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The Chairman’s Circle Weekly Briefing
The Oxford Bond Advantage
Editor: Steve McDonald
If you continue to do business with Schwab or Fidelity, Steve says you’re on your own. These two have been a problem since day one and set a new low in customer service last week. Steve can’t recommend one broker over another, but Vanguard gets good reviews for its online service, Interactive Brokers can open accounts for non-U.S. members, and the ones listed on each alert are also very helpful. Steve always recommends using a full service broker to start out. They get the same returns or higher, have the same costs as online brokers and watch your back.
As predicted, the selloff in the bond market missed us. In Wednesday’s alert, Steve listed most of our open positions with prices from Monday of last week and closing prices from last Friday. (You can access it by logging on to www.oxfordclub.com, clicking on “Newsletters & Premium Services”, then “Oxford Bond Advantage” and finally the June 26th alert, or by clicking on the link below.) It shows us losing about 0.5%-2% on some bonds, while others actually rose. Everyone should be cheering this in what was a terrible week for most bond holders. That fluctuation for the kind of returns we’re earning is nothing, and should reassure you about the safety of this system even in a worst-case scenario, which we came close to seeing last week. The steel and coal bonds were the exception, but that had more to do with the worldwide commodity selloff and the White House’s war on coal.
All of the buys from Friday’s video are still in place. You can buy them but only if the prices haven’t run up. And yes, you can buy below Steve’s recommended price. As for answers to basic bond questions, watch the first 10 or 15 videos for help. They’re not long and they really will help.
The True Value Alert
Editor: Alexander Green
New Recommendation: Gold stocks are now inexpensive relative to their traditional valuations and the price of gold itself. One great way to play this is with Newmont Mining (NYSE: NEM). With a market cap of $14.3 billion, it has mining operations in the U.S., Australia, Peru, Mexico, Indonesia, Canada, New Zealand and Ghana. It has over 99 million ounces of proven and probable gold reserves; produces silver, copper and zinc; and runs a merchant banking operation. Newmont doesn’t hedge its gold production, allowing us to fully benefit from future price rises. Even if gold is flat, NEM’s earnings should hit $2.70 this year and more than $4 in 2014. That makes the stock awfully cheap at just seven times prospective earnings. If gold rallies, the mix of higher sales and earnings plus the compelling valuation should cause these shares to sprint higher. There are also rumors of a potential takeover. Newmont is the world’s third-largest gold producer, yet rumors indicate that either Barrick Gold or Goldcorp might make a bid for it. At Newmont’s current price, you’ll also enjoy a 4.7% dividend yield. Action to Take: Buy Newmont Mining (NYSE: NEM) at market. Set a sell stop at $22. Speculators can look at the September $32 calls, but don’t pay over $0.94.
The Momentum Alert
Editor: Alexander Green
New Recommendation: Based in Dublin, Ireland, Jazz Pharmaceuticals (Nasdaq: JAZZ) develops and sells drugs to treat medical needs in neurology and psychiatry. Its goal is to build a broad portfolio of well-proven molecules and new chemical entities to address undertreated or little-known serious conditions. Its leading product, Xyrem, treats sleep disorders, which allegedly affect over 58 million Americans. Sales of Xyrem soared 60% in Q1, and Jazz has several patents on the drug through 2024. Another promising product is Luvox CR for social anxiety disorder, schizophrenia and obsessive-compulsive disorder. Jazz also has a significant pipeline of drugs it’s developing or seeking FDA approval for. Sales and earnings are soaring. In the most recent quarter, net income jumped 57% on a 91% increase in revenue. Operating margins top 39%, and management is earning an impressive 28% ROE. EPS should hit $6 this year and as much as $9 in 2014. The market crunch hasn’t slowed the stock down much, and any return to normalcy should send it sprinting higher. Action to Take: Buy Jazz Pharmaceuticals (Nasdaq: JAZZ) at market. Set a sell stop at $54. Speculators can look at the September $75 calls, but don’t pay over $1.80.
We hit our stops on Pier 1 Imports (NYSE: PIR) and Dick’s Sporting Goods (NYSE: DKS).
