Cyber Monday Specials
With today being “Cyber Monday” – the day when tech savvy consumers take advantage of deep discounts on their favorite gadgets to fill out their holiday wish list – it’s only fitting that we look at some oversold tech stocks to determine if there are any bargains in the bin. Generally speaking, there are two classes of stocks that become oversold; those that are going to bounce back, and those that won’t. And of the ones that will eventually recover, they also tend to fall into two distinct classes.
The first grouping is the fabled “dead cat bounce” stocks, so named from the ghoulish Wall Street adage that if you drop a dead cat from a high enough window even it will bounce off of a New York sidewalk. In other words, these are stocks that aren’t necessarily going to be around for the long term, but can you can make you some money in the short run if you time it right. The second category consists of stocks that have become misunderstood and therefore mispriced, but over time will prove they are much more valuable than their current price suggests. However, eventually their true value becomes apparent, and a substantive change in valuation takes place (by the way, this also works in the opposite direction, too).
Below is one stock from Rob DeFrancesco and three from Dr. Joe Duarte that appear undervalued on this Cyber Monday. Of course, the legal adage “caveat emptor” applies just as much to buying tech stocks as it does to purchasing the latest piece of computer hardware. So pay close attention to our buy limits and stop loss levels, as you never know when some of these companies will go on sale.
By Jim Pearce
Next Wave Portfolio Update— One to Watch: Qlik Technologies
By Rob DeFrancesco
A third quarter revenue miss from Qlik Technologies (QLIK) in late October caused a one-day sell-off of 11% for shares of the provider of data visualization analytics software. From the all-time high reached in August, Qlik stock at the October 27 low of $29.68 had fallen 29%. Given the underlying positive momentum in Qlik’s business and expected revenue growth re-acceleration next year, the shares are primed for a rebound.
In the third quarter, revenue of $141.2 million fell short of the consensus estimate of $143.3 million because of slippage on finalizing some large deals in the Asia Pacific (APAC) region. However, the deal pipeline in APAC remains solid, so it’s just a matter of getting the contracts closed.
Speaking at the UBS technology conference in the middle of November, Qlik CEO Lars Bjork said the handful of deals that didn’t materialize late in the third quarter were delayed, not lost to the competition. In fact, Qlik’s overall win rates against key competitors in the latest quarter remained steady. There was simply a bit of hesitation from some customers when it came to signing off on larger transactions, according to Bjork. He left open the possibility that some or all of the slipped deals could close in the current quarter.
Qlik in the September quarter still managed to close a total of 130 large deals worth more than $100,000 each (an increase of 20% from the year-ago period), including 34 valued at greater than $250,000, up 48% year over year. There were even eight deals worth over $1 million, vs. seven in the third quarter of 2014.
On a regional basis, Qlik’s third quarter top-line growth (in constant currency to account for foreign exchange headwinds) was solid across the board. Revenue in the Americas and Europe rose 19% and 18%, respectively, thanks in large part to the company’s newer Qlik Sense self-serve visualization solution gaining traction across the customer base. Overall, 65% of license and first-year maintenance billings in the September quarter came from existing customers.
For the fourth quarter, Qlik’s revenue guidance of $206 million to $211 million (growth of 17% to 21% in constant currency) was in line with the consensus estimate of $208.5 million. For 2015, revenue guidance of $613 million to $618 million represents growth of 10% to 11% (21% to 22% in constant currency).
Qlik’s longer-term outlook remains positive based on a continued ramp of Sense (now on the market for a year) and solid demand for the company’s core QlikView guided analytics offering. Looking out over the next several months, Qlik has a steady stream of new product offerings/updates on the horizon—including the latest update for QlikView (version 12.0), Qlik Cloud Plus (a paid version of Qlik Cloud offering more advanced Sense functionalities) and the next version of Sense (3.0 is due for release in the second quarter of 2016).
Qlik remains well-positioned as more organizations these days turn to analytics as a way to gain meaningful insights from their data. The company is seeing increasing demand for its software across a variety of industries—including healthcare, financial services, retail, consumer products, manufacturing and public sector. Qlik has the back-end capabilities to manage, load and analyze data from a variety of sources, a key differentiator when it comes to winning deals over legacy competitors.
A new head of sales, Mark Thurmond (a 15-year veteran of EMC), arrived in August to lead the charge in terms of signing up more enterprise customers. In addition, Qlik continues to expand its partner channel (half of all deals come via partners), with a particular focus on winning over more systems integrators (big consulting firms that tend to bring in larger deals).
