The Specialty Biotech component of the Industrial Metals & Mining industry group is both dynamic and profitable. Unfortunately, you have to know what you are doing to be profitable! I have selected just four companies for this article. Valuation analytics is fun because there always seems to be exciting opportunities on the horizon. In this case, my focus is on: Alexion Pharma., Inc. (NASDAQ:ALXN), VIVUS, Inc. (NASDAQ:VVUS), Incyte Corp. (NASDAQ:INCY) and Arena Pharma., Inc. (NASDAQ:ARNA).
I always split my lists into primary and second / third-tier companies. The reason is that most often the second/third-tier companies produce better valuations, lower risk and have higher profit potential than top tier companies. When the risk / reward ratio is the same, I naturally recommend the best to my clients.
These four companies are currently on my future list for buying in the next bullish cycle. For your information, there are well over 200 such industry groups. Like their component companies, industry groups also rotate in to favor and out of favor. This is also true, in reverse for shorting. Please take the time to read my Instablog article entitled, "My Rotation Model."
All four of these companies have a market cap of over one billion. I believe, all these companies could be very big winners in the coming bullish cycle. Each has longer term projected growth well above the market average.
Just for the record, the coming bullish cycle could be quite some time in coming at this stage in the marketplace. I share this with some 50 years of experience in doing my valuation work and technical analysis homework with diligence.
As the song goes: "There is a time to hold and a time to fold." Cash is to do the latter without any attachment to the company you may be holding. The company and its management could not care less about you, but often investors believe there is some ethical or moral reason to continue to hold when all information and data are screaming sell. Another song goes: When will they ever learn?
I spend most of my time in the fundamental and valuation realm of securities analysis. There are some proprietary technical indicators that have produced excellent results over the year. The basics come from an article that I published many years ago. This article is updated here.
The above two articles support my work on inflection points. You may want to read my Instablog article entitled, "Inflection Points."
I hope my attempt at teaching and sharing with you folks, within my articles, will improve your profitability in the coming months and years. I am always on the prowl for low-risk investment opportunities. I make lists and then narrow down those lists, so I always have the best of the best, in inventory, to work with.
Current Opinions with Ratings, Direction and Valuation Projections for Future Buying
Fundamental - weighting (40%)
Technical - weighting (35%)
Consensus Opinion - weighting (25%)
Rating / Grade: ( 0 - 100 / A - F ) - Direction (ascending / status quo / descending)
Six Months - One Year Projected from a Mean - Sigma and from the next Bullish or Bearish Inflection Point.
75 / C -- ascending.
76 / C -- ascending.
89 / B+ -- ascending.
86 / B -- ascending.
Minus 17+% to Minus 50%
My weighted Fundamental, Technical and Consensus Opinion ratings range from Excellent to Very Poor. Grades below 90 / A are not current (never are) candidates for buying. Grades above 60 / F are not current (never are) candidates for short selling. Information and data are ever changing, so be alert. Every company's "Grade" can be from a neutral grade (60 to 90 / D to B) to a buy (greater than 90) or short sale (less than 60) in a very short time. Valuation Divergence is a complex calculation that has proven to be quite accurate. The percentage figures are averaged for all companies in my universe and are conservative percentages.
My methodology for grading all securities is by comparative analytics using my weighted fundamental, technical and consensus opinion date. If you were to go to MSN Scouter, you would find a very similar methodology for their rating any given company. They use several more criteria but each receives a letter grade of A - F. For example: Apple, Inc. (NASDAQ:AAPL) has for several years received a very high grade fundamentally as well as for their consensus opinion. When the technical weighting falls so does the technical "grade" it will receive. An example of a negative company would be Research in Motion Limited. (RIMM). Here the company has very poor grades in all three of my criteria. The difference between MSN Scouter and my work / analytics is the methodology used to arrive at the appropriate "grade" for a given company. Note: Apple and Research in Motion are used for examples because of the large divergence in both valuations and performance.
Further support for the above notes can be read in my above referenced and hyper linked articles.
My criterion for taking a bullish position is that the company must have the prospect within its fundamental valuation and technical chart to outperform the general market, its sector, and industry group.
I use several indices in my focus to identify the on-going bullish and bearish inflection points. The New York Composite Index is represented well by the ETF, SPDR S&P 500 (NYSEARCA:SPY). The Nasdaq Composite Index is represented well by the ETF, PowerShares QQQ Trust (NASDAQ:QQQ). In my work the identification of bullish and bearish inflection points is of critical importance. Because this is so critical, I also emphasize and use market "breadth" indices. Breadth does not have a tracking ETF; therefore, it was necessary to create my own excel charts.
These two indices, backed up with 'breadth,' is the foundation for my technical analysis. An axiom for the general market says: "the direction (trend) of the general market has a 60% influence on security's profits or losses." The following two charts (long and short-term) include SPY, QQQ and two of the companies presented in this article. I hope you can understand why this analytic exercise is so important to my way of managing assets.
My opinion of the general market is that the fundamentals are over-valued; the technicals are over-bought, and the consensus opinion is way too bullish. I am currently a bear because my valuations are convincingly negative, and we are in a bearish cycle; it's just that simple!
Further support for my guidance for the general market can be read in my weekly Instablog article.
Currently, the above tables and charts present a clear and not-so-positive near to short-term account of these four companies and the overall market indicators. It is a fact that the stock market cycles endlessly both fundamentally and technically from bullish to bearish and then back to bullish again. Unfortunately, this is a pattern that is not well-understood or taken advantage of by most investors.
I expect a correction in all of these companies. At the time of a new bullish inflection point these companies will remain excellent candidates for buying.
Within this present bearish time frame, there is nothing (longer-term) wrong with these companies. It is simple what happens when they turn bearish, and is just the on-going "cycling effect" of the way the stock market works. I hope you understand and will continue to follow my work / analytics. It won't be long before I can offer you a bullish and upbeat forecast once again.
May I remind you to take a few minutes to study my 2 and 5-year charts? When buying or selling, taking a longer-term view of a security's price history is often the difference between profits and losses!
I am bearish on both the world economies and the general market. My more recent Instablog postings are focused on securities that should not be currently held in your portfolio. I suggest that it is vitally important for you to understand that holding cash during questionable time frames in the marketplace is a much wiser choice than holding your present positions. I can assure you that this is definitely a "questionable" time frame.