The Insider Alert
Editor: Alexander Green
New Recommendation: Linn Energy (Nasdaq: LINE) is based in Houston, and is an independent oil and gas company with properties in key areas around the country. It has more than 4.8 billion cubic feet equivalent oil and natural gas, and operates over 15,800 wells. With its high-quality management, Linn has become one of the nation’s top 15 independent producers. Since its IPO in 2006, it’s paid a dividend to shareholders every quarter. The current yield is an enticing 9.1%. Revenue hit $1.77 billion over the last 12 months, and sales soared 36% last quarter. Insiders own 16% of the outstanding shares, and some are adding to their positions again. Officers and directors Terrence Jacobs, Arden Walker Jr. and Mark Ellis all made recent six-figure purchases. Alex thinks that’s because Linn is likely to earn $1.25 a share this year and earnings are set to soar over 50% in 2014. So this is a stock with plenty of capital appreciation potential plus a big, fat dividend. Action to Take: Buy Linn Energy (Nasdaq: LINE) at market. Set a sell stop at $27. Speculators can look at the October $37 calls, but don’t pay over $1.10.
We hit our sell stops on Chesapeake Energy (NYSE: CHK), DaVita (NYSE: DVA) and VMware (NYSE: VMW), taking gains on the first two and a small loss on VMware.
The Pacific Advantage Alert
Editor: Alexander Green
New Recommendation: Based in Taiwan, ChipMOS Technologies (Nasdaq: IMOS) is a world leader in semiconductor testing and assembly services. It also provides testing and assembly services for LCD and other flat-panel display drivers through two major global locations for outsourced semiconductor manufacturing. Offering a small dividend as a bonus, ChipMOS has a seasoned management team with deep industry experience, a healthy balance sheet with strong cash flow generation, and insiders who own 21.4% of outstanding shares. Given the reviving market for electronics and the red-hot LCD market, business is set to jump soon. In addition, Micron – ChipMOS’ second-largest customer – recently bought Elpida. The deal will close in a few months and, when it does, Micron is likely to further boost its business with ChipMOS. Yet the stock sells for just 12 times trailing earnings. Action to Take: Buy ChipMOS Technologies (Nasdaq: IMOS) at $18.75 or better. Set a sell stop at $16. Speculators can look at the September $20 calls, but don’t pay over $1.35.
We hit our sell stops on Vipshop Holdings (NYSE: VIPS), SouFun (NYSE: SFUN), HSBC (NYSE: HBC) and China Construction (OTC: CICHY).
Healthcare Profits Alert
Editor: Marc Lichtenfeld
This week, Santarus (Nasdaq: SNTS) reported Phase 3 clinical trial data on Ruconest for acute attacks of hereditary angioedema (HAE), a rare condition that causes painful and potentially fatal swelling in various body parts. Subjects that received Ruconest experienced relief in an average of 90 minutes versus 152 minutes for patients that received a placebo. That compares with 120 minutes for Shire’s Firazyr and 48 minutes for CSL Behring’s Berinert. That data is not from a head-to-head comparison trial with Ruconest but from each drug’s own clinical trials, so the contrasts between Ruconest and the other drugs are not necessarily apples to apples. For one, Berinert was studied only in abdominal, facial and laryngeal attacks. Ruconest covered a wider range. Again, not a perfect comparison, but Ruconest had a better safety profile than Berinert with just four adverse events out of 56 patients versus eight out of 43 for Berinert. The Ruconest data was positive, though it didn’t blow anyone away as shown in the stock’s mild response. Marc still expects it to be approved in April 2014. If you don’t own any shares yet, take advantage of the market selloff and pick some up on the cheap.
Onyx Pharmaceuticals (Nasdaq: ONXX) continues to frustrate. It seems to be executing on its strategy, yet the stock is off its highs. Its revenue should grow 73% this year and 40% next. Over the next five years, earnings are projected to climb 44% annually. With our stop at $76.17, the current price makes for a very low-risk entry level. If you don’t own shares yet, consider adding Onyx to your portfolio. If you already do, continue to hold; don’t double up on it.
The Oxford Systems Trader
Editor: Marc Lichtenfeld
New Recommendation: Begun in 1997, Overstock.com (Nasdaq: OSTK) is welcoming back its outspoken founder and CEO, Patrick Byrne, after a health-related leave of absence. Over the past year, Overstock.com nearly doubled its book value per share. And in the past five years, cash flow growth averaged 32.5% annually. Marc also likes that ROE is over three and a half times its five-year average. Yet Wall Street is shorting a whopping 31% of shares in part because Byrne is outspoken. If the stock gets going, that means shorts will have to scramble to cover, creating more demand for the stock. The share price has had a huge run-up already this year, fueled in part by strong earnings in the first quarter. But the stock could be getting ready for another strong up-move. Overstock.com is expected to earn $1.06 per share in 2013 and $1.32 in 2014, giving it forward P/E ratios of 25.3 and 20.4 respectively. That’s good considering Wall Street projects 34% annual growth over the next five years. This isn’t for the weak at heart, thanks to Byrne’s bluntness. But Overstock.com is a fighter, surviving the dot.com bubble and Great Recession, and it’s a strong and growing consumer retail business. Action to Take: Buy Overstock.com (Nasdaq: OSTK) at $28 or below. Place a stop 25% below your entry price. Speculators can buy the December $30 calls for $3.40 or lower. The spread is a little wide, so try to get filled between the bid and the ask if you can.