In early November, Qlik shares got a boost following an FBR Capital upgrade to ‘Outperform’ with a price target of $38. The firm cited strong secular tailwinds in the business intelligence/visualization sector (a $30-billion market opportunity over the next three years; currently less than 12% penetrated), a healthy pipeline around the Sense product and an improving profit profile (Qlik’s per-share earnings this year are expected to be up 25%).
For 2016, the consensus revenue estimate of $721 million represents growth of 17.1%, acceleration from 10.6% growth expected this year.
Portfolio Update – Medical Profits
By J. Duarte MD
In this issue:
- The Big Picture: Biotech Sector in Midst of Small Stock Driven Stealth Santa Claus Rally
- In Depth: New EBIS Pick – Cerus Corp. (CERS) – A Long Shot Blood Safety Play Show Signs of Life
- Trading Portfolio: Three New Picks – BIO, VRTX and IVC
- EBIS Portfolio Update: EBIS Portfolio Continues Steady Performance
- News Update: Teva (TEVA) Jumps into $8 Billion Dollar Migraine Market
- Recent Portfolio Results:
- DYAX Corp (DYAX) – Position Closed. Company taken over. Originally bought 10/7/15 at 22. 11/6/15 closing price was 34.52. Trade return: 56.9%.
- CLDX is up nearly 50% as of 11/27/14.
- EW is up nearly 7.9% as of 11/27/14.
- CERS rose 14% in the initial two weeks after we recommended it.
The Big Picture: Biotech in Midst of Small Stock Driven Stealth Santa Claus Rally
Santa Claus seems to be making an early delivery to biotech investors in 2015.
If markets are the proverbial wall of worry climbers, then biotech investors could be in for a nice ride higher over the next few weeks. Last week (11/23/15) we noted: “the biotech sector could deliver a very positive surprise to investors before 2015 is over.” And that notion got off to a pretty good start with the Nasdaq Biotech Index (NBI) delivering a 2% gain over the holiday shortened week, capping off a 6.6% gain over since November 13. Meanwhile, the stock market, as measured by the S & P 500 gained 3.3% over the same eight trading days. And while SPX has gained nicely, biotech’s outperformance is worth noting, as it has been driven by a very quiet and stealthy rally in the smaller stocks in the sector, such as many of the companies in our EBIS portfolio.
That’s why this week’s charts compare the Russell 2000 Index of small stocks (RUT) to NBI. A look at both charts shows that they are nearly identical. Both indexes have lagged the S & P 500 after the September-October double bottom. And both have been outperforming of late, with the Russell joining NBI, delivering a 5.6% gain since the recent November 13 market bottom.
The key indicators on the charts are the MACD, MACD histogram, and ADX lines, all at the bottom of the charts. In both indexes, RUT and NBI, MACD has a positive crossover, the MACD histogram has crossed above the zero line, and the ADX line has bottomed and has turned up. MACD and MACD histogram tell us that momentum is now to the up side, while the change in direction of the ADX line confirms a change in the trend. The NBI still needs to close above its 200-day moving average convincingly, but at this stage it’s not a good idea to fight the odds of higher prices. So here’s what to do:
- Continue to pay close attention to the overall market as well as our new Trading Buy Recommendations and our new EBIS picks. Keep a good eye on both biotech and small stocks. This is where the money is going to in the current market.
- Monitor the price of all current positions in your biotech portfolio. Continue to view each stock separately. Keep up with weekly updates or any special alerts, and sell stop updates. This is especially applicable to our trading recommendations. Follow the trading rules strictly and don’t chase stocks that are out of their buying range.
- Pay attention to news items, especially as related to products, mergers, takeovers and geopolitical events. Always monitor your portfolio’s response to the market and to any news events, especially those in health care, and only sell stocks that are showing significant weakness and fall below their sell stop.
- Consider using BIS to hedge your biotech portfolio during periods of weakness for the market and the biotech sector. BIS is a hugely volatile ETF and has a new entry point as of our November 9 update. See below for details. Our July 27th, 2015 update has an excellent tutorial on how you may go about doing using this ETF to hedge your portfolio. For further reading on portfolio protection techniques and risk management also consider a copy of Dr. Duarte’s “Trading Options for Dummies.”
- Risk is less than it was a few weeks ago. But caution is never a bad idea since things can change rapidly in this market. A good method for building positions is to buy small lots of stock over a few weeks to months, depending on the overall trend. When this is coupled with a long term time horizon it’s much easier to weather the volatility.
Our trading recommendations are delivering excellent results at the moment. We have added three new stocks as of 11/30/15. The sell stops on open positions have been adjusted to reflect the closing prices of the week that ended on 11/27/15.
Trading stocks are only recommended as trades based on technical analysis and momentum. These are not stocks meant for long term holding periods.
