Friday, January 31, 2014

Seagate, SGI, Microchip analyst calls and results

I have posted my notes on this week's technology sector analyst conference calls and results:


I own Seagate (STX), which plunged after its report, but I believe that simply makes it more undervalued. Storage demand is still growing and Seagate is a cash cow with a healthy dividend.

I owned SGI (SGI) for years, but sold my remaining holdings today at $13.07 per share. I had bought these particular shares in May 2012 in two chunks for $6.69 and $5.27 per share. I will likely continue to cover SGI for a while and might buy back in if it looks like a turnaround with legs is in progress.

I also own Microchip (MCHP), which has been a stalwart of my stock portfolio. Lately Microchip has been growing substantially faster than the computer industry as a whole. It also pays a nice dividend.

Illumina, Biogen Idec, Vertex, Celgene and Alexion Analyst Call notes

I listened to the analyst conference calls and posted my notes at OpenIcon for the following biotechnology companies that reported earlier this week (follow links for details):

Biogen Idec

Of these stocks, I already own Biogen Idec (BIIB) and Celgene (CELG). Illumina and Alexion are doing very well, but I am put off by their prices.

Vertex (VRTX) is not doing well at all, and is overpriced. It's Hepatitis C therapy is being wiped out of the market by newer drugs. It has a pipeline of potential candidates, but is priced as if they were guaranteed approval by the FDA. As is often the case, this is a good company, but with Wall Street firms supporting the price and pushing it to investors, it is way overpriced. I don't short stocks, but if I did Vertex would be on my short list.

Keep diversified!

Wednesday, January 29, 2014

Amgen analyst call report available

I am running a bit behind, but just finished:

Amgen (AMGN) analyst conference call report

My general impression was positive. Moving the needle at Amgen is a big deal, but they have a big pipeline, with a lot of data from Phase III trials coming out this year. That should mean revenue ramps in 2015. Lots of Phase II and Phase I trials underway as well.

For a long-term investor it looks like a no-brainer. However, I don't currently hold AMGN. It is one of several biotechnology stocks on my short list for my next investment round, some time after earnings season ends.

Monday, January 27, 2014

Bought Celgene (CELG)

Just to note that I added a little bit of Celgene (CELG) to my prior holdings. I lost sold some Celgene (because it had become near 10% of my portfolio) at $156.74 on October 1, 2013. I believe the news since then indicates it is a very good buy at what I paid today, $156.42. Of course it could go lower in the short run, but see Celgene going over $300 in 2017 if not earlier.

I originally bought Celgene for $59.43 in June of 2007. I held it through the market crash, bought more, and it has been a key stock for my portfolio. Hopefully I am right about CELG's future.

Sunday, January 26, 2014

Altera, AMD, Intuitive Surgical and Xilinx analyst call notes posted

Earnings season! Like many analysts I spend considerable time listening to company conference calls and looking at numbers. While what I do for paid clients is secret, if I am listening for my own stocks or for ones I might potentially buy, I post my notes online at It gives a deeper view than a typical news story, but if you are (like me) and individual stock picker, if you like what you read you should listen to the entire conference yourself and go over the documents filed with the SEC before investing.

Last week I posted notes on:

Altera (ALTR) Q4 analyst conference call
AMD (AMD) Q4 analyst conference call
Intuitive Surgical (ISRG) Q4 analyst conference call
Xilinx (XLNX) Q4 analyst conference call

This week the following conferences are on my agenda. I like to do them live, but sometimes there delays before I post my notes.

This coming week will be busy with Seagate reporting on Monday, Amgen and Illumina and Tuesday, Biogen Idec, SGI, and Vertex on Wednesday, and Celgene and Alexion on Thursday. The links in this paragraph lead to my pages on each of the companies, with further links to the conference call summaries plus stories I have written and stories I think are important that were written by others.

As I write this, of the companies mentioned, I own AMD, Biogen Idec, SGI, and Celgene. I may buy any company mentioned at any time. I am a long-term investor, but I may sell a stock I own if it rises fast enough to violate my rules limiting each holding to a % of my portfolio, or if I see a better opportunity. My trades are too small to influence stock prices for more than a few microseconds.

Tuesday, January 14, 2014

Celgene in 2017: $375 per share or more

Recently Goldman Sachs panned Celgene (CELG), downgrading the company to a "Sell." A few days later Nomura started Celgene as a "Buy". Celgene is one of my key long-term investments and has provided a lot of alpha for my portfolio. Lately it (or at least the stock price) has been outrunning my cautiously optimistic projections.  Should I sell, take profits, and reinvest when or if the price normalizes? Or is there a factual basis to revise my past calculations upward?

I last wrote about Celgene on July 30, 2013 in "Celgene Up Over 100% In A Year: Still A Buy?" I concluded then that even at over $140 per share a prudent investor would buy Celgene, based on my estimated minimum $200 per share price in 2017. But Celgene closed on Friday, January 10, 2013 at $169.81. Its 52 week high was $173.80. Even if it were to reach $200 in 2013, that would only require a $10 advance per year, or about 6%. That is not what I consider good alpha, though it still beats bonds.