We hit our stop on Lithia Motors (NYSE: LAD), grabbing gains of 17%. Action to Take: Sell Lithia Motors (NYSE: LAD) at market.
The Peak Energy Strategist
Editor: David Fessler
We hit our trailing stop on Williams Companies, Inc. (NYSE: WMB) for a 67.5% gain.
At Linn Energy, LLC (Nasdaq: LINE), officers and directors are busy buying their own stock, a significant sign of good things to come. CEO Mark Ellis picked up 10,000 shares, and COO Arden Walker Jr. bought 5,000 a week ago. It was the first time either purchased stock since August 2011, and it also marks their largest purchases ever. Lead Director Terrence Jacobs has also been loading up, buying 30,000 since May 10, 2013. Together they hold 1,155,764 shares worth $38.9 million. That spurred investor confidence and, in a nasty market week, Linn Energy was up 8.43%. Shares are currently 4.9% below our entry price. Linn’s next earnings release is set for July 22, 2013. We believe it could beat by a significant margin. Investors wanting to pick the stock up at a great price have an excellent opportunity.
The Emerging Trends Trader
Editor: Matthew Carr
New Recommendation: Rackspace Hosting (NYSE: RAX) is an open cloud computing and IT solutions company with 200,000 customers worldwide. It makes money from its ever-increasing bank of servers – up to 94,000 now – which increased in number by nearly 4% in its Q1 2013 over Q4 2012. Each one averages $1,308 per month in revenue, a number that has gone up 5.7% in the last year. Rackspace’s annual revenue has grown from $800 million in 2010 to a projected $1.5 billion this year. It’s seen double-digit growth year-over-year for the past three years. Yet shares still waver during the year. January and May aren’t particularly great, and July’s a little flat. But November is strong, September is best, and August, October and December are solid. May is when it announces Q1 results, which never seem to spark much optimism. In the last five years, shares have suffered four straight losses in that month alone. This year, Rackspace shares lost more than 22% in May. Essentially, January-July is not a great time to hold these shares, though they returned 50% or more during the last two quarters in three of the last four years. On average, the company has outperformed the S&P by over 38 percentage points during this span. Action to Take: Buy Rackspace Hosting (NYSE: RAX) at market. Place a 20% stop below your entry price. We’re looking to exit this position at the beginning of the New Year in January. Speculators can look at the December $42.50 calls, but don’t pay more than $3.15.
Arena Pharmaceuticals (Nasdaq: ARNA) has started to see prescription numbers for its anti-obesity drug Belviq. Last Friday, with three days of sales recorded, there were already 1,087 prescriptions. This week, those numbers moved up to 1,829: a 60%-plus increase! Arena has been really volatile, and Matt expects it to continue being that way until the beginning of August. These weekly numbers, which are reported on Fridays, will be the driving force of that volatility. Incidentally, the Belviq launch has been better than the launch of Qysmia by competitor Vivus.
Boston Beer (NYSE: SAM) hit a new 52-week high on Wednesday. Shares have eased down a bit since, but we’re still looking at a double-digit gain so far, and our September $170 calls are up over 140% this morning. Action to Take: Pull your stop up to $160.
8×8 Inc. (Nasdaq: EGHT) is currently off its recent 52-week high. We have an 18% gain at the moment, and our August $7.50 calls are up 69.23%. The company’s first quarter results for fiscal year 2014 are on July24.
Idexx Laboratories (Nasdaq: IDXX) has also been edging higher. Our July $95 calls are currently up 33%, with second quarter earnings a couple weeks away.
Vascular Systems (Nasdaq: VASC) has struggled in terms of share price as of late. This has nothing to do with financials; it’s really been a result of the company’s patent infringement claims against Boston Scientific. The shares should move higher as we near its earnings report.
