone which will be probably released by the end of this year. I have seen this device and it is one of the best tech inventions both in style and in terms of ease of use.

I continue to expect that short term, the stock could remain volatile as people try to lock in their profit after such a huge runup. However, I continue to expect positive sentiment in the tech land as the money will rotate out of energy and commodity into tech stocks. And Apple will be one of the favorite tech names. I expect with iphone Apple is in a position to increase PC sales as Ipod and Iphone sales lead to mo synergy with PC sales. I would use the dip as a buying opportunity. Notablecalls is a little more bearish on the stock but I have to agree with Goldman on Apple.

Apple (NASDAQ:AAPL): Color on iPhone cuts

- Goldman Sachs notes that after the Street's reset of overly optimistic iPhone estimates for calendar 2007 last week post Apple's (NASDAQ:AAPL) earnings, they view downward adjustments to Apple's build plan as backward looking. Firm's supply chain checks suggest that Apple has pulled down its build plan for iPhone but, while the magnitude is imprecise, the numbers that we are hearing still leave upside possibilities to GSCO's 2.8 million estimate for 2007. With Apple in the midst of a series of major product cycles, recent history has shown that pullbacks in the stock such as we have been seeing in the last few days are exactly the sorts of buying opportunities that investors should be taking advantage of.

Important to bear in mind is that what is going on with the supply chain now follows a well-established pattern for Apple that the firm has seen play out several times already with iPod, in each instance not a good indicator of actual demand. Specifically, in front of a new product launch, Apple secures initial manufacturing capacity for a larger number of units than it will ultimately need and then adjusts capacity downward to more realistic levels over time. The supply chain cuts taking place now for iPhone bring the build plan more in line with firm's current sell-out expectations

GSCO continues to see multiple upside opportunities for Apple.

Notablecalls: AAPL took a hit yesterday on rumors of iPhone production being cut. Goldman gives us the scoop. Looks like a non-event. Note that AAPL is up 1.5% this AM as Citigroup is taking their rating to Buy from Hold following yesterday's $10 pullback saying iPhone and iPod production cuts should not be a surprise, saying iPod production cuts reflect normal channel inventory clearance ahead of Aug/Sep new price product intros.

Two firms out with positive comments and the stock is up a platry 1.5%. To me this is a tell. A negative one.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AAPL: iPhone demand declining?

2007-07-24T11:20:00.000-07:00

I noted today from notablecalls that CIBC analyst is out with a comment this morning, citing declining demand for apple iphone over last 10 days. iPhone is seen to spur flash as well as ASIC demand for semiconductor sector so if he is right, this does not bode well for semiconudctor sector. Personally I think APPL iPhone is a game changing device. It will be a long term winner. But with so much worry about economy weakening due to credit problem and high energy price, I wonder whether continued demand for iphone that costs anywhere between $499 to $599 will be a hot seeling item after initiaL demand subsides. I am not making any statement here. Just a thought.

Following is the excerpts from notablecalls

Apple NASDAQ:AAPL: According to CIBC iPhone has seen a significant decline

- CIBC's Ittai Kidron is out with monster call on Apple NASDAQ:AAPL saying based on their store checks, they believe that demand for the iPhone has seen a significant decline in the past 10 days. CIBC has noticed decent inventories at stores, and thin demand at best. In fact, most Apple store visitors were not looking at the device and only a very small subset bought it.

With the weakness, they wouldn't be surprised to see AT&T and Apple step up their marketing efforts. Firm's channel checks suggest Apple is actually looking to introduce a 3G version of the iPhone for the U.S. market in November, ahead of the holiday season and earlier than currently expected.

Recent survey of iPhone buyers suggested that the key shortcoming of the current device is its poor data connectivity. This isn't a surprise and Apple's CEO Steve Jobs admitted the iPhone's cellular connectivity can use an improvement. CIBC now believes the "improvement" could come soon.

Notablecalls: AAPL stock is going to get hit today. Big time! Positive iPhone flow has driven AAPL up 50 bucks over the past months. CIBC's call will erase some of this. I expect to see 5 bucks of downside today! Actionable call! Short at will!

PS: Note that ThinkEquity upped their tgt on Synchronoss NASDAQ:SNCR yesterday to $44 from $36 based on increased expectations for the iPhone. The stock was also added to Think's Top Picks list. SCNR has enjoyed a nice run, fueled by iPhone flow. I would not be surprised to see weakness in SCNR following CIBC's call.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

ISIS; Positive comments from Changewave investing newsletter

2007-07-10T00:25:00.000-07:00

ISIS: Positive comments from Tobin Smith on his latest weekly update of Changewave Investing Newsletter.

Tobin Smith (a regular guest on bulls and bears on Fox) had the following comments on ISIS, following ALNY's deal with Roche. His target for ISIS remains at $20, which happens to be also Lehman's. I expect biotechs to outshine again towards ASH in early winter. If the atmosphere is right, I believe ISIS can trade above $20.

ISIS PHARMACEUTICALS (ISIS)

Isis Pharmaceuticals announced that it will receive $26.5 million from Alnylam Pharmaceuticals (ALNY) as its portion of the upfront fees and equity premium in the recently announced transaction between Roche Holding AG and Alnylam. In addition, Isis has the potential to receive milestone and royalty payments. This transaction underscores the value of Isis' innovation and the leadership role Isis has played in the field of nucleic-acid-based therapeutics. The close of the agreement is subject to certain regulatory approvals and is expected to occur within approximately 30 days.

OUR TAKE: The Alnylam deal with Roche has three major takeaways:

1) This agreement further validates the potential of RNA-based therapeutics becoming a major class of drugs and the excitement that large pharma has for the platform;
2) ISIS is well-positioned with its 2004 deal with ALNY to reap benefits from RNAi through substantial royalty payments from ALNY;
3) The Roche-Alnylam deal increases the probability that ISIS will be able to partner their broader drug ISIS301012 on extremely attractive terms.

Again, if big pharma wants to get a leg up on the major new emerging therapeutic world, my best guess is that Roche takes out ISIS for $20 per share.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

ISIS: Lehman out with positive statement

2007-07-09T19:11:00.000-07:00

Lehman is out with positive statement on ISIS, following ALNY megabuster deal with Roche. Last year, Merck paid $1.1 billion for small RNAi company Sirna. And today's ALNY deal that could surpass 1 billion (it is not an acquisition but merely non-exclusive licensing deal) clearly validates the RNA technology as one of the most sought after and promising areas for next generation drug development.

ISIS provides ALNY with exclusive license to ISIS IP for double stranded RNAi technology and as ALNY achieves major milestone with Roche, ISIS is likely to leap more revenue from ALNY's deal with Roche.

Lehman points out the extremely attractive pipeline of ISIS and thinks that pipeline platform value well exceeds the current valuation. The firm has $20 target on the company which represent near 90% gain from the current level.

ISIS got tremendous efficacy data on phase 2 trial on its ISIS 301012 to lower bad cholesterol (LDL) without significant long term side effects. This is highly prized market by the large pharma as big pharma had major setbacks in producing effective LDL lowering drugs without safety issues. In addition, ISIS 325568 and 377131 seems to be very promising in diabetes market, which is one of the largest healthcare market. Lehman point out that ISIS had received significant interest from the potential partners on 301012 and the company started a competitive ¡°auction process¡±. In my opinion, this company will not be a standalone company. Small companies in RNA space will be gobbled up by large biotech and pharma companies. As one of the most potent IP in RNA antisense technology, ISIS is a prime take-out target with substantial premium. Definitely recommends purchase of ISIS shares at current valuation.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

ALNY: ALNY hits a huge deal with Roche.

2007-07-09T00:10:00.000-07:00

RNA drug development area is hitting up. One of our speculative RNA play ALNY has hit a major deal with major German pharmaceutical company Roche. According to the press release, Roche is paying 331 million in cash for ALNY to develop drug based on its RNA interference technology. Also Roche is taking major equity stake, paying $21.50 for ALNY's near 2 million shares. ALNY is currently trading at slightly above $15 so this deal represents 40% premium to the current share price. ALNY has slightly more than 37 million shares outstanding so Roche stake will be roughly more than 5% of the total shares. In addition, ALNY's market cap stands at 570 mil so this deal roughly valued at 1 billion is huge indeed. This deal clearly again validates RNA technology in developing next generation drugs and big pharmas are seeing definite interest in this field. I expect ALNY to trade up on this news. I believe that companies in the area will not be left alone and big pharmas are likely to acquire several of these companies at a hefty premium. I would not surprised ALNY doubles from here. Just above $15 presents outstanding entry point. However, do remember this is a speculative play. The company currently does not generate positive cash flow nor positive net income on GAAP basis.

ALNY has probably the best IP portfolio in RNA technology area. Merck took out Sirna at more than 70% premium to its share. With Roche paying hefty cash to develop drug, I would not be surprised if Roche acquires this company if the company is able to meet drug development milestones that are yet known to investors' communities.

ISIS, another our speculative biotech play based on RNA antisense technology is other company that is going to attract big pharma interest. While big biotech companies has been struggling of late due to increased safety requirement by FDA for drug approval and medicare reimbursement concern, small biotechs are receiving more investors' attention. For this reason, I want you guys to stay the course with ALNY and ISIS. If you don't have any exposure, it would not be a bad idea to expose small percentage of your investment portfolio to ALNY and ISIS.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

More news on semi front.

2007-06-26T13:37:00.000-07:00

Notablecalls summarizes the recent research call from Bank of America. Notablecalls reports that B of A thinks a recent slight uptick in DRAM price has gotten the investors excited about the second half recovery. But it is likely to be attributed to the suppliers' building the inventory ahead of fall season when they anticipate the demand will pick up. The firm actually thinks the demand is weakening across the board for the semi sector. Again, given the high energy price and weakening housing market, I don't know how willing the consumers would be to upgrade all kinds of consumer gadgets in the fall. If this scenario does not pan not, semi market is likely to deteriorate further and semi-equipment shares could see steep selling pressure. I don't like the risk to award ratio here to be aggressive on these names yet.

Here is the comment from notablecalls. (http://notablecalls.blogspot.com...)

Banc of America: DRAM price pop due to inventory build, not supply and demand Banc of America's Semi team notes a sharp rise in DRAM pricing in the last week fueled yesterday's rally in semi-equipment stocks. But the improvement in DRAM prices is likely driven by the accumulation of inventory at suppliers rather than a resolution to the oversupply problem. Day’s sales of DRAM inventory will likely increase across the board when suppliers start to report their June quarter earnings.

June and July are the two weakest months in the year for memory demand. So why are prices increasing if demand is seasonally weak? In the past, DRAM suppliers use this time of year to build inventory and push prices higher. Demand picks up sharply in August. Suppliers want to start the seasonally strong period (August to October) with the best possible backdrop to pricing.

So price increases in June and July have little to do with supply/demand. They think the DRAM industry is in an oversupply situation. Whether or not second half seasonal demand can soak up the excess supply is the critical issue. Recent favorable monthly PC demand is a better argument to support a soft landing in the memory cap-ex cycle than DRAM prices.

Notablecalls: Both AMAT and LRCX blew through my stops yesterday. Yet, it looks like the bounce in DRAM pricing has nothing to do with end demand. Also note that Piper Jaffray is out downgrading NSM, ADI and LLTC (analog space) this morning saying recent industry checks indicate a broad weakening of the semiconductor recovery cycle. Not making any calls here, though.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

Still too early to be aggressive semi-equipment names

2007-06-22T01:17:00.000-07:00

Recently, semiconductor and semi-equipment stock saw a nice rally. Sox has been lagging the market in the first half of this year. As the market advance has been largely driven by energy, commodity, industrial, and large conglomerate names, semi and semi-equipment names are seeing some catch-up action on the street. Traders are betting that with nice rebound on manufacturing and consumer sector, semi business will see robust second half pick-up. Also new consumer devices such as Apple iPhone may spur growth in the flash memory market and stabilize the price erosion that flash market has seen in recent times.

While tech names in the communication infrastructure area could rebound nicely in the second half, I still have doubt of robust recovery in the second half of this year for semiconductor sector. My contacts in flash memory market continue to tell me about very cautious environment in this segment, even in the second half of this year. DRAM market is in the midst of doldrums. With Vista operating system being the bust, DRAM market may continue to struggle, lacking corporate consumers who are willing to upgrade to the new operating system and new computers. Samsung has recently converted a lot of DRAM capacity into flash memory production. This is not to be interpreted as improving market condition in the flash memory but as extremely bleak DRAM market and cut-throat pricing pressure. Extra flash capacity now will saturate the flash market even more and could further erode the flash memory price.

With overall memory market still in anemic condition at best, I see no reason why Taiwanese, Chinese, and Korean chip foundries will buy any chip equipment in the second half of this year. I have been told that Samsung has depleted large amount of company cash reserve due to brutal memory pricing environment and more aggressive capital investment compared to other companies in Asia in the first half of this year. Consequently, Samsung could substantially tighten its spending belt in the second half.

That is not to say that flash memory market will not improve in the second half of 07. iPhone could be a big hit and we could see reaccelerated flash memory demand. However, given some semi and many semi-equipment stocks such as AMAT, LRCX and KLAC are trading at near 52 week high, earning expectation may turn out to be a little too aggressive. I think it may not be too prudent to jump into these names now. I would wait for one more pullback and would exercise extreme discipline about the entry price to buy these names. In summary, current strength could last. However, I would be a seller into strength and look for better entry point for these names.

I have added some comments from notablecalls about the state of the DRAM market below.

DRAM equipment space: real-time pushouts of tool shipments

Citigroup comments on the DRAM equipment space noting pushouts of future orders now appear to be giving way to real-time pushouts of tool shipments. Checks suggest ProMos - a Taiwan DRAM maker that has recently placed big orders (~30k wsm (wafers/month), or ~$1B+) in 1H:07 - is pushing out delivery on roughly half of these orders. Based on firm's calculations, these pushouts impact total industry tool shipments by ~5-10% in CQ3, putting more pressure on consensus EPS estimates that they feel are as much as ~20-25% too high in 2H:07 and C2008.

While all suppliers are impacted, it appears impact is greatest at AMAT, LRCX - both of which have big Taiwan DRAM exposure.

Citi notes they have been on the road the past few wks speaking with a broad base of investors. The general rhetoric remains cautious - yet incredulous that stocks have remained resilient in the face of "bad news". While there has been a lot of market speculation around capex cuts, there is frankly yet to be much in the public domain regarding pushouts, capex cuts, or the like. Firm thinks it all comes down to the numbers - and equipment stocks are simply not cheap enough to tell them that the buy side's EPS estimates are that much less than the sell side's estimates.

Indeed, major equipment stocks trade at roughly a market multiple off C2008 EPS - hardly discounting a big EPS cut for a cyclical group with a slowing growth profile.

Notablecalls: The DRAM space is a mess. During the past five months, the price of 512Mb has fallen to $1.80 from $5.80 (an almost-70% decline). The DRAM makers are bleeding from their eyeballs and slashing capex should not come as a surprise. Vista continues to be a disaster, so no help coming from there.

Citi's right pointing out the resilience of the semi equipment space in face of bad news. For example, AMAT's has climbed back to the levels where it was before reporting its terrible qtr in mid-May. I have to agree with Citi here - eventually, it all comes down to the numbers.

Sitting at my old desk I would put out a short line in both AMAT and LRCX here. Tight stops just above recent swing highs. Not looking for a home run here. Just some downside.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

FilthyRich hive communication - 06/07/06

2007-06-07T13:50:00.000-07:00

Last three days saw the market retreating as the fears of the higher interest rate is pressuring many traders to lock in their huge gain. Given the huge run-up that most of the major indices were able to achieve year to date, this selling is not surprising. Recent spike in the put to call ratio also point to the fact that traders are getting very nervous about the recent market advance and willing to protect against possible market fall.

Despite temporary weakness that may last until the next earning season, I remain bullish about the market outlook in 07. I believe that although the rate cut is now being kicked out of most investor' expectation and the market premium associated with the rate cut could evaporate, forcing the market consolidate for next a few weeks, long term fundamentals continue to remain solid for the US economy. Earning picture for many US companies will remain rosy due to moderately growing US economy and hot economies in the emerging market. As such, I continue to feel that this selling will be short-lived and investors should use this as a buying opportunity, not an event to liquidate their position.
US economy outlined by benign unemployment picture, reasonable wage growth, as well as decent ISM service number is showing no signs of entering into recession. Although the consumers are pinched with higher energy prices, they are not drastically curbing their spending habits. If the housing and a few other sectors such as auto are not in doldrums, the growth of the economy could be too hot, forcing Fed to adopt more aggressive rate tightening measures. However, these lagging sectors are offsetting the growth in the other sectors and keeping the inflationary pressure largely in check. This continues to support bullish scenario and although there will be no rate cut for a while, I believe Fed will stay on the sideline for the remaining of this year.

In the first half of this year, the market was led by energy, commodity, industrial, as well as defense industries. Although the indices advances a lot, if you were in the sectors like airline, financials, housing, auto, as well as healthcare that lagged the market, your gain may have been limited as these sector lagged the market. Due to uncertainty in the direction of the interest rate and economy, investors are hesitant on placing their bets on the interest sensitive sectors such as financials and housing. Rather, they are putting their bets on what has been working in the past: energy, industrials, commodity, and emerging market. Direction of the consumer sentiment is largely in debate. As such, the retail names and tech names with consumer exposure has been relatively weak overall.

I believe when the market resumes advances after a brief period of consolidation, the leadership group may change. Second half of the year is usually great times for tech in the economy that is expanding. While techs have been weak upto this point, they may come alive in the second half. Energy stocks have done great due to record level crack spread between the crude and refined oil. They also account for many of the political and weather related uncertainties. Heading into summer driving season and hurricane season, energy traders are betting the oil to shoot higher. As we exit summer driving season and hurricane period, I see oil price trading lower from current level in high 60's.

Also interest rate is continuing to rise in the emerging and many of the European nations, this will control economic expansion, keeping a lid on the oil demand. Also because the market is now adjusting to the higher rate scenario, mortgage rate will go even higher and home sales in the US will remain anemic. Housing downturn is here to stay for a while. These factors could ultimately weigh on the oil demand and after the season where the gasoline demand is the highest during this summer, the oil price could head lower. The money could rotate of energy and may find places in battered down techs, biotechs as well as some financial names. Also should the oil price fall, airline could once again see some buying interest.

I continue to see the market is a good shape to make a further gain and I think current volatility in the market is a good opportunity to add to holdings.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

JPM, GS: Upside continues to exist.

2007-05-22T22:47:00.000-07:00

Two of our financial names, GS and JPM, have been stagnant a bit lately but I think these two companies are poised to deliver healthy earning surprise for the next earning period. As a result, I continue to see a healthy upside in the stock price.

GS is a pure play on this hot equity environment. Everyone thought that the bull run in the stock market is over in 06 and 07 will be a more challenging year; many economists predicted slowing economy that will limit GDP growth rate below 1 to 2 % level. Earning growth rate of GS has been perceived to flatten out and consequently, investors have been very stingy with awarding correct market multiple for GS. GS is now trading with PE of about 10. Because I think there is substantial EPS revision for 07 and 08, I believe that real PE of this company is less than 9. In my opinion, GS could deliver blow-out Q in June again. EPS estimate of GS for 07 could be as high as $25 to $26 level, outstanding 25% upside from what the current consensus number predicts. With stingy PE multiple, this stock is still worth $260. But if the market multiple expands as I anticipate, then GS could trade to the level near $300 a share. While the stock has been a bit stagnant, I think earning in June will be a great catalyst for this stock to win investor recognition. The equity market environment is simply too vibrant, far beyond what the market was expecting. Private equity is taking the companies out of the market left and right. The companies are buying back shares, reducing the overall float of the overall shares. Yet there are still plenty of cash sitting on the side line to push share price higher. GS's trading business is generating incredible return from hot commodity and emerging markets, which GS has a heavy exposure. Private equity side of GS has been on a roll as well. I expect continued strength in the market in 07 and GS still has plenty of fuel left to make additional advances. I really like the stock at a current level.

JPM also has been a bit stagnant. The bank sectors are still perceived negatively given the possible fallout from the sub-prime mortgage sector. While JPM is not without the exposure to this sector, it has a manageable sub-prime loan exposure. While other investors feel that bank¡¯s story of improving the overall operational efficiency is over, I believe that there are still room for the company to make further improvements especially in the retail side. Others feel that JPM will make a large acquisition and hence sees stock unattractive, given that JPM is trading with higher stock multiple compared to other banks such as C and BAC. I continue to believe that Jamie Dimon will make deals that are accreditive and he will focus more on generating higher return for investors. After all, high stock price is extremely attractive currency to use if he decides on future acquisitions to grow the bank to another level. Also roughly half of JPM revenue comes from Investment Banking and this sector has been tremendous for JPM. I see current EPS estimate is too low for the bank and sees bank making nearly $5 in 08. If yield spread between long and short term yield continues to steepen as it has been in recent times, there is also an upside in the retail business. Given this vibrant stock market, I don't see the economy heading into the recession. I also expect energy price to stabilize after this summer driving season, supporting consumer spending trend. I strongly feel that JPM has solid upside at least to $60 level. Recent Smith Barney upped the bank TP to $62 and I have seen some analyst TP bumped upto low $70 level. I think if you stay patient with this company, you will be richly rewarded.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

CTRP: another solid Q, 08 estimate now in play.

2007-05-17T19:18:00.000-07:00

CTRP is an online travel consolidator in China. We have initiated this stock in March of 06 at the price of $39.5. At today's closing price of $78.07, the stock is posting a great return of roughly 100% gain in 14 months. As you recall, this stock is the top pick for our group for 07. And in every ways, I am very pleased with its performance.

Previous investment comment on CTRP is available in these articles. http://www.investorhives.com...
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Essentially our investment thesis on CTRP is the rapidly growing Chinese travel market. Currently online travel consolidators are getting less than 5% of the travel market in China. As the market grows and as online travel consolidators start to command larger percentage of the overall market, we saw big opportunity in CTRP. As I have stated in above articles, I have been very bullish on the company with my last statement outlining possible $88 TP.

Yesterday's solid earning does nothing but to reinforce this belief. CTRP reported impressive revenue growth in all business lines. Considering that Q1 is a traditionally slower Q for CTRP, given the Chinese holidays shutdown, the company still generated 40% YOY growth in Hotel business. Hotel business is now heading into seasonally strong Q2 and Q3 so CTRP is likely to undergo brisk growth in this line of business. CTRP's air-ticketing business grew by eye popping 75% YOY and 6% QOQ growth. With transition to e-ticketing largely behind the company, this business segment growth could accelerate. Packaged tour business is currently a very small portion of the overall CTRP business, accounting for only 6% of the total revenue. But the growth is nevertheless at very healthy rate of 73%. Gross margin inched now to %79.1% from 79.9%. Over last 4 Q's, the gross margin seemed to have stabilized between 79 to 80% range.

It looks like CTRP is now growing at a rate between 35 to 40%. Thus, many analysts are starting to bump up the 08 revenue estimate to $180 to $190 mil range and EPS estimate to $2.2 to $2.4 level. As we are heading into the second half of 07, 08 estimates will be in play for CTRP for determining the proper stock valuation. Given that CTRP has duopoly in huge China online travel market and continues to gain market share from eLong, PE multiple of 35 appears to be reasonable. Based on the fact that revenue growth rate is expected to be in the range of 35% over next 2 to 3 years, this PE multiple assumes PEG ratio of roughly 1. This valuation model continues to point to the further upside of the stock price to near $90 level. I continue to stock with my most recent TP of $88. Smith Barney this morning bumped up its TP for CTRP to $84 from $62 after solid earning call yesterday.

I continue to believe in the business fundamentals for CTRP and I continue to see upside for CTRP despite stunning percentage rise in CTRP share price.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

Market: Bull run is not over.

2007-05-11T20:06:00.000-07:00

The market has been hot lately. Dow has been setting record high, advancing 25 times out of last 28 trading sessions. It has been an incredible run led by many industrial, commodity, biotech, energy as well as multi-national conglomerates which have been benefiting from weak dollars. Lagging financials also have caught up with the rest of the market as well.

Traders are very nervous after this run-up. Pressure to sell has been building and today many use the weak consumer spending data as an excuse to sell. Some claim we are due for a correction with maginitude worse than the one that we saw in Feb. Many bears point out that weak housing, auto, and high energy price will weigh on the consumers. As they tighten their purse, the economy is in for a steep deceleration. The recession is imminent and the market is in for a nasty downside surprise.

I am very optimistic about 07. As I stated early this year, I see 07 as a very nice year for bulls. The economy was getting too hot last year. But it is now in check by the declining housing and auto sector. I believe that the economy is slowing but the growth will still be there. This moderation will allow Fed to ease towards the end of this year. At worst, Fed will stay with rate policy unchanged as the economy continues to pour our mixed batch of economic data. Fed is unlikely to be a negative catalyst in 07. As the economy makes transition from an expansion mode into a moderate growth mode, there will be a moment when people may perceive the weak incoming economic data as looming sign that the recession is around the corner. This is precisely why the current market sentiment incorporates plenty of pessimism that can serve as fuel to sustain further rally.

Currently there are massive amount of infrastructure investment by the emerging economies such as China, India, Brazil, Russia, other Pacific Rim nations. This phenomena still has legs and the economic growth in these nations is likely to persist for next a few years. Major US multinational companies will continue to show steady earning growth. This earning growth will continue to surprise the market as many traders expect slowing earning growth momentum in the US. I think with plenty of the cash sitting aside and with many bears pleading for possible recession, the market will trend higher as it climbs a wall of worry.

We may see a short pullback in the market as the selling pressure has been building and people are seeking excuses to sell. However, I think if there is a sell-off, it will be much short-lived than the correction that we saw in middle of March. I think sell-off presents a good buying opportunity for our group.

I continue to recommend buying financials which will eventually benefit from fed easing. JPM and GS shouod be the names to focus. I see JPM bleaching above $60 long term. I am sticking with my TP at $270 for GS. I like China names. CTRP and FMCN should be bought upon weakness. My TP for CTRP and FMCN is $80 and $50 respectively. I also like AMR which has been lagging the market and its earning power is underestimated and underappreciated by the market. When the sentiment improves in the aieline sector, AMR should trade in mid $40's. Biotechs are good because its earning growth is less dependent. GENZ, PDLI, and CELG should be good names. AMGN has seen so much selling. But I stand by my convinction that it will see light at the end of the tunnel. IBM is a great multinational company to focus on. RIMM has been killing us because it is defying gravity. I have been wrong about this company and the company could go even higher from this level and even I am getting more bullish on the company but have not yet decide to change my view yet.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AMR: Technical support chart

2007-05-02T13:42:00.000-07:00

With recent decline in the share price, the share has broke down below 200 DMA long term support. With everything broken down (20, 50 as well as 200 DMA), long term support can be found by considering 2 to 5 year stock price trend line. I have attached simple 5 year Yahoo chart on AMR. If you draw the bottom out levels for last 5 years and draw the support line, you will find that the current stock price has reached near long term downside support line. Doing the same for the uptrend line shows that the stock can trade to near $50 level if the fundamentals improve.

