Agenus, Biogen Idec, Seagate and Vertex Q3 results and calls

You can look at my notes on September quarter results and analyst calls from Agenus (AGEN) , Biogen Idec (BIIB), Seagate (STX) and Vertex (VRTX) if you like:

Agenus Q3 analyst call

Biogen Idec Q3 analyst call

Seagate Q3 analyst call

Vertex Q3 analyst call

I don't own any Vertex stock. I have owned Biogen Idec stock since 2008. I have owned Seagate stock since June 2012.

This is my first coverage of Agenus. I bought a small initial amount of AGEN in September and bought a like amount this morning. Agenus is a development-stage biotechnology stock, with no regular income source, though it has received some revenue from achieved milestones at partners. It should be considered a very risky investment. I hope to write up Agenus at Seeking Alpha very soon (I finished my Microsoft project, but got behind on so many things during it ...)

This afternoon I will be taking notes on Gilead, a company I have owned since 2007. I'm going to post the link even though no data is there yet:

Gilead Q3 analyst call

Keep in mind that anyone can listen to the analyst call of traded companies. Usually only buy-side (Wall Street) analysts can ask questions. You can listen by telephone or by web streaming. I always listen to at least one conference before buying a stock. The notes I post contain what is important to me, and can be read it a minute or two, but are not really meant to substitute for the full conference.

Analyst Calls: Akamai, Celgene, Alexion

Yesterday I took notes on:

Akamai Analyst Call Q3 2013

Akamai had a good quarter, but not quite as great if you subtract out accounting change-based benefits. Guidance for Q4 was conservative. Since AKAM is a high P/E stock, it has to stay near perfection to avoid price drops. I have owned AKAM in the past and would buy on a significant dip.

Today I posted notes on:

Celgene Analyst Call Q3 2013

Celgene hit record revenue, but how you look at results depends on whether you use GAAP or non-GAAP numbers. I prefer GAAP for most purposes, and on that basis EPS was down y/y. But the value in Celgene is in recently approved and soon to be approved therapies. Those are going well, so I am sticking by my $200 per share by late 2017 thesis. I am a long-term owner of Celgene stock.

Later today I will post notes on:

Alexion Analyst Call Q3 2013

I do not own Alexion, but I am watching it as a possible addition to my portfolio.

Amgen and Altera Third Quarter Results and Analyst Calls

I took notes on the analyst calls of Amgen and Altera yesterday. I don't currently own either, but am contemplating buying each of them.

You can read my notes here:

Amgen (AMGN) Q3 2013 Earnings Call

Altera (ALTR) Q3 2013 Earnings Call

Amgen is doing quite well, confirming the analysis I made in Amgen With Onyx Pharmaceuticals: Long-Term Analysis. I would not call the stock cheap at today's price, but it is reasonable for long-term investors like myself. In addition to a slew of new drugs that may come to market in the next few years Amgen is setting up an infrastructure in China that should reward investors over time. My caveat on Amgen is that a friend recently stopped taking Enbrel for Rheumatoid Arthritis because her white blood cell count dropped to near zero. Looking at the number of deaths and adverse events associated with Enbrel, I can only hope that something safer comes to market soon. Amgen revenues from Enbrel in the quarter were $1.16 million.

Altera, which makes programmable logic devices (PLDs), had a more difficult time, with revenue down 10% y/y. Management thinks they will beat out arch-rival Xilinx with the new 28 nm and sub 28 nm chips, but so far the sales results have not proven that. For a fuller explanation of Altera's argument, see the notes in the link above. It is not a bad analysis, but until it happens I would refrain from buying Altera at current prices. On dips, maybe.

Later today I'll be taking notes on Akamai, then tomorrow is a heavy day, with Celgene, Alexion, and Agenus reporting. I own some Celgene and a tad of Agenus, but not Alexion or Akamai.

For a list of stocks I cover see William's List.

I don't think we are in a stock bubble yet, though it would look like it if you just looked at marginally profitable Internet stocks like Amazon and Facebook. I intend to be very selective in buying going forward, but I think there are still undervalued biotechnology and technology stocks, if you take a long-term view.

Keep diversified!

AMD and Intuitive Surgical (ISRG) Q3 conference notes

I listened to the AMD and Intuitive Surgical analyst conference calls yesterday.

