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It’s a shame, really, that much of what is offered here – at no charge – is not taught in the public schools. Why is it that you can graduate in the top of your high school class and know next to nothing about credit card debt, adjustable-rate mortgages, or 401(k)s? Founded in 1999, the goal of... More
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  • Big Pharma Has a Big Problem and Merger Mania is Heating Up
    Source Big Pharma Has a Big Problem and Merger Mania is Heating Up

    by Marc Lichtenfeld, Investment U's Healthcare Expert
    Issue #1311

    In the cellphone world, it's all about "apps."

    In the oil and natural gas industries, it's all about supplies.

    And in the healthcare sector, it's all about pills. Lots and lots of pills.

    Blue pills, purple pills, sleeping pills, anti-depressants. They're everywhere. It's big business for Big Pharma and the companies are very good at marketing their products.

    Comedian Chris Rock referred to this trend, noting that drug companies keep naming symptoms until they find one that you have:

    Are you sad, are you lonely, are you hot, are you cold? You gotta take this pill! And they don't even tell you what the pill does... they just keep naming symptoms. I saw a commercial the other day that said, "Do you go to bed at night and wake up in the morning?" I got that! I'm sick, I need that pill!"

    America's big pharmaceutical companies push their drugs on the public harder than any street corner dealer - and it's proven to be a highly effective and lucrative strategy. In 2009, for example:
    • Merck (NYSE: MRK) earned $12.9 billion on sales of $27.4 billion.
    • Pfizer (NYSE: PFE) earned $8.6 billion on revenue of $50 billion.
    • Novartis (NYSE: NVS) earned $10.3 billion on sales of $44.3 billion.
    Good news for them. But what about investors?

    The Clock is Ticking

    There's a huge problem looming for these mammoth pharmaceutical companies.

    Starting as soon as next year, many blockbuster drugs will lose their patent exclusivity, which will open the floodgates to generic drug competition.

    Pfizer's massive Lipitor drug is one of them. Bad news, considering it generated $11 billion in sales last year. Another $3 billion worth of drugs will also go generic next year.

    And it gets worse in 2012. Over $30 billion worth of brand-name drugs will face cheaper competition. That includes Merck's Singulair, Pfizer's Viagra and Forrest Labs' (NYSE: FRX) Lexapro.

    So what are the Big Pharma firms doing about it?

    Biotechs on the Buyout Block

    The executives at these drug giants aren't sitting around, sipping Cognac and reminiscing about the glory days. They're busy building up their drug pipelines by partnering with other companies. In some cases, they're acquiring them outright.

    And not all the objects of their affection are tiny biotechs that require a roll of the dice and a large tolerance for risk.

    Already, we've seen Roche buy major biotech firm, Genentech. And another big biotech, Genzyme (Nasdaq: GENZ), is reportedly a target of Sanofi-Aventis (NYSE: SNY). GlaxoSmithKline (NYSE: GSK) and Johnson & Johnson (NYSE: JNJ) are also being mentioned as possible suitors of Genzyme.

    Here are a few others that could be acquired in the next 12 to 18 months.
    • Bristol Myers Squibb (NYSE: BMY)
    Over the past few years, this large cap drug company has been repositioning itself as a biopharma organization.

    While it loses its patent exclusivity on Plavix next year, Bristol-Myers has a deep drug pipeline. Within it are some very promising cancer drugs that the firm acquired when it bought Medarex last year.

    While Bristol-Myers boasts a market cap of over $42 billion, it's still small enough and attractive enough for one of the drug giants to acquire it. Right now, it's trading at a reasonable valuation and offers a dividend yield of over 5%.
    • Biogen (Nasdaq: BIIB): With a solid drug pipeline and a blockbuster multiple sclerosis drug in Tysabri, which doesn't face generic competition until 2015, Biogen could be an attractive takeover target. Activist shareholder Carl Icahn is pushing for the company to be sold.
    • Celgene (Nasdaq: CELG): Some of the healthcare media are speculating that Celgene could be bought out, too. Many large cap pharmaceutical companies would love Celgene's oncology portfolio, its $2.6 billion in annual sales and earnings per share of over $2. However, the stock is already trading at takeover-like valuation. It's hard to imagine a pharmaceutical company CEO justifying paying a premium over Celgene's current price.
    • BioMarin (Nasdaq: BMRN): If the companies I mentioned a moment ago are interested in acquiring Genzyme for its rare disease drugs, they should consider BioMarin in this area, too. BioMarin specializes in rare diseases, whose drugs command premium pricing. Additionally, BioMarin has already proven it can bring drugs to market, as it's expected to generate nearly $400 million in sales this year and earn $0.10 per share.
    Bottom Line: Many pharmaceutical and biotech stocks are cheap right now. And with demand for medicine only increasing and the potential for mergers and acquisitions in the sector heating up, now is a good time to take a look at the group.

