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Suman Chatterjee
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Financial analyst-writer for the last 2 years. Writes for Motley Fool and Seeking Alpha. Completed his Bachelors in Business Administration (Finance) with GPA 3.0, currently pursuing MBA in Finance. Specializes in analyzing company stocks for the 'long' position, especially in the banking,... More
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  • How Global Growth Of Cancer Can Make You Money As An Investor

    That sounded to be rather rude, eh? But to be honest, cancer is one of the most feared diseases of all (A February 2011 study conducted by Harris Interactive for MetLife Foundation found that 41% of Americans shudder when they hear the word "cancer"). According to the National Institutes of Health (NIH), medical costs due to cancer in 2007 are reported at around $226.8 billion, and we have over 1.6 million new cases in 2012 as of yet. In 2008, 2.5 million people were diagnosed with cancer in the European Union (EU27). Cancer is also the second most common cause of death in the Union (29% of deaths for men or 3 out of 10 deaths, 23% for women or 2 out of 10 deaths) - a figure that is expected to rise due to the ageing European population. As my learned Alpha colleague, Alberto, According to the College of America Pathologist, over 60% of all decisions related to a patient's treatment, hospital admission and discharge are based on laboratory results. Such laboratory results coupled by home based diagnostic testing have created a global diagnostic industry worth $26 billion. Cancer testing is estimated at over $2 billion a year, in addition to being one of the fastest growing sectors amongst the diagnostics testing market. How Fast Growth Rate of Cancer Has Led To Development of the Biotech Industry Last year in June, Roche (OTCQX:RHHBY), the world's largest maker of cancer drugs, announced that it was to buy mtm laboratories, a global leader in developing in vitro diagnostics, with a focus on early detection and diagnosis of cervical cancer. This August, Zelboraf won European approval in February and is among the new medicines the Basel, Switzerland-based company is counting on to boost growth as sales for its tumor drug Avastin decline. Zelboraf was backed by the U.S. Food and Drug Administration in August 2011 and competes with New York-based Bristol-Myers Squibb Co. (BMY)'s Yervoy treatment. Roche, in collaboration with small biotech companies, is also focusing on launching their first DNA methylation-based tests next year. DNA-methylation screening is designed to be highly accurate in identifying the people who really don't have cancer so that they won't needlessly undergo more invasive and expensive testing such as colonoscopy. Still, The stock price has risen 8.14% since June 2011. As per financial records, diagnostics sales increase 6%, significantly ahead of the market totalling 9.7 billion Swiss francs in 2011. The company launched 50 diagnostic tests and 13 instruments in key markets. On the other hand, pharmaceutical sales doesn't seem to show any positive growth results. With the acquisition of mtm laboratories, the company seems to be focusing on capitalizing on the diagnosis market. Moreover, if the skin cancer treatment is approved in UK, we might be able to see some progress on the pharmaceutical end. 2012-2013 is going to be an interesting time phase for Roche. Since January 2011, The current generation of CTC testing, called CellSearch, is able to count the number of cancer cells in the bloodstream with similar sensitivity, but is not able to analyze details about the genes or other features of those cells. CellSearch is approved for monitoring certain types of advanced cancer but has not been shown to detect or analyze early forms of cancer. The new test may have the ability to detect cancers earlier and analyze them in detail, The stock price has increased by 8.07% since January 2011. Looking at the financial segment reports, total consumer health care sales (for the first six months) have fallen by 2% within US and 4.3% outside US since last year. Pharmaceutical sales within US fell by 7.7% yet rose outside US by 11.3% since last year. Medical devices and diagnostics sales rose by 1.6% within US and fell by 1.6% outside US. And 40% of the total revenue came from the medical devices and diagnostics segment, followed by 37% from the pharmaceuticals and 23% from the consumer healthcare. If this blood test gets approved, we can surely see some improvement in the last area, and that also within US. Maybe, "make the strong stronger". Remember, Johnson & Johnson is still the world's largest medical device company. In September 2011, MELA Sciences Inc. (MELA) acquired the premarket approval from US Food and Drug Administration (FDA), after seven long years of litigation, for its latest skin cancer detection tool. The detection tool, called MelaFind, The stock price rose by over 14% since September 2011. Well, if