You can read my notes following these links:

AMD Q3 2013 analyst conference call

Intuitive Surgical (ISRG) Q3 2013 analyst conference call

Market behavior this morning, following these results, is interesting. AMD actually beat its prior guidance, but the stock plunged, down 12.5% as I write. Which would seem to mean that at least some investors thought AMD would do even better. In any case AMD was in the black in Q3, both on a GAAP and non-GAAP basis, and has big plans for 2014. Following up on its wins for the processors of all 3 major game consoles, AMD has a pipeline of potential large volume deals for its SoCs (System on Chips). On the other hand, management made it clear that it can't promise profitability in Q1 or Q2 of 2014 because those quarters are typically slow for consumer electronics.

Intuitive Surgical (ISRG) missed guidance and reduced guidance for the full year. It also fell this morning, but currently at a less frightening but still significant 4.5%. Intuitive had high growth rates since it first brought its surgical robots to market, but now has hit y/y declines because of adverse publicity, market saturation in at least one key surgical procedure, and hospitals being more cautious about capital equipment spending.

I own some AMD stock and would like to accumulate more, if the price is right. AMD is having trouble with its traditional microprocessor business, but is smartly ramping up products that don't compete head to head with Intel. It will be a long, slow march to making serious profits that can pay off debt and eventually even be distributed to shareholders, hence the low stock price.

I don't own ISRG but would like to start accumulating it. Whether I actually buy any depends on the price (hopefully even lower), the other possible uses of cash, and any changes in my opinion of its future.

I am way busy with higher-priority projects right now so I don't know when I will write up more detailed analysis of these companies for Seeking Alpha, but I hope to at some point.

Keep diversified!

Xilinx analyst conference for September 2013 quarter

You can now see my notes for the Xilinx (XLNX) fiscal Q2 2014 results and analyst call.

It is a busy week for me, and analyst calls will be piling up as the earnings season gets underway, so I can't say when I will write an analysis on Xilinx for Seeking Alpha.

I don't currently own Xilinx stock.

The Real Debt Ceiling

The Federal Government of these United States of America is partially closed down. Congress is divided against itself: the Republican-controlled House of Representatives can't agree with the Democrat-controller Senate on how to reopen.

More ominous, all pundits agree, is that the national debt will hit the debt ceiling sometime soon, with October 17, 2013 frequently given as an estimate. Since the federal government continues to run a budget deficit, its debt is increasing. The ceiling is $16.7 trillion.

The debt ceiling is artificial in the sense that it is legislated by Congress (and signed into law by the President). It can be raised or lowered by Congress. Those who believe the national debt is not a problem (or, misinterpreting Alexander Hamilton and John Maynard Keynes, is actually an asset) might want to just abolish the ceiling, or set at at $30 trillion and forget it for a couple of years.

There is a real debt ceiling, however. It does not have a definite number on it, but it is real enough.

Consider, as an analogy, propeller-driven airplanes. Each model of airplane has a ceiling, because air thins are you climb to higher elevations. The better designed and lighter the airplane and the more powerful its thrust (from the engine and propeller system), the higher the ceiling. But at some point every airplane stalls: its propeller cannot push enough air to give enough thrust to get it higher.

Likewise where the real debt ceiling is for the federal government of the United States depends on a variety of factors. For instance, if the government could raise more in taxes (by raising rates or because of an expanding economy), it would have a higher ceiling than if revenue from taxes fell.

If the federal government offers higher interest rates (which are set at auction), then investors should be willing to loan more money to it.

Investors, in fact, are the key actors. There are all sorts of investors who buy federal debt. Since the Great Recession began they have accepted very low rates of interest. More investors might buy federal debt if interest rates on the debt were higher.

But no matter how high interest rates go, there is still a ceiling. Even a loan shark charging interest (at perhaps 100% per year) to the federal government would stop loaning if it became clear that the loan could not be repaid. And who's going to break the legs of the federal government?

If the annual interest on the federal debt begins approach a high share of annual federal revenues, the federal government would go into a Death Spiral. Say the interest reached one-half, or 50% of annual revenues. Policy makers would have three basic choices. They could prioritize interest payments by cutting federal spending. But that would hurt the economy, resulting in lower tax collections the following year, plus there would be political fallout from the many Americans who depend on federal spending.

A second choice when interest on the debt reaches 50% of annual revenue would be to increase taxes so that spending could be maintained along with interest payments. The problem with that is that such taxes would have to be broadly based. The economy would go into a depression, lowering tax collections.