    Hoping your long go up and your shorts go down,

    Marc Lichtenfeld

    Editor's Note: The Centers for Disease Control labels it "the next evolution in medical treatments."

    The U.S. Health Department says, "virtually any disease may be potentially cured." It backs up this statement by stating that this groundbreaking new remedy could trigger a cash explosion of almost $500 billion.

    And the cause of such optimism? "Bio Seeds" - one company's revolutionary technology that produces human cells in a lab and could cure eight of the world's most deadly diseases, including cancer, heart disease and diabetes.

    What's more, this company is about to legally sidestep the FDA and fast-track the breakthrough in 64 countries within the next six weeks. For your chance to claim the incredible gains that could come from this, the time to jump on board is now. Get all the details on this remarkable story here.

    Disclosure: No Position
    Jul 29 10:23 AM | Link | Comment!
  • Long-Term Treasury Bonds: Consider Yourself Warned...
    Source Long-Term Treasury Bonds: Consider Yourself Warned...

    by Alexander Green, Investment U's Chief Investment Strategist
    Issue #1309

    The brickbats are starting to pour in.

    For months, I've warned readers about the bubble developing in long-term Treasury bonds.

    Yet what was the top-performing asset class in the first half of 2010?

    You guessed it: Long-term Treasury bonds, with a total return - price gains plus interest - of 13.2%.

    Why is this happening? Two reasons...
    • U.S. stocks performed poorly over the first six months of 2010 - down 5.6%. That's driving many to the perceived safety of Treasuries.
    • The anemic euro is making U.S.-dollar-denominated securities attractive to international investors. And Treasuries are the traditional choice for those fearful of equities.
    So does this mean there isn't a bubble after all? Hardly. In fact, the risk now is greater than ever...

    1999: An Internet Odyssey

    In the fall of 1999, I belonged to a ritzy tennis club - a time when Internet and technology stocks were all the rage.

    My playing partners knew I was in the money management business, so there was plenty of chatter among them about "the New Era" and how "the Internet changes everything."

    Occasionally, one of my buddies would ask which Internet stocks I was buying.

    "None," I said. (I was early to get into the sector and early to get out.) The valuations were outrageous and I didn't think it would end well.

    They were surprised by this view, but kept enthusiastically buying and trading Internet stocks like almost everyone else. And, indeed, those stocks kept right on going up.

    As the weeks went by, a familiar ritual developed. I'd walk up to the group and - knowing I didn't own any - they'd ask how my Internet stocks were doing.

    Laughs all around.

    This went on week after week, month after month. And judging by the guffaws, the question was funnier each week than the week before.

    Until one day it wasn't funny at all.

    2000: Nightmare on Wall Street

    In March of 2000, the Nasdaq started coming apart and Internet stocks nosedived. As I approached their courtside table one morning, they abruptly stop talking.

    "Morning, guys," I said. "How are your Internet stocks doing?"

    Funny... that line was hilarious before. Now it generated obscene gestures, as well as various suggestions for me and "the horse you rode in on." Hmm.

    What is the lesson here (other than that we shouldn't laugh at the misfortunes of others)?

    It's that you cannot make a rational judgment about when irrational behavior will end.

    The "Twin Demons in the Distance" For Treasury Bonds

    Internet stocks went up longer than any logical analysis would predict. So did home prices a few years ago.

    And the situation with long Treasury bonds right now also defies analysis. Unless, of course, we're headed into a massive, deflationary period. But if that's the case, why are gold and inflation-adjusted Treasuries (OTC:TIPS) moving up, too?

    Either buyers of gold and TIPS are wrong - or buyers of long-term Treasuries are wrong. I think you know where I stand.

    As The Wall Street Journal reported on July 6: "The huge stimulus the Federal Reserve and U.S. government have provided to the economy over the past few years will inevitably push up both interest rates and consumer prices. While the threat isn't imminent, it's not too early to take steps to protect the bond part of your portfolio from those twin demons in the distance."

