BioTech Stock Report newsletter - Genentech (DNA)

FEATURED EXPERT: Dr. Scott W. & Nadine Wong 19-JAN-06 Nadine Wong, editor of the BioTech Stock Report newsletter, discusses the biotech space and highlights Genentech. Receive an update on how biotechs have fared so far this year and learn this expert’s outlook on the sector. Then read Wong’s thoughts on Genentech and discover why this newsletter editor thinks the company can keep up the current growth pace. Also, find out what Wong has to say about Wall Street’s view of the biotech name. The Best of the Breed Biotech stocks kicked off the New Year with a bang, with both the BTK and NBI indexes up 4.78% and 4.67%, respectively. Nadine Wong and her team anticipate the biotechs to perform well compared to Big Pharma, which faces patent expirations and weak pipelines. As Wong and her team see it, Big Pharma will likely be shopping for a biotech to lessen the dilemma. Then there is Genentech (DNA). Despite Wall Street’s desire for more than just meeting expectations, Genentech stayed on course and reported solid fourth quarter earnings. As expected, repercussions followed as analysts made off-base comments which led investors to sell, putting pressure on Genentech’s share price. Genentech’s rising share price was strongly supported by the company’s fast revenue growth, which was more than $5 billion for 2005. This was an increase of 45% compared to 2004! The question is can Genentech keep up the current growth pace? Absolutely! Genentech has several drivers to support continued growth. Leading the pack is Avastin, the company’s key biological to treat colorectal cancer. Avastin’s success has led to increase off-label use of the biological to treat other cancer indications. The company intends to legitimately expand Avastin’s use, as the company plans to file a BLA during the second quarter to market Avastin as a treatment for non-small cell lung and breast cancer. Second, the company’s pipeline is full and maturing with several biologicals that should fuel Genentech’s momentum. In Wong and her team’s opinion, nothing has really changed in Genentech’s prospects, its just Wall Street who is whistling a different tune. The company expects approximately 35% to 45% growth in non-GAAP earnings per share for 2006. The selling has begun to subside, as such it is an opportunity to accumulate shares of Genentech. http://www.zacks.com/experts/featured/view_article.php?art_id=2373&newsletter_id=24

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FindProfit newsletter - Real Networks (RNWK) - Apple (AAPL)

FEATURED EXPERT: Bill Martin 20-JAN-06 Bill Martin and his team, from the FindProfit newsletter, are taking a ``starter`` position in Real Networks. Read these experts’ analysis of the technology player and learn about the company’s recent blockbuster $761 million legal settlement with Microsoft. Then find out why Martin and his team like the risk/reward present in this investment opportunity. Afterward, discover why they are establishing their position at a ``starter`` weighting. Commentary from January 19 With earnings results out of Yahoo! (YHOO) and eBay (EBAY) (i.e. both are losing market shares to Google [GOOG]) serving to weigh a bit on the stock prices in the Internet sector, Bill Martin and his team are going to step up today and redeploy some of their recent profit taking into a ``starter`` position in Real Networks (RNWK). RNWK is a name that Martin and his team have followed for years, previously booking gains of 24% and a loss of -4% in the stock in the past. More recently, the stock has regained their interest, primarily thanks to the company`s recent blockbuster $761 million legal settlement with Microsoft (MSFT). The settlement with MSFT, after years of expensive legal battling, was a huge win for RNWK for several reasons. First, RNWK received $461 million in cash upfront, pushing the company`s net cash position to around $700 million. Second, RNWK will receive an additional $300 million in value over the next 15 or so months, either in the form of hard cash or new subscribers (at an agreed upon bounty value rate that is attractive to RNWK) to the company`s music subscription service. Third, RNWK will save the more than $12 million per year it was spending in legal fees fighting MSFT. The net result is that RNWK will be sitting on around $1 billion in net cash within the next year (before stock buybacks et al.), will be secured solidly in the black on an EBITDA basis, and will be well positioned to gain additional traction for its Rhapsody music subscription service. Obviously, this is a big all around win. Interestingly, while Wall Street bid up RNWK`s stock in the aftermath of the settlement, the stock has recently been locked in a range, and the company`s total market cap remains at only around $1.5 billion. This puts the value of the company`s core operating business at less than $500 million, or roughly 1.5x revenues. By most peer measures, that`s an inexpensive valuation for a ‘Net company with solid gross margins and exposure to multiple fast-growth markets. The primary reason why RNWK hasn`t been able to gain more fans on the street is due to Apple (AAPL). Without a doubt, AAPL has executed brilliantly in the digital music space, making everyone else a virtual also-ran. AAPL`s success in differentiating its product in a crowded marketplace has been simply remarkable, particularly given that Rhapsody`s ``rental`` model vs. iTunes is, by most measures, a better deal for consumers. RNWK has also been weighed down by a stop-start transition in its video subscription business, as well as continued competitive fears. Competition is a reality, but these are big markets that are far from saturated, and RNWK has strong positions. Still, for a company with scale that`s loaded with cash and well positioned for the growth in online music, gaming, and video, this valuation seems too cheap to Martin and his team. AAPL is the dominant player at this point, but the online music and gaming markets are huge opportunities, and RNWK`s has the initial footholds, product sets, and the balance sheet necessary to be a major long-term player. Add in the company`s strong base of distribution partners (such as Comcast [CMCSA] and Cox), exposure to the wireless market via a number of key partners (a who`s who of big wireless), and a valuable position as the de factor number two media player, and it appears to Martin and his team that Wall Street is significantly undervaluing RNWK`s ``option`` value. In Martin and his team’s view, the downside in RNWK`s stock is probably limited to a dollar per share or so, thanks to the company`s rock solid balance sheet, sizable stock buyback plan, and exit options. Meanwhile, if the company can execute on the product and marketing fronts, Martin and his team believe it could prove to be a long-term strong number two in the online music market (as it is today), a rising player in the online gaming market, and a player in mobile content, with the potential to further leverage its multimedia player, website, and video assets in untold ways. Again, Martin and his team are realistic about the competition that the company faces, but they like the risk/reward present in this opportunity: limited downside against plenty of upside in the form of exposure to multiple strong growth markets and the ``option value`` of the company`s cash and scale. Note that Martin and his team are establishing their position at a ``starter`` weighting of 3.5%. This gives them room to take their weighting up to 5% or more if the stock pulls back in the short run, which they believe is a possibility as the company is working with mixed near-term visibility. http://www.zacks.com/experts/featured/view_article.php?art_id=2375&newsletter_id=150