- Trading stocks are not EBIS type stocks. This means that they are more volatile and that any moves by these stocks, up or down, can be very fast and treacherous.
- Follow the trading guidelines and recommendations issued with each stock in detail.
- Trading guidelines are not applicable to our longer term holdings in the EBIS portfolio.
New!! Trading Recommendation: Invacare (IVC) Trading Buy Range $19-21. Sell stop at $17 (based on 11/27/15 closing price). Recommended 11/30/15. Invacare makes hospital beds, electric wheelchairs and related devices. The stock looks poised for a breakout. It fails to make the EBIS cut based on its lack of profits and having more debt than current assets. It is, however, the type of stock that can rise when the market decides to buy everything related to a particular sector. It also has a knack for growing its revenues.
New!! Trading Recommendation: Bio-Rad Labs (BIO) Trading Buy Range $142-146. Sell stop at $138 (based on 11/27/15 closing price). Recommended 11/30/15. For every dollar of price increase, raise the stop loss by $1. Bio-Rad is a former EBIS stock which got caught in the early fall selling spree. The stock has formed a lengthy base and is showing signs of joining the current biotech sector rally. We currently like it based on its technical activity.
New!! Trading Recommendation: Vertex Pharmaceuticals (VRTX) Trading Buy Range 134-138. Sell stop $128 (based on 11/27/15 closing price). Recommended 10/26/15. For every dollar of price increase, raise the stop loss by $1. Vertex makes a leading cystic fibrosis drug and has steady revenues. Unfortunately it still has more debt than assets so it doesn’t make the EBIS cut. It is a good momentum stock when it gets going, though. And it looks as if it’s ready to join the current biotech rally.
Trading Recommendation: Celldex Therapeutics (CLDX) Trading Buy Range $12-14. Sell stop 16 (based on 11/27/15 closing price). Recommended 10/26/15. Buy range entered 10/26/15 – 11/27/15 closing price $17.84. For every dollar of price increase, raise the stop loss by $1. This is almost an EBIS stock. The company is working on a vaccine for aggressive brain cancers. It has plenty of money on its balance sheet but is high risk and has not been able to make money consistently. In this market, it may be worth exploring on a trading basis.
- CLDX is up nearly 50% as of 11/27/14.
Trading Recommendation: Edwards Life Sciences (EW) – (Initially recommended 10/19/15- Bought 10-27-15 at $153) Trading Buy Range $153-156 – 11/27/15 closing price $165.12. Sell Stop at $158. For every dollar of price increase, raise the stop loss by $1.
- EW is up nearly 7.9% as of 11/27/14.
Alert: Trading Recommendation Stopped Out: Alnylam Pharmaceuticals (ALNY) – Trading Buy triggered at $85 on 10/9/15. 11/6/15 closing price $102.57 – Stopped out at $100 on 11/16/15. Total Return 15%.
In Depth: New EBIS (Emerging Biotech Investment System) Pick: Cerus Corp. (CERS)
Alert: New Buy Recommendation: Cerus Corp. (CBM) – Buy Range $5-7. Recommended 11/16/15. 11/27/15 closing price $5.72.
Cerus Corp. – A Long Shot Blood Safety Play
Cerus Corp. rose 14% in the initial two weeks after we recommended it. The stock remains within our $5-7 Buy range.
Cerus Corp. is a tiny, $550 million market capitalization stock that is well stocked with cash, has an interesting pipeline and is in the difficult stage of development where it is pushing for market share in the United States while struggling with the negative effects of a strong dollar since its current customer base is overseas. However, the company has made progress getting its product into key areas of the Southern United States through deals with key blood product distribution not for profit entities.
Cerus developed the INTERCEPT system from virus and other disease causing organism detection in blood products. It currently has FDA approval for INTERCEPT systems for platelets and fresh frozen plasma, key blood components for clotting. It is working on the INTERCEPT system for red blood cells. The company notes that the “the INTERCEPT treatment is designed to inactivate established transfusion threats, such as Hepatitis B and C, HIV, West Nile Virus and bacteria, as well as emerging pathogens such as chikungunya, malaria and dengue.”
The current immigration and the frequency and potentially long lasting nature of the geopolitical situation makes Cerus an interesting long term, speculative buy for patient investors. In times of trouble, as the likelihood of protracted conflicts, as well as the potential increase for infectious diseases increasing as a result of population migrations, this company has the potential to deliver some interesting surprises. It is a speculative play but does have some staying power with rising cash levels on its balance sheet.
