Let's Play B*A*R*R*O*N*S!

Discussion in 'Trading' started by stonedinvestor, Dec 2, 2006.

  1. Yes folks it's that time again when you read Barrons over the stonedinvestors shoulder, filtering it's content through a battle hardened brain of discontent...
    Last week brought you fame and fortune with MKTY
    $2.30 to $2.90 (SI panic sell at $2.70), let us see what this week has in store...
    I'm only a few pages in when I realize- it's one of those sucky issues, this will be a true test. Cover story on IBM Yawn. Duke Energy spin off, I'm not running for utilities yet, Ralph Lauren a buy at $70, jesus Christo, I bought it at $43! what are they smoking over there in Barron's land?
    First possible tip: In the Preview section they highlight Thursday Dec 7th as being the start of a panel discussion 2 days on drug coated stents... I've been noticing some big mutual funds have been buying Boston Scientific lately: Vanguard Capital Opp recently went all in for 4 million shares! and Janus Contrarian recently bought 861,780 shares, furthermore my mother been asking about it and I consider her the best indicator of all! So Possible late week chip place on BSX.
    Interesting right to the right of the above piece is a sidebar column on Dem's Unlikely To Dim Nuclear plants Future, I've been thinking nuclear with oil staying so high and I noticed Exelon the nuclear utility coming across the tape at a healthy $61 bucks... there's a secret play here I'm just about ready to buy anyway- this might push me over the edge- The play is a stock called BW, Brush Engineering, they are the only makers of Beryllium which goes into reactors these days- more on this later if we choose it- lets move on... In Research Reports my current fave is mentioned Genomic Health- low price target $3 above current. I chased this bad boy all last week and it made my life very miserable> I missed a huge move, panicked in and despite a strong selloff in the general market, was lucky to net 8% out of it. This stock smells like a rainmaker to me... American Science & Engineering is mentioned, oh the tears! One of my great regrets... a BIG position at $12 for YEARS. AND I GAVE UP ON IT! You all know what happened next, it went vertical on me, now sporting a price target of $72. That was the kind of play a guy could retire on if I had held, that's why I'm still here. Can I pay up $61 bucks now for a stock I owned at $12? I don't think so... In Insider Purchases and sales one name stands out on the sales side Jarden 8 Insiders! That's such a large number I wonder if it's tied to their secondary, I'll do more work on that. Also Dicks Sporting Goods a stock I think is ripe for a fall> they've got 2 sellers as well 220,000 shares worth... In The striking Price it discusses some Dec Calls to position for after tax bounces and sure enough there's Boston Scientific Again! That's a subtle Barrons hint, two mentions one issue, I usually go with a " RULE OF 3 " If I happen to catch whiff of an upgrade of BSX early next week- that's going to push me in for sure. WOW that's it! The finalists are: BSX
    and short ideas: JAH & DKS... Back early next week with the initiation of the make money phase of The Barrons Game! Thanks For Playing Along!
  2. At first blush: Jarden is looking evil. I don't know how else to say it. Hank Greenberg noted some fishy activity last earnings report: One example was Jarden (JAH), whose brands include Sunbeam, Coleman and Mr. Coffee. For quarters it has been saying its internal target for earnings growth is 15%. On its third-quarter earnings call, however, the company said earnings for 2007 would grow 10% to 15%. Investors often view newly created ranges, where the low-end is below expectations, as a lowering of guidance.

    Not at Jarden, whose outside PR spokesman told me management is merely being “conservative” and that the 15% figure is an “average” of what is really expected. It doesn't’t really matter because shares rose 8% on better-than-expected quarterly results.

    But even that earnings "beat" is subject to interpretation. It could be argued that adjusted for a share count that is lower than management’s second-quarter guidance, a lower-than-expected stock compensation expense and the shift of some product sales to the third quarter from the fourth, the company actually missed analyst estimates by a few pennies...

    Nice! Now the stonedinvestor knows this company well because I made big $ in the past on the way up with it, so I feel a little two faced saying this- but the corporate governance here is worse than bad. The Company maintains a 3-class staggered board with most of the board members part of an investment banking and LBO network. This makes it difficult for investors to affect significant changes when necessary. Now On the side they are starting a new company, planning an IPO- one of these " blank check " jobs and it all gets very confusing. Now all this Insider SELLING some tied to the secondary but then a whole batch after too! This secondary offering makes little sense... after spending the year buying back shares to prop up the share price, why oh why would you refatten the float in one shot? Have they no soul?...Perhaps a household brand purchase is in the making, this is what they have done in the past to keep momentum going, but I smell the stink of desperation here- the balance sheet is ugly declining operating margins and over $1 Billion in debt.

