Articles for Nasdaq

Silver Looks Set To Revisit Previous Support At $18.00

Subscribe: RSS | Email

Thursday, May 23rd, 2013 by Trefis Team

Submitted by SK Options Trading as part of our contributors program.

As far as we can ascertain the demand for physical silver is alive and well with reports of people queuing to buy it while a number of suppliers, including the mints have been selling all that they could produce of the popular coins and bars. And yet the price of silver falls in the paper market which highlights the disparity between the physical and paper markets.

The Silver Chart:

The above chart of silver prices shows that it has been two years since silver flirted with the fifty dollar price level, since then it has been a bumpy road on a downward slide. The 200dma and the 50dma have weaved their way lower with a cross of death followed by a golden cross followed by another cross of death. The latest crossover took place at $31.00 and silver has since fallen to today’s level of $22.22/oz.

Although I am of the opinion that we are indeed still in a bull market for silver, the current trend is down and so we have a situation where a short term down trend exists within a long term uptrend.

Silver Stocks

I’m reluctant to increase my exposure to silver mining companies at the moment as I’m not convinced that we have been through a ‘total’ capitulation. This is a capitulation of sorts but there could be more downside before we see any upside movement. The next support level for silver is around the $18.00/oz level and if this current trend continues we could see this level tested before we see a resumption of the rally in silver prices. If silver does drop another four bucks or so the silver mining stocks will take a serious hammering. However, should silver be able to hold and consolidate at those levels then we should be looking at the buying opportunity of a lifetime.

When you are assessing the silver mining stocks that you favor take some time to examine the cost per ounce of production. Put in context this sector was unloved for around 25 years and as such did not attract the best young talent into its industry. This has been followed by ten years of ‘fast track’ projects whereby the top dollar has to be paid in order to entice the labor that these projects require. As we all know this increase in demand has pushed costs up which along with the high cost of energy has had a serious effect on the cash costs for producers. So you are looking for a high quality producer, with relatively low cash costs, sufficient funds to continue for a year or two without recourse to the banks and a management team with a proven track record in this business.

Conclusion

The northern hemisphere summer heralds in a lackluster period for the precious metals such as silver and gold, so from a seasonality standpoint we are not expecting to witness any form of substantial rise in prices.

We are looking to go long in the near future, but now isn’t the time as we need to see this trending down phase come to a halt and silver prices build a base from which an ascent can begin.

As bulls we can sit on our hands and do nothing other than be patient and wait for the risk/reward environment to become skewed in our favor or we could consider positioning ourselves on the ‘short’ side of a few trades on the weaker mining stocks in this sector. A well thought out strategy involving the purchase of Put options can also deliver handsome rewards in this environment. This strategy has enabled us to generate cash at a time when the silver market has been under the weather.

The important point here is that we do not become too blinkered or close our minds to alternative strategies just because gold and silver prices have increased year on year for a decade or so. Be mindful that when any commodity or stock has such a fabulous run there will come a time when it needs to take a breather. So you have a choice; suffer through this downturn or try and put it to work for you. Placing a down bet does not mean that you are a bear on precious metals; it means that you are flexible enough to trade an opportunity when it presents itself.

As always, find the time and do your own due diligence as it’s your hard earned cash that is going on the line, it will be well worth the effort in what is one of the most exciting, even though very volatile, sectors of the market.

Disclaimer: We make no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents our views and replicates trades that we are making but nothing more than that. Always consult your registered adviser to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this letter. Options contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. Past performance is not a guide nor guarantee of future success.

A Dead Cat Bounce for Gold Prices

Graph It^NEW!

Share Share retweet

Subscribe: RSS | Email

Tuesday, May 21st, 2013 by Trefis Team

Submitted by SK Options Trading as part of our contributors program.

On Monday, May 13, 2013 we wrote that Gold Prices would Re-Test $1350/oz level and so they did, trading sub $1340/0z at one stage. Gold had fallen for 7 straight days from $1470/oz before the slide was arrested earlier today with a bounce that pushed gold up to $1391/oz. This move correlates inversely with the 7 day winning streak put in by the US$, which also came to an abrupt halt today when it fell 0.50% to close at 83.93 on the US$ Index. As far as we can ascertain there was a few frantic minutes of buying that moved gold higher by around $30.00. Such quick movement suggests that someone who was short wanted to close and close quickly, as gold was climbing slowly but surely at the time. The snap shot below depicts the day’s action:

This looks to us to be more of a Dead Cat Bounce for gold prices rather than a substantial change in direction.

