PSB Portfolio Update July 2009

July 21, 2009

Human Genome Sciences Shocks The World

Yesterday was one for the Penny Stock Breakouts record books.  By market’s close, a recommendation from our July Issue had nearly quadrupled in value.  This is a fantastic return.  And, in just 11 trading days no less!

We offer hearty congratulations to all of you participating in this phenomenal trade.  For those who missed it, we’re happy to give you the play by play.

Here’s a quick rundown of what happened and why.

In the July 2009 Issue, we recommended buying shares of biotech company Human Genome Sciences (HGSI).  Our reasons for the trade were simple.

HGSI’s developing a revolutionary treatment for lupus called BENLYSTA.  Clinical trial results for the drug are going to be announced later in the month.  When the results come in, the stock will soar.

And, how right we were.

Yesterday, the clinical trial results were published.  As we expected, they showed the drug is a complete success.  What’s more, the stock soared to a new high of $12.56, for an eye-popping gain of 336%.  We couldn’t have asked for a better outcome.

As the stock was soaring yesterday, we issued a Sell Alert recommending the sale of half the position.

A partial sale strategy has two huge benefits.  First, we recover our initial investment plus a tidy profit.  Second, we use the house money to capture any further upside in the stock.

So, what’s next for HGSI?

We think the stock could see further gains from several upcoming events:

• Final Phase III clinical trial results for BENLYSTA in November (should be just as good as today’s results)
• Application for FDA approval of Albuferon (treatment for Hepatitis C) this fall
• Application for FDA approval of BENLYSTA in early 2010
• If approved, first Albuferon sales in late 2010
• If approved, first BENLYSTA sales in early 2011
• Further sales of ABthrax (anthrax treatment)
• Two potential blockbuster cancer drugs in mid-stage development
• Two drugs in early-stage development (heart disease and diabetes treatments)

With all of these potential catalysts coming up in the near future, we think HGSI is likely to trend higher from here.  We see the stock trading up to at least the mid to high teens.

Now, if you missed this trade, don’t worry.

We’re researching biotech stocks right now for another opportunity just like this one.  As soon as we find it, you’ll be the first to know.

Now on to the updates…

Please Note:  We don’t necessarily update every open position each month.  We focus on the positions experiencing significant news, notable price movement, or a change in recommendation.  Please refer to the Performance page on our website for our current buy, sell, or hold recommendation for any positions not mentioned in the Update.

Position Updates

. . . . Human Genome Sciences (HGSI) – Sell Half / Hold Half

Congratulations on an outstanding trade!

HGSI is skyrocketing on the success of its late stage clinical trial for lupus drug, BENLYSTA.  The stock hit a high of $12.56, giving us a whopping gain of 336%.

In case you missed it, we issued a Sell Alert yesterday.

We’re recommending that you sell half your position to capture some phenomenal one day gains.  However, we think you should hang on to the other half.  We see bigger gains to come.

With several near-term catalysts, HGSI could easily move up into the mid to high teens.

. . . . Gulf Resources (GFRE) – Buy up to $0.78

We’re off to a great start with our other pick for July as well.  GFRE is up more than 28% in just 10 trading days.

It looks like investors are starting to notice the amazing growth opportunity and seriously misvalued stock price.  They sent the shares soaring 15% yesterday on no news.

While GFRE is still trading below our buy up to price, it probably won’t be much longer.  If you haven’t established your position, you’d better do it soon.  This one is setting up for a big push higher.

. . . . DRI, Corp. (TBUS) – Buy up to $2.00

After a brief pullback, TBUS is moving higher again.  The stock’s up nearly 40% since we recommended it in June.

Driving the stock higher is news of some big orders out of India.

Several Indian bus manufacturers have ordered $6 million worth of equipment from TBUS. And, the contracts have potential to increase significantly during the last half of 2009.

These orders position TBUS as a major long-term supplier in the growing Indian market. They also support the company’s planned expansion there.

Also driving the stock is a glowing earnings forecast from the CEO.

He expects second quarter revenue and income to exceed last year’s numbers.  Favorable profit margins and strong international markets are driving results.

TBUS remains a buy up to $2.00 a share.

. . . . China Information Security Technology (CPBY) – Buy up to $5.00

Business is picking up at CPBY.

The company recently said it signed over $26 million in new contracts during the second quarter.  A whopping 42% increase over the first quarter.