    Jarden is overleveraged, swimming in debt and ripe for a big fall. Their products household appliances for the middle and lower income set are sold at stores like Walmart & Target the same stores that are reporting bad sales... my guess the next earnings report is a complete miss.

    Check that chart out <JAH> and ask yourself what if any bad news broke it under $30?... to be continued.
  3. Guess what folks? I've convinced myself there is a case for Boston Scientific. Yes BSX stuck in a downtrend for 2 years... that stock of misery, my take is all the bad news on the drug stents is washed through the stock. This weeks FDA panel will be the final cleansing and will represent a chance for the stock to regroup and concentrate on another pressing problem- market share. You know what? Last earnings report for BSX wasn't half bad, it kind of got lost in all the bad press about the recalls, 3rd QTR earn $76 million 5 Cents a share. A ton of items which if all backed out would of provided earnings of 20 cents which would have smashed the number.
    Then I found this reference to BSX on the internet...
    All year long the company hasn't’t had many bright spots, and then word swirled this week that it could be a LBO candidate. Following its $27B acquisition of Guidant, it was hit with recalls and safety warnings in their defibrillator and pacemaker business, only to be followed by a second quarter loss.. President and CEO Jim Tobin now thinks “the worst is behind us.”
    Hummm, LBO- Boston Scientific that has a nice ring to it. Look here a Director bought 15,000 on the open market on Nov 2nd. Stock is oversold and at a good entry point with a ton of support. Up/Down volume indicates the stock is being accumulated and I gave you the big mutual fund purchases already, 10 Buys 10 holds on the street average PT $20... this is setting up for a $3 trade $15.76 to the 200 day $18.65 so if you use options this looks like a no brainer. Longer Term the LBO binge these days does make you have to put a private market value on things, and certainly BSX's is far higher than it's stock price. I'm sorry for you stock holders who have been in this dog all along, the brokerages were no help at all, downgrading after the fact as usual. I know S&P hates the stock... but stonedinvesting is buying. There I said it. I'm buying Boston Scientific!
    I'm not saying it with conviction, but I'm saying it!
  4. Mvic


  5. agpilot



    Thanks Mvic for the link to the history of those stents makers "back room" deals.. I've been lightly following those companies for a few years... agpilot
  6. Man that article was depressing. I read a similar slightly less depressing one from Fortune... no doubt this is one of the great overpays, it does give one pause. There's a backdoor play here Greatbatch GB. They make batteries, capacitors, feedthroughs, enclosures and components for all the implantable medical device companies The Company's medical customers include IMD manufacturers such as Guidant, St. Jude Medical, Medtronic. This way as one plays the sector without getting bogged down in BSX.
  7. bsx in a downtrend for 3 whole yrs not 2. seems like a bragain to me if u are willing to hold. was a $50 stock, dirty cheap innit.
  8. Mvic


    Looking at the monthly chart there does seem to be a good technical case for starting to buy in here. High volume is usually a good precursor to a bottom and there seems to be some long term support at the 14.50-15 level. The Jan 09 $10 Calls look cheap and you could do some near month call writing to further lower your cost basis. I did this with PFE last Fall and it worked quite nicely.
  9. It's not far from $15 now.

    BSX is a buy. Stents aren't going away; they're going to to be continually refined. And with diabetes spiraling out of control, and with all of the associated cardiovascular problems associate with it, BSX's other devices (implantable and otherwise) are going to catch the tsunami of demographics.

    I'm long.

    And if an LBO deal does work through, it will be a ginormous one.

    You mentioned PFE, too - another steal. Everyone is freaking out about price controls. It won't happen.
  10. Genomic Health (GHDX), a company that went public in2005. In 2000 Genomic Health was founded by Randy Scott, a fellow who founded Incyte Corporation in 1995, one of the original genomic database companies. He was able to attract the best venture capitalists to fund him (Kleiner Perkins, Mohr Davidow, Baker Bros.) and high-quality individuals from Genetech, Amgen, Guidant, and Pfizer to work with him. Their goal was to create molecular diagnostic tests based on genomic information that would direct doctors towards highly targeted therapeutic regimes to fight life threatening diseases. The successful creation of such tests would have the impact of changing both the economics and methods of delivering medicine.