The Gold Chart:

This capitulation in gold prices wasn’t a total capitulation as gold rallied and tried to break through $1500 and challenge the 50dma. Gold then faded until today when it managed to bounce from below $1350 to close at $1391 as the chart indicates.

Having tested the support level of $1350 on two occasions and survived one could be tempted to feel a little more optimistic about the future price of gold and silver for that matter. After all QE is still the order of the day in the US and Japan has embarked on its own version of easing which has seen the Yen fall by 20% or so. The UK also has a bond buying programme and the ECB could soon follow suit. We should not be surprised if Mario Draghi announces such a plan of action just when the market is not expecting it. All of these actions are inflationary and therefore good for the price of gold. However, the official figures for what they are worth suggest that inflation has not raised its ugly head and the need for gold as a safe haven is not necessary.

Conclusion

This is not the best time of the year for gold as seasonally the summer doldrums arrive and gold prices drift lower until August. Today’s performance by gold is a one off event and should be viewed in the context of a bounce in falling gold market. The long term bull market is not over, but we do need to recognize that there is a short term downward trend in place and it should be taken seriously and acted upon in order to generate profits.

The time to go aggressively long is somewhere in the distance and could prove to be a wonderful buying opportunity for those who have the patience to wait for this down trend to exhaust itself.

Meanwhile we can still turn a profit by utilizing this downward phase to our advantage. You no doubt have formed an opinion as to which of the mining stocks you consider to be top quality and those that you wouldn’t buy even if we gave you the money. The latter group of stocks offers the opportunity to either ‘short’ them or enter the options market and purchase a few Puts on them. This strategy has enabled us to build cash at a time when the precious metals market is heading south. When the turnaround comes we will have a healthy balance sheet and be in a position to pounce on undervalued stocks. If you are not sure which stocks to short then you could take a look at some of the funds that are currently suffering as prices deteriorate. They should broadly reflect the markets movements.

The order of the day is to think short for the short term and wait until we are convinced that the bottom is in before reversing position and hitting the acquisition trail.

If you still believe in the precious metals bull market then the next few months should present you with some astonishingly low priced opportunities. The selection of quality mining stocks should remain a top priority as they will outperform the sector significantly. So, you have the time right now to do the work in preparation for a resumption of the gold bull market, consider it a gift, as your very own due diligence will pay off handsomely.

Take care.

Bob Kirtley

URL: www.skoptionstrading.com

URL: www.gold-prices.biz

Email: bob@gold-prices.biz

Disclaimer: www.gold-prices.biz or www.skoptionstrading.com makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents our views and replicates trades that we are making but nothing more than that. Always consult your registered adviser to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this letter. Options contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. Past performance is not a guide nor guarantee of future success.

This Stock’s 24% Year-to-Date Gain Signaling a Buy Opportunity?

Graph It^NEW!

Share Share retweet

Subscribe: RSS | Email

Monday, May 20th, 2013 by Trefis Team

Submitted by Abby Joseph at Profit Confidential as part of our contributors program.

“Opportunity cost”—it’s a phrase used in microeconomic theory to denote the costs that are forgone by not having your resources in the highest returning assets.

It is a phrase that’s pertinent to the stock market.

Without question, I remain completely taken aback by what has transpired with the stock market since the beginning of the year.

Looking at the numbers, not being invested in many corporations has been costly.

Excluding the reasons why, the simple fact is that the Dow Jones Industrial Average is up 16% since the beginning of the year (not including dividends).

The S&P 500 is up 15.7%. The NASDAQ Composite is up 14.8% and the Russell 2000, an index of small-caps, is up 16.6% (not including dividends).

I think this stock market can smell the end of quantitative easing.

More meaningful, however, is the Federal Reserve’s policy regarding interest rates, which are going to continue to be low for the near future, as it has been made very clear.

This is a huge, perhaps neglected, certainty for the stock market and corporations.

Making the case for being a buyer in this market is extremely difficult. Institutional investors have already placed their bets and a lot of corporations—good companies with real staying power and solid prospects for earnings growth going forward—are fully priced.

Johnson & Johnson (NYSE/JNJ) is a benchmark stock. Like many large corporations, Johnson & Johnson does everything it can to squeeze every penny out of its bottom line. The company lays off employees, closes plants, and does everything to minimize taxes. Johnson & Johnson’s 10-year stock chart is featured below:

Chart courtesy of www.StockCharts.com

Like many global corporations, Johnson & Johnson grows organically and by acquisition.