A combination of cutting spending and raising taxes might work today, but would just cause a depression if we wait until interest hits 50% of revenue.

A third choice is to simply let the debt balloon. But as the debt balloons, the interest would also balloon. Interest rates would have to go even higher. The necessity for defaulting on, or writing down, the debt would be obvious. The debt would quickly hit the real debt ceiling, but that would not stop the death spiral. If 50% of federal revenue were assigned to just pay the interest, it would not be enough. Bonds (federal debt) come due at intervals: the principle would have to be repaid. Just to replace the bonds would require higher interest rates, so the interest would soon consume 51% of revenue, then 52%, and on up to 100% of revenue.

Clearly the three choices above would lead to the end of the United States as we know it. A fourth possibility would be allowing inflation to reduce the real value of the debt. Long-term bond holders would just have to eat their losses. But even this would not likely work because it also would hurt the economy so badly that we would have a depression, which would be deflationary, defeating the purpose of allowing goods and services to inflate in dollar value.

The real debt ceiling is likely somewhere between where we are now and where the interest on the debt reaches 50% of federal revenue. Federal revenue in fiscal 2013 was budgeted at $2.9 trillion. 50% of that would be $1.45 trillion. If the average interest on federal debt rises to 5% (a conservative figure, but above what the feds paid during the recession), the debt ceiling in the scenario above would be 29 trillion dollars. Way above the current legal limit.

But if investors lose confidence in the federal government (which they should have by now) and the interest on the debt rose to an average of 10% (admittedly higher than it has been yet), the scenario of the death spiral would occur at $14.5 trillion dollars.

That is right. A death spiral is possible, if enough investors lose confidence, at below the current $16.7 trillion debt limit.

So where the real debt limit lies depends on where real investors, as a group, draw the line.

It would be interesting to ask a few people like Janet Yellen, Ben Bernanke, Lawrence Summers, Barack Obama, Jacob Lew and John Boehner exactly what they think the real debt limit is.

Even the GAO thinks "Debt held by the public at these high levels could limit the federal government's flexibility to address emerging issues and unforeseen challenges such as another economic downturn or large-scale natural disaster. Furthermore, in both the Baseline Extended and Alternative simulations, debt held by the public continues to grow as a share of GDP in the coming decades, indicating that the federal government remains on an unsustainable long-term fiscal path." [GAO Long Term Outlook]

I predict we are in for stormy fiscal weather. Today the government pays interest at a rate from practically zero on short term notes to 3.75% on 30 year bonds. I believe the Federal Reserve has gone to great lengths to keep interest rates low not just because that encourages an economic recovery, but because it puts off the day of reckoning on the real cost of the national debt.

The Republicans are right, we need to cut spending. But we have to cut spending in a way that minimized the hurt to both people and the economy. That means cutting subsidies to the rich, the upper middle class, and in particular military spending and foreign aid. But the Republicans want to cut payments for seniors and the poor.

The Democrats are right, we need more revenue, which means more taxes. We need a higher tax rate on people earning more than $50 million per year and on large inheritances. We need to close every loophole. We need to legalize and tax "street" drugs. But tax increases do result in less spending and less capital deployment, so they should be reasonable. And the Democrats, too, have been reluctant to cut military spending.

The American economy has been badly hurt by both parties and both branches of Congress and by the President these past few years. By protecting their turfs, including the Pentagon budget, they are weakening the long-term viability of the United States.

Both parties should agree to balance the budget in fiscal 2015 and start paying down the national debt in fiscal 2016. The pain will be shared by everyone, but to the extent it can be targeted by law, it should be dished out to those who have benefited most from the American economy.

Celgene partial sale

I am still a big fan of Celgene, but it again did so well that it violated my portfolio rules limiting the % of any one stock I hold. So I sold about 16% of my CELG holdings recently for $156.74 per share.

I last bought Celgene on June 24, 2013 for $111.40 per share. My rules allow me to buy more shares if for some reason the stock price drops again.

The shares I sold were originally bought for $38.59 per share back on May 4, 2009.

I continue to believe that for long-term investors like myself, CELG is a good bet. But I also recognize that every stock has its risks, and so limit my risks by following my portfolio rules.

Celgene will be reporting Q3 2013 results and holding its analyst call on October 24. As usual I will take a post notes which you can access at Celgene analyst call summaries.

I am pretty busy with other projects right now, so don't expect to write much in the way of articles for here or Seeking Alpha until early November.