    GHDX’s first test was targeted at early stage breast cancer (ER positive, node negative – not in
    lymph node). This target encompasses a group of women who would be classified as stage 1 or 2
    with a tumour size of 4 cm or less. A typical treatment regime will have the tumour surgically
    removed with the patient then put on Tamoxifen, a drug that counters the effects of estrogen which
    promotes the growth of cancer cells. In the United States there are typically 125,000 cases a year of
    this sort. In 90% of these cases chemotherapy is recommended following surgery to destroy any
    remaining cancer cells. The toxic effects of chemo are certainly well known and the treatment has
    nasty repercussions of its own. In 2004 the Lancet (the European equivalent of the New England
    Journal of Medicine) published a study that demonstrated only 4 out of 100 women in this patient group benefited from chemotherapy. This study highlighted the ineffective treatment decisions thatwere being made. In pure economic terms, the $20,000 to $30,000 of chemo drugs each patient was receiving was not really helping the majority of patients.

    GHDX spent $100 million (a great barrier to entry) to develop Oncotype DX, a 21 gene panel test for
    this patient group. Oncotype DX is based on biomarkers that these specific cancer cells possess. The recognition of these biomarkers allows Genomic Health to predict the likelihood of breast cancer
    recurrence as well as assess the benefits of certain types of chemotherapy. The test divides patients
    into low, intermediate, and high risk categories for recurrence. If a women who has a 3 cm tumour
    gets classified as low risk then she will not require chemotherapy – saving her chemo-related health
    issues and the medical system money. Conversely, a woman with a tumour smaller than 1 cm may
    not be directed by her oncologist to receive chemo but if she registers a high risk score with
    Oncotype DX then the treatment path changes and chemo becomes a highly targeted therapy. Her
    life may be saved as a result and the medical system in turn will save more costly treatment dollars
    down the road had the cancer gone unchecked. It is this correct classification of patients that has
    the potential to save the medical system BILLIONS of dollars over the long run. Oncotype DX. has been clinically validated over the course of four different clinical trials.

    This brings us to the economics and the new world of medicine. This test costs $3,460. This sum
    may seem very expensive alongside the $20-$30 that is spent on the tests that oncologists currently
    base their decisions on. In both human and dollar terms it seems cheap relative to the side effects
    and unnecessary use of $20,000-$30,000 of chemotherapy drugs per patient.

    The total market opportunity based on 125,000 cases a year in the United States measures $432 million on annual basis. The test was launched in 2004 and 2400 oncologists, more than half the market, have used the test at least once.

    Additionally, they are currently working on other potential indications with the next test expected to be rolled out in 2008 thus DOUBLING their market opportunity. Colon cancer is structurally close to breast cancer and is a strong possibility but prostate, the largest indication in dollar terms, may win out. Given that the company has no competition, it is possible to work some very big EPS numbers for 2010.

    The test was granted reimbursement status by Medicare in the United States in
    January yet it still may take up to 9 months, due to medical bureaucracy, for GHDX to get
    paid for tests performed. In 2005 they billed for $25 million in revenues but were only able
    to recognize $5 million due to the length of the payment cycle. As more of GHDX’s tests are
    performed under contract with organizations such as Kaiser Permanete and Aetna they will get paid on
    a more normal 60 to 90 day cycle.

    Now about the FDA Letter – In January GHDX received a letter from the FDA requesting a meeting.
    There is a concern amongst some in the investment community that the FDA will reclassify
    the GHDX Oncotype DX test as a device – a classification with much higher regulation. This reclassification could force GHDX to pull the
    test off the market. If this occurs it could take up to two years to gain the proper device approvals to get back on the market. Obviousally if this happened the stock would crash and burn. I believe the FDA will not pull this test off the market because it is already working. One leading oncologist stated that ‘…the genie is out of the bottle. There would be a huge uproar if this test was taken off the market.’

    The new Aetna deal apparently has good terms for GHDX- Aetna did not receive a huge discount and they have 15 million members! GENOMIC HEALTH NOW HAS CONTRACTS COVERING APPROX 80 MILLION PEOPLE IN THE US!!

    In 3Q 06 800 physicians placed their first order for Oncotype DX In total 4,200 physicians have ordered more than 17,000 test services since commercialization in 2004.

    The company has partnerships with Bristol Myers for a genetic test on how poeple will react to Erbitux and an agreement with Sanofi - Aventis for their drug Taxotere. This shows the powerful nature of this testing not only can it be used to predict outcomes of chemo-based treatment it can be tweaked to predict a patients rfesponse to individual drugs... Anyone smell RAINMAKER here?

    What we have her folks is a once in a lifetime kind of thing a company in the forefront with 1 test out there and the potential to tweak that test to do the same for Colon & Prostrate. In essence this is a company that has the wortld in front of it and little if any compitition you don't find that very often in the world of stocks. Genomic Health is going to $50!!!
    #10     Dec 4, 2006