    Consider yourself warned.

    Good investing,

    Alexander Green

    Disclosure: No Position
    Jul 26 2:04 PM | Link | Comment!
  • Are You Scared Shortless?
    Source Are You Scared Shortless?

    by Karim Rahemtulla, Investment U's Options Expert
    Issue #1305

    As a group, investors tend to be an optimistic lot.

    At least, that's what we've all been force-fed. It's almost un-American in some circles to bet on a company's share price heading lower.

    It's why many investment advisory services only focus on one-sided trades - those that assume the market will always go higher. It's an erroneous assumption... but one that's very easy to sell.

    However, the truth is that over the past decade, the returns from cash-based investments have outpaced those from the stock market. That alone should tell you that stocks can - and do - go down.

    You've probably experienced a few minefield investments that could have been avoided. So how can you turn a stock's loss into your own gain?

    Get Shorty

    The obvious answer would appear to be to sell shares short - the strategy that everyone loves to hate, but works effectively if you use it properly.

    And there's the rub.

    Short-selling is a tough gig to pull off. It's complex. It's risky. And if you get it wrong, you're staring down the barrel of unlimited losses.

    Here's a quick-fire rundown of how short-selling works:
    • You "borrow" shares of a company's stock from your broker (you don't own the shares when you go short).
    • You sell those shares into the market, hoping that the price drops.
    • If/when the stock drops, you're aiming to buy the shares back at a lower price and "return" them to your broker. If that happens, you pocket the difference between the price at which you sold and the price at which you bought back the shares.
    As I mentioned, short sellers often aren't popular, because they're hoping the market and/or stock goes down. But regardless of what people think about you, there's an even darker side...

    Short-Selling... The Elephant in the Trading Room

    Remember that part about short-selling being complicated? It is...
    • Since the shares have to be replaced, they first have to be "shortable." This means your broker has to initially obtain shares that can be borrowed for sale. And that's not always the case unless you are dealing with larger companies.
    • Second, you have to be able to buy back the shares - something that can only occur when the shares are actually trading. If you happen to be unlucky and the stock you're shorting makes a positive announcement before the market opens, your risk is virtually unlimited if the shares move higher.
    Take Dendreon (Nasdaq: DNDN), for example. How would you like to have sold the stock short on April 28, 2009 at $7.50, only to watch in horror as it opened at $27 the next day?

    Or let's say you shorted Citigroup (NYSE: C) on March 9, 2009 when it was trading at $1 and it looked like the company was going out of business. Well, on March 11, 2009 the shares opened at $1.67 - a 67% loss on your investment virtually overnight. Not a pleasant feeling.

    And it wasn't done there. By March 19, the stock had shot to $3.89. You'd have been on the hook to buy the shares at a higher price than you borrowed them and desperate to get out of the trade.

    This is known as a short squeeze. Faced with mounting - and unlimited - losses as a stock rises, short sellers all scramble to buy back their positions en masse. The spike in buying demand, coupled with a lack of sellers, triggers a jump in price, and adds to existing losses on the short side.

    So think carefully before deciding to short a stock, as it's a strategy that can backfire badly. It's certainly not for rookies - and even the pros are often caught with their shorts down (if you'll pardon the pun!)

    I'm currently in Vancouver for Agora Financial's annual Investment Symposium, but in next week's column, I'll share with you one of the best strategies to capture the downside on stocks with limited risk and unlimited returns.

    Yes, it involves using options - but there's a twist to it that you won't want to miss!

    Good investing,

    Karim Rahemtulla

    Editor's Note: As we mentioned here last week, the U.S. Treasury Department is in the middle of a massive "cash dump" - an effort to return all the financial bailout money back to taxpayers and investors.

    It's doing so by selling all the company shares it acquired during the financial crisis - worth a total of $25 billion. So far, it's unloaded close to $11 billion, so there's still around $14.5 billion left to go.

    Few people have heard about this campaign because the Treasury obviously isn't publicizing it. But Karim Rahemtulla has verified the details within the SEC report that the Treasury filed - and estimates that it could hand nimble investors a payday of more than $100,000.

    However, the deadline for taking advantage of this opportunity is today. Be sure to check out this report right now, as it has all the details you need to know.

    Disclosure: No Position
    Jul 21 9:28 AM | Link | Comment!
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