In the second quarter last year, the company bought Synthes Incorporated, a global manufacturer of orthopedic devices, for $20.2 billion (in cash and stock).

In its first quarter of 2013, the company’s worldwide sales were $17.5 billion, representing a gain of 8.5%. The acquisition of Synthes, net of a separate divestiture, helped revenues by 5.7%.

Revenue strength in the first quarter was strongest in the U.S. and Canada. According to the company, sales gained 11.2%, coming in at $8.0 billion.

Unlike many other global corporations, Johnson & Johnson experienced sales growth in all international regions. But the standout growth at home is meaningful.

The opportunity cost of not owning Johnson & Johnson’s shares since the beginning of the year has been significant. On the stock market, the position is now up approximately 24%, excluding its dividend payment (recently boosted 8.2%), since the beginning of the year.

From 2005 to 2011, the position was flat, while the corporation paid increasing dividends.

This is the way so many corporations trade, and it should be part of an investor’s expectation that there will be considerable periods of non-performance. (Read “Stock Market Fake-Out: Where Is the Retrenchment?“)

With a price-to-earnings ratio of approximately 24, Johnson & Johnson is fully priced on the stock market.

But I don’t expect this position—or the stock market for that matter—to just come apart without some sort of astonishing shock, like a big change in Fed policy, war, sovereign debt shock from Europe, or a big derivatives trade gone bad.

All eventualities are possible with the stock market at a record high. But the opportunity cost of not being in it has proven to be significant.

A meaningful, full-blown correction in the stock market would be a very healthy development for the medium-term trend.

Given current information, I think Johnson & Johnson will be a buying opportunity.

Wealth, Lower Oil Prices, Increased Spending—Airline Stocks Headed Higher?

Graph It^NEW!

Share Share retweet

Subscribe: RSS | Email

Monday, May 20th, 2013 by Trefis Team

Submitted by Abby Joseph at Profit Confidential as part of our contributors program.

The improved global economy has helped to drive up the spending habits of consumers, and an area that has really benefited from the income creation is the travel sector.

Airlines around the world have reaped the benefits from the improved travel sector.

The airline sector is estimated to earn $10.4 billion in profits this year, up from the previous estimate of $8.4 billion, according to the International Air Transport Association (IATA). (Source: “Small Boost to Airline Profitability – Industry Profit Margin Improves to 1.6%,” International Air Transit Association web site, March 20, 2013.)

According to the IATA report, the top market in the airline sector is predicted to be the Asian-Pacific airlines, with estimates calling for $4.2 billion in net profits this year, up from $3.9 billion in 2012 and accounting for a 40.4% share of the total global airline sector.

The North American airline sector is also looking good, with profits estimated at $3.6 billion this year, well ahead of the $2.3 billion recorded in 2012.

Coming in third is expected to be the Middle Eastern airline sector, with $1.4 billion in profits, more than 50% higher than the $900 million in 2012.

The airline sector has been improving since the end of the recession. Lower fuel costs and increased bookings and travelling have helped to drive up the sector.

Take a look at the Dow Jones US Airlines Index in the chart below. Notice the beautiful uptrend since November 2012 in correlation with the S&P 500, as highlighted by the green line.

Chart courtesy of www.StockCharts.com

In the low-cost discount side, a carrier that I frequently fly with and like is JetBlue Airways Corporation (NASDAQ/JBLU). I have followed the stock for over a decade and continue to feel the company has what it takes to be a major player in the discount airline sector.

Chart courtesy of www.StockCharts.com

First formed in 1998, JetBlue Airways is a discount air carrier serving markets in the United States, Puerto Rico, and Mexico; along with 10 countries in the Caribbean and Latin America region. JetBlue offers services to 77 cities via 800 daily flights.

In April, the airline’s key revenue passenger miles reading came in at $11.5 million for an 83.8% load factor, up 6.8% year-over-year. (Source: JetBlue Airways Corporation, last accessed May 16, 2013.)

Following a decline in revenues from 2008 to 2009, JetBlue came back with growth in 2010 to 2012 and Thomson Financial estimates call for the growth to continue in 2013 and 2014.

For more of a global airline sector play, United Continental Holdings, Inc. (NYSE/UAL) is worth a look. The company formed from the merger of Continental Airlines and United Airlines in 2010.

