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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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  • Danger Ahead for Dendreon? Consider This Micro Cap Instead
    Source Danger Ahead for Dendreon? Consider This Micro Cap Instead

    by Louis Basenese, Investment U's Small Cap and Special Situations Expert

    Don't look now, but biotech darling Dendreon Corp. (Nasdaq: DNDN) is sucking wind.

    The stock had surged 119% this year on the prospect of receiving FDA approval for its novel prostate cancer treatment, Provenge. But since having that news confirmed on April 29, its shares have slumped by 44%.

    What gives?

    Well, you can't blame the poor performance entirely on the market. The average biotech stock, represented by the iShares Nasdaq Biotechnology ETF (NYSE: IBB), is only down 16%.

    Instead, the company has become a victim of its own success.

    Provenge Demand Is Surging... But Supply Can't Match It

    The good news for Dendreon is that demand for Provenge is outstripping supply. But the bad news is that Dendreon can only make enough of the drug to treat about 2% of eligible patients until its manufacturing ramps up in mid-2011.

    To put the shortage in perspective, consider The University of Texas MD Anderson Cancer Center. The center sees 40 new prostate cancer patients each week... but it will only be able to treat two new patients a month with Provenge.

    As ethics expert Jeffrey Peppercorn put it, "In oncology, we're not used to situations where we have a treatment that may help and we don't have enough of it."

    Unfortunately, the problems weighing on Dendreon's shares don't stop there. And if you're itching to gain exposure to the immunotherapy space, you'd be better served considering a micro-cap company I've mentioned here before - Northwest Biotherapeutics, Inc. (OTC BB: NWBO.OB). Here's why...

    Provenge vs. DCVax®-Prostate

    When I first profiled Northwest, I confessed that it was an early opportunity. In fact, I even indicated that Wall Street was "completely oblivious to the company's existence."

    But I predicted that its anonymity wouldn't last long. Not when it was putting up such compelling, also highlighting its compelling clinical data.

    When I discussed Northwest's progress in November 2009, I noted that the median survival rate for patients receiving Northwest's DCVax®-Prostate treatment checked in at 38.7 months. That's almost a full 20 months better than the median survival rate for standard prostate cancer care.

    In early June, Dr. Navid Malik of the London-based Matrix Corporate Capital released a bullish 40-page report on Northwest, also highlighting its compelling clinical data.

    As Malik reveals, "Dendreon's Provenge was approved based on a median survival of 25.8 months from the IMPACT trial (D9902B), compared with 38.7 months with DCVax®-Prostate."

    Let me share Malik's other key points, particularly his comparisons with Dendreon...
    • In terms of manufacturing, which seems to be Dendreon's Achilles heel out of the gates, Northwest appears to hold an advantage: "Its unique batch-manufacturing process allows it to produce, in a single manufacturing run, at least three years of treatments." In comparison, Dendreon's manufacturing process produces only one month of treatments (and Dendreon considers that one month to be a full course of treatments for a patient).
    • Malik's report also highlights Northwest's greater product purity - 80% dendritic cells, compared to Dendreon's 15% dendritic and other antigen-presenting products.
    • Northwest's DCVax®-Prostate is also easier to administer - intra-dermal (like a flu shot), versus a one-hour intravenous infusion for Provenge.
    When it comes to cancer treatments, results take precedence. Because Northwest still needs to complete a Phase III study, I can't say definitely that DCVax®-Prostate is superior to Provenge. But what I can say is that based on the preliminary results, and the other items noted above, the comparison is promising, indeed.

    I'm convinced Northwest's biggest competitive advantage, though, is cost...

    Healthcare Reform Endgame: The Year of Your Life Has a Price

    One consequence of the newly minted healthcare reform is that insurance companies are now extremely sensitive to costs, particularly for cancer treatments. So much so that a year of your life could be given a specific (and decreasing) value.

    I say that because President Obama, via a recess appointment, just installed Dr. Donald Berwick at the helm of the Center for Medicare and Medicaid Services (NYSE:CMS).

    The move makes the threat of rationing very real - that is, the government deciding what treatments will be available, instead of patients and doctors.

    Case in point: In an interview last year, Berwick said, "The decision is not whether we will ration care. The decision is whether we will ration with our eyes open."

    Berwick looks to the United Kingdom's National Institute for Health and Clinical Excellence (NASDAQ:NICE) - and its calculation of cost per quality-adjusted life-year - as a model. At present, NICE puts the value of a year of life at around $45,000.