Chart: http://www.investorhives.com/big_pic.php?fname=uploaded_files2%2Fjongyoo269.png&caption=AMR%205%20year%20trend%20line&msgid=451

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AMR: Negativities baked into the share price.

2007-05-01T23:48:00.000-07:00

American Airline (AMR) has seen huge selling pressure in recent weeks. When Dow is hitting all time high level every other day, seeing its share plunge by more than 30% from the high achieved in early Feb (low $40) has frustrated many long term share holders. FilthyRich hive initiated AMR into our core holding last Nov at the price of around $32 a share. The shares soon hit low $40 level in matter of a few months but since Feb of this year, share price has seen steady and at times fast decline to reach today closing price just below $27 level.

I believe current share price is a great buying opportunity. I believe patient investors could see the stock double from this level and I think current share price represents a great entry price for risk tolerant investors.

Let us look at what has been pressuring AMR to the downside. Single most important negative catalyst for the stock is the high fuel price (refined oil). Crude oil was trading at high $40 range in the beginning of this year. However, the crude has gone upto $65 to $66 level today. To make the problem worse, the refining capacity of the crude oil is undergoing temporary reduction due to several outages at various refinery locations. Political uncertainty surrounding Iran, Nigeria, and Venezuela is creating perception that crude oil supply will remain tight. In addition, with summer driving season approaching, oil traders are betting the price higher. Second negative catalyst is coming from Delta Air that will exit its bankruptcy this Thursday. Delta's exit from bankruptcy is seen to increase supply of airline stocks for the investors. Finally the economy is seen to slow down, reducing prospect of airline traffic among retail and business travelers. In summary, higher fuel price, slowing economy that leads to lower air traffic, and increased number of airline stocks are decreasing investor appetite for AMR shares. Multiple downgrades from analysts have occurred this week. With these events behind us, I believe AMR current share price has effectively is accounting for most of the negativity and downside is limited due to very low PE valuations.

So why am I bullish on AMR? I believe that high oil price is temporary and will come to level below $60 after the summer driving season. The fact is that oil inventory has been increasing (we will hear more on this tomorrow). Refining capacity shortage is short term in nature and is likely to abate after the summer driving season. If the economy is truly slowing as bears contend, then demand for oil is likely to be lower. It is granted that oil price this year has been a lot higher than my expectation. I expected that the oil would stay in the range between $45 to $55 in 07. But it is looking more likely to be in-between $55 and $65 but AMR can still make a plenty of profit even at these oil prices.

Economy is slowing but I expect slowdown will be gradual, still supporting healthy airline traffic volume. Housing and auto sectors will likely to show weakness for prolonged period. But the employment and industrial data looks still reasonably good. In addition, wage picture continues to look benign, supporting reasonable consumer spending pattern. Airline traffic volume will look reasonable as the economy will achieve soft-landing. While domestic air traffic may stall, international traffic could deliver healthy surprises. Weak dollar could encourage more foreign people traveling into the US and recent open sky pact between the US and Europe could spur healthy traffic volume for AMR in 07 and 08. Furthermore, 08 Chinese Olympic can also be a huge travel volume boost for AMR as it is likely to lead to increased travel volume among business travelers.

The fact of the matter is AMR continues to improve its operational efficiency. It is upgrading its plane fleet to new Boeing 737 from old MD-80 with the money raised from secondary offering in early this year. The cost saving initiatives are making the company lean and mean for generating nice cash flow from the operation. In fact, the company has cut its debt level by 2 billion to $17.5 billion. This reduction in debt level is likely to accelerate in 07 as the company now has the better cash generation model after so much business streamlining efforts.

Last April, the company has reported quarterly profit of 30 cents. This was first quarterly profit in 7 years. The company also hedged its 34% of fuel need for 07 at $65 and 27% of the fuel need at $63. According to some analysts estimate, AMR EPS estimate is seen to be about $4.5 with fuel price trading around mid $60 level. Should this oil price dip to low 60 to high 50 level, the EPS estimate can be hiked to $5.5 level. If more aggressive increase in RASM ( revenue per available seat miles) applied with oil price in the range of low $50, then EPS could skyrocket to the level exceeding $8 level.

Thus, AMR is trading with very low valuation. It is currently trading with PE of 6 based on 07 EPS estimate and lower than 5 on 08 estimate. Should more favorable oil price is seen towards late this year, this multiple could expand to 10, causing the share price to trade well above $55 level. I see possibly another 10% downside but see more than 100% upside. This is definitely favorable risk to award ratio.

In summary, AMR shares took most of the negativities into the share price and it represents great buying opportunity at the current price. I would be an aggressive buyer of the AMR share. Last week, I took some call option positions to reflect my belief that AMR stock has seen the bottom although recovery may not fast until investors become more confident that the economy is not heading into recession and the oil price will not skyrocket above $80 level.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

GS: another all time high: expect continued strength.

2007-04-24T01:31:00.000-07:00

Financials after lagging the market since beginning of this year are now coming alive. Now I believe that they are poised to outperform the market in the near term as they play catch up game with the rest of the market.

Goldman Sachs (GS) set all time high level today by breaking above $220. I continue to believe that my target of $250 is not only reachable in 07, but it may turn out to be very conservative. I expect the equity market will have another stellar year in 07. The liquidity into the stock market remains still very favorable. The valuation of the stock market also remains reasonable. The bears continue to see economy in trouble as the housing and auto sectors will take the economy into recession. Also spillover effects from the sub-prime mortgage was claimed to severely affect the consumer buying power. However, so far earning reports from the industrial and financial companies reveal sub-prime effects are largely contained and spillover effects are negligible. Also in the face of favorable employment rate and wage growth trend, consumers are able to cope with rising energy cost as well as possible negative effects from tightening credit. Thus, the economy appears to be still in a good shape.

Because there are many shortsellers who betted on the market decline, the market is not awarding GS much multiple. Many expect GS cannot sustain the earning momentum in 07. EPS estimate have come down and PE multiple are at just above 10. I believe that the market is grossly underestimating the earning power of GS in 07. The private equity and M&A activities are rampant. Oversee markets especially in Pacific Rim where GS has a strong presence is exploding. The economies in Asian countries are outpacing the growth in the US and GS is seen to be primary beneficiary of rapid growth in the Asian nations such as China, India, Korea, Japan, Taiwan as well as Singapore.

I continue to believe that hot commodity and energy market coupled with boom in the private equity and M&A activities will help GS to beat the earning estimate by a wide margin. I see May estimate of roughly $4.8 can be beat easily by as much as 50 cents. I see the market finally awarding higher multiple for GS once this happens. If the market multiple expands to 12 from lowly 10 level. GS may trade to $270 based on $22.50 EPS estimate that I think is reasonable for the company in 07.

The news of GS underwriting $2.5 Billion TSMC ADR along with JP Morgan hit the news wire after the market close today. Last two months, I don't recall a day without hearing some news of M&A, underwriting, private equity, etc. This market has been nightmares for shortsellers. The fact that there are so much shortsellers out there and so much put buying may continue to fuel this market to the upside as the shortsellers scrambled to cover to minimize their loss.

For this reason, I see sustained short term rally and I especially like financials at this point. Among the brokerage names, I like GS the best and among the bank names, JP Morgan seems to be the one to have.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

JPM: it will be a shining star in a cloudy market.

2007-04-17T15:51:00.000-07:00

With Dow’s advance this morning, DOW is now 15 points below record close. When the market corrected in late Feb/early March, people sold everything in sight. However, all emerging markets that include China have not only recovered but are trading at a record level. The US DOW now sees record close in sight. Heading into the April earning, I expressed my opinion that the market bottomed and asked you to start buying back shares more agressively.

see http://investorhives.com...)

JPM amid the concern over the sub-prime loans fell during the corrective period. Also the banking sector in general has lagged this recovery. With Citi beating the consensus estimate yesterday and giving some support to the theory that financials earning outlook is not as grim as it is feared, I believe the financials will finally catch up with the rest of the market. I emphasize that not all financials are created equal. I do believe that sub-prime loan is a serious earning concern for specialty names in mortgage loan business. However, large integrated bank/ brokerage names will continue to see modest growth environment. As the street has discounted the steep earning drop into the share price, these names can surrpise/comfort the street by simply coming inline and the share price can rally thereafter. This is what happened to Citi yesterday.

JPM will report its earning before the market open tomorrow. I continue to love JPM's outlook. The consensus number for JPM tomorrow is $1.02. I expect JPM is one of only a few numbers that will actually beat the consensus estimate meaningfully. I expect the company to deliver 3 to 4 cents above the estimate. I believe that this performance will force several firms to hike 07 and 08 estimate despite difficult business environment of the financial sector. This is likely to lead to TP revision by analysts and the stock could be set to show nice buying interest.

Why am I bullish on the firm? JPM's earning leverage is just unfolding from many ROE metric improvement initiatives that have been implemented under the leadership of Jamie Dimon. JPM in my opinion will grow the revenue and EPS will grow faster than the revenue due to much improved bottom-line structure just after Bank One acquisition period.

Investment Bank is likely to deliver another exceptional Q for JPM. C, GS, Morgan Stanley and UBS earning all supports robust environment in the IB sector and I see no reason why it should not be the case for JPM. Furthermore, JPM has been emphasizing trading investment opportunities in energy/commodity. As oil and commodity price once again soared this Q, JPM IB business could deliver elements of surprise from trading revenue.

Retail banking segment of JPM is heading into Q with much lower expectation. Last Q. JPM sold large portion of sub-prime loans, taking some loss. This action was smart as it has lowered the exposure to the sub-prime market and stabilizing the business outlook in this sector. JPM has one of the lowest sub-prime exposures of all large/mid size banks and given the bad sub-prime market hangover, the bank is poised to outperform others.

The firm has bought back 21 mil shares in last Q and currently has authorized cash to buy additional 107 mil shares (3% of outstanding). I expect JPM will work this cash continuously throughout the Q shrinking share count basis and accelerating EPS performance. In addition, better performance in generating cash is likely to result in hike in dividend and I believe this may be imminent any day.

In conclusion, JPM has another 30 to 40% upside from here. I think the stock is headed to mid-60 level towards the year end. As people continue to worry about the mortgage and sub-prime market and as the market continue to climb a wall of worries, JPM is poised to ser new highs throughout 07 and love the stock at current level.

I would be a buyer heading into the earning tomorrow morning.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

RIMM: summary of analysts' comment on earning

2007-04-12T19:00:00.000-07:00

Notablecalls are out with a nice summary on analysts comment on RIMM. As I outlined in my previous message on RIMM, several buy side analysts are defending the stock, claiming that the stock is a good buy on the pullback.

(see http://www.investorhives.com...)

Buy-side analysts continue to stick with their aggressive estimate (possibly raising some in their future forecast). The stock will continue to have the burden of beating the estimate as the expectation builds up again heading into the next Q. The psychology and enthusiasm has broken down somewhat after the disappointing current Q result. The stock could be in a real trouble if RIMM fails to surpass the once again getting lofty expectation next Q. The company is executing well on growing the revenue and sub add fronts. However, the investors continues to expect this trend and this caps the share price upside potential as all the good news will be a once again built-in. Any slight negative news will serve as a catalyst to push share price lower. I don't like the risk to award ratio here and continue to recommend the playing the stock on the short side.

Bee below for the notablecalls summary.

http://notablecalls.blogspot.co...

Research In Motion (NASDAQ:RIMM) getting plenty of comments following quarterly report.

Merrill Lynch notes that Feb Q sales were up 66% YoY to $930.4mn, shy of their $942mn forecast, as ~100K handset shipments were delayed. EPS of $1.01 was inline with strong gross margin of 53.5%, offset by increased spending on stock options investigation. Firm estimates these temporary effects cost RIM about $33mn in lost sales (100K handsets at $336 ASP) or 4-7c in EPS. While inline results could disappoint short-term investors, firm believes long-term trends remain solid.

May Q outlook on sales ($1.05bn), subscribers (1.14mn), handsets (>2.25mn) and EPS ($1.05) was largely inline with their recently raised estimates. However, pent-up demand for RIM's new product launches (Verizon Worldphone, T-Mobile WiFi Blackberry) could drive meaningful EPS upside (+4c to10c) during the May quarter. New applications/partner launches during RIM's analyst day (May 7 - coincides with WES Conference) could also create positive headlines, in firm's view.

CIBC says that while RIMM came in a bit below their aggressive expectations, they see growth opportunities and a strong foundation for the company. But with the stock priced for perfection, the in line quarter and outlook are likely to weigh on investor enthusiasm and question the possibility of near-term upside.

Firm expects a modest pullback in the share price and remain comfortable with their SP rating. This reflects the strong outlook, but is balanced by the opex increase and changing mix and risk profile. Depending on the magnitude of the pullback, a buying opportunity could arise.

With respect to stock options review, ThinkEquity notes that they previously interpreted the company's no "intentional misconduct" language in conjunction with the lack of high-level employee departures as a sign that the future impact from ongoing regulatory investigations would likely be benign. The SEC's escalation to a formal investigation suggests that things on the stock option pricing front will likely get worse before they get better.

Firm says that senior management's handling of the pricing investigation expenses, while well-meaning, is one of the strangest things they have seen on the management/governance front. It appears to us more an admission of guilt than a good faith gesture and it has an aftertaste of "too little too late."

Cowen notes that guidance for the May ending quarter is somewhat uninspired, capturing standing GAAP EPS consensus of $1.04 (new range os $0.99-$1.07). Lower GMs, higher legal & administrative costs associated with the ongoing OSC/SEC inquiries and a higher tax rate keep a lid on earnings forecasts for a second straight quarter. Higher revenue is driven by sub guidance (1.125-1.15MM) , hardware units.

Firm's EPS estimates are essentially unchanged despite a much higher top-line. At ~34X their standing C08 EPS estimates - and little upward movement to numbers - firm sees RIMM's multiple coming in a bit.

Notablecalls: RIMM's in-line results and guidance were disappointment for the buy-side. Looks like there's more of the same to come as higher opex and options overhang push out the margin expansion. Add higher risk associated with the options investigation and you can see why the stock is trading at the lower multiples today than it was yesterday. See no reason to hold the shares at the current pre-market levels of around $136.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

RIMM: investor expectation too high for the stock

2007-04-12T11:35:00.000-07:00

It has been a while since I was able to post message. I am having a bit of break from torrid day time job work load.

RIMM has reported its April Q earning result after the market close today. RIMM (Research in Motion) is a famous blackberry handheld email/phone maker that all business men are supposed to be addicted to. We have initiated RIMM last Nov into filthyrich core list as a short candidate.

Previous posts on RIMM:
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...

The initiated price was $133.61 with TP at $95 a share. Since the coverage in our universe, the stock price has remained extremely volatile. The stock traded anywhere between high 110's to mid- 140's. Ahead of the earning, investors were anticipating another blowout Q and bid its share price to the another all time high level just below $150. Analysts were raising TP and the earning estimates prior to the earning date revised higher. The stock was heading into the earning with very lofty expectation on the revenue, EPS, as well as the sub add metrics. RIMM also needed to guide higher on all financial metrics in order to justify surreal PE that is approaching 32 based on 08 earning number. From a risk to award point of view, the stock had more downside than upside; most of the good story was baked into the share price and RIMM had to almost destroy all the consensus earning numbers to see further buying interest.

The stock is tanking hard after-market. RIMM has failed to exceed on most of the earning metrics. The company reported 930 mil in revenue, a little shy of the consensus number of 935 mil. Some folks were actually talking about company delivering above 1 billion. EPS of 99 cents was just a penny shy of $1 expected. The company essentially came in line with the bottom line number. The sub adds number was 1.02 mil, lower than the company guidance of 1.12 to 1.15 mil. Some estimate called for this number to be as high as 1.2 mil. So this is a disappointing result. The company continues to paint bullish pictures for the coming Q with 1.12 to 1.15 mil sub adds and the revenue number of 1.02 to 1.07 billion. Since there are so many bullish analysts out there, I believe that they will focus on these slightly better than expected guidance number and give defensive remarks tomorrow. This may serve to limit the downside somewhat. However, current Q earning was unimpressive nevertheless and I expect to see a lot of selling pressure tomorrow.

Other than the earning metrics number, I also saw some additional areas of concern for RIMM. Notably, there were signs of inventory build with the channel inventory rising by 250K in Q4. Although RIMM released additional new products this Q, new products failed to improve gross margin which has been steadily declining over last two Q. GM is now below 52% versus 56%. Pearl with lower ASP has a lower gross margin than other RIMM legacy product lines and as Pearl ramps and replaces some older RIMM products, GM continues to erode.

The heart of the argument for higher PE multiple for RIMM lies in the company's ability to go after highly lucrative recurring data plan revenue, especially that associated with corporate customers. However, although RIMM is growing its revenue nicely, high margin revenue may be harder to come by for the company. For instance, the company's hottest selling product Pearl is only seeing 20 to 30% data plan sign up at T-mobile. As RIMM penetrates consumer market, the company could rely too much on the one time hardware sale for growing the revenue. The pitfall of this situation is that hardware is never a high margin business. And as competition hits up with Apple entering the smartphone market in June, it becomes harder and harder to justify the premium multiple that RIMM is getting compared to its competitors such as Nokia, Motorola, Palm, LG, and Samsung.

As a last point, informal SEC investigation in option practice has turned into the formal status. This may also have near term negative impact on the share price.

In conclusion, RIMM has failed to deliver this Q and selling pressure is expected tomorrow. I see stock trading lower, possibly to high 120's before analysts come out and start defending the stock more aggressively. However, with slower seasonal period coming up for the company as well as with increasing hype on Apple iPhone entry, I see few catalysts to own RIMM shares given the disappointing earning performance this Q. RIMM will get the benefit of the doubt this Q from so many analysts who recommended this stock. However, if it repeats similar performance again next Q, it will raise some eye brows and more serious damage can occur to the share price. I continue to stand by my recommendation to take short position on the stock with TP of $95. TP of $95 is arrived by assigning general EPS estimate of $5 for 08 with PE multiple of 20 for the company, which are more appropriate for the well executing hardware tech company.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

Correction nearing its end: redeploy your cash before April

2007-03-21T22:26:00.000-07:00

The market had a fantastic rally after the Fed policy statement that was released 2:15 PM EST. The Fed continues to state that inflation is its primary concern but the tone had much more neutral bias. Fed further acknowledges the slowdown in the housing market.

Financial stocks performed terrific this afternoon. Both filthyrich financial ideas (JP Morgan and Goldman) saw significant buying interest. Both JPM and GS sold off in recent times amid general market correction, brought on by collapse of the China stock market and concern of sub-prime mortgage crisis. In my opinion, investors have unjustifiably thrown the baby out along with the bath water. Although sub-prime market is in trouble, its impact is relatively well-contained within the sub-prime segment. In fact, earning calls from GS, Morgan Stanley, Bear Stern as well as UBS reveals that given the right price, many well-run banks want to increase its exposure to sub-prime as they see additional opportunities within this segment.

GS had a fantastic earning this month. It continues to blow away the consensus earning estimate. It generates the piles of cash, which the company is using to buy back shares. While share counts decreases, the revenue continues to climb higher as the trading and other investment banking revenue remain strong. China exposure has been a concern for some investors but after the deep correction, China stock market has roared back to its old highs. The fact of the matter is that there are too much liquidity out there to depress the financial market worldwide. Real estate market is in doldrums and bond yield is shrinking. Where else the money would flow but into the stock market worldwide? I believe that GS earning story is not over and the firm is poised to generate EPS well above $24 a share in 07 and possibly higher in 08. The stock is grossly undervalued. I maintain my target price of $250 and would suggest that you take position in GS before April.

JPM also saw a lot of selling pressure due to sub-prime mortgage concern. JPM is the best positioned to show one of the best earning growth performance among integrated banking names. I expect in 07, the stock market will be driven by those select names with solid earning performance. The company also continues to buy back shares. Profit margin still has a room to improve and ROE metrics have improved significantly. The bank has the lowest sub-prime loan market exposure. Also look what has happened to the yield curve today. It is no longer inverted. As investors anticipate Fed rate cut sometime in the second half of this year, finally yield curve has become consistent with the market rate outlook. I expect the yield spread to become more favorable for banks over next several months. With this, JPM earning will likely to accelerate in 08. EPS in 08 could eclipse $5 and I believe the stock is headed higher above $60 by the end of 07. During this market correction, I have substantially increased my leap (call $50 08) position and if I am right about JPM earning story, JPM should make me mucho dinero.

I would start buying back china names aggressively. CTRP has weathered this correction exceptionally well. It is crushing its competitions such as elong and is likely to rule the Chinese online travel market. I am revising my target of CTRP to $85 from $70. I would be an aggressive buyer of CTRP once again. I will write a separate article on CTRP to justify my TP.

I would also start buying FMCN. I am upping my target of FMCN to $100 from $80. FMCN recent announced another acquisition of Allyes to get into internet ad area. This dominant company is becoming more dominant in China. It commands considerable market shares in all display and display related ads in first Tier and second Tier cities. Its valuation is attractive, trading at 18X 08 earning estimate. I believe that the market correction in the US and China is largely over. Although it may continue to consolidate for a while, I believe the market is likely to establish uptrend once again. I will also work on writing a separate article for FMCN to justify the TP adjustment to $100.

I would also consider looking into biotech names. I especially like CELG here. Celgene is waiting for European approval of Revlimid by the end of April. I see CELG’s Revlimid getting the approval in Europe for both MM and MDS applications. Many analysts see MM approval but have not reflected MDS approval in the earning estimate yet. This approval could serve as upside catalyst for the stock.

Finally, AMR and LUV have seen a lot of selling pressure. I also like them here. Temporary slowdown of the traffic has been weather related. As the economy cools, oil price is likely to moderate. Many expect the oil to head considerably higher towards summer driving season; I continue to believe that oil remains in the trading range between $45 to $55. The economy will grow but the growth rate will slowdown. This is truly bullish case for bulls. Inflation will remain under control. Fed will sit on the sideline and the earning will continue to head higher, although at slower rate.

In conclusion, I love where the market stands now. With correction largely behind us, I would be an aggressive buyer of our favorite names. Good luck to you all.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AMGN: continued sell-off: analysts adjusting TP lower.

2007-03-14T11:49:00.000-07:00

AMGN is seeing another sell-off today. On Friday, FDA announced its decision to put black box label on AMGN and JNJ erythropoiesis-stmulating agents which include AMGN's Epogen and Aranesp. Although adverse safety profile of Aranesp was already highlighted on certain areas of cancer applications for several weeks already, FDA decision is thought to cut doctors' usage of Aranesp and Epogen with patients with higher hemoglobin (Hb) levels. Goldman analyst cuts AMGN's 08 EPS estimate to $4.50. This is roughly 50 to 60 cents reduction in EPS estimate from some consensus numbers that I am aware of for 08. However, other firms see much less impact on the bottomline number. Even in the case of GS revised EPS estimate, AMGN is trading with PE of roughly 13 on a forward basis and I believe that the stock already reflects most of this negative outcome. I continue to believe that the selling is overdone. But do remember that the market sentiment can sway to the extreme level of either pessimism and optimism so I am not going to claim AMGN shares have seen the absolute bottom. However, I am not backing away from my long term bullish stance on AMGN.

Now on a separate note, UBS analyst today downgraded AMGN to reduce from neutral and cuts the TP to $56 to $71. UBS analysts cites that Medicare carriers are starting to drop coverage of affected drugs for anemia of cancer applications and the company is poised to lose revenue associated with these applications. Do note that despite this downgrade to sell rating, the downside TP is not much away from where AMGN is currently trading at. This is an indication that there is solid valuation support for this stock.

I am attaching Notablecalls take on AMGN released this morning so you may get better idea of what other firms are saying about the company today.

For the direct link of notablecall blogging site: http://notablecalls.blogspot.com...

Several firms comment on Amgen (NASDAQ:AMGN) after the FDA modified the label for erythropoiesis stimulating agents (ESA), incl. Aranesp and Epogen/Procrit, to include a black box warning, recommendation to start with the lowest dose and strong emphasis against exceeding hemoglobin (Hb) of 12g/dL. Medicare also allowed carriers to drop coverage of ESA for treatment of anemia of cancer (AOC) immediately:

- JP Morgan notes that although the revised safety warnings for erythropoietin stimulating agents (ESAs) reinforced the labeled usage as expected, the language regarding risks of use was more severe than they thought. The new language is harsher than the firm thought, where they are surprised that DAHANCA data, which has not been published in a peer-reviewed journal, would be specifically referred to in a black box.

Separately, CMS sent a letter to the national Part B carriers instructing them to discontinue coverage of ESA's for AoC. Thus reimbursement changes have come quicker than expected, though the impact to EPS appears manageable, in the range of $0.05-$0.08 on 2008 EPS for AoC alone.

Maintains Overweight rating. Despite the significant negative headlines regarding ESA safety in recent weeks, they still see weakness as a buying opportunity ahead of catalysts with upside potential: 145 trial data, the ODAC panel (May 10), and potential setbacks to the CERA PDUFA (May 20).

- Goldman Sachs expects use of ESA for AOC ($0.6bn or 15% of Aranesp sales) to decline significantly. Physicians will likely be more cautious and target lower Hb for the approved indications as well.The firm has modified their model to reflect a pessimistic scenario, assuming 12%, 24% and 30% reduction in Epogen + Aranesp sales in 2007-09, leading to a cut in our EPS (including ESO) by $0.11, $0.35 and $0.55 to $4.17, $4.50 and $4.89, respectively. GS model assumes launch of Roche's CERA in the US and Europe in 2007 and generic EPO in Europe in 2008 and in the US in 2013 (when patent of Epogen expires). Not included in the model are sales from new products, such as denosumab ($2+bn potential) and AMG-531 ($0.2bn) for which Phase 3 data should be available in 2007.

Maintains Buy but lowers tgt to $72 from $82.

- Baird says that while they understand some investors may have expected this move, we do think our estimates may need to be lowered.

Indeed, firm's recent EMR analysis indicating minimal Aranesp use above 13 g/dL. This same analysis, however, showed 13-14% of doses are delivered to patients with Hb >12g/ dL. They think these dynamics, coupled with recent AoC (anemia of cancer) reimbursement restrictions and the new label are bound to impact Aranesp revenue deleteriously.