Chart courtesy of www.StockCharts.com

United Continental offers around 5,446 flights daily to 370 airports on six continents.

Revenues are predicted to rise three percent to $38.3 billion this year, followed by $39.7 billion in 2014, up 3.9% year-over-year.

To play the growth in the airline sector, you can also play the suppliers of parts and services, which I discussed in “Aerospace: The Only Way Left to Play Global Growth.”

Why Greed Is Not Your Friend When It Comes to Investing

Graph It^NEW!

Share Share retweet

Subscribe: RSS | Email

Friday, May 17th, 2013 by Trefis Team

Submitted by Abby Joseph at Profit Confidential as part of our contributors program.

I just had lunch with a friend who previously was an active investor. He was there right in the thick of it during the Black Monday crash in 1987 and the Internet bubble in 2000.

He made tons of money in the stock market in a short period of time, but his actions were driven solely by excess greed, refusing any advice to lighten his positions. He had a sense of invincibility and felt the stock market was heading much higher.

In 2000, when the NASDAQ traded above 5,000, my overconfident friend was so extremely bullish on the stock market that he decided to take out a reverse mortgage on his parent’s home to play stocks. He promised great returns, early retirement, and a new lifestyle.

The problem was he was investing in speculative issues that had minimal history and financial success. He thought the NASDAQ could rise another 30%.

At that level, he was thinking he would make over a million dollars, pay back the mortgage, and quit his day job to become a day trader.

Luckily, he did not quit his day job, as it’s the only thing he had left after the stock market imploded in early 2000.

New bubbles come and go. Each one is different and driven by different factors—the only commonality is greed.

We are hearing some whispers that this current stock market is bubble-like. While I’m not fully in agreement, I do feel the rally in the stock market to record highs has largely been driven by the Federal Reserve’s easy monetary policy, as is the case with stock markets around the world as global central banks from Europe to Asia cut interest rates.

The reality is there is no viable alternative in which to invest your money other than the stock market. Investment-grade bonds are yielding very little, and unless you are willing to take the risk and invest in bonds in Greece, Spain, Italy, or Portugal, you are out of luck.

There is little choice at this time. I don’t think the stock market is in a bubble yet, as long as the Fed maintains its easy money flow. But you should be careful; interest rates will inevitably rise, and then we’ll see traders making a mad dash toward the exits.

At this juncture, don’t fight the trend. (Read “S&P 500 Could Hit 1,700, but Weaker Stock Cycle Ahead.”) You will never win.

Ride the stock market higher, but at the same time, understand the current rate of the advance this year is not sustainable.

Yes, I feel there will be a pending correction; I’m just not sure when it will happen and by how much. The only thing I know is that a stock market correction will provide a buying opportunity.

Remember the story of my friend; look to lighten up on some of your bigger winners, especially those in the growth and technology areas.

Take some profits off across the board. There’s no shame in this. Greed is not your friend.

Macau Is Hot: China’s Version of Vegas Providing Excellent Prospects for These Entertainment Stocks

Graph It^NEW!

Share Share retweet

Subscribe: RSS | Email

Friday, May 10th, 2013 by Trefis Team

Submitted by Abby Joseph at Profit Confidential as part of our contributors program.

Gambling is akin to trading, but with much more risk of failure. Everyone knows Las Vegas as the gambling capital of the United States, but Macau is hot and growing.

Macau is designated a special administrative region of China, which means the area has the backing of the Chinese government for the purpose of casino development.

Attracted by abundant wealth and the appetite for risk and money in China and Asia, there has been a rapid move by the major casinos to establish and expand their presence on the island of Macau, China, which is the world’s largest gambling market, known in the gambling world as the “Monte Carlo of the Orient.”

I have visited this former Portuguese colony, which is located some 38 miles from Hong Kong, and there is an obvious push to build more high-end casinos, especially those integrated with hotel, retail, and casino operations. The market is primarily the China and Asia tourist market.

Much of the newer major development is along the Cotai strip in Macau, which will add to the original gambling establishments in the city.

The Cotai strip area is bustling with people armed with money to spend, and if the expansion plans are on target, it will inevitably make Vegas seem sedate in comparison.

In March, gross revenues in the Macau casino sector came in around $3.9 billion, up 25.4% year-over-year. (Source: Garlitos, K., “SLM Holdings Continue to Hold Top Revenue Spot in Macau,” CalvinAyre.com, April 3, 2013, last accessed May 9, 2013.)

