Sunday, April 27, 2014

Buying the Dip: Inovio, Gilead, Celgene, Amgen, Xilinx

It's been some time since I've posted. I've been busy, not on vacation: researching stocks, fixing up my house in preparation for selling, watching the stock market gyrate, and buying some stocks I think are cheap and are going to look really, really good around 2017:

Since April 11, 2014 I have added to these positions:

Gilead (GILD)
Inovio (INO)
Celgene (CELG)
Amgen (AMGN)

I also bought my first tiny bit of Xilinx (XLNX), which I have watched for years.

I was able to buy these stocks because earlier this year I had sold all of my Adept Technology (ADEP) and bits of Hansen Medical (HNSN) and Dot Hill (HILL). I had also sold some Inovio at $3.65 per share. I bought that back at $2.57 per share.

I considered buying quite a number of other stocks as well, notably (in no particular order): Regeneron (REGN), Alexion (ALXN), and Intuitive Surgical (ISRG). In the end I went for the relatively low P/E biotechs that have proven execution and great pipelines.

I'll write about all this stocks in detail, time permitting, for Seeking Alpha (with any rejections posted here). But quickly, GILD should be trading at $120 per share right now based on its Hepatitis C franchise, HIV franchise, and pipeline of future products. Inovio is risky, but it has many shots on goal in its pipeline. If it misses a shot along the way, while others sell off I will accumulate more.

Celgene still looks to power up to over $300 per share by 2017, but it closed at $142.06 on Friday. How any long-term investor can resist that proposition, I don't know.

Amgen has a low P/E ratio and a great pipeline, and pays a dividend. I hope to buy more if cash becomes available and the price remains low.

Xilinx is a bit of a different nut. It is reasonably priced and pays a dividend, and specializes in field-programmable logic devices. Rival Altera keeps saying they are going to kick Xilinx's ass, when they start producing chips on Intel's 14 nm process. I think Xilinx, which will soon be on TSMC's 16nm process, will be able to hold their own.

I'll probably regret not having bought Regeneron and Alexion down the road, but they just did not dip low enough for my taste. Intuitive Surgical had a really, really bad quarter, but while the stock is much cheaper than it was just a month ago, it still looks pricey if Q1 is just a prelude to further surgery robot sales declines the rest of this year. I'll probably buy some at some point. I like robotics (which is why I still own a large chunk of Hansen Medical shares).

Of course in the short run anything can happen, and in the long run we are all dead. Although I try to use a 3 to 5 year time horizon for picking stocks, and tend to buy and hold, I do adjust my portfolio according to my rules from time to time (limits on how much of anyone stock I own) and also sell some into irrational upward momentum, and buy on irrational dips.

Keep diversified!

See my analyst conference summaries for select stocks at

See also William Meyers Seeking Alpha Articles

Friday, April 11, 2014

Even Republicans Won't Deal With Debt

Republican politicians like to rant against taxes and blame all taxation on Democratic politicians. So you would think that Republicans in the federal House of Representatives would present a balanced budget.

Why did the House Republicans pass a budget this week, written by Paul Ryan, that would not balance the budget (barring an economic miracle) until 2024, a decade from now?

It is not just politics as usual, even though everyone knew this budget bill, which passed 219 to 205, won't become law. It will die in the Democrat-controlled Senate, and in any case President Barack Obama won't sign it.

Take a step back and look at the bigger picture, both economic and historical. Deficit financing did not become a regular part of the American economy until the Great Depression. In 1933 progressives of both parties (Democrat and Republican), led by Franklin Delano Roosevelt, tried "pump priming," getting the economy headed back to normal by government deficit spending. Soon income tax rates were raised too. But what really ran up a deficit, and revitalized the economy, was World War II.

After World War II the U.S. had an unprecedented amount of debt, but we were the only industrialized nation that had not been devastated by the war. More important, both parties had seen what a little economic heroin could do for politicians. So while conservatives talked of balanced budgets, they became rare even in years when the economy was booming.