Firm now models Aranesp revenue of $4.2B, $3.7B, $4.1B and $4.4B down from $4.7B, $5.2B, $5.6B and $6.2B for 2007-2010, respectively. They stress, however, that they view these new estimates as extreme. Maintains Outperform and remains buyers of the stock. Tgt goes to $80 from $90.

- Deutsche Bank maintains their Buy rating and $90 tgt on AMGN saying their rating is based on underappreciated fundamentals, discounted valuation and potential catalysts in 2H07. They continue to expect volatility related to EPO/Aranesp and CERA-related competitive landscape. Firm estimates Medicare-covered AOC sales to account for ~5-6% of WW Aranesp sales (50% of AOC sales is covered by Medicare), with any potential impact significantly reflected in their recently reduced estimates.

Notablecalls: Presently it sure looks like AMGN has nothing going for it. EPO problems on one hand with follow-on biologics on other. Yet, looking at things from a longer-term perspective, none of these problems is fatal. I have no view on AMGN stock in the s-t but I do believe the problems currently known have been discounted.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

FilthyRich hive bi-weekly communication - 3/11/07

2007-03-13T08:52:00.000-07:00

Dear members,

The market showed some signs of strength this week. Is the market on its way to resume its upward trend? I think we may continue to see choppiness and volatility. When the market advances too much for too long, people always expect bigger correction. Psychologically this may continue to bring out sellers who will use the minor strength in the market to liquidate their long positions. They will harp on sub-prime mortgage concerns, slowing economy, high energy prices, and other geo-political reasons to sell. Consequently, the market may retest its lows that we saw during the week of China market crash

Having said that, I believe we are mostly done with seeing big downside move. I believe that the market will spend its time consolidating and building its base to set itself up for another nice year in 07. I expect the market will start showing some signs of strength in late March to early April where earning expectation will drive the share price of many bluechip companies. I believe the first to rebound from recent sell-off will be low PE, large cap stocks so these names will be the first to recover. Depending on how enthusiastic the investors get upon the strength of the recovery, more speculative, small cap names could see buying interest sometime later.

Another upside catalyst for the market could be Fed rate cut in the middle of the year. No doubt that the certain sectors in the economy are slowing. After 17 consecutive rate cuts, housing, auto, as well as manufacturing continue to weaken. Job market and consumer retail business have been fairly strong. However, prolonged negative sentiment in slowing sectors of the economy will eventually weigh on the remaining sectors of the economy. I believe that Fed will be aware of this trend and will cut the rate. Big question is the direction of the oil. If oil price stays high, inflation pressure is less likely to abate and Fed could stand patted with the interest rate. However, if oil stays fairly ranged bounded between $50 and $60, Fed has a room to cut rate down the road. I believe it will be the latter case. The economy is slowing down and the demand for oil will be more controlled. I believe that the oil price will stay ranged-bounded as a result.

Let us walk through the individual names. First with the biotech sector, AMGN continues to get pounded. AMGN saw more selling pressure this week as FDA now seeks to put black box label on some of AMGN EPO products. The concern is that the doctors will discourage its use and impact AMGN's earning. I continue to believe that AMGN is highly attractive on price to earning multiple and investors are too negative on company's present product lines as well as the future pipeline. The stock has been beaten to death and I continue to advocate AMGN share purchase. CELG is a great buy at current level. Upcoming European approval of Revlimid will be the next catalyst for the stock to break above $60. GENZ sold off during this correction. Again, this is one of my favorite names in the large cap biotech space. It is a good buy at current level. PDLI reported earning last month. I continue to see PDLI staying strong with its royalty business and like the stock at current price. As for ISIS and ALNY, which are more speculative names, I would wait on purchasing any shares until the market sentiment improves for more risky names.

Moving onto financial names, I really like this sector. The sector that will benefit the most from Fed rate cut outlook is financials. It will respond faster than any others. While earning may decline for other sectors in case of economic slowdown (true in my opinion), financials already discount for many of these scenarios and earning outlook is instantaneously benefited upon rate cut. JPM in my opinion is the single best idea in large integrated bank names. I would be an aggressive purchase of the share at current price. Amid sub-prime loan concerns, GS also saw great volatility. GS will report its earning next Tuesday. I think the earning will be just fine but investors are nervous and may sell the shares ahead of the earning. At $200 level, I would wait a little more for additional weakness to be an aggressive buyer. Long term, GS will be a clear winner and I will stick with $250 TP for 07.

Moving onto transportation names, I continue to believe in moderating economy and leveling off of the torrid oil demand. As long as this turns out to be the case, both AMR and LUV will be fine. I love AMR at current price. It is a great buy here. LUV is also a good buy here.

China names have been the great areas of concern for filthyrich members. In fact, I got several calls and emails from my friends, asking about the fundamentals of these companies and decision to hold into these names. I would like to point out that on a relative basis, CTRP and FMCN have performed better than more speculative Chinese names. They are both consumer and media names that is expected to grow nicely with growing Chinese consumer economy. I believe that when Chinese stock recovers, these names will comeback in full force. I like CTRP in low 60's. I like FMCN in the mid-$70's. These two names are great buys at current level. I would start nibbling at these names. Realize that they could stay volatile so make sure you set aside some cash to buy them at a cheaper basis.

Moving onto tech names, OPWV and AVID are at hold at best. Do not purchase any additional shares. They still lacked the earning visibility and robust business model to deliver solid revenue growth. I am inclined to take the loss and moving onto better ideas in my June review time. IBM is the bluechip name that should do fine. I would be a buyer at the current price. TIVO reported earning last week. Earning loss was much better than the forecast. The company is finally thinking in terms of the profitability. I like the stock at current level. RIMM has gone up with vengeance in recent times. It continues to remain volatile. We have started this stock as a short idea around $133 and it is trading right around this level. But it has gone up by more than 10% and fell by the similar magnitude. Many analysts are revising its TP to even higher level around $160 level. RIMM could head higher but I continue to see competition emerging that could trouble the company. AAPL, LG, and Samsung are set to release next generation product in smart phones this summer and RIMM sales could taper off. I continue to stand by my short conviction on RIMM.

Finally with specialty consumer names, PEET is a great accumulate. Love the coffee and the company is showing nice growth in West Coast and is starting to expand its brand on the East Coast. I see Starbucks losing its brand value as high end coffee retailer and PEET could benefit from this trend as well. PEET is not going to be high flyers so don't expect immediate return on your investment and I would suggest more long term approach with this stock.

That is it folks.

Have a great day !!

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

JPM: nothing but soothing comments out of Analyst Meeting.

2007-03-11T22:59:00.000-07:00

JP Morgan Chase (JPM) held its annual analyst meeting in NY this morning. JPM has been my favorite large integrated bank name and we had JPM in the filthyrich core holding since 11/05. My investment thesis with JPM has been accelerating earning leverage as the bank executes on its turnaround efforts from dismal performance of the past under the new CEO Jamie Dimon.

See my previous articles:
http://investorhives.com...
http://investorhives.com...
http://investorhives.com...
http://investorhives.com...

JPM along with other financial institutions in the US has been hit hard during this market corrective period. The overhanging concerns that are currently plaguing the financial sector is the sub-prime mortgage crisis which may cause serious negative impact on the financial institutions with home mortgage exposure. Inverted yield curve which also reduces bank's revenue from shrinking NIM (net interest margin) has been another area of concern. Finally, investors have swiftly changed their view on the US economy that is vulnerable to enter into recession after recent market crash in China. Recession slows down all economic activities which may result in substantially challenging business condition.

JPM's management team has provided calming words to investors an Analyst Day. JPM management sees tremendous opportunities for organic growth. While Citibank is scaling down its business operation to cut cost and to boost EPS, JPM stands by its plan to increase investment to accelerate its growth and to further fuel top and bottomline growth. Investment banking continues to forecast strong pipeline. The strategy with IB segment changes from conservative “defensive” to more “offensive”. The bank sees more opportunities in the foreign energy market, fixed income market as well as possible new deals in the sub-prime mortgage market if some of the assets become more attractive. While everyone is trying to get out of the sub-prime market, JPM thinks sub-prime market could be opportunity when all the doom and gloom pushes down the asset price.

Some investors were concerned about JPM making a large acquisition in the consumer banking area. JPM management sees no need for immediate deal and wants to stay the business focus on achieving organic growth. I believe Jamie Dimon wants to get the share price as high as possible and this put JPM's share in much more powerful currency when the bank wants to expand its presence in the West Coast.

JPM also puts the worry about the sub-prime market into the rest by saying that the company sub-mortgage exposre is less than 5% of the total asset. In addition, the management team sees the stabilizing trend in the sub-prime loan delinquency trend.

I have uploaded the seven PDF files on investor day presentation by different JPM market segments. Please take a look at them for additional info for what was talked about at the meeting.

http://www.investorhives.com/uploaded_files2/jongyoo223.pdf

http://www.investorhives.com/uploaded_files2/jongyoo224.pdf

http://www.investorhives.com/uploaded_files2/jongyoo226.pdf

http://www.investorhives.com/uploaded_files2/jongyoo228.pdf

http://www.investorhives.com/uploaded_files2/jongyoo227.pdf

http://www.investorhives.com/uploaded_files2/jongyoo229.pdf

http://www.investorhives.com/uploaded_files2/jongyoo230.pdf

I have also included the Yahoo technical chart of JPM to give you some idea on the price range to purchase JPM shares during this corrective period (see figure below). JPM chart shows nice uptrend with extremely tough support at 200 DMA. 50DMA is a short term support that was broken down during this sell-off. This happened again last year during May-June correction. 200DMA was again the support then. The stock showed double bottom formation before resuming uptrend last year. I expect this to be the roughly same case. Right now, 20DMA is above 50DMA so the stock has a decent chance of bouncing back quickly. However, fundamentally the market may continue to consolidate for a while and although major dip may be largely over, volatility and choppiness still may exists till the end of this month.

http://www.investorhives.com/big_pic.php?fname=uploaded_files2%2Fjongyoo222.png&caption=1%20year%20JPM%20technical%20chart&msgid=414

I expect JPM to resume uptrend given the sound outlook and improving operational and profit metrics. Buy in increments towards 200 DMA of around $46 if there is a deep pullback. There also a fair chance that the stock could head higher towards 50DMA to form the double bottom so buying anywhere between $46 to $48 range would be a good place to start. Long term, I continue to expect the stock to outperform the banking peers and financials to shine in the second half of the year if the economy is slowing and Fed would be willing to cut the interest rate.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AMGN: More firms are out in defense.

2007-03-06T17:50:00.000-08:00

According to Notablecalls, JP Morgan and Deutsche Bank are in defense of AMGN, citing attractive valuation. More firms are defending the stock but the stock continues to slide amid investor pessimism on firm's ability to grow the revenue and on general market correction. Credit Suisse on a separate note upgrades the stock from underperforms to neutral as the stock hit its downside TP. But Credit Suisse analyst still remains skeptical of AMGN as the analyst think Arnesp and EPO products which accounts for 40% of the overall revenue is under attack by the competitions and negative trial data.

I continue to stick my neck out and pound the table for AMGN share purchase. Current stocks accounts for more negative outcome of deteriorating earning due to decline in the revenue associated with EPO products (including CERA entering and Physicians reducing the usage given the negative data). I tend to believe that the one needs to buy the stock when pessimism overwhelms investor outlook. AMGN has the better pipeline story and better growth potential than traditional pharmaceutical companies. Yet the company is trading with valuation lower than MRK and PFE based on PE and PEG multiple. Also do remember that the company has 5.5B active share buyback program which can be put to work.

Following is the comment from notablecalls.
(directlink: notablecalls.blogspot.com)

Two defensive notes out on Amgen (NASDAQ:AMGN).

- JP Morgan says that with AMGN shares now trading at 12.5X 08 consensus (vs. Big Pharma at 15), they would argue the selloff from anemia-related headlines is overdone. They find AMGN's risk/reward highly attractive ahead of the ODAC panel and CERA PDUFA, both in May. They are comfortable with the risk of trial 145 (Aranesp in small cell lung cancer or SCLC) as, like many recent negative anemia trials, target Hb levels are outside of commercial clinical practice.

The 145 study guides Hb levels to 13-14g/dl, higher than 97% of commercial oncology patients on Aranesp. Hence, even if Aranesp demonstrates harm in Trial 145, its relevance to contemporary practice is questionable, in firm's view. With 80% power to detect a 42% survival difference between the study cohorts, a smaller difference (e.g., 10%) is unlikely to reach statistical significance. So the most likely scenario, in their view is that Aranesp shows no difference (i.e. benefit or harm) between treatment arms.

Firm believes that a negative trial 145 is manageable for Aranesp where worst-case scenario, 10% of CIA sales may be at risk (~$285M). When also factoring in a potential hit to Aranesp in AoC, they estimate a total EPS impact of $0.13 or 3% of our 2008 ests of $4.83. Reiterates Overweight.

- Deutsche Bank thinks that Amgen's recent severe decline from $75.85 (1/22/07) to $61.75 (3/2/07) per share or $16B or 23% is unwarranted, and more than reflects impact from negative events sidelining investors. On valuation, AMGN shares are trading at 12x their 08 EPS est of $5.31 or 43% discount to its comp grp avg of 21x, making AMGN an increasingly attractive investment opportunity.

Sum of the parts analysis shows -ve events more than fully reflected in valuation. Firm set forth an abbreviated sum of the parts framework for forecasting financial impact from anticipated new KDOQI guidelines impact, and negative dialysis, pre-dialysis, AOC data and upcoming studies (including the 145 lung cancer CIA trial results in May). Net/net, firm est the sum impact to be $125M/$0.11 in 07, $265M/$0.23 in 08, and $283M/$0.20 in 09.

Notablecalls: The defenses keep coming, but this time Deutsche got to a new level - they are holding a conference call with investors to discuss the issues. Might want to grab a few commons ahead of the call at 10AM EST today. Tight leash though as the defenses have failed to work so far. Would love to see it gap down first along with the general market.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

FilthyRich essential shopping list.

2007-03-01T15:42:00.000-08:00

We are in the midst of the market correction that was anticipated sometime ago. China market crash (9% steep decline: biggest in 10 years) sent the shockwaves to the financial markets throughout the world including the US market. The investor perception about the world economy was the continued, robust growth, especially in BRIC countries (Brazil, Russia, China, and India) prior to the market correction. US economy was also seen to re-accelerate with housing picking up, consumer confidence at all time high levels, and industrials once again thought to outshine. In fact, people were worried about the economy re-accelerating and possible rate hike by Fed going forward as robust economy may bring fears of inflation into investor focus. Energy stocks recovered. Commodity stocks continued to set highs. Cyclical industrial stocks and emerging country stock soared and soared.

In my opinion, the market correction along with recent economic data point to the picture that is quite the contrary to the investor perception that I have outlined above. Chinese market correction shows that emerging market economies have vulnerabilities. As thousands of people lost money on China market crash day, it could weigh on the consumer confidence. In addition, it became also evident that the Chinese government is very concerned about the speculative nature of Chinese financial market. The government does appear to be determined to be control the growth rate to avoid steeper, prolonged recession down the road. This means slowing demand for the oil and commodities. In addition, the housing data out of the US market appears to be showing no signs of recovery. New home sales data remains anemic and the inventories are still at all time high level. Home prices are finally cracking down and this may finally take a toll on the consumer confidence. Manufacturing data looks troublesome: it is in deep slowing down mode. It does appear that the economy is indeed on track to contract although recession would be unlikely scenario in my opinion.

We have a great buying opportunity here after the market correction. The market correction will force investors to rethink their asset allocation in the energy, commodity, industrial and other cyclical names. Techs are cyclical. My recent research as well as contacts with semiconductor industry reveals stagnant market conditions at best. I am really worried about the possible deterioration of the business climate in the semiconductor area. It is definitely hard to be excited about techs at this juncture, especially if the economies in the World are slowing a bit. Upcoming April earning could show difficult earning growth environment for US conglomerates. As such, we should be looking for economically insensitive issues or already beaten down names with negative catalysts already reflected in the stock price as the primary names to focus.

I would consider the following 5 names among FilthyRich ideas.

1) JP Morgan (JPM)
2) Goldman Sachs (GS)
3) Celgene (CELG)
4) Amgen (AMGN)
5) American Airline (AMR)

JP Morgan (JPM) is a premiere large integrated bank in the US. Financials have been beaten down lately amid concerns over inverted yield curve and sub-prime mortgage crisis. However, JPM continues to show robust earning growth driven by the turnaround efforts of the new management team. JPM's exposure to the sub prime mortgage is lowest among peer banks. If the economy is indeed slowing down, Fed is likely to cut rates by the mid-year (with the stock market instability to the downside, it has more ammo to do this). JPM is likely to be a huge beneficiary of the Fed easing. It has Investor Day on March 6th, and the company may possibly address hiking the dividend.

see my recent opinions on JPM
http://investorhives.com...
http://investorhives.com...
http://investorhives.com...

Goldman Sachs (GS) took a steep fall as investors became concerned about its exposure to Chinese market. Although China may slow its economic growth, its growth is likely to be robust at least till 2008 Olympics. Fed’s easing will also be tailwind for GS. I think it should be the focus stock to buy during this correction.

See my recent opinions on GS
http://investorhives.com...
http://investorhives.com...
http://investorhives.com...

I like biotechs, especially large cap because their earnings are less impacted by the economic cyclicality. Celgene (CELG) has a lot going for it. Its earning growth is expected to be robust over next two years. Its blockbuster drug Revlimid is penetrating multiple markets outside core segments of MM and MDS. By the end of 1st Q, Revlimid has a chance of being approved for MM and MDS in Europe. I believe this will be a huge psychological boost for the stock. I like the stock at the current level.

See my recent posts on CELG
http://investorhives.com...
http://investorhives.com...
http://investorhives.com...

Amgen (AMGN) has been beaten down to death. Concerns over competitions in EPO market, negative data with Arnesp with several cancer applications as well as dissapointing Vectibix data in the 1st/2nd line treatment of colorectal cancer has greatly depressed the share price. To make the matters worse, Medicare reform works in Congress, which may potentially limit the use of several AMGN drugs, acted as negative catalysts. How much more the negative news drive this stock downward? Most of the bad news are in the stock price, I believe. As possible economic slowdown and earning deceleration takes the multiple of economic sensitive names lower, AMGN could spark investor once again; the investors are likely to seek valuation support and earning growth stability. AMGN’s earning is expected to grow another 15% YOY and EPS could near $5 in 08, which puts the stock trading with PE around 13. The stock is cheap.

See my recent posts on AMGN
http://investorhives.com...
http://investorhives.com...
http://investorhives.com...

American Airline (AMR) is a transportation name which is known to be sensitive to the economic conditions. Why then am I recommending this stock? Although economic growth may slow, I don’t think it will head into recessionary state where business and personal travels will be impacted. However, slowing economic conditions could portend reduced oil demand and hence AMR could benefit from reduced fuel cost that will significantly boost its earning in 07. As I stated before, I expect the oil price to be caught in trading range between $45 to $55. If this holds true, AMR could deliver EPS that surpasses $7 a share and the stock is then trading on PE of 5. I like AMR at this level as the stock has pull back from intraday high of $41 to below $35 level.

See my recent posts on AMR
http://investorhives.com...
http://investorhives.com...

I will talk about china names and other stocks if the market condition further improves. However, for now, five names mentioned above seem to be good place to start.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

Selling accelerates and the market in the crashing mode.

2007-03-01T15:38:00.000-08:00

Folks,

Selling in the market is accelerating. Compounded by the China market crash, weak durable order goods data, and the concerns over the sub-mortgage crisis, investors are finally selling stocks in a panic mode. This is the correction I have been waiting for.I am glad that my call for prediction (which made me stupid) is finally materializing. I am not glad that my portfolio is taking a beating like never today.

My put position which were costing me much grief lately is coming alive today. My long positions in the filthyrich ideas is getting pummeled. My plan is to take advantage of the put option price rise and take the profit over this semi-crash/deep corrective period and building more long position in the core ideas we cover. I am torn because I love when the stocks get cheaper but I hate when my account balance plunges. Having said that, I look forward to utilizing my cash ( that I have been raising (undeployed portion)) and scoop up many core ideas over the next two to three weeks.

I will outline what names to focus in the near future.

Do not panic (programming selling is making the indexes worse that it should be). Let us look for the next opportunities after this correction.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

China Market crashes overnight.

2007-03-01T15:35:00.000-08:00

Chinese market crahed overnight with Shanghai index falling by near 9% overnight.

(see http://finance.yahoo.com...)

This sharp sell-off triggered the worldwide sell-off including loss that you are seeing currently in the US market. Just about every stocks that I am following is showing signs of red. It may be possible that this sharp market correction in China stocks is finally triggering the correction that we were waiting for in the US.

I expect first sharp fall in the Chinese bluechip names and we may see additional speculation fizzle out with smaller speculative names. So the corrective period may not be over in China. We are currently covering CTRP and FMCN with china names. They are both medium risk consumer&media related stocks. I see them recovering quickly after the correction. I am continuing to recommend CTRP below $60 level and FMCN below $80. Watch these two stocks carefully because we will get a great chance to buy these names cheaper. FMCN just delivered nice results and guided the 07 estimates higher. I will provide more detailed analysis tonight.

Implication of Chinese stock market correction could lead to slowdown in Chinese economy (depending on severity of market correction). Ironically, this could help with easing the energy and commodity prices as a result of reduced demand. Also in the long run, this can help Chinese financial market to avoid serious prolonged downturn as it had attained the state of speculation and bubble in recent times.

I expect commodity and energy names to be weak in the US. Also brokerage names such as GS could see selling pressure due to its exposure in Chinese financial market. I anticipate that Chinese market correction is indeed a correction and we will get a great chance to add quality names at a cheaper price.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

FilthyRich weekly communication 2/25/07

2007-02-25T22:16:00.000-08:00

Dear members,

We are having a very interesting month of November for the stock market. I had expected some kind of market correction in the early part of this month. Although there were some signs of market choppiness and sector correction, broad market sell-off did not materialize. This is in parts due to Fed that continues to assure the market that the economy is slowing but growing and the inflation pressure is easing. The bulls see this as a great support for the market.

We could have a correction that the market has been expecting any time. Catalysts can be anything from higher energy price, Iran nuclear threats, North Korea political debacle, as well as political uncertainties in Latin countries, African Nations, and Russia. Also, we could see market sway back and forth as the economic indicators come out mixed with some signaling slowdown in the economy (housing, auto, sub-prime mortgage foreclosure, etc) and others suggesting more pick-up that may be worrisome for inflation-watching Fed (higher consumer confidence, elevated energy and commodity prices, higher wage trends, etc). Consequently, I continue to recommend keeping cash at a certain level so you may buy quality name stocks at lower prices if there is indeed a market correction. However, I do feel that 07 will be a nice year for the market once again and with Fed sounding more favorable for the market, you should definitely invested in the market.

Let us walk through individual names. First with the biotech sector, the biotechs have remained relatively weak as the investors are once again concerned with the Medicare reform acts in the Congress that can impact the earning of the large biotech cap names. Also a few well-known biotech names (AMGN and DNA) have reported disappointing pipeline trial results and have suppressed the sector enthusiasm. Finally, there is lack of FDA approval and medical conference news which are typically loaded in the second half of the year. So this sector may stay a little weak in Q1 and Q2. However, I continue to recommend your investment in this area. AMGN has reported negative news regarding its blockbuster drug Aranesp in several cancer applications. The stock is now trading at the valuation that is really cheap (~13X based on 08 estimates). I think you should continue to buy the stock. GENZ also reported the stellar earning in the middle of Feb, but saw the same fate as AMGN (concern over Medicare reimbursement issue and lack of the pipeline catalysts). GENZ is an also great buy. CELG is also nice buy here. It is waiting for European approval of Revlimid by end of March. We could see a near term rally with CELG upon approval. I like the chance of the approval and the stock should be bought at this level. PDLI reported earning last week. I also like this stock and its royalty revenue continues to be strong and I believe that the management's approach to partner with large biotech company to develop next generation drug makes a lot of sense. It is a good buy here. I would put “hold” rating on ISIS and ALNY. Given the nervous state of the market, it is not the time to speculate too aggressively. I think we should stick with mid to large cap names where the fundamentals are more solid, should there be a nasty market correction.

Let us talk about the financial sector. If Fed is really right about the state of the economy, I love this sector. Many bad news continues to take premium out of the stocks in the sector. Lately concerns of sub-prime mortgage affecting earnings of the small banks and loan institutions have depressed the multiple of the solid financial names. It is true mortgage specialists and small banks with high exposure to sub prime loan is in trouble. But do not mistake these names with solid brokerage and integrated bank names. Investors are throwing out the baby with the water. GS is a great buy here. Look at all these M&A and private equity activities. Energy and commodity market remains strong. The stock market is doing great. This is a great environment for GS and the stock deserves higher multiple. JPM is an outstanding buy. The earning power is by far the best of all integrated banks. This bank reminds me of LRCX in the semiconductor equipment play as a turnaround play. I love JPM although people tell me not to fall in love with the stock.

Moving onto the transportation names, both AMR and LUV has been weak as the energy price has been climbing back up above $60 level. Oil inventory has been climbing due to warm weather not only in the US but strangely in Asia nations as well (could it be global warming). Rising energy price is thus primarily contributed to nervousness related to Iran nuclear uncertainties. Once this concern abates, I expect the price to stabilize once again to level below $60. In fact, I continue to believe that oil will trade somewhere between $45 and $55. As such, I continue to believe in the airline companies to show robust earning growth this year. I like both AMR and LUV. They are solid buy at the current level.

Now with the tech names, Techs typically do less well in the first half of the year. Money managers love this sector. NSADAQ has underperformed the market for a while and they think that this will be the year NSADAQ will outperform the overall market. But I really don't see the huge catalysts other than the high hope among investors for this sector in the first half. Semi stocks are rallying in face of the poor fundamentals. I don't like this sector at this juncture. If there is a dip, you could buy for second half year rally but I would not chase stocks in this sector. In this spirit, OPWV and AVID is a HOLD at best. I am really studying the fundamentals of these two companies. Should they continue to underperform the market, I will declare loss and take these two names off our core list. IBM is a hold but good buy upon pullback. I continue to recommend short position on RIMM. PE exceeding 30X for an email company seems just too rich. TIVO will report earning in early March but has seen a great rally from $5 level to mid $6. I would not add at this point. I will preview the earning ahead of the earning date.

With specialty retail names, I am thinking about adding more names in this space to become more diversified in the core holding names. I will address this in the mod term review time in June. PEET is an accumulate. I love Peet's coffee. The franchise is continuing to expand its store network and earning growth has been limited to less than 10% due to increased cost. But once they throttle back on the expansion in a few years, I believe that the company earning growth will reaccelerate. Use this period of stagnation to add. But do not expect huge stock movement to the upside.