As always, the truth resides in the fundamentals. At pharmaceutical companies fundamentals have their foundation in future sales of currently approved therapies and in pipelines. There were quite a few developments at Celgene in the second half of 2013 that effect these foundations. The pace of sales of its key current drug, Revlimid for multiple myeloma (MM), increased, while new data indicating a label expansion to newly diagnosed  MM is possible was positive. Abraxane was approved for pancreatic cancer, in addition to its earlier approval for breast cancer. Pomalyst/Imnovid was approved for MM and sales have ramped quicker than expected.

Apremilast turned in good data for psoriasis and related diseases in 2013. Its market name will be Otezla, and FDA approval is expected this year (of course there is no guarantee of that). Celgene expects Otezla sales to reach $1.5 billion, or perhaps as high as $2 billion, in 2017.

On January 13 Celgene released preliminary Q4 and full 2014 results, as well as 2014, 2015 and 2017 estimates. Short term investors will want to focus on the Q4 results and 2014 estimates. Short-term, I'll just note that Celgene has a high P/E (price to earnings) ratio; maintaining it requires investor confidence in a high rate of profit growth.

As a long-term investor my interest is in where Celgene stock could reasonably be at the end of 2017. The easy answer comes from not doubting any of the parts, but accepting Celgene's 2017 estimate. Celgene projects revenues of $11.5 to $12.5 billion in 2017, up from $6.5 billion in 2013. Given operating margin estimates, the resulting non-GAAP EPS is expected to be in the vicinity of $15.00, compared to near $6.00 in 2013.

One way to project forward is to take the gain in EPS and multiply that by the current stock price. $15.00 / $6.00 = 2.50. Using a stock price rounded to $170, that would give us $425 per share. The percentage rate of increase, non-compounding, to reach that would be 37.5%. If this were guaranteed, no investor would want to miss out on that kind of growth rate.

Being more conservative, I would guess that today's high P/E will have normalized somewhat by 2017. Maybe the pipeline and projected earning s increases will have decelerated by then. I'll use a PE of 25, which still assumes Celgene is growing at a fair clip in 2017. 25 x $15.00 = $375 per share. That gives a non-compounding growth in the stock price of 30% per year. Still something not to be passed up.

In looking out four years to 2017 we need to recognize that a lot of things could go wrong. Private insurers or government health plans (particularly outside the U.S.) could demand lower prices for therapies. A new competing therapy could come to market and take market share. An unexpected adverse reaction to a therapy could be discovered. Or operating costs might exceed estimates, lowering profits.

Being aware of all that, I also note that the picture could be even rosier than outlined by Celgene management. As far as I can tell, the 2017 figures do not include any revenues from the pipeline except for Otezla. It is worth taking a brief look at the pipeline (excluding expanding current therapies to new targets):
For lymphomas, there is the Btk inhibitor CC-292 in Phase I; it is also in Phase I trials for Chronic Lymphocytic Leukemia. Sotatercept is in Phase 2 trials for a variety of anemias. CC-122, CC-115, CC-122 and CC-486 are in Phase I trials for solid tumors. In the anti-inflammatory segment we have CC-11050 in Phase II for cutaneous lupus erythematosus and CC-220 for undisclosed targets in Phase I. For Crohn's disease Celgene has PDA-001 in Phase I. Last on my list, a cellular therapy for organ transplants, UCB + HPDSC is in Phase I.

So, at least balancing the possibility that Celgene will not hit its 2017 estimates, there is the possibility that one or more of these earlier-stage therapies will gain FDA approval and begin generating significant revenue, or at least foreseeable revenue, before the end of 2017.  Celgene also can buy or generate (internally or with partners) new potential therapies, or advance preclinical candidates to human trials, but I don't see those as generating income by 2017.

In conclusion, while there are risks involved, I see no reason I should not hold my Celgene stock until 2017, when my expected value would be $375 per share. I also see no impediment to long term investors buying at current prices. Of course, if Goldman's negative view of biotechnology, or of the market in general prevails, there could be better price entry points than the $160 to $170 price range we have mostly been in lately.

I would like to buy more Celgene, especially since I sold some shares in October (at $156.74) in order to keep CELG within my portfolio limits for holding any single stock. I bought my CELG mostly in 2007 and 2008. I have to weigh that possible action against the benefits of diversifying into other biotech stocks and other classes of stocks. I hope sharing my thoughts will help other long-term investors with their thinking about Celgene. As to short-termers, what they do seldom affects the long run. But I thank them for providing liquidity and an air of excitement to investing in stocks.