The prospects for Macau, China are enormous; I’m betting on that, and so are some of the world’s largest casino operators.

Two of the major players expanding their presence in Macau are Las Vegas Sands Corp. (NYSE/LVS) and China-based Galaxy Entertainment Group Limited (OTC/GXYEY).

In the first quarter, Las Vegas Sands attributed its strong growth in part to its expansion in Macau, where the company’s four Cotai strip properties attracted a record 14 million visitors. The company is a major player on the Cotai strip, which is attracting even more major players. The company’s subsidiary Sands China Ltd. reported a 39.3% year-over-year jump in net revenues to $2.0 billion in the first quarter, while earnings surged 63.3% year-over-year.

Chart courtesy of www.StockCharts.com

But the company that I feel has excellent prospects is Galaxy Entertainment because of the fact that it’s an Asian-based company. The company is on an aggressive expansion path. Currently, it has two core properties—Galaxy Macau and StarWorld Hotel and Casino.

Galaxy Entertainment’s expansion plans are aggressive. The current development includes doubling the size of Galaxy Macau by the middle of 2015, and there are plans to launch Phase 3 and 4 at Galaxy Macau, to be completed between 2016 and 2018.

Two smaller casino players in the Macau China casino scene are Wynn Resorts, Limited (NASDAQ/WYNN) and MGM Resorts International (NYSE/MGM).

Why Cash Is No Longer King

Graph It^NEW!

Share Share retweet

Subscribe: RSS | Email

Friday, May 3rd, 2013 by Trefis Team

Submitted by Abby Joseph at Profit Confidential as part of our contributors program.

With employment figures the big news of the day, the business of human resources (HR) is still a good one.

Technology is changing the HR landscape, and I believe that exposure to this industry is useful as part of a stock market portfolio—but at the right price.

Automatic Data Processing, Inc. (NASDAQ/ADP) out of Roseland, New Jersey is the blue-chip payroll and HR outsourcing firm that many regard as a technology stock. The company is a great barometer on employment, investor sentiment, and the stock market.

Like many blue chips, Automatic Data Processing (ADP) did nothing for 10 years after 2001. The stock broke out of its sideways trend in 2011.

For such a mature enterprise, ADP has significantly increased in price over the last two years. I like this business, but I view it as fully priced, given current earnings.

The Ultimate Software Group, Inc. (NASDAQ/ULTI) from Westin, Florida struggled initially to find its stride, but the stock (which is more than fully priced) has certainly found it now.

This firm is a cloud provider of HR services and has a lot of growing corporations as customers. As an enterprise, this is exactly what you want.

First-quarter 2013 earnings saw revenues grow 25% to $97.9 million.

Generally Accepted Accounting Principles (GAAP) earnings were $4.5 million, or $0.16 per diluted share, compared to first-quarter 2012 GAAP earnings of $1.0 million, or $0.04 per diluted share.

Non-GAAP earnings excluding stock-based compensation were $9.2 million, or $0.32 per diluted share, compared to $3.7 million, or $0.13 per diluted share year-over-year. Cash and marketable securities grew to $79.0 million from $68.0 million.

Looking at revenues and earnings this first quarter, it’s very clear that many large corporations actually are in better shape than they were this time last year.

But the numbers also reveal weakness. And that weakness is in the ability of the marketplace to deliver real economic growth.

The stock market has gone up as institutional investors bet that the U.S. economy will improve in the bottom half of the year. This is a possibility.

Corporations have unprecedented amounts of cash to jumpstart the U.S. economy. But they still aren’t spending; they are keeping it and returning more to shareholders. This is the real problem, and it’s fostered by a continued state of uncertainty and nervousness.

The Federal Reserve’s unprecedented monetary actions have provided an environment in which institutional investors can buy the stock market.

The result of ballooning amounts of cash and a continued lack of corporate investment, combined with ballooning amounts of monetary stimulus, in effect, have proven to cancel each other out.

All the loose cash has created virtually nothing except a paper stock market gain.

There continues to be a lack of real economic growth and genuine employment gains with greater labor force participation.

Healthy balance sheets are extremely important. But the unwillingness of corporations to invest is what’s holding everything back.

Investment risk right now is increasing.

Technology Stalling, but for How Long?

Graph It^NEW!