    So how does that impact Provenge and DCVax®-Prostate?

    If There's a Price on Life, Northwest May Boast Better Quality for the Money

    By this metric, Dendreon's Provenge fails. The price tag for three infusions is $93,000. That's equivalent to a one-month treatment regimen, which only delivers a four-month benefit in median survival.

    In comparison, Northwest can provide almost three years worth of treatments for nearly the same cost. (Malik estimates DCVax®-Prostate will cost $37,000 per year). And its median survival benefit, based on Phase I/II data, is almost 20 months.

    Given the lower price and longer benefit, it's conceivable that DCVax®-Prostate could become a front-line therapy... if approved.

    In short, that means greater profit potential, as higher volumes will more than offset the lower margins. And ultimately, the margins on DCVax®-Prostate may not even end up being lower. Northwest's unique batch-manufacturing process already keeps costs manageable and the company has also developed partial automation which can lower the costs even further.

    As for Provenge, the high cost has already prompted the CMS to initiate a National Coverage Analysis. The potential for a negative outcome is the second major reason why investors have shunned Dendreon shares recently.

    More Than a One-Trick Pony

    To be clear, Northwest remains a speculative investment.

    However, it's important to note that its success doesn't hinge on a single immunotherapy treatment - DCVax®-Prostate, nor on one-upping Dendreon.

    On the contrary, Northwest boasts a pipeline of immunotherapies for the treatment of brain, lung, ovarian, liver, head & neck and pancreas cancers.

    The most advanced candidate is DCVax®-Brain. The median survival time for patients receiving the treatment in Phase I and Phase I/II trials checked in at 36.4 months. That's more than double the standard of care (surgery, plus radiation and chemotherapy) of 14.6 months.

    As Malik concludes, "If DCVax®-Brain and DCVax ®-Prostate are successful in their respective late stage trials and eventually approved, we see the potential for blockbuster sales for both products."

    One obstacle in the company's way is financing. To be fair, though, that's a concern for any biotech company.

    In this regard, it's worth noting that management is taking steps to restructure its balance sheet. The fact that the company continues to raise capital - $2.65 million in the second quarter - is a positive, too, as it demonstrates that other investors recognize the investment potential here.

    No Déjà-Vu for Dendreon

    In the end, there's very little chance that Dendreon's stock will deliver a repeat performance.

    Forget the manufacturing capacity and treatment cost issues weighing on the shares. Even if they're resolved, matching the 474% rise that shares enjoyed in 2009 would entail the company's market cap jumping from the current $4.4 billion to about $20 billion.

    And with virtually no revenues, even the most aggressive analysts would have a hard time justifying such a lofty valuation.

    On the other hand, Northwest is still small (its market cap is just $50 million. Plus, it's relatively undiscovered and still has significant milestones to meet, which will serve as future stock price catalysts.

    Conclusion: Although Northwest is a more speculative investment, more upside remains - and considerably more, based on Malik's estimates. He puts a target price of $4.40 on the stock in his report - 528% higher than the current price.

    I'll concede that's a bit aggressive in the short term. However, it's perfectly conceivable that shares could pop by 155% and reclaim their 52-week high on the announcement of a partnership deal, a rumor that has circled in recent weeks.

    At the very least, think twice before you invest in Dendreon. And keep on eye Northwest.

    Good investing,

    Lou Basenese

    Editor's Note: History has shown time and again that the most explosive stock market returns come when you invest in small, under-the-radar companies that Wall Street and the mainstream crowd know nothing about. And when these stocks hit the big time, that's when savvy, early investors clean up.

    Louis Basenese is a master at unearthing these thriving companies in his White Cap Report investment advisory. Companies with unique, critical products and often with a serious competitive advantage, too. Check out this report to see what innovative companies Lou and the team is looking at right now.

    Disclosure: No Position
    Jul 14 1:17 PM | Link | Comment!
  • Why Burton G. Malkiel is More Right Than Wrong
    Source Why Burton G. Malkiel is More Right Than Wrong

    by Alexander Green, Chief Investment Strategist

    At FreedomFest in Las Vegas last week, I debated Burton G. Malkiel, author of the investment classic A Random Walk Down Wall Street.

    Malkiel is one of just a few men alive who has profoundly affected modern investment thinking. And his position is straightforward.

    He believes that rational, self-interested investors take all public information and immediately incorporate it into the price of stocks. (This is where we get the term "efficient market.")