not something that we are unaware of, this stock price increment is because of the new skin cancer detection tool. Otherwise the company is running at a loss for three straight years, and the only positive side I see is that it has invested over millions last year in purchasing property and equipment. Though I would not vouch for MELA Sciences now. But let's wait and watch. On April this year, Abbott Laboratories (ABT) acquired an exclusive license for several biomarkers from Stanford University for use in developing a diagnostic test that could differentiate aggressive from nonaggressive prostate cancer. "This is a meaningful breakthrough for men who have to make the agonizing decision regarding treatments for prostate cancer, " said Stafford O'Kelly, head of Abbott's molecular diagnostics business. "Without knowing if the cancer is life threatening, The stock price has increased by over 10% since April this year. But this stock price increment is not totally accreditated to the acquisition of the license, but because of the strong fundamentals with which Abbott Laboratories operate. Net sales have grown to $38.9bn in 2011 against $26bn in 2007 (the start of Great Recession). Although operation income in 2011 showed some slack compared to the last two years before that, I supremely believe that the extra money was utilized in research and development activities. Abbott has a line of products in the pipeline, including more than 15 new molecular diagnostics products over the next few years, including several novel oncology and infectious disease assays. If we check the financial statements, total sales in the diagnostics segment 2011 vs. 2010 grew by 8.8%, just behind 11% of proprietary pharmaceutical products and 19.8% of established pharmaceutical products. So, Abbott seems to be going in the right direction, and needless to say, if you are invested in Abbott, you might reap well in the coming few years. This newly gained license is just a small act of the whole play. Verisante (OTCQX:VRSEF), a Canada-based biotech firm led by CEO Thomas Braun, has received some media attention lately because of its two upcoming Raman spectroscopy technology device, viz. Verisante Aura (already approved in Europe, Canada and Australia), to be mainly used for skin cancer detection, and Verisante Core (under construction), for lung, Verisante Aura was recently awarded Popular Science Magazine`s "Best of What`s New Award" for 2011, and Verisante Core was named one of the top 10 cancer breakthroughs of 2011 by the Canadian Cancer Society. In addition, the Company was named a finalist for the 2011 Regional Awards for New Technology by the Canadian Manufacturers & Exporters and the National Research Council of Canada and named as the year`s top ranking Technology and Life Sciences Company on the TSX Venture 50. Discussion with the US FDA will start very soon, and following the preliminary clinical trial and the successive approval, Verisante Aura is expected to be launched in the US markets by 2014. In Europe, Canada and Australia, The stock price has actually fallen by over 22% since December last year, when the company started the US FDA approval process for Verisante Aura. If you ask me, Verisante clearly looks undervalued at this point, especially when compared to MELA Sciences, Inc., whose technology is less effective and far more cumbersome - yet trades at many multiples higher. If you look at the 2011 annual report, you might not be impressed with what happened so far, the company is up for something big and the only benefitors will be the investors. What do you say? As they say, business value is just about market equity. And other companies are not lagging behind. Zila Inc., a privately owned company based in Colorado, is already making lives better with its new oral cancer detection system, ViziLite Plus. Manufactured and distributed by another Canadian company LED Dental, Inc., VELscope Vx is claimed to increase detection of mucosal abnormalities when used in conjunction with conventional head and neck exams. Another privately owned company, Dune Medical Devices, has its first offering, a real-time breast cancer detection device called MarginProbe System, already under the clinical trials with US Food and Drugs Association. Based in Rochester, USA, the management team of Lucid Inc. seems also pretty excited with their new product lines, VivaScope and VivaNet to provide secure, HIPAA approved near real-time cellular imaging systems. Who knows, one of these small companies might apply for public listing any day. Who knows when one of them catches market attention and the price soars in double digits? Who knows who is going to be the next Johnson & Johnson anyway? Of course, no one is so cruel to think of making money this way. But then again, you are an Alpha investor, aren't you? You know the fact for a fact.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Aug 22 7:47 AM | Link | Comment!
  • Why Is Uncle Sam So Strict On Dear Little Fannie Mae And Freddie Mac?