Finally with China names, I love this sector for a long haul. But the sector is still in the midst of market correction in China so it may be wise to buy on a dip. CTRP has corrected after the earning conference call as I have predicted. The stock is at a fair value but it is not a great bargain. I would only nimble at the stock below $60. Long term, the stock is risky but should reward you for taking the chance. FMCN will report earning on tomorrow night so stay tuned. I will provide with you with the earning synopsis.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

JPM: Buy the stock ahead of Analyst Day in early March.

2007-02-22T23:57:00.000-08:00

The shares of JPM (JP Morgan Chase) have been exceptionally strong in recent times. Throughout this week, the stock has been setting multi-year high. In my last article on JPM prior to January earning, I noted that the firm could deliver a few cents surprise with respect to the bottom line performance and the stock could decidedly break above the $50 level.

(See http://www.investorhives.com...)

JPM has surprised the analyst community by delivering another confidence building results that surpassed the consensus EPS estimate by nearly 10 cents. This became the catalyst to propel the stock above psychological barrier of $50 level. In my opinion, the stock has not done going up. I expect throughout this year, the company will likely to continue to report robust earning growth, driven by improvement in the company operational metrics and higher net profit margin. Current consensus for JPM for 07 may turn out to be too conservative and 08 estimate could range anywhere between $4.70 to $5 level. In my opinion, the stock now is very much poised to head higher towards $60 level.

Confidence building Jan Quarter

Last Q performance was exceptional. Driven by strong performance in the investment banking and asset management segment, the company gave more credibility and confidence to the investment community. Trading performance of the firm has improved significantly. In addition, Credit Card business remains solid. Pipeline in the investment banking remains fantastic, driven by continued flow of M&A and private equity activities. Big question remains with the traditional banking side, namely retail financial services and commercial banking. However, I continue to believe that the economic indicators will be mixed, with some sectors such as housing and auto declining and other sectors such as retail and industrials leading the modest growth. The wage picture remains fair and I also expect the energy price will be caught in the trading range between $45 and $60. As such, I continue to believe that Fed will stand put with the rate and ease towards the end of this year. Should this happen, the rate picture become much more favorable for the retail banking segment and JPM earning growth will accelerate even further.

Own ahead of Analyst Day.

As the management team becomes more comfortable with meeting their previous guidance for profitability, I expect the company to picture even rosier outlook for future business. Also I suspect that JPM management team may decide to hike the dividend payment to the shareholder in the coming months and they could indicate this over the Analyst Day. Some are concerned about possibility of large acquisition for JPM which will dilute the company earning performance. However, I continue to believe that the company will be very opportunistic and take the deals that are additive to the earning performance. In my opinion, the market may anticipate the bullish tone of the analyst day and may buy ahead of the event. And you should be doing the same. I will pay close attention to what is said during the analyst day and ponder on the current target price of $60.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

WFMI: Takes out Wild Oats (OATS) and the stock soars.

2007-02-22T11:48:00.000-08:00

Whole Food (WFMI) is the ultimate grocery store for the organic food. The store is known for the fresh, quality organic grocery at premium prices. The brand is well received among consumers and the company has been growing at a brisk clip along with soaring share price until recent times. However, as the valuation started to become a little bit stretched and the earning momentum started to wane, the share price saw steady and at times abrupt decline. Today the shares are soaring as the company took out its primary competition, WILD OATS as an acquisition candidate. I have started to look at the company for a long term idea and pondering on initiating the stock by mid year update or year end update time (June and Dec). With today's larger than 13% gain, the stock is further away from the level where I like it. But I will keep an eye on the stock and let you know if the valuation becomes attractive with respect to the earning growth rate.

Following is the excerpt from Notablecalls. The direct link to this stock blogging site is notablecalls.blogspot.com. Again, this is a great source for summary of analysts' comment on the stock that you are interested. Investorhives.com is working on RSS feeding this site to our news and blogging section so check it out soon.

Several tier-1 firms are out with excellent comments on Whole Foods (NASDAQ:WFMI) after the co issued CQ4 results and the acquisition of one of its main competitors:

- Morgan Stanley notes that as Whole Foods has a strong track record of turning around underperforming natural foods retailers, and they see significant opportunity for both overhead cost savings and store-level productivity gains, they believe this merger will be a significant earnings driver for Whole Foods over the next several years. Using what they view as conservative cost savings and productivity gains, firm's pro forma 2008 EPS rises to $1.88 from current levels of $1.74 and pro forma 2009 rises from $2.08 to $2.37. Applying a 35x P/E, they arrive at a $66 12-month price target (35x pro forma 2008 EPS of $1.88) and an $83 2-year price target (35x pro forma 2009 EPS of $2.37). MS believes investors who have been on the sidelines should ramp back into WFMI shares as they see a multi-year period of significant merger-related earnings growth. Rates WFMI shares Overweight.

- Goldman Sachs says that based on 1Q results alone, they believe that shares would have traded lower. Not only did EPS fall short, but pre-opening expenses will increase as the year progresses. As such, 2007 estimates may need to come down further. Thus, they believe the Oats transaction is largely responsible for the shares' 5% after-market rise. Part of this reflects potential year 2 accretion and some may be short covering since an Oats deal was unexpected. That said, given how the quarter played out and that the next several will be choppy, short covering may not be as pronounced as usual and the shares could trade lower in the intermediate term. The firm therefore maintains their Neutral rating. In their view, however, the longer-term story is intact and they would take a hard look at the shares if they fall to the low-mid $40s.

- Some of the most interesting comments come from JP Morgan saying they obviously hadn't counted on an acquisition of competitor Wild Oats by Whole Foods. Normally, they shy away from acquisitions of these sorts. Nonetheless, the potential value of this transaction is evident as WFMI attempts to acquire its largest competitor and redefine itself as a large company with $12B of sales potential. They give the company the benefit of the doubt and reiterate Overweight rating on the stock.

Given the timing, this deal is likely as much defensive as much as it is offensive. Firm likens this to Walgreen’s purchasing Rite Aid, or if Best Buy purchased Circuit City - both lower margin, lower productive competitors. The truth here, though, is that given the addressable market potential ($400B+ food retail sector annual sales potential) and the onslaught of competition, particularly within organics, the FTC shouldn't be an issue here, in their view. It would likely be for those other sectors. So, Whole Foods is essentially getting the opportunity to purchase its largest competitor, which operates at 49% of the sales per square foot of Whole Foods. This is where the true synergy potential is, as OATS has been a significantly mis-managed company, in their view, with clear merchandising and cultural issues. Whole Foods, on the other hand, is known for its merchandising and its culture. Both companies are non-union. This compensates for the inherent risk with the deal (as WFMI currently has a full plate with an aggressive new store development target, for them).

Due diligence of the OATS deal by WFMI lacked substance, in JPM's view. John Mackey, CEO, apparently contacted Wild Oats within the last two months. Interim CEO, Greg Mays, replaced former CEO Perry Odak on 10/25/06 (Odak resigned on 10/19/06), while the old CFO (Bob Diamond) resigned on 12/20/06. John Mackey indicated that he contacted Mays after the CFO had resigned, which implies after 12/20/06. They announced the acquisition on 2/21/07. Ron Burkle, who owns 18% of Wild Oats, has a history of selling his companies well, a la Dominicks (to Safeway) and Fred Meyer (to Kroger).

Notablecalls: Expect to see some short covering today and over the next couple of days. In the very s-t the rug was surely pulled out from under the bears. On the other hand, WFMI now has their plate full and acquisitions almost always cause operational disruptions.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AMGN: comments from analysts who were defending AMGN

2007-02-20T23:25:00.000-08:00

The following is the excerpts from notablecalls.blogspot.com. it outlines well the view points of the analysts who were defending the stock on DAHANCA announcement.

Couple of firms are out in defense of Amgen (NASDAQ:AMGN) after the "Cancer Letter" posted interim results of an investigator-sponsored Danish study (that itself was posted last December on the investigator's website) looking at Aranesp in head and neck cancer patients that showed more frequent treatment failure rates in patients treated with Aranesp:

- Baird says they are incremental buyers of AMGN after Friday's weakness which stemmed from a misunderstood result of a halted Aranesp trial in an off-label setting using a much too high dose. This trial has little to do with "real world" use, and they see little commercial impact.

First, this study was not designed to show Aranesp's efficacy in hemoglobin correction but rather looked at its therapeutic effect as a radiosensitizer, targeting a hemoglobin range (14.5 g/dL - 15.5 g/dL), which is far in excess of its labeled range which could be considered safe. The Aranesp dosing required to get hemoglobin levels that high also significantly exceeds recommended dosage.

Second, and more commercially relevant, management indicated Friday on its conference call that physicians simply do not use Aranesp in these patients, nor do they use the excessive Aranesp doses required to get hemoglobin levels that high. It should come as no surprise that using excessive levels of a drug in a patient population it is not indicated for may yield some negative effects.

Reiterates Outperform rating, $90 price target.

- Wachovia notes that while they believe negative clinical outcomes observed in DAHANCA 10 and the AOC trials should not be trivialized, it is unclear whether those attributed to Aranesp were due to underlying disease or ramifications of pushing hemoglobin levels too high. Importantly, adverse event rates in DAHANCA 10 were equivalent in both arms of the study. Although EPO receptor expression analysis from various tumor types may be inconclusive, studies investigating EPO signaling in tumor growth arrive at an array of disparate conclusions, by firm's interpretation.

The latest FDA warning applies to use of all EPO agents, which theoretically includes C.E.R.A. (Roche) whose BLA is currently under review at FDA for treatment of anemia associated with kidney disease. With a distinct pharmacokinetic profile from Aranesp and the unmodified erythropoetins, it is conceivable that FDA will analyze the C.E.R.A. safety data with increased scrutiny, potentially delaying approval, in firm's view. They believe such an outcome could lift a significant overhang also weighing on AMGN stock.

Reiterates Outperform rating. Decreasing '08 Aranesp sales estimates by 5%, AMGN now trades at only 13.6x firm's '08 EPS estimate of $4.92 on an estimated 2006-2010 revenue CAGR of 10%. Believing recent pressure on shares to be a result of a market overreaction and that these overhangs should lift following 1H 2007 quarterly results and anticipated news events, the firm would take advantage of this recent pullback to buy AMGN shares.

- JP Morgan notes that though the complete DAHANCA 10 results are not released, available information suggests that Aranesp may not be appropriate for this niche indication that is not in our model. Indeed, very few if any oncologists treat non-anemic patients with Aranesp outside of a clinical trial setting. Current commercial treatment regimens utilize much lower Hb targets (11-12g/dl) in anemic patients only.

CERA remains the lever. Despite the noise on Amgen's anemia franchise, which has driven multiple contractions, the firm remains bullish on Amgen¡¯s risk/reward going into the May PDUFA for Roche's CERA.

Reiterates OW. Despite a less than 16 multiple on their 07 EPS est (biotech peers: 30X), AMGN still has a 06-10e EPS CAGR of 12%, in line with biotech peers (14% ex-MEDI, CELG) and actually higher than Genzyme (10%).

Notablecalls: OK, I must admit AMGN's management messed up by not disclosing DAHANCA 10 results soon after they were known. On the other hand, it wasn't a trial handled by the co. Judging by the way the analyst community is defending the stock this AM, I think investors will be back buying the stock hand over fist over the next couple of days. I just don't see the recent decline as justified. AMGN's dirt cheap here trading only 13x FY08 EPS. Buy it! The defenses are actionable!

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AMGN: Tired of saying "undervalued"

2007-02-20T23:21:00.000-08:00

I am getting tired of stating AMGN is undervalued. But I will have to say it again: AMGN is grossly undervalued. The risk to award ratio is favorable and if I was recommending the stock above $70 level, I would be definitely recommend the stock at today price of $66.35.

AMGN saw a lot of selling pressure late last week due to Danish Cooperative Group Head&Neck Cancer (DAHANCA) trial result show increased progression of tumor cell with Aranesp for patients with hemoglobin level above 12 g/dl. Credit Suisse came out with negative comments stating there is an increased risk for AMGN; the insurers and physicians may pare back on the use of Aranesp/EPO products, given the possibility that physicians may become more concerned with negative side effects of EPO products for patients with higher hemoglobin level. The firm also questions that credibility of the management team as it was disappointed that AMGN did not release DAHANCA results during the last conference call. The firm sees slightly decreased estimate for AMGN: revised to $4.04 from $4.12 for 07 and $4.57 from $4.54 for 08. The target price is at $63.

In a separate post, I will post a link which summarizes the view points of many analysts who were defending the stock on DAHANCA announcement.

My take is that even with the decreased EPS estimate from Credit Suisse, AMGN is trading at 14X the 08 EPS. If you take the more bullish analysts' side, it appears that the stock is trading with PE multiple ~13X based on 08 EPS estimate near $5. At this point, AMGN is trading cheaper than some traditional pharmaceutical companies (MRK, etc) and yet the growth rate is expected to be substantially greater than traditional pharmacy companies. All the negativities are built into the stock price. Consequently, AMGN could languish further as the momentum traders continue to bash the stock but I see limited downside and think that risk to award ratio is pretty good for those with the long term outlook on the stock. I continue to stand by my target at $100 for the stock.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AMR: Expect to see multi-year high tomorrow.

2007-02-15T19:25:00.000-08:00

BusinessWeek is reporting this evening that AMR is a possible buyout target of Goldman or British Airways. The expected deal is thought to be anywhere between 9.8 to 11.2 billion, making the shares of AMR valued anywhere from $46 to $52 a share. In response to this press release, the shares are trading sharply higher after the market to the level it has not seen in years. I expect that AMR shares will see multi-year high tomorrow when the market opens.

(http://yahoo.reuters.com...)

FilthyRich hive has initiated AMR into our core holding ideas last Nov at the price of around $32 a share. Since then, the shares have been on a torrid rise to $40 level.

(http://www.investorhives.com...)

The shares have stalled recently as the oil price has climbed back to near $60 level. The world economies are seen to be growing at a modest pace and many investors are inclined to think that oil price will be substantially higher again this year. My opinion is that as Fed officials both in the US and many emerging countries are concerned with inflationary pressures, should there be unacceptable level of energy price rise, the rate will be elevated to curb the energy price rise. As such, I do believe that oil price will be in caught in the trading range between $45 to $55. Lower price will be the tailwind for AMR and I see AMR earning growth that can support $60 share price.

(see previous message http://www.investorhives.com...)

Another notable trend is the rise in the airfare. Southwest (LUV), another stock covered in the filthyrich hive, recently hiked the airfare. This was matched by other regional and legacy carriers. Industry consolidation, higher airfare, and normalizing traffic after the cold weather as well as oil price that is likely to head lower as we exit cold winter season will portend improved business environment for all airline companies. Regardless of the takeover rumor of AMR, I like the sector fundamental enough to be an aggressive buyer at a decent pullback. I currently have $48 target on AMR and $21 target on LUV. As the sector fundamentals improve and oil price stabilizes, the TP for the both companies are likely to revise higher.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AMAT:Splinter sticking his neck out and calling the trough for this down cycle.

2007-02-13T23:56:00.000-08:00

AMAT reported the earning after the market close today. Listening from the conference call, the company reported largely inline top and bottom line results. The EPS number of 26 cents was one cent below the consensus estimate. Topline number of 2.28 billion was just a little shy of 2.5 billion expected. Given the downturn that many investors are expecting, these numbers did not have any meaningful implications for the share price. Instead, the investors were seeking any signs of business uptick in the future.

Today CEO Mike Splinter is feeling really bold. The stock price is headed higher after the market as CEO calls for trough (business cycle bottom) this Q. This is in sharp contrast to very cautious stance that other equipment company CEOs are taking in their January earning calls. Splinter sees bottom in logic order this Q and the order is likely to head higher over the coming Qs. He also sees pickup in the memory (flash) segment in the second half of 07. He was also bullish on the flat panel as well as service business going forward. Given the significant underperformance of share price compared to its competitors such as NVLS, KLAC, and LRCX during last upturn, Splinter’s job is perhaps on the line if the stock continues to underperform. In my opinion, Splinter put the job on the line today. If he is right, he will be the hero of the industry by correctly forecasting the bottom and positioning AMAT for the next upturn. If he is wrong, I expect to see someone else in the helm down the road.

Regardless whether he is right or wrong, I continue to prefer other equipment companies over AMAT. The company is too diversified (solar, service, silicon, and flat panel). This may have saved the company from seeing more steep order drop as the other equipment companies. But as the next upturn kicks in, this could work against getting the greater earning leverage. AMAT is also exiting implant business. Implant business is significant portion of overall silicon business. As the device gets more complicated, number of implant steps goes up drastically on the transistor level. I don’t know why AMAT chooses more R&D efforts with solar which does not yield any meaningful revenue over implant which can be a cash cow. With shrinking number of chip customers, increased product life time (taking more time to shrink), and fierce competitions on all silicon process fronts, AMAT has lost its luster as being dominant player in this space. I would be a seller of AMAT above $19. If you believe Splinter and want to play in the semi-equipment space, I prefer LRCX, NVLS, and KLAC as a large cap names. In addition, as AMAT exits implant business, Varian (VSEA) and Axcelis (ACLS) could be superb plays. There are so many more attractive names in this space that I would stay away from AMAT.

As for believing in the bottom for this cycle, I continue to believe that we are just starting to see inventory correction in memory space and could last well into spring and early summer. As such, there will be continued flow of negative news from the chipmakers and equipment makers. I am not sure if all negativities have been baked into the share price of equipment companies. Risk to award ratio is not still favorable in my opinion given the uncertainties with the semiconductor inventory situation. I would rather wait and see to spot firmer signs of uptick. I tend to believe that I would be able to buy all of these names at lower prices. When I feel the time is right, I will reinitiate my old favorite LRCX or NVLS into our core holding idea but I am not in any rush at this moment.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

CTRP: Start buying back your shares.

2007-02-13T11:45:00.000-08:00

Pullback following the earning call resulted in the CTRP shares trading at $58 level today. I am liking the shares at these levels. Although the shares will remain volatile and we could see additional dip as nervous traders continues to like to take the momentum out of the stock, I would start buying back your shares at these levels. Start commiting 50% of what you have sold earlier. Buy back again as you confirm the uptrend.

CTRP is currently trading at roughly 31X based on forward (08) multiple. This multiple (in the range between 30 ~ 35) is what I feel comfortable with the stock. The management indicated the revenue guidance exceeding 30% YOY and 35% op ex number. This will put PEG below 1. Also I continue to believe that this guidance is conservative, given traditionally slow Q1 involving Chinese New Year. This implies PEG ratio well below 1. In my opinion, CTRP will continue to execute its business and achieve topline growth rate in excess of 35% over next 5 years. In 08, upcoming Chinese 08 Olympic will drive tremendous travel volumes for the company; consequently, guidance is conservative and the company is poised to beat the YOY growth estimate. As we enter late 07, the investors will be looking towards 09 estimate, which may be in excess of $2.5. Again applying PE of 35 (upper range of my comfort zone), I would see shares trading around $88 by late 07 to early 08. I like the upside from the current level.

Original investment thesis for CTRP:
(http://www.investorhives.com...)
Previous articles on CTRP:
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

CTRP: Expect selling pressure tomorrow but good entry point

2007-02-12T00:00:00.000-08:00

Late last month, I have downgraded CTRP to hold from buy as the stock hit my long term target of $70. I advised you to sell a portion of your holding as I anticipated selling pressure after the earning. Since then the stock has drifted lower from high of $74 level to $67. I also indicated that long term story for CTRP is intact and should there be a dip in the share price well below $65, you should be buying back your shares.

(http://investorhives.com...)

CTRP reported Feb 07 earning Sunday evening. As I expected, the company reported solid revenue growth by largely inline Q. Reported revenue was 28.9 mil slightly above the consensus number of $28.5 mil. The bottom line number came in at 26 cents, inline with the street estimate. Given the high multiple that the stock is trading at, the stock had to beat the number by a solid margin and needed to guide the number higher for next Q.

However, the company's performance just came in as expected and even more disappointingly, the guidance calls for 30% YOY growth for FY 07 and 35% operating margin for the same fiscal year. Due to PE exceeding 35 based on 08 estimate, I felt that CTRP needed to maintain 40% or higher YOY revenue growth to justify additional gain in the share price from the current level.

These events will point to lower share price after tomorrow. And I believe my previous call to liquidate certain portion of CTRP was indeed correct one. I believe that over the next week, we may revisit low $60 to high $50 level for CTRP shares. In my opinion, CTRP's management is again being conservative with the guidance as it has been consistent in exceeding the consensus estimate. In my opinion, CTRP's long term story is intact and outlook for great growth ahead is better than ever. As such, I would continue to wait for a pullback and start buying back your shares in the low $60 dollars (anywhere between $62 to $64 level). Long term, CTRP will be a clear winner as Chinese economy continues to chuck along. Maintain as a top pick idea for 07.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

Tivo: AMZN unbox movie downloading service a game changer.

2007-02-10T14:55:00.000-08:00

In the report issued on Feb 7th, SmithBarney had a following summary on Tivo announcement on partnership with movie downloading service with AMZN.

- TIVO announced a partnership with AMZN to provide internet movie downloads on TIVO's standalone boxes. While details are limited, we believe it could be a game changer for TIVO and movie d'load svs by providing an economical means to get PC content to living rooms. The product looks to have support from most of major studios and will "soon" launch to the public.

- Strategically, the product is part of TIVO's d'load strategy and follows other new prods that support user generated, TV, & music content. We believe these help make clear that TIVO is not just a DVR, but a living room media hub.

- While we do not expect a direct meaningful impact from the service near-term, it could boost standalone sales in 2H07 and, combined with cable deal rollouts, benefit overall 2H07 results. We maintain our Buy rating and $11 target price as we see TIVO continuing to gain traction through: 1) its stand-alone business, 2) MSO deals, and 3) DVR advertising.

In summary, the firm thinks that Tivo DVR service is beyond the simple DVR hardware and software provider. Tivo device is poised to become media hub where all internet content, TV media content, music content (recent deal with Real Network), and movie content (amazon and independent film producer) all converge on powerful search platform. In my opinion, this is the trend of the future that will bring significant business model change in the TV ad and content delivery industry. Tivo is revolutionalizing the industry and continues to differentiate its product against simple generic DVR makers. Tivo's search capability and ad delivery platform with its software enables the company to target significant business opportunities for the industry that Tivo is currently revolutionizing.

Although the profitability still remains elusive for the company as the industry is yet to embrace the upcoming model changes with open arm, it is inevitable that the trend will continue to point towards rapidly changing business climate for large media and cable companies. Tivo is in the heart of this phenomena and only question remains to whether the company would be around long enough to really take advantage of the revolution that it is creating for its market.

I continue to like Tivo's chance that the company will be able to grab niche (better yet large) market within DVR segment and the stock performance will eventually follow.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

Tivo: Trial test with Amazon movie downloading starts.

2007-02-07T00:05:00.000-08:00

After the market close, Tivo announced that movie downloading service to view the downloaded movie via internet on TV set will be available for certain Tivo DVR subscribers on a trial basis. This service is expected to be widely deployed to 1.5 mil standalone Tivo subscribers sometime this year.

(http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070207:MTFH84910_2007-02-07_05-01-14_N06308517&type=comktNews&rpc=44)

After the market close, Cisco reported better than expected earning and cites digital downloading of the video as a huge catalyst for the future growth of the company. Tivo has been the poor performer when it comes to investment return for its shareholders. The stock has been a good candidate for trading opportunities as the stock gyrated from $5 to $8 several times last two years.

Today, Tivo is sitting at lower range of its trading range. Investors have pushed the stock down since last fall. They have been impatient with ongoing litigation against Dish which is entering appeal process by Dish. At this point, I believe that the stock has most of the negative outcome built into the stock price. Yet the positive catalysts may be around the corner. Tivo will report its earning in early March. The company has guided the sub add outlook for the coming Q lower during last earning call. However, January Q is the traditionally the strongest Q of the year for the company. Tivo is also deploying its long-waited Comcast service this spring. Finally, other cable deals may follow after successful launch of the Tivo service with Comcast. As such, the stock may soon trade higher on these expectations towards the higher trading range.

Ultimately, if Tivo cannot prove to the investors that it has a viable business model, I would expect the company would be taken out at a higher premium this year. Many speculate it could be Google, Yahoo, or Cisco who acquires the company. However, if the service with Comcast proceeds smoothly, don’t be surprised if Comcast step up and takes out Tivo.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

Downgrading CTRP and FMCN to hold: buy back later

2007-01-31T16:42:00.000-08:00

CTRP and FMCN are two china names that we covered at FilthyRich China names. CTRP and FMCN have been on fire. CTRP is the single best idea for 07 and in matter of 10 months, the stock is generating nearly 90% return for our group. FMCN has been a stellar performer. I initiated this stock in last Nov as an additional China name that will have a great return in 07. Guess what? In just over two months, it has racked up 37% gain. I am in the process of revising the TP for FMCN at a higher level. However, I believe that both names have risen too much too fast ahead of their earning in Feb.

In my investment thesis, I told you guys, CTRP will be able to rack up 40% YOY for next two to three years.

(see http://www.investorhive.com...)

I said the stock could see $70 level sometime in late 07 as the stock will anticipate earning in 08. Here I have assumed that CTRP will generate near $2 EPS in 08 which is aggressive 50% YOY EPS growth rate. Guess what? We are still in Jan of 07 and the stock has already surpassed my target price for 07. I will write before the earning why CTRP may see slightly more challenging business climate in early part of 07. But the bottom line is the stock appears to be run ahead of its fundmamentals.

Same goes for the FMCN. I have initiated the stock with TP of $80. Now that the stock is at $85, the stock price is starting to account for the great growth that we will see in 08.

(see http://www.investorhive.com...)

I do believe that FMCN will trade much higher from the current level ultimately as 09 earning will show tremendous growth over 08 and the valuation is not as stretched as CTRP case. However, due to its recent rise, the stock clearly needs to consolidate. I will highlight more about FMCN ahead of the earning too in the near future.

I would be a little cautious about the Chinese stock market short term. I believe that the rise in Chinese market last 6 months has been nothing but fireworks. It needs a period of consolidation, which will set up nicely for additional gain in 07. I do believe that we can take certain portion off the table as the gains in both names have been impressive.

(see 5 year chart for Shanghai index, a little scary isn't it?) (http://finance.yahoo.com...)

I would look to buy back CTRP in mid 60's range. I would buy back FMCN in high 70's range. It is time to lock in some profit (suggest 30 to 40%) and we will buy back at cheaper levels. You let the remaining shares fly. This way you may be happy whether the stock moves up or down.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

LUV: buy on the dip and buy as it rise.