    He therefore concludes that market timing and security analysis is foolhardy... that it's simply not possible to beat the market over the long term... and that you'd be well advised to give up that dream and just own a broad selection of index funds.

    I actually agree with much of what Malkiel says. Much... but certainly not all.

    Irrational Exuberance

    For starters, you can count on investors to be self-interested. But rational? Not always. Just take a look at recent history...
    • How rational were investors 10 years ago when they bid Internet and technology stocks to the skies, forgoing sales and earnings for financial metrics like "eyeballs" and "web hits?"
    • How rational were investors five years ago when they put themselves deeply in hock to flip land, rental properties, vacation homes and condos because "real estate always goes up?"
    • How rational were investors when they dumped stocks en masse 16 months ago - with the Dow at 6,500 - and plunked the proceeds into money market funds just as yields reached an all-time low?
    It's true that most investors behave rationally most of the time.

    But it's certainly not true that all (or even most) investors behave rationally all the time. And that creates opportunity.

    Let's take a look at another flaw in the "random walk" argument...

    Get the Insider Advantage

    Malkiel mentions that investors incorporate all "public information" into the price of stocks. But how about non-public information?

    Most investors don't have access to non-public information, that's true. But that doesn't mean no one has access to it.

    Some of the best trades I've ever made have resulted from visiting a retailer and asking the manager how regional and national sales are going. Are they supposed to talk about these things? Absolutely not. But do they?

    Sometimes they do. Gaining a bit of key information by talking to customers, suppliers, competitors and employees can give you an edge.

    And how about company insiders? Officers and directors have access to all manner of material, non-public information. That gives them an enormous advantage over ordinary investors. And that's also why Uncle Sam requires them to file a Form 4 with the SEC, divulging the details of their buys and sells.

    If you watch what the insiders are doing, you won't access the non-public information that they possess. But you'll certainly know whether they think their companies' shares are overvalued or undervalued. And that's crucial information.

    A 10-Year Market-Beating Performance

    In short, Malkiel is right that it's difficult to beat the market. But does that mean it's futile to try?

    Not only have men like Warren Buffett and Peter Lynch put the lie to that line of thinking, so has our own Oxford Club Trading Portfolio. The independent Hulbert Financial Digest confirms that we've beaten the market by a wide margin over the past decade.

    But while Malkiel is wrong on some crucial points, he is absolutely right on several others. For example...
    • He believes it's a fool's errand to try to time the market. I agree.
    • He insists that an index fund will outperform the vast majority of actively managed funds over time. He's right. They have and almost certainly will.
    • He argues that index funds provide a big performance boost due to cost-efficiency and tax-efficiency. Right again - and this is far more important over the long haul than most investors realize.
    In short, I agree with Malkiel far more than I disagree with him. His research - and similar work by John Bogle, William Bernstein and others - has had a profound impact on the development of my own investment philosophy. In fact, our Gone Fishin' Portfolio is the very embodiment of much of what he espouses.

    And Malkiel may be surprised to learn that this portfolio has beaten the S&P 500 - with far less risk than being fully invested in stocks - every year for over a decade.

    I'd call that a non-random success.

    Good investing,

    Alexander Green

    Editor's Note: So how exactly has The Oxford Club delivered such a strong, consistent, 10-year record of beating the market?

    The answer lies in a pragmatic "market neutral" approach, based on real facts, reliable information and numbers that matter, not arbitrary data or indicators. And certainly not by trying to time the market.

    It's an approach to stock recommendation that has generated $19 billion in wealth for Oxford Club members since 1987. And it's what has led the independent Hulbert Financial Digest to rank The Communiqué in the top five investment newsletters over the past 10 years.

    Sign up for a risk-free trial today and you'll get all the latest economic insights, investing ideas, strategies and recommendations from Investment U editors Alexander Green, Louis Basenese, Karim Rahemtulla, Marc Lichtenfeld and David Fessler. They'll take the guesswork out of the investing process for you and you'll find various portfolios and investments, tailored to your goals and risk tolerance.

    See the full list of Oxford Club benefits for yourself here.

    Disclosure: No Position
    Jul 12 4:15 PM | Link | Comment!
  • How to Buy Gold for $100... And Get $200 Back
    Source How to Buy Gold for $100... And Get $200 Back

    by Lee Lowell, Stock and Commodity Option Specialist

    It's one of the most valuable and most actively traded assets on the planet.

    It boasts great intraday trading ranges, with tons of liquidity, which makes it easy to enter and exit and very fair prices.