    You might have already heard that the US Treasury has already made crucial tweaks in the bailout program of Freddie Mac (OTCQB:FMCC) and Fannie Mae (OTCQB:FNMA), two GSEs that played huge role in leading the US economy into the dreaded housing bubble in 2007, buying almost 50% of the mortgage-related securities from the banking and the non-banking institutions.

    But why would the government take such a drastic decision? In this article, I want to focus on the decrepit and reckless performance of these government-sponsored companies for the past few years.

    One of the severest recessions in the history of US, which would wreck the very grounding of United States of America, was right after the 9/11 attacks. And ironically, the housing bubble (which would lead to the Great Recession) was an aftermath of Alan Greenspan's act to reassure the Americans after the terrorist attacks.

    Anyway, let's find out how inefficient and burdensome the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp (Freddie Mac) were these last few years.

    Why Such a Decision?

    Freddie Mac's and Fannie Mae's return on average assets (ROAA, which signifies the return from its current portfolio) is (0.24)% and (0.52)% respectively, compared to 1.26% of Wells Fargo (WFC), 0.87% of JPMorgan Chase (JPM) and 3.9% of CBRE Group (CBG). Although the numbers of the other companies are not something to be proud of, the improving positive numbers tell us that they are reviving back from the dead. It must also be understood that the interest rate hike following the recession has already led to negative income for most of these financial institutions. Fools rush in where angels fear to tread, and that's what happened during the Great Recession.

    Fannie Mae incurred a loss of $16.9bn last year, straight for four consecutive years. If you look at the balance sheet, you will find $2.9 trillion worth of mortgage loans, being adjusted at $48 billion loitering in the storeroom. Damn! I mean, what are they going to do about it? Needless to say, the US government is taking such a drastic step now, which should have been taken earlier.

    In the last quarter ended June 2012, Freddie Mac's net interest income went down to $21.8 million, compared to $25.3 million in the same quarter last year. Looking at the recent financial statement, it is verified that the GSE is running at loss for over a couple of years now. And portfolio doesn't seem to be doing well since over $162 billion worth of PCs were extinguished last year.

    It seems they are not being a facilitator in the housing market, rather being a burden on the government, spiking up government debt with their HUGE amount of senior notes offerings every other year. Since 2008, Fannie Mae and Freddie Mac has "drawn a total of $188 billion in taxpayer funds to stay afloat, while paying more than $45 billion in dividends."

    According to the new bailout program, the unlimited support the Treasury extended to the two companies will expire at the start of next year. After December 31, Fannie Mae's bailout will be capped at $125 billion and Freddie Mac will have a limit of $149 billion.

    Additionally, the companies' corporate debt price rallied as the new policy alleviated the need for Fannie Mae and Freddie Mac to borrow from the government just to make dividend payments, putting them in a better position to service their debt.

    Moreover, as part of the new terms, Fannie Mae and Freddie Mac will be required to reduce their investment portfolios at an annual rate of 15 percent instead of the previous 10 percent. That will put each of them on track to cut their portfolios to a targeted $250 billion in 2018, four years earlier than planned.

    Fannie Mae's investment portfolio, valued at $673 billion as of the second quarter, holds distressed loans and mostly mortgages that were originated before 2008. Freddie Mac's investment portfolio was valued at $581 billion as of June.

    And instead of the previous 10% dividend yield on the money borrowed, the GSEs need to give away all their revenue to the government from now on.

    In this case, I would say the US did take the right decision of dissolving (perhaps!) these two GSEs. "You fixed the major flaw in the initial agreement," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.

    Are You Asking About The Consequences?

    Different people have different opinions.

    Some people are vouching for the dissolution of the two most important housing finance bodies in US.

    "In the short run it protects the borrowers to insure that the GSEs continue to be a viable resource," said David Stevens, President and CEO of the Mortgage Bankers Association. "If something were to happen to the GSEs in the next administration that put them on a path to a different state or eliminated them, this insures that the Treasury maximized, within their authority, the re-collection of every dollar possible."

    Some people just think that these companies will be there. Just lesser participation will result in more capitalization in the market.

    "We see this as a positive for housing, as it ensures that Fannie and Freddie will remain in business," writes Jaret Seiberg of Guggenheim Partners. "Absent Fannie and Freddie, we believe housing finance will become more expensive and less available."