Share Share retweet

Subscribe: RSS | Email

Thursday, May 2nd, 2013 by Trefis Team

Submitted by Abby Joseph at Profit Confidential as part of our contributors program.

Technology stocks underperformed the S&P 500 and Dow in the first quarter of the year, but that’s no big deal, as I continue to see technology as a market leader.

The month of April saw some buying return to technology stocks, with the NASDAQ managing to outperform the S&P 500—that’s a start.

While we have seen momentum dissipate from technology stocks and Apple Inc. (NASDAQ/AAPL) lose some of its shine, I remain bullish toward technology stocks.

The chart of the Technology Select Sector SPDR (NYSEArca/XLK) below shows the current sideways trading channel for this index and the current test at the upper resistance line, as indicated by the top blue line.

If my technical analysis is correct, I expect technology stocks to take a run at the resistance.

Chart courtesy of www.StockCharts.com

According to FactSet, earnings growth for the information technology (IT) sector is estimated at 0.2% in the first-quarter earnings season—if Apple is excluded. FactSet is optimistic the sector will rally in the second half of this year, with an estimated growth rate of 12.0% in the third quarter and 11.2% in the fourth quarter. (Source: “Earnings Insight,” FactSet, April 19, 2013.)

Of course, if Apple rebounds, the growth rate will likely rise.

If we exclude Apple, FactSet estimates the IT sector will grow at 10.0% and 12.4%, respectively, for the third and fourth quarters. These are pretty darn good numbers.

My top areas for growth going forward include the mobile, Internet, communications, networking, IT, and cloud computing sectors.

I suggest adding both small and large companies across different businesses, which will add diversity, making your tech holdings less vulnerable.

I continue to firmly feel technology stocks will be the place for the best investment opportunity for growth investors going forward.

Apple is still on my radar, but I fear the stock could sink further if it fails to deliver a super-version of its “iPhone” that is a marked upgrade from the current “iPhone 5.”

Take a look at some of the smaller technology stocks that develop solutions for mobile applications, including Synaptics Incorporated (NASDAQ/SYNA), 8×8, Inc. (NASDAQ/EGHT), and Glu Mobile Inc. (NASDAQ/GLUU).

Some wildcard companies that had a glorious past but are suffering some growth issues include Microsoft Corporation (NASDAQ/MSFT) and Intel Corporation (NASDAQ/INTC).

Hopes for Microsoft are dependent on its “Windows 8″ touchscreen operating system and the market acceptance for its Windows phone. The stock is hot at this moment.

In the case of Intel, the former chipmaker darling needs to address the slide in personal computers (PCs) and its associated impact on Intel chips. (Read “PCs a Relic for the Smithsonian; Intel Paints a Bleak Picture.”) The company is trying to build its mobile technology sector and, in my view, while it’s behind the eight ball, you don’t want to bet against Intel.

Please note: none of the stocks mentioned in this article represent a “buy” endorsement; rather they are meant to be an example of technology stocks that you may want to look at.

SOurce – http://www.profitconfidential.com/stock-market/technology-stalling-but-for-how-long/

American Real Disposable Income Collapses in First Quarter of 2013

Graph It^NEW!

Share Share retweet

Subscribe: RSS | Email

Tuesday, April 30th, 2013 by Trefis Team

Submitted by Abby Joseph at Profit Confidential as part of our contributors program.

Biotechnology stocks can lose a lot of money.

The thing about biotechnology stocks is that they are risky—very risky. Money can be lost in the stock market at a frenetic speed.

Because biotechnology stocks are 100% risk-capital securities, they should only be relegated to the “play money” portion of a stock market portfolio.

But a winner in this group can produce major capital gains because of the massive participation among institutional investors, the profit incentive, and the life-changing medicines that are worth so much money.

One company I’ve written about consistently is Alexion Pharmaceuticals, Inc. (NASDAQ/ALXN), which is a powerhouse wealth creator on the stock market.

It’s more than a 10-bagger, and it only sells one approved drug. The stock is in recovery mode after its earnings results confirmed it’s still on the growth path.

Alexion’s 10-year stock chart is below:

Chart courtesy of www.StockCharts.com

The stock market chases biotechnology stocks, and it’s a group where momentum traders can do well with strong risk management.

Previously, I wrote about Endocyte, Inc. (NASDAQ/ECYT), which is one of those developing biotechnology stocks that’s executing perfectly. (See “High Risk, High Reward—Two Great Companies for Traders.”)