2007-01-17T01:06:00.000-08:00

LUV (SouthWest Airline) is a superb regional carrier that has one of the best operational efficiency and cost structure to maximize the profitability. LUV reports earning tomorrow morning. Regardless of the earning outcome, I think you should buy LUV. I expect moderate uptick in the share price in the morning once the company reports the earning. The company is expected to report 13 cents based on 2.28 B topline number. I expect the company to at least meet or exceed the estimate by a penny.

LUV ,in my opinion, has been unjustifiably punished for being the best in its class. While other legacy carriers have been fighting high fuel price last three years, smart LUV management team hedged the fuel price at much lower level than the market price. This hedging helped the company to withstand the negative impact of the elevated fuel cost and sustain the profitability at a remarkable level at a time other legacy carriers are fighting for their lives.

Ironically this smart hedging of the fuel is currently seen as a negative catalyst for LUV shares as the crude oil price is now dropping. While other legacy carriers will hugely increase its profitability, LUV is seen to be the less beneficiary of the lower fuel price; it is already enjoying the hedged fuel price of $49 ( ~ 85% of the fuel needs). Because this perception is moving investors out of LUV into legacy carriers such as AMR and CAL, LUV PE multiple has been shrinking while the company continues to achieve its best profitability performance.

I see LUV earning continuing to rise. LUV has been expanding its network footage in the US and is likely to see higher traffic volume. Also airfares have been slowly inching up, possibly giving better margin per traveler. Finally lower oil price still benefit LUV with un-hedged 15% of the fuel needs.

While LUV has enjoyed PE of anywhere between 24 to 40 times as a best airline carrier past three years, the PE multiple currently has shrunk to level just above 15 based on 2007 earning. I believe that PE multiple will likely to expand to at least 20 based on improved investor sentiment in the airline sector. Earning is likely to see slight upside to the consensus estimate of roughly $1. So taking $1.1 with PE of 20 yields the fair value of $22. I currently have my TP set at $21 for LUV. Consequently, there is still plenty of upside left from the current level of $16 and a change. And you don¡¯t have to worry about the direction of the fuel price so much with LUV, something that legacy carriers are not able to match. Consequently, I want you to take a position with LUV and enjoy the friendly ride.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

AMR: On fire but expect a little sale tomorrow.

2007-01-17T01:01:00.000-08:00

AMR (American Airline) is part of the six new stocks added for 2007 ideas. At that time, I contended that oil price in 2007 will be substantially lower than the price in 2006. As airline companies would be primary beneficiaries of this trend, I recommended two airline carriers: AMR, legacy carriers with great operating leverage, coming from lower fuel price and LUV, a regional carrier with superb operational performance.

(See our 2007 ideas http://www.investorhives.com...)

I have been watching AMR when it was trading around $28 and started to take a small position. At the price of $32.32, we have initiated the stock to the core holding list on 11/09/07. The stock has been on a tear (happy for our group members) with 25% gain based on today's closing price of $40.23.

AMR is heading into much better business climate as it exits the worst industry condition that lasted 2002 through 2005. Terrorist attack and heighten security measures at the airports severely impacted the air travels. Sky rocketing oil price have decimated the profitability. Several airline companies went bankrupt and AMR almost followed the suit.

As the company survived the one of the most tough business environment, it cleaned up a great deal of operational inefficiencies, successfully completing incredible number of cost saving initiatives. Now the company is leaner than ever with better terms of its labor union. Furthermore, now the fuel price is dropping precipitously with crude falling decidedly below $55 level (now close to $50). This is creating the most exciting prospect for the increased profitability. Most of the analysts recently upgraded the stock target price for AMR based on lower price of oil. Their crude price assumption in their model is still around high $50 ($57 ~ $59). At this crude price level, EPS estimate for AMR ranges from $5 ~ $6. Although the stock had a huge run, if the fuel price stays at the level suggested by the analyst crude assumption, PE multiple is still reasonable at around 7 to 8 (airline PE multiple tends to be low, anywhere between 5 to 15 historically).

I am very bullish on AMR because I think oil price will stay even lower than what analysts are using in their revised model. I believe oil may be trading in the range of high $40 and mid $50 in 07. This may increased the EPS to anywhere between $7 to $8 range and if the same multiple is applied, the stock could trade as high as $60 level. So long term, I think AMR is a definite buy.

As for tomorrow, when the company reports the earning after the market close, I expect a little sell-off. I expect that the company may report slight loss and still provide cautious stance on the fuel price based on the volatile nature of the oil price. In addition, last month, the company indicated the traffic number for Dec may not have been strong as originally forecasted (possible due to weather related delays especially in Colorado). Also there is a possibility that the company hedged the fuel price at higher level and may not benefit from the lower crude price immediately. For these reason, I see unfavorable risk to award scenario for AMR heading into earning. As a result, I want you to take about 30 to 40% of your AMR holding off the table ahead of earning.

Long term, I remain optimistic about the company business prospect. Should there be a pullback in the share price as I see it happening, you need to step up and grab some AMR shares.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

JPM: Own ahead of the earning tomorrow morning.

2007-01-17T00:58:00.000-08:00

JPM is reporting earning pre-market tomorrow. The company is expected to deliver 16 B in revenue. The bottom-line consensus number is currently at 95 cents according to Yahoo estimate. The consensus estimate has been rising as investors have been expecting favorable result from Investment Banking area.

I expect the company to deliver about 1 to 2 cents above the EPS estimate. However, this will be good enough for the company to pave its way to break above $50 level. This is not a volatile stock and should provide you with solid exposure to the financial sector. The reason for my optimism is the pessimistic stance that Wall Street is taking on the banking sector in general. The banking sector has been facing inverted yield curve and extremely compressed NIM (Net Interest Margin). As a result, investors expect that consumer banking segment business of JPM will drag down JPM's earning. Also, investors realize that last Q IB (Investment Banking) revenue included one time large gain from Amaranth hedge fund asset selling. This Q, gain of this nature is likely to be absent and investors are wondering how the company would fare in IB side compared to the last Q. In addition, continued downfall in the housing sector is also likely to pressure JPM's mortgage business. Overall, investors are very cautious heading into the earning given 10% premium of JPM PE valuation compared to its peers such as C and BAC. Earning expectation, as a result, is somewhat subdued and JPM may not have to deliver the earning that far exceeds the consensus estimate for the shares to establish upward trend.

In my opinion, JPM has several areas where the earning surprise may happen. Last Q was the exceptionally strong for M&A activities. You recall investors were disappointed by Goldman Sachs IB earning during this exceptionally strong time where private equity and M&A activates were at a record pace. Guess who was second just behind GS in M&A deals. It is JPM. I believe JPM IB business could deliver moderate upside for the investors. In addition, consumer spending continues to be brisk. JPM's credit card business is solid, helping the company to achieve higher than expected bottom-line performance. JPM has a very low exposure to sub-prime loan business. As such, mortgage business steep drop may be over-stated. In addition, last Q, the mortgage rate remained well below Fed fund rate as the investors anticipated the Fed rate cut. This may have spurred the mortgage refinance activities and help JPM to offset the weakness in the consumer banking unit.

Overall, I see JPM heading into favorable risk to award situation and I think you should own JPM heading into the earning. If you see weakness in the morning (given INTC earning disappointment), I want you to buy with long term outlook. I continue to see JPM will execute on the operation performance and as the company will exit this harsh period of inverted yield curve by the end of the year, the earning growth will likely to accelerate.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

Biotech Milestone preview (6): ALNY

2007-01-15T19:07:00.000-08:00

In previewing ALNY, let me describe the way biotech companies can be categorized. First group of companies are FDA approval driven group. Many of the large biotech cap companies such as DNA, AMGN, GENZ, and CELG falls into this category. They already have gone through creative research development stage and have been using the developed technology (cutting, I might add) to address many of the human diseases. For these companies, successful development of the late stage pipeline and the large market size that these pipeline addresses are the key in getting the higher multiple that will push the share price higher.

In the second category of companies, earning outlook and the pipeline story may not be so critical. This is because these companies often possess methods to develop the drug that will revolutionize the industry. You recall in late 1990's, CRA and handful of other companies came up with technology to decode DNA structures. Although they had no products what-so-ever, the prospect of revolutionizing the drug development industry propels these stocks to the moon. Most of these companies racked up gains as large as 1000% in matter of less than a year.

Many of the current oncology drugs are based on technology to suppress the blood vessel formation that nourishes the cancer cells. DNA's blockbuster Avastin and AMGN upcoming cancer drug Vectibix works on the similar principle. These cancer drugs clearly are superior to conventional cancer drug which are only based on chemical compositions that introduces the harmful side effects. However, they are still with potent side effects and may not address all types of cancer tumors as some are still able to grow under current therapy regime.

ALNY's RNAi technology will take cancer and other drug development process to the next level and in my opinion is truly revolutionary in nature. Thus, without the firm emerging drug pipeline, I am speculating that ALNY will grab investors' attention. RNA plays a role of a messenger in duplicating DNA structure to produce protein blocks, which are fundamental units of the living cells. If cancer cell DNA is decoded and RNAi technology is used to suppress the formation of the relevant cancer cells, the malignant tumor is not going to grow. ALNY's RNAi technology thus may result in highly personalized cancer treatment in which each patient cancer cells may be biopsy and RNAi technology can be applied to the unique cancer cell structure of each patients. Thus RNAi drug targets only cancer cells, resulting in minimal side effects.

ALNY owns vast array of IP in RNAi technology. I am speculating that RNA field will garner more and more attention from biotech investors and large pharma and biotech companies will be on the hunt for this technology for M&A opportunities. This forms my basis for my speculative investment thesis with ALNY. Again, ALNY pipeline is at its infancy as most of them are in a preclinical stage. However, its technology can be applied to wide array of diseases with fewer side effects.

Description.

RNA-interference (RNAi). Phase I study with an inhaled formulation of ALN-RSV01 for the treatment of Respiratory Syncytial Virus (RSV) infections. Initiated a human experimental infection/viral challenge study in RSV with inhaled ALN-RSV01. In 2005, company signed multiple deals and IP licenses, including RNAi development alliance with Novartis, and collaborations with Medtronic and the Cystic Fibrosis Foundation.

Milestone Events.

1Q07: ALN-FLU01 IND filing
1H07: ALN-RSV01 phase I inhalation safety study results
1H07: ALN-RSV01 phase II initiation in naturally infected patients (inhalation)

My Take.

Ultimate speculation play with "hot" upside potential. Pipeline story may not be as important as the acceptance of RNAi technology in the biotech industry. Recommend putting less than 5% of your speculative money with ALNY.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

Weekly communication on core ideas - 1/14/07

2007-01-14T22:16:00.000-08:00

The market remains extremely strong. I have anticipated the market correction after the earning season but the oil price drop and fall in the commodity price may delay this correction further. Fed is likely to continue to stay on the side with the rate policy. The economy is expected to moderate: but if the energy and commodity price stays low, the corporate America can continue to report robust earning growth as they can create goods at lower cost and thereby maintain higher profitability level. Next week is packed with important economic numbers that includes CPI and PPI. If the economic indicators continue to picture moderating economy with benign inflation, the market will go into the state of nirvana and we are likely to continue to set new highs in major indexes.

I want you to be invested in the market. However, I would set aside some cash to make sure you have money to put to work when we have a correction. I expect correction will be relatively short-lived but it will be painful if there is one. Most important thing the market needs to have to sustain this rally is the low energy and commodity price. So we need to pay very close attention to the movement of the energy and commodity price. But for now, I remain fairly optimistic about the short term market outlook. But expect choppy action. Any signs of higher inflation could trigger sell-off and we may just get that next week. Long term, I am very bullish about 2007. 2007 may turn out to be the best year since the internet bubble market correction in 2000.

Let us walk through individual names in the filthyrich stock list. Starting with the biotech names, AMGN is a strong buy at the current level. I expect the earning results in late January will be another outstanding performance. The stock should trend higher soon. CELG is consolidating and offers a great chance to add. CELG is a buy. GENZ is another outstanding buy at the current level. PDLI lacks near term catalysts to push share price higher and it is a good accumulate. Build position with PDLI. ISIS and ALNY are both speculative buys. They should not exceed 5% of your entire holding.

Financial names continue to remain strong. GS has hit another all time high level. The stock is still undervalued and is a strong buy. JPM is nearing its 52 week high level. It is reporting earning next week. I will preview the earning. If the earning comes out well, we may finally break above $50 level. It is heading into low expectation environment, and I want you to buy ahead of the earning. I will preview about JPM in coming article.

China names are incredibly strong. CTRP is nearing another 52 week high level. It had run up huge. Use the weakness to add. CTRP is the single best idea for 2007. FMCN is nearing my target price after being listed in 2007 idea just one month ago. Believe it or not, the stock may continue to trend higher. There is incredible excitement over Chinese display ad market and the PE multiple is still compressed compared to other Chinese internet names. FMCN should be bought only on pullbacks as it had a huge gain. Long term, I am very bullish about the company.

We had incredible strength in the transportation stocks. AMR is benefiting from falling oil price and has been setting 52 week high all throughout this week. AMR is reporting earning next week and we may see a little sell-off after the earning. I want you to accumulate shares if we see such pullback. In my opinion, energy price may continue to falter below $50 level; AMR may soon reach my target price soon. LUV is finally breaking out. I believe LUV can be bought right now. It is a great buy. LUV deserves higher multiple. It also reports earning this week and I will highlight it along with AMR.

Moving onto tech names, IBM is a great buy. It also reports earning next week. SAP and ORCL earning has been disappointing and many investors believe IBM will follow the suit. I think IBM has gained market share in the database market. In addition, its chip design business in GPU sector could bring in extremely strong earning as game console sales remained very hot this holidays. IBM is another stock that has hit 52 week high this week. Tivo is a solid buy. I believe that the tax loss season is now gone and the stock should trend higher based on Comcast deployment in March. I believe 2007 will be the year for Tivo although 2006 was disappointing for its shareholders. OPWV is a hold. I do not want you to add any additional shares. OPWV is fighting proxy battle as its management has poorly managed this company which has a good market potential. Let us wait until there is more visibility to the business. AVID is hold. As in OPWV, the revenue growth has been disappointing. Industry outlook is still good as HDTV rollout is accelerating but I would wait until the management provides clearer picture on the revenue growth outlook. RIMM is short and I want you to add to your short holding when stock is above $135.

Finally with the specialty retail idea, PEET is accumulate. Coffee business outlook is very good. However, the company is currently spending a lot of income to expand its store counts throughout CA. So the EPS growth may not be as strong as what the market likes. But you should be using this period of consolidation to build position.

Next week, I will publish articles on JPM, IBM, AMR, LUV and semi-equipment names ahead of earning to give you guys some trading ideas. I just hope that I have time to do this.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

Biotech Milestone preview (5): CELG

2007-01-13T12:52:00.000-08:00

You guys already know how I feel about CELG as I talked on the company fundamentals on past several articles. CELG is reporting earning in early Feb and I expect some moderate EPS upside with upcoming earning. By the end of Q1, CELG is likely to get Revlimid approval in Europe with MM treatment and possibly with MDS treatment. Revlimid approval in MM is widely expected but faster than expected approval in MDS could fuel upside price movement. Long term, I continue to remain bullish on the company growth outlook although high price of the stock demands diligent investigation and analysis on the business outlook and drug pipeline story.

Description.

Marketed products include: Thalomid, a small molecule immunomodulatory drug (IMiD) marketed for multiple myeloma and other cancers; Revlimid, a 2nd generation IMiD marketed for MDS and multiple myeloma; Alkeran, an alkylating agent (L-phenylalanine mustard) marketed with GSK for multiple myeloma; Focalin/Ritalin products, which are CNS stimulants marketed by Novartis. Pipeline includes Revlimid entering phase III for CLL and NHL; Actimid (CC-4047), an IMiD in phase II for sickle cell anemia, myelofibrosis and solid tumors; CC-10004, an oral TNF-alpha inhibitor in phase II for psoriasis; Benzopyrans (CC-8490), Selective Estrogen Receptor Modulators (SERMS) in phase II with the NCI for glioblastoma; c-Jun N terminal kinase inhibitors in phase I and preclinical for inflammatory diseases and cancer; and SELCID's (Selective Cytokine Inhibitory Drugs) in phase I for asthma and psoriasis.

Milestone events.

YE06/1Q07: Possible interim data from ECOG E4A03 phase III trial with Revlimid in newly diagnosed MM January 2007: Revlimid EMEA approval for 5q- MDS
YE06/1Q07: Initiate Revlimid phase III study in non-5q minus MDS
1Q07: Submit protocol under SPA for Revlimid phase III registration study for NHL
1Q07: Initiate Revlimid phase III trial in R/R CLL
2Q07: Initiate Revlimid phase III trial in R/R NHL
YE06/1Q07: Initiation of Actimid phase II/III trials in myelofibrosis, small cell lung cancer, sickle cell anemia and beta thalessemia

My Take.

Where else can you find the better growth story in biotech? Revlimid takes the company into the hyper-growth stage over next 3 years. Potent pipeline reveals massive untapped market for the company. Afraid of high PE? Then take a look at PEG ratio. Have stomach ulcer medicine for intermittent volatility but the stock will reward you greatly if you stay with it. Another strong buy with $73 PT.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

Biotech Milestones preview (4): ISIS

2007-01-11T21:56:00.000-08:00

Throughout 2006, biotech sector has struggled. As money prefer to stay with the commodity and energy, and somewhat in the financial area, the biotech companies' shares have been in a trading range at best. In addition, Democrats' win to secure majority position in the Congress seats stirred investor concern that reformed Medicare program will reduce earning of the large biotech companies. In addition, more stringent FDA standard to approve new drugs reduced the number of drugs approved in 06 compared to 05, deflating the biotech sector sentiment.

I expect in 07, the money that is rotating out of the oil and commodity will find its way into the biotech sector. With large pharma facing their pipeline drying up and their existing drugs facing more generic competitions due to patent expiration, M&A boom may occur in the sector. Large biotech companies are already doing some major acquisition as DNA and AMGN recently have purchased several small biotech companies. Big pharmas are likely to be even more aggressive this year. Given the expected market volatility, I expect investors may prefer large cap biotech names in the first half; however, in the second half, euphoria could spill over to the smaller names. As a leader in the RNA antisense technology, ISIS could be highly coveted by large biotech and pharma companies.

ISIS

Description.
Cancer - antisense (RNA based). Vitravene (fomivirsen) for CMV retinitis in people with AIDS is the first antisense drug to achieve marketing clearance - licensed to Novartis Ophthalmics. Alicaforsen (ISIS 2302), an inhibitor of intercellular adhesion molecule-1, has successfully completed phase II for ulcerative colitis and now seeking to partner; was discontinued for Crohn's disease after disappointing phase III results. Other lead proprietary candidates in clinical development include second-generation antisense products ISIS 113715 (inhibits PTB-1B) in phase II for type 2 diabetes and ISIS 301012 (targets apoB-100 mRNA) in phase II for high cholesterol. Phase II data presented at AHA demonstrated that ISIS 301012 reduced all atherogenic lipids as a single agent and when coadminiatered with statins. OGX-011 (ISIS 112989, inhibitor of Clusterin) is being developed by partner OncoGenex in phase II for prostate, lung, and breast cancers. Multiple additonal compounds in phase I and preclinical. Through Ibis division, developing TIGER biosensor system to identify infectious organisms.

Pipeline Milestones.
YE06/1Q07: Data from ISIS 301012 phase II trial in FH homozygous/heterozygous patients 1H07: FDA meeting to discuss registration path for ISIS 301012
1H07: Data from 400mg cohort in ISIS 301012 phase II trial
1H07: Data from 400mg 5-wk cohort and 200/300mg 12-wk cohort in phase IIa combination trial with statins

My Take.
Only biotech company to successfully market RNA technology into commercial product. Pipeline addresses diverse areas of medical needs that include diabetes, high blood pressure(cholesterol), and cancer. Highly speculative name but worth the speculation due to emerging exciting story in RNA technology. Even without the takeover speculation, the pipeline is worth considering. My price target is $18 with highly speculative buy rating.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

Biotech Milestones preview (3): AMGN

2007-01-11T20:05:00.000-08:00

Oil's dip below $52 is extremely bullish for the market. This event allows Fed to ease interest rate this year given more moderate inflation outlook. The money is rotated fast out of the oil and commodity market into tech and biotech names. The market may continue to remain strong if this sharp drop in the energy price is sustained. I want you to buy AMGN ahead of earning on 25th of January. The company is heading into the earning with low expectation and negative sentiment stemming from Roche litigation to defend the EPO franchise. The risk to award ratio is favorable and I see near term strength in the stock. Let us assess what to do just before the earning; till then stay long on AMGN. I believe 2007 will be the year for this stock to finally outshine.

AMGN

Description.
Large Cap biotech that develops proteins, monoclonal antibodies (MAbs) and small molecule drugs in areas including nephrology, cancer, and inflammation. Principle marketed therapeutics are Epogen and Aranesp (anemia), Neupogen and Neulasta (neutropenia), and Enbrel (rheumatoid arthritis and psoriasis). Key late stage pipeline compounds include: Denosumab (AMG-162), a fully human MAb to NF Kappa B (RANK) Ligand, in phase III for treatment and prevention of osteoporosis, non-metastatic prostate androgen ablation, and phase II for breast cancer related bone metastases and rheumatoid arthritis (RA); Vectibix (panitumumab, ABX-EGF), a fully human MAb to epidermal growth factor receptor (EGFr), for 3rd line colorectal cancer (CRC) and phase III with Avastin + chemo for 1st line CRC; AMG-706 kinase/angiogenesis inhibitor in phase II for gastrointestinal stromal tumor (GIST); AMG-531, a novel thrombopoietic in phase III for idiopathic thrombocytopenic purpura ITP; AMG 108, a MAb to IL-1r for inflammatory diseases; AMG 714, an anti-IL15 Ab for rheumatoid arthritis.

Milestone event.
Feb 20, 2007: FDA action for Roche's CERA for CKD anemia
1Q07: Vectibix PACCE (Pmab + Avastin + chemo in colon cancer) RR (January) and PFS data 1H07: Denosumab interim 2-year phase III results in PMO
1Q07: AMG 706 phase II metastatic thyroid cancer data
Mid-07: AMG-531 phase III pre- and post-splenectomy ITP data
2H07: Kepivance phase III oral mucositis data in solid tumors

My Take.
Premiere biotech company that is trading at a ridiculously low PE multiple. Massive stock buyback and more efficient manufacturing abroad will improve earning leverage despite the increased R&D expense. Highly attractive emerging pipeline in oncology area. Be patient and you will be rewarded. Strong buy with target price at $100.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

Biotech milestones preview (2): PDLI

2007-01-10T23:14:00.000-08:00

After the market close, Genentech reported extremely strong Jan 07 results. Good news for DNA means good news for PDLI which gets royalty revenue stream on most of all DNA blockbuster cancer drugs that includes Avastin and Herceptin.

PDLI

Description.
Marketed products: (1) Cardene I.V. is the only intravenous calcium channel blocker (calcium ion influx inhibitor) for the short-term treatment of hypertension when oral therapy is not feasible or desirable, (2) Retavase, a recombinant plasminogen activator, works by generating plasmin, an enzyme produced naturally by the body's blood plasma for management of acute myocardial infarction (AMI) or heart attack in adults for the improvement of ventricular function following AMI, the reduction of the incidence of congestive heart failure and the reduction of mortality associated with AMI and (3) IV Busulfex is an intravenous form of oral busulfan, a chemotherapeutic agent commonly used as part of a conditioning regimen in the transplant setting combination with cyclophosphamide, prior to allogeneic hematopoietic stem cell transplantation (also referred as blood or marrow transplantation or BMT) in patients with chronic myelogenous leukemia (CML).

Humanized mononoclonal antibodies (huMAbs) - receives royalties on sales of multiple products on the market, including DNA's Avastin, Herceptin, Lucentis, Raptiva, Xolair and MEDI's Synagis. Internal pipeline includes Nuvion (visilizumab, anti-CD3) - initiating first of two pivotal trials in 1Q06 for Nuvion - phase II/III study in IV steroid resistant moderate to severe ulcerative colitis (UC). Zenapax (daclizumab, anti-IL-2R) entering phase IIb dose-ranging study for moderate to severe persistent asthma. Zenapax is also in phase II for multiple sclerosis (add-on to Avonex) with BIIB. PDLI discontinued development of Zenapax for UC in May 2004. M200 (volociximab), an anti-alpha-5/beta-1 integrin chimeric Ab, is in phase II for solid tumors and phase I/II for AMD with BIIB. Huzaf (fontolizumab, anti-interferon-gamma) is in phase II for autoimmune diseases with BIIB. Ularitide, a recombinant form of the natriuretic peptide urodilantin is in phase II for acute decompensated congestive heart failure. Terlipressin is an intravenous peptide in a phase III trial for hepato-renal syndrome (HRS).

Milestone Events.
1Q07: Interim DSMB analysis from Nuvion phase II/III UC trial; begin phase III UC trial. 1Q07: M200 Initiate PII open label studies.
1H07: Initiate Ularitide phase III trial for ADHF in Europe.
1H07: M200 PIIb cancer go no/go Mid-2007: Initiate Ularitide phase III trial in 300 ADHF patients.

My Take.
Steady royalty relationship with large biotech companies such as DNA and BIIB puts the company into cash flow positive mode while developing its own in-house drug. One of the most promising franchise for mid-cap biotech names. Patiently waiting for the company to hit a homerun with either bowel inflammatory drug Nuvion or congestive heart failure drug Ulartide. Speculative buy with $30 TP.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

Biotech milestones preview (1): GENZ

2007-01-10T23:06:00.000-08:00

One of the important rituals that biotech investors must follow is diligently following the drug trial events and milestones. As I have noticed that many new members have joined FilthyRich group, I thought I would summarize the markets for all six companies and lists rough time frame for the important clinical trial/FDA filing events. Today I will write about GENZ and PDLI in two separate messages. Tomorrow, I will highlight AMGN and ISIS. Finally the day after tomorrow, I will go over CELG and ALNY. The information source is from Lehman reports published on Jan 5th, which complies the all the important events for more than 100 biotech companies. If you are interested in this report, email me via investorhives.com mail and I would be happy to share the report with you. So far, you have noticed that I talked more about CELG and AMGN in my articles. But I will promise that I will write more detailed articles about GENZ, PDLI, ISIS, and ALNY.