Now tax rates are far lower than they were from 1935 until 1980. Republicans can take most, but not all, of the credit for that. But if anything Republicans have been worse than Democrats about spending taxpayer dollars.

Ryan's budget advocates cutting back on payments for food stamps, health care, education and transportation. But it does not cut back on military and homeland security spending, or on subsidies and tax breaks for corporations and the rich. It does not prioritize dealing with the national debt. The Democrats will say its domestic spending cuts amputate important programs, but in fact Ryan's cuts are band-aid sized cuts. They are meant not to antagonize too many senior voters, just mostly the type of people who vote Democrat, if they can get a valid voter ID card.

Ryan's budget tries to please Tea Party Republicans with the smell of budget cuts without alienating the big defense corporations or too many middle class voters.

And in his heart-of-hearts, Ryan may worry that without the deficit spending his plan envisions, the economy might stall, which would reduce tax collections, increase the deficit, and make it harder for him to reward his sponsors with government contracts.

Then there is the over $17 trillion dollars of federal debt. Currently the Treasury and the Federal Reserve are pretending they are keeping interest rates low to stimulate the economy, but the rates are way under what they have been historically in a growing economy with well less than 7% unemployment and no overall inflation. The main result of the low interest rates is that the government can finance its debt cheaply. Since that is the main result, that is the real purpose.

Normal interest rates are about 5%. 10% of $17 trillion is $1.7 trillion. 5% is half of that, so $0.85 trillion. Per year, in interest alone. A trillion is a thousand billions, and a billion is a thousand millions. So take my word for it, as valueless as the dollar has become since the Great Depression, and as large a the economy has become, we are talking a high-magnitude earthquake-like impact on the federal budget and on the economy if interest rates normalize. If we actually had an old-fashioned strong economy interest rates could easily climb above 5%, if we had free markets or the Fed were to do its job of keeping inflation under control.

Folly begets folly, and investors around the world see U.S. debt as a safe thing right now. Just a switch in that attitude, which would result in investors refusing to buy bonds until interest rates were higher (like 5% on 10 year bonds), would throw the U.S. into bankruptcy.

Its kind of like global warming. You have politicians who are in denial, and you have politicians who see the problem, but are not willing to act on something decades away. Only the debt crisis is probably well less than a decade away. It could start any time, and the longer it takes, the worse it will be.

The problem may be fixable. Democrats and Republicans alike would have to give up quite a bit. Each party uses federal money, or exemptions from taxes, to buy campaign donations and votes. Each party would have to give up much of its gravy train. And each could do that, without harming the economy overall.

Homeland security spending is nearly a complete waste. Cut that budget by 90%. Cut the military budget by 50%. And yes, it would take toughter-than-Ryan cuts in food stamps and education subsidies. Cut payments to health-care organizations and doctors, focusing on high-cost low-benefit drugs, diagnostic procedures, and surgeries. Raise the IRS budget, double it, and have them go after tax shirkers at all levels.

What, cut education subsidies? Yes, cut them. I support public schools, and I served on a public school board for 8 years, and I was the most liberal member of a liberal board. But I also saw the details of how federal money is doled out. Cut the money in half, remove the red tape by 100%, and let the school boards micromanage how to best educate their pupils. Some will screw up, many will be mired in mediocrity, but most will do better with half the money.

Alternatively taxes on the rich, and in fact on individuals making $50,000 a year or more, will soon need to be doubled. That is right, doubled. Read my lips: doubled. With no exemptions for capital gains, dividends, or inheritances. Even small inheritances.

Or we could do some combination of severe spending cuts and severe tax increases.

I imagine I have alienated just about everyone by pointing out the problem and the only ways it can be solved. I know plenty of people who get food stamps and never worry about how that food is really being paid for. I know soldiers and veterans, and I know people who make plenty of money and consider themselves over-taxed even after they take their tax breaks. No one likes to hear the nation is sick, and they all have to take some medicine.

So as an analyst, my prediction is the federal government is not going to act any better than heroin addicts would act (I've known some of them too). It will continue to borrow money until no one will lend it money.