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Ultimate Option Strategies newsletter

FEATURED EXPERT: Ken Trester and Jeff Carter 20-JAN-06 Ken Trester and his team, from the Ultimate Option Strategies newsletter, discuss what their indicators are signaling and what may be in store for the market during the rest of this month. Learn about their outlook. Then read these experts' analysis of today’s inverted yield curve and find out why it may be a positive for stocks down the road. Afterward, check out an option play on a media company. Market Outlook from January 17 Ken Trester and his team’s indicators are giving neutral readings as stocks are finding some resistance at current levels. We may see some sideways or corrective action over the next couple weeks. However, there is a strong historical tendency for a rally over the final week of the month. An object of great discussion recently has been the slight inversion of the yield curve. Bears like to point out that short-term interest rates moving higher than long-term rates has often preceded a recession. But that argument overlooks a couple of factors. One is that interest rates are still relatively low and certainly not so high as to choke off economic growth. And long-term rates are low largely due to foreign investors buying U.S. securities. But one industry an inverted yield curve negatively affects is banking, and the Fed is not about to let banking profits suffer, especially when the Fed itself is concerned with the number of marginal loans floating around the economy. If the curve stays inverted for too long, the Fed may stop tightening or even ease a bit to calm investors’ fears. Looked at in that sense, today‘s inverted yield curve may be a harbinger of better times to come for stocks. Ken Trester’s Best Option Play LEAP Debit Spread to Buy -- Buy Liberty Media (NYSE: L) Jan 2008 7.5 Call and sell L Jan 2008 10 Call. The spread price at Friday (1/13) close was $1.20. Liberty Media Corporation owns interests in a broad range of video programming, communications and Internet businesses in the United States, Europe, South America and Asia and have some of the most recognized and respected brands. These brands include Encore, STARZ!, Discovery, TV Guide, Fox, USA, QVC, AOL, CNN, TBS, Motorola and Sprint PCS. The maximum profit potential with this position is 75%. Maximum profits will be realized if the stock is above $10.00 during the week prior to January 2008 options expiration. L is currently at $7.90. L has been forming a long-term base and could be ready to make a trip back up to 10 over the next couple years. A debit spread is similar to buying an option, except you are using the simultaneous sale of another option to offset some of the cost. This debit spread reduces the cost of buying the L Jan 2008 7.5 Call, which otherwise would cost 1.7 points. To enter this position, use a spread order to Buy to Open L Jan 2008 7.5 Call, and Sell to Open L Jan 2008 10 Call. http://www.zacks.com/experts/featured/view_article.php?art_id=2374&newsletter_id=73

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Five Stocks That Could Double in a Year