Thursday, January 9, 2014

Akamai Priced Right

My latest Seeking Alpha post:

Akamai: Q4 Could Be A Catalyst

I like Akamai, but for my own portfolio that I try to keep to less than 20 stocks, to get back in it has to compete with a lot of stocks I study on a regular basis. If I already owned it I would be holding it. The last time I had some I sold it on May 16, 2013 for $48.05 per share, having bought it in August 2011 for $24.78 per share. Akamai has been growing revenue, and usually profits, since its inception, and I expect that to continue. The question, even for a good company with growing profits, is how much is that worth. I think Akamai is priced right, but given I am trying to shift more money to small cap biotechnology stocks, I would probably need to see a retreat to around $40 per share to induce me to buy. AKAM closed today at $47.62, up $0.94, giving it a market capitalization of $8.5 billion and a P/E Ratio of 30.7.

You can see my historic notes and analysis at Akamai Analyst notes.

Dot Hill Ups Guidance; My Good Call

Dot Hill (HILL) updated its Q4 2013 guidance today. I just want to point out that this made my prediction in

Dot Hill Likely To Reach $4 Per Share In 2014 of August 8, 2013, come true following the press release.

It also means I am not so much out on a limb with my recent article:

Nearly Quadrupling In 2013, Dot Hill Still Has 2X Potential In 2014 [December 29, 2013]

Most likely Dot Hill management will give 2014 guidance when they report Q4 earnings in February or Early March. My EPS estimate for 2014 may prove to be rosier than HILL's, but I appear to have the direction right.

Here is the press release link: Dot Hill Revised Q4 Guidance

Here's my favorite sentence from that release: "More importantly, during 2013, we announced many new flagship vertical markets' customers that we expect will be the foundation for continued growth into 2014 in Big Data, Oil and Gas and in Media and Entertainment." That is from Dana Kammersgard, CEO.

As I write HILL is up $0.57 or % to $4.04, after being considerably higher earlier in the day. Some day traders made a killing, some must have taken a bath, but I am a long term investor. With today's price rise HILL became the largest component of my portfolio. I look forward to the day when HILL can start paying a cash dividend, but that is not likely to be in 2014.

If you really want to understand Dot Hill, you may want to read some of my Notes on Dot Hill analyst calls.

Keep diversified!

Monday, January 6, 2014

Not so great 2013? A look at the IBB biotechnology index

I thought I beat the market rather nicely in 2013, with a 79% return (see My Great 2013 stock investments). But it turns out that the Nasdaq Biotechnology Index (IBB) closed at 2013 at 227.06 and closed out 2012 at 137.22, for a return of 65.5%. I would say my non-biotech stocks dragged down my portfolio a bit, but my three worst-performing stocks were all biotechs.

While I did beat the IBB, I did not do so by much. Not enough to claim that it was anything outside the normal probability distribution. Many of my biotechs are in the IBB, and some of them account for a lot of market capitalization within the IBB.

So maybe I should save myself some trouble and just buy the IBB. The argument against that can be summed up in my best performing biotech stock in 2013: Inovio, up 530%. INO is not in the IBB.

There are 128 companies in the IBB, and like most indexes they are updated in a way that tends to mask failures. On the other hand one of my worst performers was Dendreon (DNDN) and it is still on the list.

But I will think about adding the IBB as a part of my portfolio. That way if some tiny company gets an unexpectedly good trial result or FDA approval, I'll catch part of it. Along with the companies that have powerful backers on Wall Street, until their innovative therapies fail and investors loose their billions.

Probably I will just keep digging through the data, looking for potential that the sharks have missed. I don't mind the time; science is a hobby of mine. Some times that potential is in fairly large cap companies, not just in the little guys with no approved therapy yet. I first bought Gilead (GILD) in 2007, then  Celgene (CELG), Onyx (ONXX) and Biogen (BIIB) in 2008. It took a while for those investments to work out, but my strategy was a long-term one. As far as I am concerned, it beat day trading.

Goldman Sachs pontificated today that biotechnology stocks are generally overvalued. I take a conservative approach to investing, but I look for long term value in product pipelines. I don't know where GILD, BIIB, and CELG will be in a year, but in 5 years they are highly likely to be much more valuable than today [barring the zombie apocalypse, in which case all bets are off].

Marvell Technologies (MRVL) jumps on LTE wins in China

New article at Seeking Alpha:

Marvell Technologies Will Ramp Smartphone Chip Profits In 2014

I started writing this article yesterday because of an announcement last week of an LTE smartphone win in China. When I got up this morning to finish the article the stock was up quite a bit, and there were more announcements of 4G LTE wins in China. So I finished the article, and fortunately the turn-around time at Seeking Alpha was quick.

I have held Marvell since around 2006. I paid too much for it in the early years, but also built up a position over time during dips. I have taken notes on every quarter's analyst conference since 2006. You can see my notes at:

Marvell Technology Analyst Conference Call Notes

It is getting harder to find undervalued stocks. I believe that MRVL is currently undervalued, but as always that is contingent on it having a growth trajectory more or less in line with my expectations.

I have enough Marvell stock that if momentum players push the price up too high too quickly (above $20 per  share in the next few months) my portfolio rules would require me to sell a portion of it. I try to keep the market value of each of my stocks to no more than 10% of my entire portfolio.