We see this as a huge sign the company’s back on track.

In fact, management said it sees “very healthy demand across all [their] product lines, and… an increase in spending from [their] core local government customers.”  They also report “continuous growth in all of [their] main three business segments.”

This bodes well for second quarter results and the stock.

After CPBY missed first quarter estimates, analysts lowered their second quarter numbers. Looks like CPBY will have no problem beating those lowered estimates now.  I think the stock will trend higher into the company’s earnings release on August 11th.

Buy CPBY all the way up to $5.00 a share.

. . . . Ceva, Inc. (CEVA) – Buy up to $9.00

CEVA is continuing to move higher.  The stock hit a new high of $9.50 for a gain of 21%.  The uptrend that began in June is firmly intact.

The entire semiconductor industry is moving higher.  After strong earnings from Intel, investors are increasing their bets for a second-half recovery.

We expect CEVA to continue trending higher going into earnings on July 29th.  Buy CEVA on any dips below $9.00.

. . . . Hi Tech Pharmacal (HITK) – Hold

Last month we said “we’ll see HITK break out into a new uptrend very soon”.  And, that’s exactly what happened.

Since our last update, HITK has skyrocketed five and a half points or 75%.  It set anew 52-week high of $14.50, giving us an outstanding return of 180%!

The stock is surging on phenomenal full year 2009 earnings.

Revenue rocketed 75% higher to a record $108.7 million.  Strong sales of the company’s generic glaucoma drug and nasal spray are driving this amazing growth.

Net income soared to $9.8 million or $0.84 per share, much better than last year’s loss of $5.1 million or $0.45 per share.

Best of all, even with the huge recent gains, the stock still has tremendous upside.

HITK is expected to grow earnings at a solid 25% a year over the next five years.  But, it currently trades at a P/E of just 15.9 for a PEG ratio of 0.64.  With a PEG ratio of 1.0 (P/E equal to its long term growth rate), the stock is worth at least $22.

Continue holding HITK for bigger gains.

. . . .GigaMedia (GIGM) – Buy up to $6.18

GIGM is continuing to drift lower following it’s weaker than expected first quarter earnings. But, we think the shares could begin moving higher again very soon.

Rumors are circulating the U.S. anti-online gambling law will be scrapped this fall. Many states are teetering on the brink of bankruptcy.  Potential tax revenue of $50 billion over the next ten years would be a huge windfall for them.

Access to the U.S. online gambling market would be huge for GIGM.  Last year, North American online gamblers generated $6 billion in revenue.  That’s more than 25% of the $22.6 billion in total global revenue.  (Just think what it would be if it was legal!)

Given the misvalued stock price and this huge near-term catalyst, were moving GIGM from Hold to a Buy.  Build your position ahead of the potential rally this fall.

Note:  Due to recent price action, were lowering the buy up to price to $6.18.  If you already own GIGM, continue to Hold or feel free to add to your position.

. . . . American Software (AMSWA) – Buy up to $5.88

AMSWA is trending higher after posting better than expected earnings.  Net income surged 45% to $1.6 million or $0.06 per share.  Analysts were expecting just $0.05 a share.  (Nothing drives a stock like an upside surprise!)

Since late June, the stock’s up a solid 23%.

AMSWA is performing very well despite weakness in its end markets.  They’re adding new customers, repurchasing shares, and paying a big quarterly dividend.  (Don’t forget 33 straight quarterly profits!)

Remember, this pick is a play on the economic recovery.  It should rocket higher once the economy starts showing signs of rebounding.

The stock is currently trading above our buy up to price.  But, it remains a buy on dips below $5.88.

. . . . MFA Financial (MFA) – Buy up to $6.75

MFA is continuing to trend higher along its 20-day moving average.  The stock recently hit a new high of $7.13, giving us a gain of 38%.

It looks like the strong insider buying we noted in our last update is helping to drive the stock higher.

The company will pay a quarterly dividend of $0.25 per share on July 31st.  At recent prices, that’s a better than 14% annual yield.  The stock went ex-dividend on July 9th.

MFA is currently trading above our buy up to price.  However, we recommend buying it on dips below $6.75.

Action To Take

• Sell half of your Human Genome Sciences (HGSI) shares (if you haven’t already) and Hold the remaining half

 

• Move GigaMedia (GIGM) from Hold to Buy

 

Category: PSB Portfolio Updates