Endocyte is working on cancer therapies, and the company made the decision to collaborate with Merck & Co., Inc. (NYSE/MRK)—a smart move.

The company is developing its therapeutic candidate vintafolide (“EC145″), which is in Phase III clinical trials for the treatment of platinum-resistant ovarian cancer.

For $120 million up front, Merck bought the exclusive global rights to EC145; and if it is successful, Endocyte is eligible for milestone payments up to $880 million.

The way Endocyte is developing as a drug discovery company is exactly the way to go, and it’s a shining example for all biotechnology stocks. Endocyte’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

Biotechnology stocks continue to be one of the stock market‘s hottest areas. The NASDAQ Biotechnology Index has been on a tear over the last three years. Continued momentum is greater than 50/50.

I admire what a company like Endocyte has done, recognizing that it’s proprietary science has a lot of potential. By selling to Merck, it legitimizes all of the company’s proprietary technologies. Collaboration with a well-heeled pharmaceutical giant is a vote of confidence.

It’s worth saying again that biotechnology stocks are 100% risk-capital equity securities.

I approach the sector from a business perspective, basically expecting to lose money on the stock market with tight stops, until I land a winner. Then there’s a whole other set of problems.

Biotechnology stocks have less correlation to the action in the rest of the stock market. But there is one more thing.

In the entire stock market, one of the best winners since 2010 has been Biogen Idec Inc. (NASDAQ/BIIB), or “the BIIB.”

Multiple sclerosis (MS) is often referred to as an “orphan” disease, meaning it’s a rare, debilitating disease with very few treatments. However, Biogen Idec created a treatment for MS, and while it’s nowhere near a solution, it is helping.

In order for pharmaceuticals to be created, the profit incentive must exist. With this in mind, nobody ever went wrong trying to be in the business of helping people.

NASDAQ Relies On Non-Transaction Businesses To Prop Up Results

Graph It^NEW!

Share Share retweet

Subscribe: RSS | Email

Friday, April 26th, 2013 by Trefis Team

NASDAQ OMX (NASDAQ:NDAQ) reported that its net revenue (revenue less transaction rebates, brokerage, clearance and exchange fees) for the first quarter of 2013 was $418 million, up from $414 million in the year ago quarter. The net revenue for the company increased despite a decline in trading volumes as the company’s non-transaction based businesses kept growing.

We believe the company’s diverse range of operations will help it wade through a period of tepid trading activity. Our price estimate for the company’s stock is currently around $30, and we will soon update our model in accordance to the earnings numbers.

See our full analysis for Nasdaq OMX

Equity Trading Volumes Remain Subdued And NASDAQ Is Losing Market share

As an exchange operator, a significant portion of NASDAQ’s revenue is derived from transaction fees. However, this revenue has declined over the past several quarters, as trading volumes remain tepid and alternative trading venues such as dark pools take away market share from the company.

In the U.S. cash equity trading segment that accounts for over 40% of NASDAQ’s revenue, the average daily volume of U.S. listed securities that were traded on NASDAQ’s platforms declined by almost 450 million shares, between Q1 2012 and Q1 2013. This decline in trading volumes coupled with a loss of 3% in market share over the same period caused NASDAQ’s U.S. cash equity trading revenue to decline by almost 19% y-o-y in Q1 2013.

The situation is similar in Europe where average daily number of equity trades declined from 372,081 trades in Q1 2012 to 317,069 trades in Q1 2013 (a decline of nearly 15%), and the company’s market share declined from 70% to 68.8% over the same period. NASDAQ’s European cash equity trading revenues declined to $22 million in Q1 2013, from $23 million in the year ago quarter.

Non-Transaction Based Businesses Carry The Load

On the brighter side, NASDAQ’s non-transaction based businesses continue to show good performance.

The company’s corporate solutions revenue was up 14% y-o-y to $24 million, on the back of strong customer demand for its core multimedia, PR and governance offerings. We believe that this trend will continue in the near future, as the company integrates Thomson Reuters’ investor relations, public relations and multimedia solutions businesses into its own operations.

Within the Information Services segment, NASDAQ’s U.S. market data revenue increased from $60 million in Q1 2012 to $63 million in Q1 2013, as demand for the firm’s proprietary products increased and the company implemented price increase in Level 2 products.

Submit a Post at Trefis Powered by Data and Interactive Charts | Understand What Drives a Stock at Trefis