    And with the stock market's recent jump in volatility and sharp declines, it's the asset of choice for many people seeking some shelter from the storm.

    I am, of course, talking about gold.

    And the question I'm going to address today is simply this: What's the best way for you to invest in it?

    Why You Need Gold in Your Portfolio

    Since the stock market hit an 18-month high back in April, it's trended lower. And on several days, we've seen all-out chaos and panic - for example, when the "flash crash" sent the Dow tumbling by 1,000 points in just a few minutes.

    As the market has stumbled through the spring and summer, gold has moved higher, as investors hunt for protection from the volatility.

    Gold should make up a part of your portfolio anyway but, with the market's erratic behavior expected to continue, it's even more important to have exposure to some gold.

    One of the best ways to achieve that is by selling naked put options. Sounds sexy - and it is!

    Buy Gold for $100 With Put Options

    Now that we've decided to add gold to our portfolio, how about we decide the price at which we'd like to buy it? Not only that, how about we grab some instant cash from the deal, too?

    Sounds like a no-brainer, right?

    Even better... with gold having pulled back by about $60 per ounce over the past few days, this dip could represent an excellent time to buy.

    Okay, so our first job is to decide what level we're interested in buying gold. Then we just need to sell put options at the corresponding price (known as the "strike price").

    To make life easy, we'll concentrate on the exchange-traded fund that tracks the price of gold futures contracts on the COMEX in New York - the SPDR Gold Trust (NYSE: GLD). One of the other benefits that GLD has is that it trades at about one-tenth the size of the underlying futures contract, making it viable for many smaller, everyday investors.

    As an ETF, GLD, trades just like a regular stock on the NYSE. It's currently trading for about $116.50 per share and when it comes to picking the price you want to pay for it, there are plenty of choices available.

    For example, you could base it on the 200-day moving average line, which shows support at $110. That would be a nice $6.50 discount. But what if you want to go even lower and buy at $100 per share?

    In this case, we could sell the December 2010 GLD $100 put options for about $2 per contract. Because there are 100 shares in each contract, we'd get an instant $200 for making the trade, based on selling one contract (100 shares). If you feel like buying 1,000 GLD shares, you could sell 10 option contracts, dumping a quick $2,000 into your account.

    So what does that do for us?

    Get Gold At the Price You Want... And Get Cash, Too

    Simply put, it means we're now obligated to buy GLD for $100 if it drops to that price by expiration in December. And for that obligation, we collect cash.

    Sounds like free money, right? Well, it is - as long as you're comfortable buying the corresponding number of GLD shares at your chosen level. So with GLD currently at $116.50, you'd be contracting yourself to buy it at $100 - a $16.50 per share discount.

    What's the catch? Not much, except that the price of GLD could drop lower than $100 per share after we've obligated ourselves to buy it at $100. But that's the risk with any investment - the price can go lower.

    However, if you're comfortable buying GLD for $100 and know how to manage a stock position, then it could be worth your while to have someone give you instant money in return for having the chance to buy a stock at a much cheaper level than its current price.

    Your Six-Step Put-Sell Trade Checklist

    Before you execute a put-sell trade like the one above, you need to be aware of a few important things...
    1. You're selling put options as the initial transaction, not buying them.
    2. For the duration of the trade, your broker will ask you to keep a portion of the total cost for the shares available, in case you're obligated to buy them. As such, your options trading account will need to have margin capabilities.
    3. Whatever strike price you sell put options for, that will be your maximum profit potential at first.
    4. In order to actually purchase the underlying shares at your chosen price, the stock must close below that level on expiration day. So in our GLD example, the stock must close below $100 per share on expiration day in order to receive your shares. And you must have the cash to pay for the shares in full at that time.
    5. If the stock you choose closes above your strike price level on expiration day, you don't get to buy the shares. But you do keep the initial cash you received. At that point, the trade expires.
    6. Remember that whatever stock you choose can drop below the price at which you buy it, so make sure you have a risk management plan in place. In addition, you can always buy back the options you sold before expiration if you want to lock in a profit.
    In terms of receiving passive income, selling put option contracts can be a great way to generate income throughout the year.

    When you sell at levels significantly lower than the current price of your chosen stock, the chances are high that you won't have to buy the stock. In fact, up to 90% of the time, the options simply expire. So while this means you won't get to buy the stock at your desired price, you do get to keep the cash over and over again.

    Good investing,

    Lee Lowell

    Disclosure: No Position
    Jul 06 1:24 PM | Link | Comment!
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