GENZ

Description.
Large cap biotech that is diverse with multiple business units encompassing six therapeutic categories: lysosomal storage diseases (LSDs), genetics/diagnostics, orthopedics/biomaterials, renal/endocrinology, transplant & immune disease, and oncology. Key products include: enzyme replacement therapies for LSDs, including Cerezyme for Gaucher's disease, Fabrazyme for Fabry disease, Aldurazyme for Hurler Scheie disease, and Myozyme for Pompe disease. Renagel is a phosphate binder marketed for end-stage renal disease (ESRD) and Hectorol (doxercalciferol) is a pro-hormone vitamin D2 analog for the treatment of secondary hyperparathyroidism in CKD and ESRD. Synvisc is an injectable hyaluronic acid based product marketed for relief of mild to moderate knee pain related to osteoarthritis. Thymoglobulin, an immunosuppressive polyclonal antibody, and Lymphoglobuline are marketed for acute renal transplant rejection. Acquisition of Ilex Oncology in 2004 bought Campath for chronic lymphocytic leukemia (CLL) and Clolar for pediatric acute lymphoblastic leukemia (ALL).

Milestone Events.
1Q07: DX-88 topline results from partner DYAX's EDEMA 3 phase III trial in HAE. 1Q07 Campath phase III PFS data in 1st-line B-CLL. 1H07: File for approval of sevelamer carbonate in CKD, powder form. 1H07: Myozyme data in late-onset Pompe's disease. 1H07: Tolevamer phase III data in clostridium difficile-associated diarrhea. 1H07: Synvisc launch in the US for use in the hip.

My Take.
King of special niche markets. Steady outlook with 15% topline growth potential over next 5 years. Offers both the reasonable growth rate and PE. Special gift at current price. Solid buy with $85 PT

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

RIMM: Apple I-phone introduction pressures to the downside.

2007-01-09T20:38:00.000-08:00

Apple reveals a long-waited iPhone during MacWorld Show in San Francisco today. iPhone's launch was rumored to be delayed; however, Steve Job made sure today that it was a false rumor. iPhone looks fantastic with 3.5 inch crystal clear screen with extremely thin side profile. iPhone is much more than a phone, endowed with Apple's IPod function, internet browser capability, email function as well as the basic PC capability. It will be truly wanted device once the price will fall within a year or two. Initially iPhone will be priced for $499 for 4 GB version and $599 for 8 Gb version. Apple looks pretty well positioned to benefit from its product entry into phone and digital media market. I am bullish on Apple's long term prospect.

While Apple was busy racking up impressive gain today (up by more than 8% or $7 and a change), RIMM shares were busy falling. RIMM shares shed nearly 8% or $11 and a change. Leading to precipitous fall, RIMM shares continued to defy the gravity and have risen to all time high level. However, as I have maintained in my previous messages, I am skeptical of RIMM's long term business prospect.

(see http://www.investorhives.com...)

Investors are expecting the company's new product Pearl will help the company to capture a lion share of consumer smart phone market while growing its enterprise business with little competitive threat. Today's apple jump into the consumer smart phone market shows that RIMM's market place is becoming increasingly crowded. RIMM is facing Apple iPhone (selling in June from Cingular) in the high end market. From lower end segment, the competitions are stiff from HP, LG, Palm, Samsung, Motorola, and Nokia. You have noticed Motorola has announced the earning shortfall last week, which have pounded its share price to the downside. Motorola is facing stiff pricing pressure from Nokia who is leveraging on manufacturing prowess to push the unit price lower to capture additional market share. Nokia's such business plan does not only impact Motorola but entire smart phone industry, including RIMM. I also don't see emotional appeal with RIMM's Pearl as I would with Apple iPhone. Consequently, consumers may not remain as loyal to RIMM as some investors are anticipating. I believe that RIMM's PE multiple is simply too high which is competing in consumer segment with numerous number of fierce competitions. Consumer product business rarely yield high margin and as RIMM emphasizes more and more consumer related business, its overall net profit margin is bound to fall drastically. As such, PE of 25 is more appropriate value rather than current one that exceeds 50. Despite the EPS growth that may exceed $4.5 for next fiscal year, shrinking multiple may cap the share price value around $110 and I believe that RIMM is currently a good short candidate. I continue to recommend shorting the stock above $135 level with the target price at $95 a share.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Novellus, Sirf Technology, Avid Technology, Trident Systems, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

CELG: Buy the dip: upping the PT to $73

2007-01-09T01:40:00.000-08:00

JP Morgan is holding HealthCare conference in San Francisco, CA this week. Ahead of the conference, CELG held investor meeting and the provided the guidance for year end result 06 and fiscal year 07. The press release hit the wire after the market today.

(see http://biz.yahoo.com...).

In its guidance, CELG is guiding for sales of $315 ~ $320 mil for Revlimid, largely in line with the consensus number out there. Thalomid is guided to bring the revenue in the range of $425 ~ $430 mil, again in line with the street expectation. Total revenue for 06 will be around $890 with EPS that triples the 05 number. This puts the EPS for 06 to be around 57 cents, about 4 cents above the mean estimate number shown by yahoo figure. This guidance implies 3 to 4 cents EPS upside for the upcoming quarterly results that is going to be released in early Feb.

For 07, CELG is predicting the topline number of 1.3 billion with the EPS of roughly $1. This number is again largely in line with the consensus number (consensus 1.39 billion with EPS of $1.09). As CELG shares trade with premiere multiple to its peers due to much higher earning growth rate, this number is seen as disappointing; momentum investors always expect the company to continue to blow away the estimate. In fact, there has been some negative press release after the market by Street.com, calling the 07 guidance as earning short fall. However, 90 mil shy of overall 1300 mil is less than 7% of the total revenue. As Revlimid is ramping up fast and is penetrating much wider market than originally estimated, I believe that the company is providing extremely conservative and crude number. So in no way the guided numbers fell short of the original estimate. In my opinion, 07 numbers have a lot of conservatism built into it given the rapid Revlimid uptake and increased marketing expense upon European approval of Revlimid. Nevertheless, I expect the momentum traders to seize the opportunity to take the share price down tomorrow. Should this happens, I want you to step in and buy the shares. I see fairly strong price support in mid 50's and this could provide you with good entry point. Given possible volatility you may see in January for the overall market, don't commit all of your money at once. Buy the stocks in steps. Use tomorrow weakness to commit 30% of your money and should there be a further dip, open up additional 30%. Once uptrend is confirmed again, you can commit the remaining 40% of the intended fund.

Despite what may seem as rather anemic guidance from CELG, I am upping my long term price target to $73 from $60. I promised to you guys that I will assess my long term price target for CELG as it is nearing my revised TP of $60. Last ASH (American Society of Hematology) in Dec was an extremely powerful event for CELG franchise. What became evident out of 06 ASH was the much wider than expected market potential for Revlimid. Once thought as a specialty drug in niche market in the blood cancer, Revlimid was seen to garner a fair share in specific form of MDS and (late line) MM market. With both US and European approval, Revlimid is set to bring in roughly 2 billion revenue for the company, which it is likely to surpass sometime in 08. However, ASH is revealing extremely compelling data for Revlimid to be effective in much wider areas of MDS (non-5q) and MM (1st line). Furthermore, it has a clear potential in CLL and NHL market with 500 mil and 4 billion dollar revenue potential. So the Revlimid may have far greater than 2 billion potential currently being perceived. In fact, some analysts are taking off the label usage of Revlimid in CLL and are bumping up earning estimate and consequently, the share price has been very, very strong in recent times.

As seen in the figure (http://www.investorhives.com/big_pic.php?fname=uploaded_files2%2Fjongyoo143.png&caption=CELG%20product%20pipeline&msgid=294), outside of Revlimid, CELG is armed with one of the most potent pipeline among biotech companies. It has more advanced IMiDs that targets inflammatory and immunological diseases. The company is also targeting many solid tumor and cancer areas for its advanced line of IMiDs drugs. The company also has early products in development which includes Bezopyranes, Kinase Inhibitors, as well as Ligase Inhibitors. Furthermore, I believe CELG's stem cell product is poised to get more attention with investor community as Democrats become more vociferous in pushing congressional efforts with healthcare programs with Stem Cell Technology.

Robust uptake in Revlimid and strong pipeline with near term potential puts the company for fast growth for considerable period of time. I expect that by late 09 to early 2010, the CELG may be able to show annual revenue run rate of roughly 3.5 billion with net profit margin exceeding 30% due to extremely high gross margin of Revlimid. EPS is likely to surpass $3 a share based on 352 mil share counts. Let us assume contracted PE multiple of 30 to 35 from current 50 to 60. Well you do the calculation, but the whole point of this exercise is the stock still has plenty of upside. I know it is hard to believe given the great gain in the share price. But I have to call it as I see it.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Novellus, Sirf Technology, Avid Technology, Trident Systems, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

Closing out position with NVLS, TRID, and SIRF.

2007-01-05T00:26:00.000-08:00

I hope that everyone had a very happy New Year. The market is starting out the New Year in an exciting way. Yesterday, DOW moved with a range that exceeded 175 pts and today NASDAQ had a very strong rally. Everyone is starting to get excited about the market's sustained gain. The market had not had a correction within 7 months (with magnitude greater than 2%) and this has not occurred in the market's history.

Although I am bullish on 2007 market outlook, especially with emerging market (China), transportation (airline), biotechs (both large and small caps), financials (integrated banks and brokers) and last but not the least techs, I think the market is due for a correction. The market may remain fairly strong as we head into the heart of the earning season. In fact, I expect that the earning for January will be extremely strong. But I remain doubtful the guidance could be the same. As a result, after this earning season, we may run into a little corrective period. Because I am bullish on 2007 as a whole, correction would be a great buying opportunity and I really want you to have some cash to deploy when this happens. As such, I think profit taking on some of your winners could be shrewd.

The market has been strong in anticipation that the economy is achieving a soft landing. The market thinks the economy is slowing down but the earning will not be hurt. The market is anticipating at least 2 Fed rate cuts this year. Some are actually forecasting as many as 4 rate cuts. My take is in order for the market to see Fed rate cuts that is as aggressive as forecasted and expected, the economy has meaningfully slow down. Meaningfully slowing down economy means reduced earning for corporate America. As such, higher earning and slower economy that the market is expecting could be difficult to achieve simultaneously. My bet is that the economy is going to show signs of further slowdown ahead and will temporarily drag the earning performance in the late spring and early summer. I believe this is when Fed may start easing the rates. So until then, we may have some hiccups in the market here and there and as the market has been rallying for so long, any perturbations away from the soft landing scenario could trigger nasty correction (5 to 10% in magnitude). Lately oil price and metal commodities are showing signs of cracking down again. Oil broke below $56 level today, largely due to warm weather that we are seeing this winter. Copper are also at 8 months low. Although weather may play in a role with lower energy price, the truth is demand for oil and commodity is lower with slowdown in the manufacturing (auto and construction) sector.

I am closing out three names in tech area where I anticipate the most corrective action may happen given the relative strength of the sector. I am locking in gains with NVLS and TRID. I am taking a little loss with SIRF. NVLS is a semi equipment company that I initiated 7 months ago due to valuation. Since then it has racked up impressive 47% gain. The company lately announced that its president Sass Somek whom I think is the tech visionary is retiring from the company. I am not a fan of current CEO Rick Hill as he has screwed up the company big time with its overexpansion of the business (ego trip) and ruin the net profit margin of the company. The share price of NVLS has lately run up due to speculation that the company may be taken private at a higher premium. Because I am anticipating somewhat choppy environment in the semiconductor land especially in the consumer related devices, I don¡¯t see much fundamental catalysts with semi equipment names. I may revisit semi equipment names in the late spring, possibly with LRCX. But for now, I am taking the profit with NVLS.

TRID is a pure semi play with HDTV. The sales of the HDTV (LCD, plasma, and projection) have been brisk during this holiday season. However, I am getting concerned with the rapid pace of the unit price decline. The price of the LCD and projection TV has dropped so precipitously that I am beginning to worry about the margin pressure for TRID. In the summer of this year, we had much higher profit with TRID near 80% gain but the shares have never recovered strongly from the summer correction and today I am closing out position with 17% gain. With TRID, we held the stock for 13 months.

SIRF is a pure semi play with GPS device. SIRF started very strongly after we have initiated the name 13 months ago. We had gain as large as 50% at one point during the summer. But after the summer correction, like TRID, the stock remained anemic. The reason is the increasing competition. There are small players emerging in GPS chip market that is pressuring its margin. In Dec, the rumor of market share loss with Tom-Tom also dragged the share price lower. In addition, with the auto companies in doldrums, the GPS market associated with the auto manufacturers could be weak. Consumer GPS market has been very vibrant. But I also noticed that the pricing is getting brutal and as the GPS devices become commoditized, the margin is likely to suffer. Hence I am taking a slight loss of -5.2% and am removing the name from the core list.

In the following message (tomorrow), I will summarize all the current performance for the entire filthyrich list of stocks. Only members will be able to view this list. In addition, in order to update you more regularly on all names, I will try to do biweekly comments on all the names covered in the list. The comments will not be as extensive as the stock article I write on individual names. But this way all the stocks will get the coverage to a certain extent. This bi-weekly communication will only be available to the members.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Novellus, Sirf Technology, Avid Technology, Trident Systems, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also analysis is available at www.investorhives.com under FilthyRich hive. Thank you for visiting my blog.

RIMM: superb sub adds not leading to great EPS performance.

2006-12-28T01:18:00.000-08:00

I hope that everyone had a merry Christmas. I wanted to give you my post earning comment on RIMM which reported earning after the market close last Thursday. I was on my personal trip to Las Vegas so I could not provide you my take on the earning on a timely basis. So I apologize for that.

RIMM continues to defy my expectation and deliver earning results that is blowing away the street estimate. And hats off to the management team for their efforts !. Heading into the earning, I indicated to you that RIMM had a lofty expectation and had more downside than the upside. I claim that the company needs to report significantly better than sub add number for this Q (expectation around 850K). I also claim that the company will need to guide higher for next Q sub add decidedly above the street expectation around 925K. And it is also expected that the company will handily beat both the revenue and the EPS number to further gain the momentum in the share price appreciation.

(see http://www.investorhives.com...)

RIMM met and exceeded all the points that I thought would be challenging for the company except on one front: gross margin. However, this is a significant development that further reinforce my short view on the stock. After listening to the conference call, following up with several analysts reports as well as doing number crunching on my own, I am more convinced that RIMM story is nearing its end. It will have one more great Q but in my opinion, as upgrade cycle behind Pearl dissipates beyond Feb Q, RIMM may see increasing margin pressure that will decrease the earning leverage despite the possible upward trend in the revenue number. Consequently, beyond Feb Q, I see company gross margin compression will shrink the market multiple for RIMM. Slower EPS growth may ensue and RIMM share may face weakness. I continue to view RIMM as a good short candidate. Above $135 level, I continue to recommend adding to your short position.

Let us look at this Q number. RIMM delivered revenue number of 835 M, significantly above the consensus number of $812 M. The net sub add for this Q was 875K, also significantly above 850K expected. More importantly, for next Q the company guides for sub add of 950K to 975K, above around 925K expected. The revenue guidance was $900 ~ $940 M, which is also above what the street was expecting. On these exciting quarterly metrics, the RIMM shares traded as high as $140 after the market. But on the actual trading day on Friday, the shares closed with 2% loss. Why? Despite the blowout revenue number for this Q and head and shoulder above number for next Q, the actual reported EPS for this Q was 95 cents versus 94 cents expected. In addition, the company guides for EPS in the range of 92 to 99 cents for next Q. Given the significant upside in revenue and sub adds metric this Q and great guidance on these metrics for next Q, EPS number reported for this Q and guided for next Q are disappointing. This appears to be due to the deteriorating overall gross margin to 53% from high 55% range.

Going forward, RIMM may face even more pressure in maintaining the GM. First of all, rapid growth in the company revenue number is primarily driven by the hardware sales, not by robust uptick in the service side (data contracts). Many existing RIMM customers like the Pearl design and are switching their device to Pearl from older products. In fact, Smithbarney estimates that only 30 to 40% of the new customer chose data plan with the subscription service. This may not be surprising: many consumers do not like to pay a lot of money for email service (they want this cheap like the regular phone). Pearl is supposed to gain acceptance in the consumer market outside the enterprise market but net addition in this segment may be much more challenging. Thus, RIMM's business around Pearl has risk of being more hardware oriented and this may result in lower than expected gross margin.

In addition, Pearl has lower ASP (Average Selling Price) compared to older RIMM product. As Pearl sales cannibalize other older RIMM products, the company revenue may be skewed towards the product that may have more margin pressure. Pearl competes in the consumer market with more than six fierce competitions (Nokia, Motorola, LG, Samsung, Palm, as well as HP and the number is growing). In the future, RIMM may need to be more aggressive in the marketing and pricing to compete more effectively in the consumer market. This may result in increased op ex spending and reduced net profit margin.

Finally, there is also uncertainty down the road how carriers will treat RIMM. While MSFT server related products do not charge carriers for any fees, RIMM does. This even raises RIMM business model in the enterprise market. As smartphones made by Samsung and LG operates on window based platform, carriers may push non-RIMM related service to the corporate clients to increase their profitability.

Ultimately, RIMM may face more margin pressure in the enterprise business as well. For these reasons, I contend that RIMM will not be able to sustain earning growth at a rate greater than 25% on a long term basis and 10 to 15% may be the more appropriate number that investors should be using to value its share price. Consequently, the market multiple for RIMM shares must come down significantly. I am willing to give premium PE to RIMM compared to its competitors who are getting roughly anywhere between 15 to 17. For RIMM, I continue to contend PE should be in the range of mid 20's, not 40 to 50 that it is trading on a trailing basis and higher than 30 on a forward basis.

The shares of RIMM have been burining brightly as insatiable investor' appetite for the sexy tech stocks continue to push share price higher. However, I do believe that the flame burns the brightest before it goes out. And RIMM flame will be no exception.

RIMM: Investors expecting a premiere performance

2006-12-21T01:31:00.000-08:00

Research in Motion, the company which provides a popular blackberry service, was initiated into the 2007 stock list for our group in late Nov. We are playing RIMM on the short side. At that time, I maintain that coupled with the favorable investment sentiment for the tech sector, the stock could continue to advance till early January. The stock is now trading at lofty $134 level and has more than doubled in last six months. The company is set to report the earning after the market close tomorrow.

RIMM has reported stellar earning results last Q. The results surpassed the investors' expectation and analyst community. Since then the stock has been on a tear. RIMM has recently introduced the new smart (email) phone called Pearl and the management team has pictured extremely rosy picture for the future business climate based on this product's success. Pearl is thought to be penetrating significant portion of the consumer smart phone market outside the traditional enterprise business for RIMM and will be the engine for next phase of the growth for the company.
No doubt that Pearl is selling extremely well. Lehman's research indicates that Pearl is generating 15K net sub adds in last 2.5 weeks of September. Lehman thinks T-mobile alone is able to generate 200K net sub-adds this Q. In addition, although not as strong as T-mobile, Cingular and Verizon will also contribute a fair number of sub adds for the company. However, it does appear that Sprint has been a bit slow for RIMM to generate robust sub adds to date. Because of the great sell-thru of Pearl, I believe RIMM will report very strong number, probably 4 to 5 cents ahead of the consensus estimate of 94 cents.

The question is how much of this great story for Pearl is built into the stock price. RIMM is currently trading at PE of 40 on a trailing basis and PE of near 30 based on a forward basis. This implies great premium for the company compared to its competitors such as Nokia, Motorola, and Samsung, which are typically trading with PE of somewhere between 15 to 17. By this type of valuation, the investors are assuming that RIMM is in the midst of the robust growth that will last for a foreseeable future. RIMM is valued to be in a secular growth mode, rather than in cyclical growth mode.

For RIMM to continue to get this type of PE multiple, the company is now pressured to show that this Q was outstanding and next Q will be as well. In my opinion, if the company delivers bottom-line number that is about 4 to 5 cents higher than the mean estimate, investors will be disappointed as they will be looking for blowout Q performance. In addition, net sub add will be extremely important key metrics to pay attention. Bears maintain that strong Pearl sale will not last more than Q or two if it is mainly driven by the upgrades of the hardware by the existing customers. As such, the company needs to show strong net sub add performance this Q, far above the consensus estimate number of roughly 820K. The company guides for around 800K for this Q number during the last earning call. In my opinion, investors may be disappointed for anything less than 850K. More significantly, RIMM needs to guide higher for next Q net sub add number. The expectation is heading higher above 925K and I believe this may turn out to be very challenging for the company.

Because Pearl story has a significant consumer market component, I believe that the company cannot sustain this type of premium multiple for too long. The consumer smart phone market is extremely crowded by several competitions mentioned above. The pricing pressure for the product is great and the consumers have very little royalty for the product. This often leads to great churn number for the subscriber base. I can give higher multiple of greater than 30 for the enterprise segment of RIMM business, assuming RIMM continues to generate healthy subscriber growth (but some bears are also doubtful of this point). However, the consumer segment multiple should be roughly in line with what the competitions are getting, which is 15 to 17 range. As a result, it would be difficult to assign multiple greater than 22 ~ 25 range for the company. If you take current aggressive estimate of 4.62 and apply higher range of PE of 25, the stock would be fairly valued around $115 in 07. Should there be any weakness in the sales forecast, this multiple may further shrink and the shares are vulnerable for substantial downside.

RIMM is a relatively new stock for FilthyRich group and I may need to study the company fundamentals further to gain deeper understanding of the company. However, my current opinion is the company is heading into high expectation with the fundamental that do not support for the current share price.

Short term, investors may continue to be dazzled by Pearl sales number and chase this stock higher. Should this happens, you should be increasing your short position on the stock. Ahead of earning, it may be worthwhile taking 30% of your short position. Should there be a further price appreciation, you can establish your remaining position

JPM: Ambitious CEO to take the bank to another level.

2006-12-20T00:51:00.000-08:00

About 13 months ago, I named JPM as a top pick for 2006. At that time, the stock was lagging the market with a share price of around $36. Today JPM is hovering around another 52 week high level, trading at $48.28. The stock is posting solid 34% gain to date. The investment thesis behind JPM was better risk to award scenario. I anticipated somewhat choppy 2006 in 2005 due to Fed prolonged rate hike throughout 2005. I thought that this would have some effect on the growth rate of the economy, causing earning deceleration in certain sectors. As financials have lagged the market, I went with financials as the area to focus due to improved risk to award ratio. Financials have been fighting tough business climates. Shrinking interest margin due to yield inversion, difficult mortgage business, and change in personal bankruptcy policy all weighed negatively on the bank stocks.

So what do I think about JPM now after one year? JPM business outlook is better than ever. I continue to believe that JPM is going to further improve its financial metrics, notably ROE and net profit margin. Although JPM continues to make solid progress on its ability to generate higher net profit margin, it is still lagging its primary competitors such as BAC and C. New CEO Jamie Dimon recently took the full control of JPM after being promoted to both Chairman and the CEO of the company. He vows that he can take the company ROE metrics to 20% level but many analysts are still skeptical of his view. At most optimistic case, the analysts believe that ROE for the company will be around 17% at best, about 4 to 5% below the well run large integrated bank such as C and BAC. However, even if the analysts are right, I believe that the company can still achieve 15% growth in EPS over next 5 years. Folks, JPM is a low risk, extremely sound investment that will show steady growth over next 5 years. I believe that the company will generate EPS exceeding $4.50 in 07, $5.15 in 08, and $5.9 in 09. Therefore, even if the conservative PE of 12 is applied, the stock will be trading around $62 in 07 on a forward PE basis. If Jamie Dimon is correct about generating 20% ROE for the company, the upside for the share price is even greater.

I also expect that Jamie Dimon will raise the company dividend sometime in 07. The company has not raised the dividend in last 3 years and I believe that this will bring more investor enthusiasm to the stock, especially for those who are seeking a balance between the aggressive growth strategy and value approach.

You have noted lately that Citibank's financial performance has been lagging BAC. There is much talk in the market that C will spin off several branches of the business or outright sell some of wealth management asset to the interested parties. Don't be surprised if JPM shows a lot of interest in what is coming out of Citi. While C may cut its investment on expanding business scale, Jamie Dimon who has been cleaning up its house and improving the operation may show aggressiveness in expanding business scale in 07. In my opinion, JPM has really consolidated its business operations well under common data management platform and may handle additional M&A activities with better than expected business synergies. Finally, I also expect the company may be a little bit more aggressive with its Investment banking; the company spent most its time to establish steadiness and consistency in 06 for Investment Banking area.

Turnaround for JPM is no where near complete. This implies plenty of earning leverage that you will see from the company. 2006 was the year for the company to demonstrate the ability to improve operational performance and build the organization for more consistent growth. 2007 will be the year for the company to leverage on the operational improvements that it has achieved to date and become more aggressive on expanding business scale. I expect as the company exits 07, the company will have largely finished the operational improvements and establish the business scale to compete effectively with C and BAC. This sets up the company to become lean, mean cash generating machine in 08 (of course with the economy not in recession).

As such, I see JPM as the core holding in my portfolio. Despite the solid gain we had to date, I will continue to hold onto the shares as I see far higher share price in the future. CTRP now has the best pick status for 07 for FilthyRich group. However, JPM has not disappointed us with 06 performance. While other tech, biotech and china stocks have been all over the map in 06 and gave stomach aches every now and then, JPM has been steady and consistent in 06 and I believe it will be the same in 07. So congrats to JPM shareholders in 06 and we look for even better things to come in 07.

GS: Don't miss the finale of the firework; PT raised.

2006-12-17T23:02:00.000-08:00

I wanted to give you my take on the latest earning result for Goldman Sachs. The company reported Dec 06 result pre-market on Tuesday. Ahead of the earning, I suggested you take some money off the table should there be a pullback given the torrid earning upward revision (especially if you are playing with call options). I also claim that GS should be still able to beat the consensus estimate by a solid margin (by margin of 10 to 15 cents).

http://www.investorhives.com...

GS delivered the near best quarter performance in the company franchise history. Quarterly revenue came in at 9.4 billion. EPS was $6.59, significantly above the consensus estimate of $6.05. The company thus beat the bottom-line number by outstanding 54 cents, much higher than what I have expected despite the significant analysts' earning revision prior to the earning.

Despite the blowout earning, the stock dipped slightly from $205 level that the stock was trading heading into the earning call, settling slightly below $200 level. Friday was an option expiration day. So there was a battle among institutional traders who want their call option at $200 in the money and those who wanted to see their put option in the money as well. This caused the stock to remain volatile, fluctuating around $200 level throughout the week after the earning. Frankly, given the large price appreciation ahead of the earning, I thought I would see more downward pressure but the stock held firm and I believe it is in a position to make a solid advance in coming days. Consequently, I want you to use the profits gained by selling some portion of GS holding ahead of earning to buy back the shares at these level. I believe that the stock still has substantial upside. I am further raising the target price to $250 from $230.