The big bet is on the escalation of global conflicts that require increased use and thus testing and safety of the blood supply. If Cerus can get the red blood cell Intercept system approved, it could mean a significant increase in its revenues. Currently, the company has just received Medicare and Medicaid approval (CMS) for upgraded billing codes if a hospital uses INTERCEPT for its plasma and platelet testing and pathogen inactivation. This certification allows the user to charge a higher premium for its blood products.
CERS gets a +7 EBIS rating because it has yet to turn a profit. Yet, given the low price of the stock, and the huge potential, especially in the current market, it’s a great speculative play since it meets most of the criteria for an EBIS stock. And although it’s a highly speculative bet, this is one of those companies that could turn the corner fairly rapidly under the right set of circumstances. Thus, we see little risk in owning a small position, monitoring the company closely, and adding to the position over time as things develop.
Here are the EBIS details:
The EBIS Score for Cerus Corp. (CERS) is + 7 (HOLD) based June 30, 2015 data.
- Cash on hand: (+1) Cerus reported $50.8 million in cash compared to $22.8 million in December 2014.
- Cash on Hand growth (year over year) (+1): The year over year cash more than doubled.
- Revenues (present or not): (+1): Cerus reported $8.45 million in revenues in its September quarter compared to $9.587 million a year earlier. The decrease is largely attributed to currency translation and slowing business in Europe. The company is expanding its market share in the U.S.
- Revenue growth (10% or greater)(+0): Revenues shrank by 10% on a year over year basis for the September 2015 quarter.
- Trailing Total Liabilities/Current Assets (<1=+1 , >1=0): (+1) CBM has a 0.31% ratio, which means that it cover all its expenses in the case of a catastrophic hit to the company and still have money to regroup.
- Earnings (Present or Not Present): (0): CERS has no earnings.
- Net Income Growth (Year over Year): (0): CERS has no earning s growth.
- Products on the market: (+1): CERS has products on the market and is making strides in expanding its market share.
- Pipeline Strength: (+1): CERS has one key product in late development stages in its pipeline.
- Late Stage Clinical Trials and Product Launches: (+1): CBM has several important products in critical stages
The EBIS system consists of eleven fundamental criteria that are updated every quarter after the earnings results for each company are published. Each criterion gets a value of +1 or zero. A total of 8 or more points earn a Buy rating. A total of 5-7 points earn a Hold rating. Less than 5 points delivers a Sell or Avoid rating. EBIS was introduced in the June 15, 2015 issue of the Biotech Report.
Portfolio Update: Meridian Bioscience Gets Expanded FDA Approval for Whooping Cough detection Test Potentially Expanding Market Share and Customer Base
Our EBIS portfolio has been more volatile of late. Generally speaking it makes sense to see if these stocks develop some type of sideways pricing action before adding to any position aggressively. Details below:
DYAX Corp (DYAX) – POSITION CLOSED – Speculative Buy changed to $22-25 on October 5, 2015. Original recommendation: September 21, 2015. DYAX bought 10/7/15 at $22. 11/6/15 closing price was $34.52. Trade return: 56.9%.
Cambrex Corp. (CBM) – Buy Range $45-47. Bought 10/20/15 – 11/27/15 closing price $53.63. Sell Stop raised to $50 on 11/27/15. Dr. Duarte owns shares in CBM.
Alert- Masimo Corporation (MASI) – Buy at $40-44. Buy issued July 20, 2015. MPP: $40.65). 11/27/15 closing price: $42.48. Stop Loss raised to $38 on 11/9/15.
Update: MASI beat earnings on 11/5/15. Earnings came in at 36 cents per share on revenues of $152.6 million. Analysts estimated an average of $149.31 million in revenues and 31 cents per share in earnings. MASI beat expectations and gave upward guidance for the future. The company recently received good marks on its anesthesia monitoring equipment at the recent American Society of Anesthesiologists meeting in San Diego.
Masimo manufactures equipment modules that monitor vital signs during difficult clinical and logistical circumstances. Masimo pioneered Signal Extraction Technology (SET) a process that lets the pulse oximeter measure the oxygen content of blood without punctures of arteries at states of low blood pressure, where it become a most critical piece of data.
This is the second straight quarter that the company beat expectations. The company raised its full 2015 guidance to total revenues of $621 million, up from $608 million and earnings per share from $1.48 to $1.51. The stock remains well within its buying range of 40-44 and keeps a 9.5 EBIS rating based on its June 2015 quarter. MASI is a well run company with plenty of cash on its balance sheet and a growth agenda. We like Masimo because it has innovative products, an excellent growth rate, and a nice stash of cash on its balance sheet which it could use to make acquisitions or to plow into research and development.