Then it will either collapse in agony or go out and hit someone over the head and take the money it needs for its addiction. And blow off its creditors. Federal bonds will be payable only in more federal bonds.

Disclaimer: I am registered to vote in California, but with no political party.

Another Buying Opportunity: Amgen

Today I bought more Amgen (AMGN). It has a low P/E ratio, pays a dividend, and has a pipeline I like. On the other hand, it is a big company, so it can't grow as fast as say, Regeneron (REGN) or even Alexion (ALXN), both of which looked mighty tempting today.

Next week AMD reports Q1 results on Thursday. The following week I have at least 5 biotech stocks reporting Q1 results. Maybe stocks will get cheaper, but my guess is with the economy reviving nicely and actual earnings coming in, buyers will be back soon enough.

Thursday, April 10, 2014

Bought More Gilead; Waiting on Regeneron

Just to follow up yesterday's post, this morning I added to my Gilead (GILD) holdings. Investors today are acting like it is a surprise that Gilead will have competition in the Hepatitis C market. Had they not been paying attention?

I believe Gilead can discount its Hep C therapies substantially if necessary to dominate the market, while still having high profit margins. In fact, I have believed all along that Gilead would have done better to price Sovaldi substantially lower and encourage larger numbers of patients to sign up quickly for the treatment. With hundreds of millions of potential patients in the world, they won't run out of patients any time soon, even though the cure rate is extremely high.

I think when Q1 results come out on April 22 we will see the tip of the iceberg for Sovaldi and the coming combination therapies. Gilead had just $139 million in Sovaldi revenue in Q4, and only $50 million made it to  patients, the rest being stocking.

I am still hoping to bag some Regeneron (REGN), but even though it is off today at $294, I think it has to be well below $285 now for me to prioritize it over buying more GILD. Of course those who own Regeneron would argue differently, and they could be right.

At $65.19, the price I paid today, Gilead had a trailing P/E of 36.3. With Solvadi and other new drugs coming online, my best guess is still that Gilead will go well over $100 per share by the end of the year. But as with all stocks, Gilead is limited to less than 10% of my portfolio holdings.

For all my background research and published articles on Gilead see: William Meyers on Gilead.

Wednesday, April 9, 2014

Regeneron (REGN) Update

I almost became a proud owner of Regeneron (REGN) stock yesterday (April 8). I have watched Regeneron for a long time. It's Eylea therapy for macular degeneration has been ramping revenues steadily, and I like its platform and pipeline. But other investors like its prospects too, resulting in a high P/E ratio. I am cautious about high P/Es, and for good reason. If anything goes wrong, the stock price can plummet.

As I wrote about Regeneron, resulting in Regeneron Down 15% From 52-Week High: Buy? published late today at Seeking Alpha, I was reminded of the good side of REGN. When I started writing the article REGN was down almost 20% from its 52 week high.

I decided to buy a few shares. It fell quite a bit on Tuesday. So I postponed. I figured I could get it even cheaper on Wednesday. What I really like is a stock that should have a high P/E that investors have overlooked, resulting in a mediocre P/E.

Alas, when I checked REGN about 1/2 hour after the market opened today, it was up around $10 per share. Regeneron ended today at $306.26, up $19.82 in one day, and up 6.92%.

Not that I had a bad day. The top stock in my portfolio for the day were Inovio (INO), up 11.8%. But Inovio has not received FDA approval for its therapies yet, and is notoriously volatile. Not recommended for amateurs. Second up was data storage system maker Dot Hill (HILL), up 8.42%. Of my larger cap stocks the best was Celgene (CELG), which was up 6.6%. Celgene has been hit by both the recent Biotechnology deflation and by specific worries that its Revlimid may go generic sooner rather than later. However, today a look at the patent case preliminaries convinced many investors that Celgene's patents are solid. I also would point out that Celgene has a great pipeline that should start kicking in long before the Revlimid patents run out.

Hope you had a good day too. Keep diversified!

You can see my notes on the analyst conference calls of all these stocks at OpenIcon.