Because GS earning performance has been so stellar this year, many analysts expect the earning has peaked for the company. At near $20 EPS, the stock is currently trading barely above PE of 10 on a trailing basis. In the future, many analysts see EPS performance dropping to $16 ~ $17 range next year and think that the stock is trading with forward PE of 11 ~ 12 range. Given the market uncertainty in the US rate environment and economic uncertainties, the traders may feel inclined to be extremely conservative with assigning appropriate PE multiple.

Traders were looking so hard for reasons to sell the stock after the quarter that their reason almost appeared to be trivial without much ground. Bears contend that this quarter's performance was entirely helped by the one-time $500 mil investment gain from its FICC (Fixed Income, Currency, and Commodity) operation with Accordia Golf in Japan. Also they were disappointed in the growth of the revenue in the Investment banking side which showed only 4% growth sequentially from the previous Q. In addition, the comp ratio was lowest at 26.6% so operating cost going forward is likely to increase, pressuring the earning performance.
The truth is that great environment in the investment banking area is just beginning. GS reported the extremely strong backlog in the investment banking side. The good news is still to come given the record amount of M&A activities and IPO deals in the US and abroad. In fact, GS has the strongest presence in China (see figures below) and I believe that the investment banking revenue from China alone will surprise many investors' expectation and take the GS shares to much higher level. In addition, in the winter, commodity market has firmed up from the previous Q and could again help GS to achieve higher than expected revenue in FICC side. Finally, as I expect good 2007 in terms of the market performance (although we could see some correction in early 2007), equity trading revenue could remain strong as well. In my opinion, analysts are too concerned about the fact that GS is doing too well.

However, GS's great performance should be interpreted as better performance to come rather than peaking earning for the company. 15 to 20 % EPS drop that many bears are seeing are the reason that GS shares may continue to advance. I see the earning leveling off from the current level but don't see the EPS dropping by the magnitude that some bears may content GS will face. I expect EPS performance of somewhere between $18 and $19, slightly lower from the current record $20 performance. Furthermore, towards the end of 2007, Fed could ease after making sure inflation is under control. This could support the PE multiple of the financial sectors to expand to 13 ~ 14 range from the depressed 10 ~ 11. As a result, the shares can trade decidedly above $250 if my contentions actually pan out in the market place.

In conclusion, GS had a great 2006. 2007 will be another solid year for GS and the shares could continue to rise as investors gain more confidence that GS business in no where near the state of collapse. I think investors should use any weakness in the stock price as a chance to add to their position.

GS: Expect fireworks but investors know it is 4th of July.

2006-12-10T22:20:00.000-08:00

In my previous message dated 11/22/06, I indicated GS is on a path to have one of the best Q in terms of earning. I believed that the company will have a blowout Q, beating the consensus estimate by a wide margin. I bumped up my price target to $230 from $200.

http://www.investorhives.com/msgd.php?msg_...

At that time, I told you guys that the stock would decidedly break above $200 level as investors anticipate great earning from the company. Although the stock remained volatile over last two weeks, the stock is now at $205 and a change and some of you who have been playing with options or the stock may have racked up some nice gain. What do we do now heading into the earning on Tuesday morning?

Two weeks ago, the mean consensus EPS estimate for the upcoming Q was somewhere between $4.9 to $5. However, in the matter of two weeks, we have seen torrid upward earning estimate revision by many analysts. Now according to Yahoo mean estimate number, the consensus EPS stands at tall $6 a share. Ahead of the earning, Smithbarney raises to the target to $200 from $155 and bumps up the EPS estimate for the Q to be $6.65 while maintaining hold rating. S&P raises the target by $10 to $230 and adds the stock to top ten portfolio stock list. A small research firm Buckingham Research Group ups the target to $256, citing higher than expected income from M&A activities and IPO deals in Asia and Europe in coming months. Prudential also increased the target price to $215, citing gains from ICBC investment.

While I still continue to expect robust earning performance that will even beat the elevated estimate, investors are also expecting this and the higher EPS estimate largely reflects very robust business environment that GS had in M&A and IPO market in the US and in Asia. Due to substantial earning revision, chance for the blow-out for Q is less likely. However, it is still possible that GS will probably beat the estimate number by a solid margin (probably ~ 15 to 20 cents).

In my opinion, real surprise will come from the guidance and this is where investors should focus to determine the near term stock price movement. Currently, investors expect that GS cannot sustain this level of earning performance for next year and the company will see 10 to 15% earning depreciation from the current level. While this year's estimate is roughly anywhere between $19 to $20 EPS, for the next year, the estimate remains in the range of $17 to $18. However, even at this reduced expectation, the stock is trading just above PE of 11 on a forward basis. So this is not an expensive stock.

Furthermore, I believe that the estimate for next year's earning is too low. Next year is the third year before the presidential election and the stock typically performs the best during this year. In addition, prior to 2008 Olympics, I expect extremely strong Chinese equity market that will fuel very robust IPO deals. No investment firm is better positioned in China as GS is. Finally international exposure of GS may help the firm to rack up substantial currency gains. If Fed eases the interest rate by late next year, PE multiple will likely to expand to 13 to 14 level and with EPS that may exceed $18 next year, the stock may test $250. So we still have some solid upside from the current level.

Although GS is heading into the earning with increased expectation, I believe you should not sell all of your shares into strength. If you are an option player (I know some of you have racked up more than 100% gain), I suggest you sell half of your position and let your free money work for you. If you are a stock holder, I may take some off the table to add more shares in case of price drop after the earning: however, I would still hold onto the good portion of your GS holding. I expect favorable guidance from the management and this is where the surprise will be. Even in the case of stock price drop due to largely in-line Q, you will get a great chance to add additional shares. Seems like we cannot lose on GS..

Initiating two additional biotech names: ISIS and ALNY

2006-12-10T16:51:00.000-08:00

When I was previewing ASH 2006 for our FilthyRich biotech names sometime ago, I noted that biotech industry will face great waves of M&A activities over next two years. This is because big pharma companies such as Merck, Pfizer, and Novartis will be on the hunt for small to mid cap biotech companies to accelerate their drug discovery process.

So far we have positioned our biotech names very conservatively in terms of valuation as I saw the market uncertainties amid slowing economy. My feeling was that biotech companies are less prone to economical cyclicality and provide investors with nice place to weather out the periodic volatile storms in the market as investors continue to debate the extent of the economic slowdown. Even in the biotech, I have been emphasizing the valuation. I have been recommending AMGN with low PE ratio and reasonable growth rate. I have replaced DNA with GENZ to also reflect the emphasis on the value. Genentech, FilthyRich's pick for 2005, has been a stellar performer in 05 (racked up more than 100% gain). However, as Avastin drug potential was properly being reflected in the share price, we removed the name and replaced with GENZ. GENZ is a specialty biotech company armed with wide array of drugs in the product line to treat very rare diseases. The company is a very consistent and steady grower with PE in the low twenty ranges. I will definitely outline this company in detail in the future as I see the current price as very attractive entry point. PDLI is a small to mid cap biotech name. Here I also emphasize the conservatism in picking this stock. PDLI has a great royalty revenue stream from a number of large biotech companies such as DNA and BIIB. While other small biotech companies must burn cash after cash in order to develop its pipeline and face the prospect of going bankrupt when their pipeline never materialize, PDLI is in a position to use its royalty revenue to develop its pipeline without seeing negative cash flow from its operation. PDLI is undervalued I believe. Once this company shows positive data for the emerging pipeline, the stock will be noticed. I believe that the company represents a good value here.
Having said that, I believe that biotech sector will see more investors who are willing to speculate on the industry M&A activities. Overall market conditions supports this trend. The bond market is topping in my opinion. There is plenty money that rotated out of the real estate market (all the money was in the real estate market from 02 to 05.) The energy and commodity speculation has also fizzled out. At this point, there is plenty of liquidity out there that is waiting to get into the stock market. Presently, money is favoring tech names; however, with the economy that is slowing some signs of slowing down, I believe that the risk in the tech market is increasing and am betting that the money could rotate out of tech sector as quickly as early next year. These available liquidities can find a way into biotech sector that makes biotech as one of the most exciting sectors to invest in 07 and beyond.

On top of these favorable market trends, these are compelling industry reasons why M&A activities may pick up in the biotech sector. Big pharmas' drugs are facing more generic competitions as many of their drugs face patent expiration by early 2010. But the pharma companies continue to struggle with developing legitimate pipeline for continued top line growth. Several days ago, Pfizer dropped bomb in the investor community by stating that its highly touted cholesterol drug (raises good HDL cholesterol) torcetrapid with 24 billion dollar revenue potential has major side effect problem and the company will cease the development of the drug. This now set the stage for major M&A efforts by Pfizer and other large pharma companies to acquire small to mid size biotech companies to beef up the pipeline.

Who could be the beneficiaries of this trend? I believe that the biotech companies with RNA technology will be the focus of M&A activities by the pharma companies. Merck has paid more than 50% premium in acquiring Sirna, a RNA biotech company. Merck's acquisition validates the RNA technology as viable source of new drug pipeline development. I would like to bring ISIS (Isis pharmaceuticals) and ALNY (Alnylam pharmaceuticals) to your attention. I am initiating these two names to bring up more species to our biotech list. ISIS is initiated at the price of $12.13 and ALNY is covered at the price of $23.81. I have been watching and studying these two names last three months and over this time, the stock had a tremendous run. As a result, rather than jumping in with a big bet, I would suggest using the pullback in the stock price to accumulate. In addition, let me emphasize that these two names contains high elements of speculation. ISIS has several drugs in the pipeline that is in the middle of trial stage 2. ALNY has their pipeline at even earlier stage than ISIS. So it may still take several additional years to bring the drugs in the pipeline into the market. So I suggest you limit your exposure to less than 5% of your overall portfolio for each stock.

RNA acts as a messenger in building the protein, which are the building blocks of the human life, from DNA strains. By carefully disrupting or manipulating the RNA process, these companies can target the protein productions of malignant tumors, formation of bad cholesterol, etc. Consequently, RNA technology offers very promising way of conquering the cancer, heart diseases, diabetics and many other diseases that is plaguing the human kind. I will highlight more about the RNA interference technology for ALNY and RNA antisepses technology for ISIS.

AMGN: Use the concerns over EPO hearing to add agressively

2006-12-06T00:16:00.000-08:00

AMGN shares have been weak lately. FilthyRich group has initiated the stock at $61.79 on 6/28/05 along with CELG and PDLI. Although it is up by roughly 11% in a year and a half time frame, the shares continue to under-perform its peers. My original investment thesis and the related articles are:

http://www.investorhives.com/msgd.php?msg_...
http://www.investorhives.com/msgd.php?msg_...
http://www.investorhives.com/msgd.php?msg_...

The stock seemed to trend higher over last two months and was at one point was poised to break above $80 level where the technical resistance may have occurred. But now it is once again trading below $70. At this level, I believe that the stock is a great buy (my target is $100). It is trading with such a low valuation that it is simply a shame to see the stock trading at this level. In my opinion, AMGN will make roughly $4.5 to 4.6 in 07 and probably over $5 in 08. As we enter 07, you are looking at this premiere biotech companies trading with PE of 15 based on 07 and PE of 13 based on 08 estimate. In 07, the stock would be trading with PE of bank stock and I believe this type of valuation will not last and the stock should be trading much higher from the current level. Momentum investors continue to ignore improving pipeline in the oncology area and the current diverse pipeline that is already generating multi-billion dollar revenue. Instead, it is keying on two major uncertainties that is all related to AMGN's EPO line of drug. First one (I already went over this in the previous article) is related to the Roche's competitive drug CERA entry into the US market. AMGN has sued Roche for patent infringement and AMGN has a good chance to prevail the lawsuit due to extensive patent portfolio in the EPO market. We will hear about the Judge's decision soon in the early next year.

Second uncertainty that is currently depressing the stock price is US Congress hearing on the EPO reimbursement policy. The Congress is conducting a hearing to review the medical reimbursement policy for EPO products and possibly look into way of offering bundled pricing system to lower EPO usage. This is a way of reducing the medical cost and as Democrats took over the Congress and they have affordable medical cost as one of their top initiatives, many investors are afraid that these efforts may lead to lower bottom-line performance for EPO line of products for AMGN. The hearing will take place tomorrow and I believe no near term action will take place on this front: even if there will be some kind of policy change, it is likely to take years to implement. Furthermore, CMS is very much likely to defend its position with current reimbursement policy and there could be no change what-so-ever to the existing policy.

In my opinion, the stock fell in anticipation of the bad news and the drop has fairly reflected the possible negative scenario. Consequently, the risk to award ratio looks good for the stock and current price looks really attractive for the long term oriented investors. Also from the trading point of view, I think AMGN shares now offer good entry point with a short to intermediate term outlook. As such, I recommend you step up and buy AMGN shares.

Now, I would like to preview what AMGN has in store at ASH. Although investors may continue to pay attention to what AMGN competitors are offering at ASH, I believe that most of these concerns are now reflected in the share price and AMGN shares may have bottomed. Following comes from Lehman report published on Nov 29th on 2006 preview of ASH meeting. Tomorrow I will go over GENZ and will also comment on PDLI in the near future.

Amgen's ASH will be quiet, in our opinion, with more focus likely on competitors, EPO being a perennial, Amgen has no denosumab data but we highlight Novartis's competitor, Aclasta (zoledronic acid) which will be featured in a number of posters including data on ONJ and how a new schedule can reduce its incidence.

AMG 531, Thrombocytopenia
Amgen will present 48 week data, on Monday at 1:45 PM, for 531 in ITP, there is also a poster evaluating platelet activation in healthy volunteers; platelet activation has been suggested as a potential safety issue with 531. Amgen has completed two phase 3 studies of 531 in ITP and we expect top line data shortly followed by a BLA in early 2007.

AMG-523, B-Cell Disease
Amgen presents data for its lymphostat/atacicept competitor. A poster on Monday includes clinical implications in the title and we have long thought that Amgen needs to differentiate 523 from the pack; we expect a phase 2 go/no go decision shortly.

AMG-386, Anti-angiogenesis
Amgen has no data for 386, its antibody targeting ang2/tie-2 interaction but we note two posters discussing the role of this pro angiogenic axis in AML (Sunday) and CLL (Monday) and could support a decision by Amgen to explore a role for 386 in hematology; to date there has been a dearth of data for anti-angiogenic agents in hematology, we note a couple of PTK787 posters at ASH; however, our European colleagues expect 787 to be discontinued by Novartis.

Erythropoietin Competitors
A poster describing CERA consumption could provide additional insights into its biology; we have long believed that CERA's perversion of the natural EPO-receptor recycling following ligand binding could raise some questions regarding safety. Other EPO competitors include Neose who will present data from a phase 1 study in healthy volunteers in a Saturday poster.

Thrombocytopenia Competition
Following presentation of impressive data for eltrombopag in hepatitis-associated thrombocytopenia at AASLD, GSK will present ITP data orally (Monday 1:30 PM). We expect strong data from this randomized double-blind trial and while Amgen will likely get to market first with 531, eltrombopag's oral formulation will likely be favored by patients especially for chronic use; although this is where long-term safety which is as yet largely unknown is critical. Newcomer AKaRx will present data from another small molecule oral thrombopoietin agonist, AKR-501, which is currently in phase 1 testing in healthy volunteers (Monday 2:00 PM). We also note that Genzyme will present phase 1 data for the anti-CD16/CD3, GMA-161 in ITP, in a Saturday poster; GMA-161 was developed by Macrogenix.

CELG: Setting all time high ahead of ASH.

2006-12-05T00:21:00.000-08:00

As I have promised, I will highlight what CELG is presenting during ASH. I will do the same for GENZ and AMGN tomorrow. Ahead of ASH, CELG is hitting all time high today: the stock is now racking up impressive 190% return in one year and a half since our coverage of the stock on 6/28/05 at slightly over $20. Ahead of ASH that starts on Friday, Smithbarney raised the target for CELG shares to $70 from $58. The firm maintains buy rating on the stock. The justification of the target raise was the faster than expected sales of Revlimid for MDS and MM treatment. In addition, the firm sees much slower rate of decrease in Thalomid sales. With this estimate, firm sees the revenue that will exceed 2 billion with EPS in the range of $1.70 for 08 (As we enter 07, 08 estimate will be used for forward PE). So target of $70 implies PE of slightly greater than 40 which is not unreasonable given the fact that the company revenue is ramping with the growth rate greater than 70% through 2008 ( puts PEG ratio well below 0.6).

Again this estimate is based on the Revlimid sales in the targeted MM and MDS market in the Europe and in the US. CELG is waiting for European approval of Revlimid in early next year. So in order to justify the current valuation, European approval must be granted, which I believe it will happen given the safety profile and efficacy of Revlimid. If Revlimid is only targeted for MM and MDS market, then the story for CELG may be nearing its end. But it may be far from the truth.
Revlimid is now being evaluated for CLL and NHL which represents 600 mil and 4 billion markets respectively. These two markets represent more than 2X the revenue opportunity for Revlimid for MDS and MM market. The initial trial data on CLL looks very promising. In fact, some firms are now taking off the label sale of Revlimid into the earning estimate for CLL. NHL data is still in very early stage. We will hear more about the Revlimid indication with respect to CLL/NHL during ASH. If CELG successfully makes in-road in CLL/NHL market, the revenue of the company may be in the range of 5 to 6 billion and at the operating metrics of 30% (standard for large biotech company), the company EPS can bump upto $5 a share. This simply means still large untapped potential for share price appreciation remains. CELG is next AMGN and DNA if Revlimid can continue to penetrate into new applications. This is why investors may remain excited as we head into ASH and wait for favorable trial data.

Another interesting point about CELG is its extensive patents on Stem Cell technology. As Democrats now control the Congress, I believe there will be more push towards investing and developing Stem Cell technology to cure many neurological degenerative diseases. The company such as Geron is now being viewed as a beneficiary of this possible trend in the future (increased government spending in the stem cell research). If this pans out, CELG will also be the beneficiary of this trend. So we have another source of investor enthusiasm that may help to push share price higher in the future.

Now following is the highlight of CELG presentation with each dates specified for different presentation of trial data. Again the source for the next paragraph come from Lehman report published on Nov 29th to preview the ASH meeting.

Revlimid continues to be one of the higher profile products at ASH with a number of Important oral presentations:

Monday 8:15 AM and 8:30 AM, long-term data from MDS phase 2 studies;
Monday 11:30 AM, final data from the phase 1 Revlimid/Velcade combination study in R/R MM; phase 2 studies in 1st line and R/R disease have been initiated based on these phase 1 data;

Monday 12:00 PM and 12:15 PM, single agent activity in R/R CLL, this is an update of data that has been discussed over a couple of years and while CR's are impressive the data to date has been difficult to put into context; CELG is planning a series of pivotal studies in CLL;

Monday 2:00 PM, single agent activity in NHL, like the CLL data these are intriguing and registration studies are being planned to quantify the benefit of Revlimid in NHL;

Tuesday 9:30 AM, initial data from the phase 3 ECOG study comparing high dose
and low dose dex combined with Revlimid in 1st line MM will provide important safety data;

Tuesday 9:45 AM, Phase 1/2 1st line data for Revlimid combined with Memphian
prednisone. Celgene is also expected to present data for Thalid in MM including data comparing Thal/dex to VAD as a pre-transplant induction regimen in the 1st line setting as well as an update from the pivotal 1st line Thal/dex vs dex study.

CELG, AMGN, GENZ, PDLI: FilthyRich biotech issues at ASH

2006-12-03T23:09:00.000-08:00

The American Society of Hematology (ASH) meeting kicks off on Dec 9th (coming Friday) and will last through December 12th. This meeting is one of the very prominent medical conferences in the area of blood related disease and many biotech companies are expected to reveal trial data of their pipeline at various stages. Promising trial data may excite investors and can possibly trigger share price rally. Typically in the past, biotech companies with high visibility in the meeting saw their shares appreciate prior to the meeting. If the rally is significant, the shares usually pull back at the end of ASH meeting. However, if the trial data reveals significant new opportunity, the share price may continue to firm up.

All four biotech companies covered in FilthyRich group have presence at ASH to a certain extent. Out of four, I believe CELG will have the strongest presence followed by GENZ. I believe CELG and GENZ shares could see nice rally this week towards the beginning of the ASH conference. For CELG, Revlimid will be highlighted for R/R MM in combination with Velcade for both early and late line of defense. Also phase 2 data of Revlimid on CLL and NHL could be available. Promising data on CLL/NHL could be a huge boost to the share price. So pay close attention on this development. GENZ seems to have come up with very impressive pipeline in the hematology area. GENZ will feature early trial data on Clolar, Campath, GMA161 and Mobozil. GENZ is very good stock to own in my opinion due to very diversified product portfolio. PDLI introduces its new development product, an antibody targeting CS1 on MM cells. PDLI is a small-mid cap biotech company that I have not gone over yet with you. I will outline PDLI in the near future along with GENZ. AMGN will have some presence but the focus for AMGN will be more on what competitions will present during ASH. AMGN share have been weak lately due to concerns over on-going medical reimbursement review (for EPO product) at US Congress. I continue to believe that AMGN shares are severely undervalued and for a long term investors who are looking for steady growth without crazy risk factor that biotech companies may represent for some investors, this company is a compelling buy.

For AMGN, GENZ, and CELG, I will cite the summary of what each company are presenting during ASH in the following message in the next couple of days. The source of my research was Lehman report that previews upcoming ASH. The report is over 60 pages but if you want to view the full report, email me using investorhives.com mail and give me your email address. I will be happy to share the report.

Amid uncertainty over the slowing economy and possible earning slowdown among many economically sensitive US corporations, I believe that the US large cap biotech companies offer great place to weather the pockets of turbulent times that you may see ahead. Also these companies sell many drugs abroad especially AMGN. For CELG, EU approval on Revlimid will even increase the revenue growth rate and the dollar is tumbling against Euro. Large cap biotech companies are weak dollar plays; weak dollar can greatly boost earning for biotech companies. In addition, large pharma needs biotech companies more than ever to sustain their drug development efforts and to grow their earning. PFE screwed up big time by announcing termination of the drug development efforts with one of the most highly touted cholesterol drug. This may create some serious ripples among pharma sector tomorrow. In my opinion, large pharma will be on the hunt for several small to mid cap biotech companies. This will make the biotech sector one of the most exciting sectors to invest in coming times. The risk is certainly greater than other sectors with biotech issues. I continue to believe that we can reduce the risk by aligning our investment choice within this sector with large cap issues with significant products in the pipeline. And then choose one or two small issues to speculate for the major upside movement.

I continue to believe that every investor should have some exposure to biotech sector.

Tivo: Respectable Q but unrespectable guidance.

2006-12-01T00:49:00.000-08:00

Tivo reported the earning after the market close on Wednesday. Heading into the earning, I thought the company had manageable expectation that had a fair chance of being exceeded. Hence I thought the stock was a trading buy.

(see http://www.investorhives.com/msgd.php?msg_...)

From the today's stock action, this turned out to be a blown call. Let us fast-rewind the tape and review what has occurred. As expectedly, Tivo delivered respectable top-line and bottom-line performance. The revenue came in at $65.7 mil, slightly ahead of the consensus estimate. EPS loss was at 12 cents, 3 cents better than the consensus loss estimate. Operating margin was ahead of some analysts' expectation, coming in at -18.7% versus ~ -25% expected. Tivo also announced DVR software deployment deal for Cablevision Mexico with 500K subscribers in the middle of 07. These headlines alone would have caused the shares to trade slightly higher, which it did just after the earning was released.

Then the investors took the notice of the next Q guidance. Although heading into the earning with low expectation, the company still managed to disappoint the investors with the next Q sales guidance. As the Christmas holidays are the seasonally the strongest time of the year for Tivo sub adds, the investors wanted to hear that the company will be aggressively accumulating as many as subs as possible (even at the expense of significantly higher marketing cost). This was also my expectation but it was not the case. Tivo guided for subdued sub add outlook. Yet the company was still guiding for the significantly higher operating expenses. This aspect may have been very puzzling for investors. The investors wanted to hear more aggressive sub add efforts at higher marketing expense. Or they could have been also happy with more profitability with less marketing expense. Somehow, Tivo seemed to have done something that is not very intuitive: less sub add with more operating expense. This was the source of the investors' disappointment and the stock tanked by nearly 10% today.

What may have happened was management's attempt to kill the two birds with a stone, a strategy which backfired on the stock price performance today but is not completely unreasonable. Tivo is fighting with two major uncertainties: timing of the network-wide Comcast deployment and resolution of the litigation against Dish. Tivo needs to ensure that Comcast relationship can generate meaningful sub adds for the company to expand its sub-base large enough for more effective ad opportunity. However, the timing of this event is rather uncertain. First, Comcast will have go through testing phase of Tivo software till early 07. Even after Comcast start marketing Tivo software by the middle of 07, it may take some additional time for the subscribers to readily accept Tivo product and Tivo software to gain momentum within Comcast subs. Cox deployment may even take longer than Comcast. Till then Tivo will continue to burn the cash and as such the company may want to minimize as much cash burn as possible.

Yet at the same time, the company may want to add respectable number of standalone sub adds (since it has the highest profitability) during the seasonally the strongest time of the year. So it is still spending fair amount of money to entirely subsidize the single tuner Tivo box (predicting loss of 30 ~ 35 mil and the company has slightly greater than 106 mil in cash). In a way, it is preferentially clearing out the old inventory as people will clearly have more inclination for the single tuner version with no hardware cost. Notice Tivo is raising upfront cost for the dual tuner DVR to $69 with higher monthly fee. However, longer term commitment (3 years) will yield significantly lower monthly fee (slightly less than $9 and is actually cheaper than $10 that the most cable providers are charging). So if people still opt for dual tuner this holiday season, all the revenue will be the upside surprise: the company thinks most of the hardware sales will be the single tuner because of no hardware cost (entire amount given back in the form of rebate). This is company's attempt to still experiment with the pricing plan to understand the consumer preference for more effective marketing and at the same time to yield respectable standalone sub adds during the holiday season.
So the company is trying to limit cash burn while adding reasonable number of new subs and in the process ended up guiding more subdue sub add outlook with higher operating expenses. Am I really disappointed? Well with the stock price movement Yes�� But with respect to what the company is doing, I can care less. This is because in order for Tivo to become a viable and thriving entity, the company must see two events with favorable outcomes: patent litigation against Dish and Comcast deployment. Yesterday's earning outcome and subsequent stock movement will be a noise compared to that you will see as a result of the litigation and effectiveness of Comcast deployment. These are two events that investors must pay attention. If none of these events pan out favorably for Tivo, I am going to bail out of the stock. Until then I am going to continue to speculate on Tivo on the long side.

Due to tremendous technological leadership in the DVR space and synergy with the advertisement product, in the worst case, Tivo will be bought out and become a division of Comcast. Even in this case, I believe that there could be a fair amount premium from the current share price (given how well Comcast share price is doing these days). In the best case of successful litigation outcome and rapid sub add growth from the MSO deals, the shares could be trading significantly above the current level. I am hoping that it would be the latter case. But so far investors are betting that it will be the former.