    Some people think that they will start borrowing even harder with this new bailout program, which means heavier burden for the government.

    "The market's worry is that Fannie and Freddie will exhaust this Treasury capital and default on bond payments," the Washington Research Group said in a note to clients. "Just the fear of this could drive up their borrowing costs, which would require them to seek government capital more quickly," it said.

    But some people think differently from the above.

    The Treasury's new agreement with the companies will require them to only turn over any earnings, meaning they won't need to borrow more to cover the dividends in quarters when their profits are too small or non-existent. The compounding effect of the previous accord meant they could have run out of money within as little as seven years, Bank of America Corp. (BAC) analyst Ralph Axel said in January.

    Some are just too optimistic about the whole thing.

    The companies' regular need to borrow money from the Treasury to pay the dividends, increasing their burden and leaving them exposed to eventually running out of aid, seemed like a "never-ending, un-virtuous cycle" that worried potential buyers of their bonds, Robert Rowe, an agency debt analyst at Citigroup Inc. (C), said in a telephone interview. "You could potentially see some investors, particularly some foreign investors, which have moved out of the market come back to it."

    I would say that it's too hard and too fast to comment on this right now, since it is a macroeconomic aspect, and the housing market is isolated from the other industries in the United States. Even another gas price rise can be of concern! But just when the housing market seems to be recovering, this might be the step you were looking for.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: BAC, C, CBG, FMCC, FNMA, JPM, WFC, real-estate
    Aug 21 2:41 PM | Link | 1 Comment
  • Will M-REITs Continue To Bear Dividend Fruits In The Future?

    Average fixed mortgage rates again fell to record lows over the past week after elections in France and Greece added to worries over the future of the euro zone and its common currency.

    My common sense tells me, if mortgage rates go low, it probably strives to provide an impetus to the US population to buy real estate properties. But with the number of baby boomers retiring this year rising to 800,000, up from 650,000 last year, call me ignorant but I want to know wherefrom the baby boomers will buy further properties this year.

    Not to mention the fact that most Americans are burdened with huge debt at the moment. Is there any more room for further debt? I don't think so. Only if the additional investment might promise some risky return, then it can seem luring for the American people, don't you think?

    And suppose no one is going for mortgages anymore, where will the mortgage income come from. And more interestingly, if the mortgage rates continue to fall, you run a huge prepayment risk. Moreover, if the mortgage rates fall, the profits of the mortgage-REITs can suffer, since they mostly earn from the interest spread. How are the m-REITs pre-planning for the probable disaster? I will probably take some of the biggest m-REITs below and analyze how they are dealing with the current economic situation.

     

    Market Cap

    Dividend Yield

    Price to Book Ratio

    Long Term Debt-to-Equity

    Return on Average Assets

    Price (As of Today)

    Crexus Investment (CXS)

    790.72mn

    10.41%

    0.86x

    Nil

    15.04%

    $10.36

    Chimera Investment (CIM)

    2.91bn

    15.6%

    0.79x

    60.96

    8.4%

    $2.83

    American Capital Agency (AGNC)

    9.64bn

    15.61%

    1.16x

    Nil

    2.13%

    $32.19

    Anworth Mortgage Asset (ANH)

    923.94mn

    12.35%

    0.97x

    3.7

    1.48%

    $6.77

    Annaly Capital Management (NLY)

    16.21bn

    12.37%

    1.04x

    3.42

    0.36%

    $16.66

    Hatteras Financial (HTS)

    2.87bn

    12.28%

    1.08x

    Nil

    1.99%

    $29.34

    Redwood Trust (RWT)

    947.88mn

    8.28%

    1.06x

    479.38

    0.46%

    $12.02

    Capstead Mortgage (CMO)

    1.29bn

    12.37%

    1.11x

    7.98

    1.47%

    $13.88

    It seems Crexus Investment shows promises in terms of performing assets, while if you are looking for capital gains, Chimera might be your choice. American Agency still topped the list with the highest dividend yield rate.

    But what happens in the recent future? Will they be able to sustain the impact of the falling mortgage rates?

    What do you think? Let me know your precious opinions.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AGNC, ANH, CIM, CMO, CXS, HTS, NLY, RWT, reits
    Jul 31 1:05 AM | Link | Comment!
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