Meridian Biosciences (VIVO) Buy $18- 21 – 11/27/15; closing price $19.78. Dr. Duarte owns shares in VIVO. Stock initially recommended on June 29, 2015.
Meridian made news on Friday the 13th of November when it disclosed a minority stake in Oasis Diagnostics a company that specializes in diagnostic tests that use saliva as the medium for testing. On November 18th the company received FDA approval for an expanded use of its Illumigene whooping cough testing product, a move that will expand Meridian’s market share and customer base. There were 33,000 whooping cough infections reported in 2014, a 15% increase compared to 2013.
Meridian delivered a mixed earnings report on November 5, 2015, beating on revenues at $47.5 million and missing on its net income by one cent at 20 cents per share. Estimates averaged $46.64 million in revenues and 0.21 cents per share for earnings. This was a reversal of the previous quarter. The stock paid a 20 cent dividend on 11/12/15 and yields 4.4%.
VIVO develops, manufactures, and markets diagnostic testing kits focused on gastrointestinal infections, virus detection, and parasitic illnesses. It also produces reagents and key testing and DNA amplification and enzyme related materials used in research. It has recently released a new product, the Para Pak single vial transport system for parasite testing which simplifies the transport of samples to the lab by using one vial instead of the more complicated multiple package systems that are currently on the market.
Alert: Emergent Biosolutions – Downgraded to HOLD based on technical trends and sluggish sales, which suggests possible earnings and revenue problems in the future. Sell stop adjusted.
Emergent Biosolutions (EBS) (Buy 5/11/15 MPP* $30.63 – 11/27/15 Closing price $38.62 – Sell stop at $35 issued 11/16/15) Dr. Duarte owns shares in EBS.
EBS continues its momentum run but retains its HOLD rating. This remains a defense play given its niche in bioterrorism related vaccination. The company is also selling treatments for chemical weapons related injuries overseas, but not yet in the U.S. The company reported its latest earnings on November 5 after the close and beat expectations delivering 83 cents per share in net income on revenues of $164.9 million. Estimates average $151.42 million in revenues and 56 cents per share. EBS has a history of positive surprises. The company reported earnings of 36 cents per share for its second quarter of 2015 beating analyst estimates of 26 cents. Revenues climbed 14% from the year-ago period to $126.1 compared to an estimate of 124.25 million. The company also announced that it will spin off its biosciences unit, whose focus is oncology to investors.
Sales of BioAnthrax, a preventive anthrax vaccine and is working on a new generation of the vaccine were strong in the quarter while overall bio-defense sales slumped. Dr. Duarte owns shares in EBS.
Update: Trend Following ETF Model
Alert – New Entry point established for PowerShares Dynamic Biotech ETF (PBE) – Bought at $48 on 10/23/15 – 11/27/15 closing price $51.88. Buy Range: $49-51. Sell Stop at $48.
Alert – ProShares Ultrashort Biotech ETF (BIS) was stopped out at $32. Buy up to $36. Sell stop at $30.
Alert– ProShares Ultrashort Biotech ETF (BIS) was stopped out at $32. ProShares Ultrashort Biotech ETF (BIS) – (Buy issued 7/27/15 @ MPP* $27.99. 10/27/15 closing stopped out at $32 – Return + 14.3%.
*MPP – Median Purchase Price
News Update and Analysis – Teva (TEVA) Jumps into $8 Billion Dollar Migraine Market
TEVA is hiring Heptares to develop new migraine headache treatments, in hopes of getting a major piece of the potential $4-$8 billion migraine headache market.
Israel’s Teva Pharmaceuticals (TEVA) has ponied up $10 million and may throw another $400 million to a private Japanese controlled biotech company called Heptares Therapeutics depending on how Heptares fares in delivering on its agreement with TEVA. Heptares was recently purchased by Japan’s Sosei in early 2015.
The treatments are based on blocking a molecule known as CGRP (calcitonin gene related peptide) that rises with the onset of a migraine and falls as the headache fades. The key is that a potential CGRP blocking antibody could be used in the prevention of migraines instead of the current treatments which are mostly aimed at treating the headache after its onset.
There are some current medications, Valproic Acid and Topiramate which have been shown to decrease, but not completely prevent, the frequency and the intensity of migraine headaches. But given the early stages of CGRP related studies, most are Phase I or II, there has been no real comparison studies done between existing treatments and the CGRP related molecules. Any CGRP blocking drug is not likely to be on the market until 2019.
NASDAQ Composite Index:
Friday, November 27 = 5,127.52
Year to Date = + 8.5%
Trailing 4 Weeks = – 3.6%
Trailing 7 Days = + 0.4%
Weekly Portfolio Performance
PowerShares Dynamic Biotech