FMCN: all time high; WR Hambrecht initiates with buy

2006-11-29T00:41:00.000-08:00

FMCN hit all time high level today, breaking above $70 level. I have said in my previous message that despite the stock advance after the assuring Q3 earning, the stock should be bought.

(http://www.investorhives.com/msgd.php?msg_...)
(http://www.investorhives.com/msgd.php?msg_...)

In my opinion, as investors feel more confident about the company revenue growth and expanding operating margin, the stock will continue to rack up impressive gains. This may be especially so as the US economy is slowing down and earning pictures for economically sensitive companies will likely to be cloudy in the coming times. Chinese economy shows much better growth potential and as things in the US get turbulent, investors may look outside the US for better growth opportunity. Consequently, I believe some exposure to Chinese stocks may be a shrewd idea. In our group, we cover CTRP and FMCN as two ideas that may benefit from great Chinese economic growth story.

(http://www.investorhives.com/hived.php?hiv...)
(http://www.investorhives.com/msgd.php?msg_...)

Today WR Hambrecht initiated the stock with the buy rating with the target price of $85. This coverage may have served as the positive catalyst to push the stock price higher. The firm noted that Tier 1 city network expansion is maturing and the critical mass has been attained. This will set the company up nicely for the improving operational margin. The firm cites expanding opportunities in the Tier 2 cities as the next source of robust company revenue growth. The research report outlines in-depth various segment of the business which includes in-store, Framedia, in-moving advertising, outdoor as well as mobile. Although mobile is currently very small portion of the overall business, its potential is enormous as China has the largest world population and everyone will carry cell phones sooner or later. (if you want to view the report, email me using investorhives.com mail and let me know the mail address: I am willing to share the report.)

The firm expects 40% sequential revenue growth on YOY basis till 2009. For 2009, the firm predicts the revenue roughly in the range of 600 mil with EPS estimate of $4.62. So by sometime in 2008, amid excitement over 2008 Olympics, the share could be trading as high as $140 if the investors are willing to give PE of 30 based on forward earning in 2009.
Although this is very forward looking statement, the whole point of this exercise is that FMCN has plenty of growth ahead.

Although China is risky proposition and FMCN does have plenty of speculative elements, I believe that the business proposition that FMCN is undertaking is compelling. I believe that the growth prospect and earning power of this company will continue to excite investors as we near 2008 China Olympic. As such, I think risk tolerant investors, investing with FMCN could be very rewarding.

Tivo: buy the pessimism and sell the optimism.

2006-11-28T22:38:00.000-08:00

Tivo, one of the speculative stocks, covered in FilthyRich stock list reports earning after the market close tomorrow (Wednesday 29th). Tivo appeared to have finally established steady uptrend in the middle of this year after winning the patent litigation against Dish Echostar. The company won the injunction, which ordered the immediate termination of the service of the DVR that infringed on Tivo patent. However, after the stay of the injunction by the appeal court, investor's hope that Tivo may leverage the court win to strike many additional business deals with the cable providers slowly deflated. And at $6.28, the stock is now trading at the lower end of the trading range between $6 and $8.

Heading into the earning, Tivo have low expectation in my opinion. Investors now know that the patent litigation won't resolve in the near term and may last longer than a year. Because DVR service deployment with Comcast and Cox is still some time away, investors now expect that net sub add this Q will be minimal. Also investors expect heavy operating loss as the company has recently launched new HDTV DVR platform and there could be significant hardware subsidy cost. Also heading into the holiday season, investors expect more expense coming from the more aggressive marketing campaign. In my opinion, risk to award ratio for Tivo has turned favorable as investors do not put too much expectation on the company's performance this Q.
There could be some mild positive surprises this Q. Surprise may come from higher than expected sales Series 3 HDTV DVR. There are many avid existing Tivo DVR users and they may have upgraded their DVR to new Series 3 DVR. This may resulted in higher than expected revenue. In addition, I have noticed from alexa.com that the traffic to tivo web site in the middle of Sept has spiked to the near record level. This time frame coincides with the introduction of the new series 3 and the initial sales by the new subscribers may have been also greater than expected. Another positive surprise may come from ad revenue. Although they are very small part of the overall revenue at this point, the margin is really good for this line of business. Along with continued tight expense control, Tivo may be able to deliver upside surprise in the bottom-line (loss is expected due to higher than expected expense associated with new product launch).

Tivo is heading into seasonally the strongest Q of the year. As such, I expect that the company will be optimistic about sub add aspects this winter. In addition, Comcast deployment will start early next year, solidifying the sub add outlook. Also the management may picture more enthusiastic stance on the ad business. Today Tivo announced that the company is going to add targeted commercial at the end of the recorded TV programs and measure the commercial viewing by the people. These factors could serve to boost the share price after the earning.

Unless Tivo gets positive outcome from the appeal litigation process, the stock is likely to be kept in the trading range between $6 and $8. However, heading into the earning with reduced expectation, I see a little trading opportunity. If you consider squeezing out 5 to 10% upside from Tivo, I think buying ahead of earning may be the play. If this really pans out, make sure you do take the profit.

Good luck,

GS (Goldman Sachs); golden opportunities ahead.

2006-11-22T00:25:00.000-08:00

GS was initated in FilthyRich 2006 stocklist on 11/05/05 at $126 a share. In one year, the stock has generated stellar gain for the group with near 60% gain. The stock is knocking on the $200 door. Original target price for the stock was $160. Due to tremendous revenue upside generated from the commodity trading in the first half of this year, we bumped up the target to $200. Now I am revising my target to $230. Due to record M&A activities in the US and hot IPO deals abroad especially in Asia, GS is on the verge of delivering another record blow-out Q. I don't have time and too tired from work to list all the details to back this statement today. Over this Thanksgiving holiday, I will write up a more detailed analysis on GS upcoming Q results in mid-December.

But simply put, there could be as much as 30 to 40 cents upside to the current EPS estimate and GS may deliver near $20 EPS (not a typo) for 2006. This puts the stock at PE of mere 10 even at $200 level. People assume that GS cannot sustain this level of performance and estimate that the earning could fall in 2007 but this may not be the case. While earning cannot sustain this level of growth, I believe it will not fall next year much from the current level.

Towards the earning in mid Dec, I believe that the stock will decidedly break above $200 and rally significantly higher in anticipation of the great results. As such, I believe that now is the time to load up on the stock.If the run-up is great (to near my target of $230), we can take some off the table. If the rally is not quite as strong as I anticiapte, then we can hold the stock through the earning result. I believe the earning will be great and will be above most aggressive analyst estimate out there so if the stock do not run up, it will react very positively to the upside.

GS has shown golden performance for FilthyRich group to date. I believe it still has the golden opportunities ahead and we can stick with the stock despite the substantial gain we have to date.

FMCN (Focus Media): focus on the improving margin

2006-11-21T01:28:00.000-08:00

Focus Media reported earning after the market close on Monday. Heading into the earning, many nervous traders sold shares as the stock close down by a couple of percentage point to $59.86. I outlined some of investors’ concerns heading into the earning but did see continued strong growth in the topline number and possible earning upside due to an improving margin trend.

(see http://www.investorhives.com/msgd.php?msg_id=218)

FMCN put all the investors' concern into rest by delivering solid topline performance and exceptionally strong bottom-line results. The revenue came in at 61.1 mil slightly above 59.7 mil expectation. The EPS results blew away the estimate by healthy 6 cents, coming in at 55 cents on a Non-GAAP basis. The guidance was even stronger. The company sees the revenue number somewhere between 67 to 69 mil for the next Q. And it sees the EPS number somewhere between 62 to 64 cents, significantly above the current estimate of 56 cents.

The theme of this earning call is the improving gross and operational margin of the company amid the brisk revenue growth. The company has been deploying its LED flat panel network (commercial, in-store, etc). As these build out of the networks are largely complete and as they generate revenues, the gross margin is improving. The company improved the gross margin by whopping 640 bps to 65.3%. Even more impressively, the company is forecasting the GM to achieve mid 70% level long term. OP ex margin is going up even faster, up by 820 bps to 44.9%. As the current tax rate is only 5% for the company and this rate remain at this level for the entire 2007, the net profit margin could exceed 40%!!.

The company thinks it can achieve 20% Q to Q growth. If you extrapolate this for the quarters in 2007 with 40% margin, EPS estimate can exceed $3.5 and hence the current EPS estimate that some analysts are using are way too low. In this optimistic scenario, the share can reach $100 as we head towards 2007. Ad market environment for FMCN will even look better as China prepares for 2008 Olympics. FMCN reports all ad space in Tier 1 cities are sold out till the year end and this trend is expected to hold also in 2007.

Due to rather strong earning results, I would expect to see momentum coming back to the stock and we may retest our high of $70 level soon. I would not be discouraged by steep share price rise and use any pullbacks to build position. If you bought some shares ahead of the earning, congrats to you.

Conclusion

Even conservative growth in the topline number still yields great EPS growth due to earning leverage. Depending how fast the revenue ramps up, FMCN is poised to be one of the most exciting China stocks along with CTRP that we cover in FilthyRich group. Maintain $80 target but it appears as though this target is very very conservative number.

FMCN: Buy as it heads into managaeable expectation

2006-11-20T01:16:00.000-08:00

Focus Media (FMCN) was just initiated in FilthyRich 2007 ideas. The company reports Nov earning results after the market close tomorrow (Monday 20th).

FMCN is a Chinese media/ad company. In 2003, the company successfully transformed itself from an advertising agency to an operator of out-of-home advertising network. The company targets ad markets based on flat panel displays in commercial building network, in-store network, and other outdoor LED network. The company recently pushed its business into poster frame network and mobile handset network. Last two years, the company went on a torrid acquisition trail, gobbling up many small players in this space and defining new business based on the flat panel displays. Now FMCN owns 90% market share in this ad segment and has near monopoly-like position. The revenue growth, via both organic and acquisitions, have been outstanding. In 2004, the company posted topline number of 29.2 mil. In 2005, this number grew to 68.2 mil which represented ~135% growth. In 2006, the revenue number is estimated to be 212 mil which represents whopping 210% YOY gain. In 2007, the current estimate is 346 mil, which would be about 63% rise from 2006 level. Although the growth rate will likely to slow down from the current torrid pace, it will still remain above 40% level for the foreseeable future. 2007 EPS estimate is now at $2.60 but there could be upside as the margin could improve as the acquisitions are digested and the synergy kicks in. At the current price of $61.73, it is trading with PE slightly greater than 23. With growth estimated to exceed 40%, PEG is 0.6 and the valuation looks attractive for the risk tolerant investors.

Although the shares have risen more than 200% since its IPO in fall of 05, the stock has done nothing since June of this year. In fact, the shares have seen steady decline over last several months. What is causing the stock to lose steam? In June of 06, there was a secondary offering of shares which did not please the investors. Last earning call was also less than enthusiastic with the management being cautious about the future guidance. In addition, Wal-Mart buying Trust-Mart, a FMCN customer casted doubt whether Wal-Mart would renew relationship with FMCN. However, it is noted that Trustmart represent only 1.3 % of the total revenue. There has been some concern about increased competitions from Oriental Pearl and BAMC. There has been talk about increased lease cost on the commercial building display site which will have negative impacts on the bottomline. Finally, CEO's selling call option of the company and buying put options (involving 2m of his own shares) weighed heavily on the stock price.

Due to this negative events that has unfolded last two months and cautious management guidance on the upcoming Q, I believe that the shares are heading into the earning with the reduced expectation. Normally, high flyers stocks need to beat the earning expectation by a solid margin to sustain its upward momentum. But for FMCN, just slightly beating the estimate may trigger relief rally and hence I see more room for appreciation near term. I believe that some of the shares that you want to purchase can be bought ahead of the earning on Monday before the market close.

In case that the earning just meet the expectation and the shares sell off somewhat, I think that would provide us with a nice chance to average down. Long term, as we near the 2008 Chinese Olympic, I expect the Chinese display market to be very vibrant. With more network deployed as the time progress, room for the margin expansion is significant. Better margin among higher business volume means a lot of earning for the company and happy smiles on the shareholders.

New ideas for 2007

2006-11-19T17:29:00.000-08:00

Adding six new ideas for FilthyRich hive,

Dear members,

I am adding six new stock ideas for 2007. Currently FilthyRich hive has 13 stocks in biotech, financial, tech and china sector. In November of every year, I add stocks that look promising for the upcoming year. In late Dec and early January, I remove those that the original investment thesis does no longer apply or upside (if we are long) or downside (if we are bear) potential has been fully realized. We also have a midyear review process in July when we make additional adjustment in the stock portfolio.

FilthyRich group was started back in 2003 as a small yahoo group to share my investment opinions with a few of my friends. Since then, we had a great success with some stocks and made some nasty mistakes along the way. We do think we have learned from those mistakes. But I have a feeling that I will be make many more in my investing experience. Scott has asked me to take filthyRich group idea one step further and asked the group to be open for all those who wants to learn about investing by making the group available at investorhives.com. I have gladly accepted his offer. I believe in the power of number when it comes to investing. I believe that FilthyRich group can serve as a discussion forum for stock ideas and we can interact together to refine our ideas together. More people interact and more fined our idea will be and better it will reflect what is truly happening in the market. I believe that this will help us in making better educated guess when it comes to picking the right stock.

Here are six new ideas: IBM, AMR (American Airlines), LUV(SouthWest airline), RIMM (Research in Motion), PEET (Peet's coffee), and FMCN (Focus Media holding).

To accommodate AMR and LUV, I will create FilthyRich transportation idea section in the group. Also FilthyRich specialty retail idea section will be added to accommodate PEET. FMCN will be added under current China ideas and IBM and RIMM will be included in the current tech ideas. In Dec and January, I will be removing some stocks in the tech and biotech names to make a room for these new additions. Many will come from tech ideas. I believe that strong year end rally should be used to lighten up on some tech names; due to moderate slowdown in the US economy, earning picture for some tech names have become rather cloudy but rising stock price in many tech names makes the group more vulnerable for pullback in early 2007. I will inform you on what names to drop from the list but it won't be all at the same time as I want to maximize the performance for individual names.Here is a brief summary of the investment thesis for new ideas. I will provide more in-depth analysis as time goes by. I will do my best to do this as timely as possible but sometimes day time job makes that almost impossible.

1. IBM (initiated at $93.81 on 11/19/06, Target: $120, long)

The story behind IBM is slowing productivity of the US economy and rising wage trend. US corporations have not been spending a lot of money in upgrading their IT infrastructure. This trend is apparent in productivity number that is leveling off. Also there is an increased pressure in the wage front. This may signal more difficult earning performance for many US corporations, especially as the US economy slows down. Fortunately, many US companies are sitting on healthy cash level. Next year may be the time for these companies to spend on upgrading IT infrastructure. And as a premier IT service company, IBM may benefit from this trend. In my opinion, there could be more than 10% upside surprise in the earning for 2007 and multiple may expand to 17 to 18 level as the large cap issue may be in vogue with the money managers. Hence, $120 is my initial target. ( 17~18X $7 2007 EPS).

2. AMR (American Airline) (initiated at $32.32 on 11/19/06, Target: $48, long)
3. LUV (SouthWest Airline) (initiated at $15.83 on 11/19/06, Target: $21, long)

In my opinion, Airline companies will face significantly improved business climate heading into 2007. I believe that crude oil will dip below $50 after the cold winter season. And it will stay somewhere between high $40 and mid $50 in 2007. With dissipating speculation in the oil commodity, slowing economy, and Democrats who will talk about the alternative energy to death, I see falling crude price even below the current level. Many analysts estimate EPS for airline companies based on mid-60 oil price for next year. Also there have been many mergers within airline industry who took out more competitions. This will lead to improving airfare pricing for the whole industry. I see 50% upside from the airline shares from the current level. AMR has an extensive national netwok and LUV is a well-run regional carrier. Let us keep those two names and study the airline stocks in 07. With LUV, Alex in House_Always_Win hive may go over some trading opportunities with options.

4. RIMM (Research in Motion) (initiated at $133.61 on 11/19/06, Target: $95, short)

Alex presented several arguments why RIMM is a short. I do agree with him. Many believe in the perfect scenario for RIMM: new consumer product PEARL taking off, gaining wide acceptance quickly, and seeing dominant competitive position. I just don't see RIMM blackberry having the same appeal to the emotion as Apple iPOD. And with several competitive threats from NOKIA and Motorola, I don't see the excitement lasting long for RIMM. Short term, the stock may continue to rise as the tech sector is seeing great buying interest. One analyst just has upgraded the stock with the lofty target at $160. Let the stock run up and euphoria get to the moon. Then short the stock towards RIMM earning. I am sure you will hear from Alex on this one before me.

5. FMCN (Focus Media) (initiated at $61.73 on 11/19/06, Target: $80, long )

FMCN is a Chinese media company which specializes in display ad market. The company markets ad on various flat panel displays on the commercial building, movie theater, ect. The company has acquired several companies in the last couple of years to own 90% of the highly profitable display ad market. The company revenue growth has been impressive. In my opinion, the topline growth rate will continue to exceed greater than 40% on a YOY basis. Furthermore, as the company becomes more mature, its spending associated in deploying the display network will subside and there is a great upside to the gross margin. FMCN falls right into heart of the China growth story and I think you could use the stock weakness to build position.

6. PEET (Peet's coffee) (initiated at $26.75 on 11/19/06, Target: $30, long)

I think PEET is a viable coffee alternative to Starbucks. Coffee industry is in a long term growth path. While our dad generation loved to drink beers, my generation is into drinking wine and coffee. Over last five years, PEET has shown very consistent YOY topline growth. The company has been using most of its profits into aggressively expanding its store network and adding coffee roasting facility. While SBUX approaches the coffee consumers with beverage concept, PEET has been emphasizing on the bean concepts and appeals more to true coffee aficionados. Although it will not have the wide appeal as the SUBX franchise, I believe PEET will garner very strong and highly profitable coffee niche market. Don't expect the share price to show you an immediate return but if you stick with it for a long haul, I think you can come out with a nice gain.

Good luck,

CELG: Volatile: this time to the downside

2006-11-05T19:30:00.000-08:00

CELG announced yesterday after the market close that it will be issuing additional 20 mil shares. The purpose of the dilution is related to the S&P requirement (CELG was added to S&P 500 index very recently) to maintain the stock float at a certain level to increase the liquidity of the stock. The company can achieve this either by doing the stock split at a certain ratio or by issuing additional shares. The company chose to do the latter. Of course, this will have a dilutive effect on the share counts and investors are not pleased by this choice.

On the other hand, at CELG share price, issuing of 20 mil shares will add close to 900 mil to the cash position. CELG already has roughly 750 mil in the bank and additional cash generated from issuing new shares will take the cash position to the level greater than 1.6 billion. This will generate substantially higher interest income and will have offsetting effect on the possible decrease in the EPS estimate due to share count dilution. Having extra cash also helps the company to be even more aggressive in terms of developing new drugs and taking the pipeline into full commercialization. If the company ramps up the revenue more quickly than anticipated, this will more than offset the slight EPS decrease estimate associated with the share count dilution.

As CELG shares trades with high premium, investors tend to over-react to any hint of negativity. Revlimid story is just beginning and I do see substantial upside to the stock price even from the current lofty level. I recommend that you do stay disciplined about the entry price as the stock has high volatility. But so far over the last two years, correction in the stock price has been the gift for CELG longs.

CELG: added to S&P 500.

2006-10-30T22:01:00.000-08:00

CELG is getting an additional boost after-market after the announcement that the company is added to S&P 500 index. CELG is replacing AmSouth and is trading higher by 5.3%. As I outlined in my previous message, CELG is on a hot growth trail. The company is soon to be multi-billion dollar company and today's S&P 500 addition acknowledges that growth aspect. Being listed in the S&P 500 causes CELG to be covered in many index and mutual funds that emphasizes this index. This tends to fuel buying interest which can propel the stock price higher in the near term. As CELG has been one of the best performers in the biotech index this year, I believe that many fund managers may become interested in covering CELG.

Aside from the being added to S&P 500, I believe CELG along with other biotech companies (AMGN, GENZ, and PDLI are also covered in the FilthyRick Hive) are poised to outperform the market in the near term. Biotechs are entering into the seasonally strongest time of the year. Towards the year end are packed with many medical conferences that outline drug development trial data. Biotech stocks tend to be news driven as the investors seek to assess future earning potential of the company with favorable indications from FDA drug trials. In particular, CELG will have a strong presence at ASH (American Society of Hematology) in December of this year. Heading into this conference, we may expect relatively stronger performance of the stock as investors anticipate many favorable trial data for the drugs in the pipeline.

Other than the catalysts stemming from the update on the drug pipeline during the medical conferences, biotech stocks also have very strong fundamentals. Unlike the bubble era we had seen in late 1990's and early 2000's, most mid to large cap biotech companies now have real earning with great growth potential; their research investments are finally bearing fruits. After seeing some buying interest in the sector in 2005, biotechs struggled in 2006 as the hedge and mutual fund managers overly emphasized the energy and commodity sector. As the energy and commodity hype dissipates (yes, global economies are slowing down as evidenced by many countries' economic indicators), the money is rapidly being rotated away from the energy and commodity sector and being put into somewhere else. I believe the biotech sector may be a beneficiary of this trend. Biotech stocks are not exposed to economic cyclicality and earning growth aspects are not in question. The companies in economically sensitive sectors such as retailers, industrials, housing, commodities, as well as transportation may face uncertain earning outlook. In fact, many biotech companies' earning growth is accelerating as their products are marketed for the large untapped area of oncology, hematology, immunology, etc. Biotechs' PE and PEG ratio are currently much lower compared to what they have been historically. These sound industry fundamentals are likely to serve as a safe haven for investors in this uncertain market condition. CELG may also benefit from this trend.

After the market close, Merck announced that it is paying 1.1 Billion to purchase small biotech company called Sirna Therapeutics (RNAI). RNAI is up near 100% as MRK is paying hefty premium. As large pharmas look to biotech companies for acquisition targets to fuel their growth and as biotech earning outlook continues to solidify, biotech companies should see exciting times ahead.

CELG: sailing smoothly on the ship of Revlimid.

2006-10-29T19:50:00.000-08:00

CELG is one of core biotech stocks covered in FilthyRich hive along with AMGN, GENZ, and PDLI. CELG had a huge run-up last week after reporting stellar earning results last Thursday pre-market. CELG has hit a new all time high on Friday. We had CELG covered in the thread since 6/28/05 @ $20.38 (split adjusted). At current price of $50.33, the stock is generating 147% return in 16 months.

CELG falls completely in the opposite spectrum of AMGN in terms of investment thesis. While I think AMGN's value makes the stock attractive for a long term idea, the growth is what CELG is all about. CELG is currently undergoing the fastest growth of the top-line number in the company history due to rapid uptake in its blood cancer drug Revlimid. This quarter's number was impressive. Top-line revenue number came in at 245 mil versus the consensus number of 231 mil. EPS number was 15 cents which was a penny ahead of the consensus number. SG&A number was much higher than expected at 67 mil versus mid-50 mil that some analysts were expecting. This is due to aggressive marketing efforts that the company is making in promoting Revlimid. Despite the higher expense, CELG was able to beat the expected EPS number. Revenue number was 89% higher than the same Q a year ago and net income grew by eye-popping 3000%.

On the trailing basis, the company is trading at PE greater than 90 based on consensus mean number of 868 mil revenue and 53 cents EPS. So am I crazy to recommend CELG shares at this lofty price? Although I am not sure what the stock will do near term, I believe that there is still a plenty of upside left for the stock. Revlimid is approved for 5q-MDS (myelodysplastic syndrome) in January of this year and multiple myeloma in June of this year. Revlimid is projected to bring in close to 700 mil in the US and Europe for MDS treatment in 2009 (as we near 07, people will pay attention to 09 estimate: biotech stocks typically look at earning two years out and pipeline story for stock price estimate). In addition, MM treatment in 2009 may exceed the sales of 1.2 billion for CELG. Revlimid will be a blockbuster drug for CELG. The drug commands supreme pricing with the cost exceeding $60,000 for 5q-MDS treatment and $27,000 for MDS treatment. As such, the company can achieve gross margin above low 90% with Revlimid and the company may be able to demonstrate op ex and net margin number greater than 50% and high 30% range respectively in the future. If we add the sales number of existing drug Thalomid, the company is poised to achieve revenue number greater than 2 billion by 2009. With assumed net profit margin in the high 30% range, EPS can exceed $2.2. If the company earning growth is expected to grow by 50% over next 5 years, it may not be unreasonable to assign PE somewhere between 30 and 40. Taking more conservative approach with PE of roughly 30, the company valuation could exceed $65 a share by late 2007. Remember this is only assuming Revlimid's penetration in 5q-MDS and MM market and with the approval in Europe for these treatments which looks increasingly likely in the first half of 07.

But the story for Revlimid is just beginning. Outside 5q-MDS and MM market, CELG is actively evaluating Revlimid for non 5q-MDS, NHL, CLL, sciatica, and CRPS. These markets represent multi-billion dollar revenue opportunity for CELG. In particular, revenue opportunity for CLL and NHL market can be as large as 500 mil and 2 billion dollars.

Outside Revlimid, CELG has plenty of potent line of future products in its pipeline. CC-4047 addresses the new areas such as myelofibrosis, small cell lung cancer, as well as sickle cell anemia and B-thalassemia. CELG also has follow-on IMid CC-11006 in Hematological malignancies and is working toward a clinical development plan for CC-10015. Finally, CELG is actively evaluating oral PDE-4/TNF alpha inhibitor, CC-10004 for psoriasis, psoriatic arthritis, and rheumatoid arthritis. In next month of Nov, there is a major hematology conference (ASH) where CELG will present many data for Revlimid and early trial data for the drugs in the pipeline. Promising data is likely to further propel share price higher as CELG's market opportunities rises exponentially.

In summary, no large cap biotech company is likely to show better growth potential as CELG. The share price may appear expensive but given the growth rate (likely to exceed 100% YOY over next 2 years and higher than 50% over next 5 years), the stock multiple premium is justified. Furthermore, analyst's estimation for initial penetration of Revlimid in 5q-MDS and MM is very conservative as the number lags that indicated by several medical surveys. This may imply significant near term earning surprise. Long term, CELG can tap into several additional markets with the products in the pipeline, significantly raising the overall top-line revenue opportunity.

The shares will be volatile but along some turbulent ocean waves, the ship of Revlimid will sail along smoothly, taking CELG franchise to nowhere it has gone before. I believe the stock will get to $60 sometime in the first half of 07 and we will revisit the company fundamental then.

Good luck to CELG longs.