1. TRADESTATION GROUP (TRAD) $12 — TradeStation Group, Inc., through its subsidiaries, operates as an online brokerage firm. It offers TradeStation, an electronic trading platform that enables customers to design, test, and monitor their own custom trading strategies and then automate them with direct-access order execution. This platform also offers streaming equities, options, futures, and forex market data; manual or automated direct-access execution of equities, options, and futures trades; and manual execution of forex trades through a third-party platform. 2. CYBERSOURCE CORP. (CYBS) $7 — CyberSource Corporation provides secure electronic payment and risk management solutions to organizations that process orders for goods and services over the Internet. It primarily offers cybersource payment solutions that allow e-commerce merchants to accept a range of online payment options, from credit cards and electronic checks to global payment options. It also offers various reporting and management tools that facilitate the automation of the flow of e-commerce processes, such as recurring billing and payment reconciliation. 3. STELLENT INC. (STEL) $10 — Stellent, Inc., provides content management software solutions worldwide. It offers Universal Content Management Software and Content Components Software solutions, which enable customers to solve business problems related to creating, managing, sharing, and archiving critical information. Its Content Components Software makes information accessible to the business users created in approximately 370 common office software applications. The software is also embedded by other technology companies in their own products to enable their users to view and convert business information to formats viewable on handheld devices or in Web browsers. 4. AGERE SYSTEMS (AGR) $13 — Agere Systems, Inc., engages in the design, development, manufacture, and sale of integrated circuit solutions for applications such as high-density storage, multiservice networking, wireless data, and personal computer connectivity. It operates in two segments, Consumer Enterprise and Telecommunications. The company sells its products through a direct sales force and distributors. 5. BALLY TOTAL FITNESS HOLDING CORP. (BFT) $7 — Bally Total Fitness Holding Corporation operates fitness centers in North America. As of February 29, 2004, it operated 418 fitness centers and had approximately 4 million members. Bally’s fitness centers operate under the service marks “Bally Total Fitness,” “Bally Sports Clubs,” “Crunch Fitness,” “The Sports Clubs of Canada,” “Pinnacle Fitness,” and “Gorilla Sports.” Bally Total Fitness Holding is based in Chicago, Illinois. Courtesy: StealthStocks

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PRIME TIME SELECTION - Companies with market caps less than $2 billion

COPART, INC. (NASDAQ-CPRT) Market cap – $2.0 billion ■ Shares outstanding – 90.4 million ■ Buy at or below $21.50/share Corporate Snapshot Copart, Inc. (CPRT) provides a full range of services relating to processing and selling salvage vehicles, primarily for its insurance company customers. The vehicles, which are sold through auctions principally to licensed dismantlers, rebuilders, repair licensees and used vehicle dealers, are deemed a total loss for insurance or business purposes, or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. CPRT expects to continue to grow by opening or acquiring auction facilities, both in new regions and in existing markets. As of October 2004, CPRT owned six public automobile auction facilities. It operates the public automobile auction business under Motors Auction Group, a wholly owned subsidiary. Revenues from this business are not significant, relative to the revenues from CPRT’s salvage business. The company offers two vehicle processing programs to vehicle suppliers: its Percentage Incentive Program (PIP) or a fixedfee consignment. Under PIP, it receives a percentage of the vehicle sales price; since its revenues are directly linked to the vehicle’s auction price, the company has an incentive to actively merchandise the vehicles to maximize net return on salvage vehicles. Under the fixed-fee consignment program, the company receives a consignment fee, typically $50 to $175 per vehicle. In fiscal year 2004, 65% of salvage vehicles sold were processed under PIP, with 35% sold under a fixed-fee program. CPRT obtains salvage vehicles from hundreds of vehicle suppliers. About 85% of the vehicles processed in fiscal year 04 were obtained from insurance company suppliers. State Farm Insurance accounted for 12% of revenues in that year. In FY 04, CPRT converted all its salvage vehicle auction facilities to an Internet-based auction-style model using its Virtual Bidding Second Generation (VB 2) Internet sales technology. Business with out-of-state buyers accounted for 24% of revenue in FY 04, and sales to out-of-country buyers 17%. (Source: www.businessweek.com) My View CPRT is the dominant player in the salvage vehicle industry. The company works on a healthy net profit margin of 22%. Current return on equity (ROE) is 14.5%, and CPRT has no debt. It also shows a robust balance sheet with over $240 million in cash. The CEO, Willis J. Johnson, owns 14.3% of common shares, which comes out to more than a $300 million stake in the company, so it is fair to say management has a vested interest in increasing shareholder value. CPRT is a good company, and a price of $21.50 or less per share represents a very good value. If CPRT can grow earnings at only 17% per annum (a margin of safety that is 60% lower than its past-five-year EPS growth rate of 28.3% per annum) and maintain a P/E of 16, the stock will reward investors handsomely over the next five years. http://hiddenvaluesalert.com

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