The S&A Digest: When the Leaves Fall, Biotech Sizzles

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 06/26/2013

My broken toe... Biotech picks... Goldman delivers... Into Africa... Merrill downgrades Annaly... Buffett on the move...

In the middle of the night... the doorbell rings. And rings. And rings. Who in their right mind would be ringing our doorbell after midnight? Not our neighbors. They know we have a new baby in the house. And they have our phone numbers...

Rushing to the front door barefooted, baby in my arms, I stub my toe against a corner... and break my little toe cleanly. Peering through a window in the door, I see a heavyset woman with scraggly long hair, in her mid-40s, wearing blue jeans and a gray sweatshirt. She is crying hysterically. We live down a long drive from a busy road. Perhaps there's been an accident, I thought. Seeing the lights of our house, this poor woman has come for help. "What's wrong? Are you hurt?" I ask.

"I need help... My boyfriend kicked me out of his car. We've been at the Worthington all night... drinking. I'm drunk. I don't know what to do..."

Don't miss the freebie, below. Rob Fannon, our lead biotech analyst, explains why biotech shares are likely to jump higher this fall... and he even names a few for us to watch. Read more about his best ideas here.

We're also watching the big banks report earnings this week. How much did the mortgage meltdown cost them? Do any seem likely to fail? Not Goldman Sachs (GS). The world's largest securities firm increased net income 79% and beat estimates for the seventh consecutive quarter. The bank offset its $1.48 billion loss from noninvestment grade loans by selling its wholly owned Horizon Wind Energy, boosting equity sales, and increasing its mergers and acquisitions activity.

Bear Stearns (BSC), the Wall Street bank most dependent on mortgage revenue, wasn't as fortunate. The bank's earnings tumbled 61%, missing estimates by 35%. Nevertheless, BSC is up a bit today... though shares are down close to 30% for the year.

We've sent our editor-in-chief, Brian Hunt, to Botswana to see for himself the greatest economic and political anomaly in the world. In the heart of southern Africa, landlocked and surrounded by civil wars and chaos, Botswana has maintained a remarkably civil, stable government and produced the highest per-capita increases in GDP of any nation in the world over the last 30 years. This is a place worth investing in. Hunt e-mailed us his first impression this morning:

The first thing you notice about the airport in Botswana is the birds. The weather is perfect today, so they leave lots of windows open, and, let's call them sparrows, fly in, make noise, and even build nests inside.

The second thing you notice is the Chinese. I've talked to two businessmen – both in construction – who say the Chinese have descended on Africa. Two Chinese restaurants interrupted my views of poverty and goats on the drive to the hotel... and many guests in the hotel are Chinese nationals. In addition to funding the mining operations in Africa, the Chinese are actively building the roads, bridges, rails, and ports needed to ship the materials out. Chi Africa Inc.

It's a perfect marriage really... Most African nations are horribly corrupt, poor, and have lots of resources. The Chinese are old hands at corruption, they're rich, and they're desperate for natural resources...

Sjuggerud fans will get a big chuckle out of this: Merrill Lynch (MER) cut its rating of True Wealth pick Annaly Capital Management (NLY) to "neutral" from "buy", believing upside potential is limited after the rate cut. You have to wonder if they know anything, at all, about how Sjug's "virtual banks" make money. The last time conditions were this good for virtual banks, Sjug's subscribers made triple-digit returns. To learn more about Annaly and Steve's reasoning, click here...

Buffett on the move... Buffett cut his stake in True Wealth pick PetroChina (PTR) for the third time in two months. He sold 28 million shares on September 6, trimming his stake to 8.93% from 9.07%.

Update for Extreme Value subscribers: American Real Estate Partners (ACP) changed its name to Icahn Enterprises (IEP). Don't worry, the stock is still up close to 500%.

New highs: Alnylam (ALNY), BHP Billiton (BHP), eBay (EBAY), FLIR Systems (FLIR), McDonald's (MCD), Nokia (NOK), Occidental (OXY), Petrobras (PBR), Plum Creek (PCL), POSCO (PKX), Raytheon (RTN), Schlumberger (SLB).

In the mailbag... A few smart questions from our very smart readers. Sure, it's a nice break from the invective and the surliness... but we always find the angry letters the most informative. Send us yours: feedback@stansberryresearch.com.

"Suppose Gold does go to $3,000, or even $2,000. The question is, what will the equity markets look like in such a case? In other words, if we believe in $3,000 gold, should we be cashing in our stocks and buying gold? Or do you feel stocks will hold their own despite a precipitous rise in gold and silver?"

– Paid-up subscriber Marshall Hornstein

Porter comment: Inflation tends to be very bad for the stock multiples. But... the market as a whole isn't very expensive right now. My bet is if gold goes to $3,000 over the next several years, stocks, on average, will be flat. Inflation will hurt bonds more than it hurts stocks.

"Since I have successfully used covered calls for several years, I have to throw my thoughts into the cauldron of your readers' comments. About 75% of my portfolio has a covered call position and covered call ROI is a significant consideration for me as I read the recommendations of your various investment advisories. For me, covered calls provide:

"To prevent covered calls from truncating an increased value of a stock, I apply a simple 'buy back and roll out/up' process to move to an appropriate higher strike position as the old position approaches expiration. In this repositioning process, I continue to follow the 15% APR ROI minimum rule. And, frequently, I can find a new strike position further out where selling the new strike premium 'pays' for most, if not all, of the buyback of the current position. For those 10 bagger stocks that remained in my portfolio during the past few years (SU, CNQ, BHP, and RIO come to mind), this process allowed me to maintain a low entry basis while capturing about 60%-75% of the stocks' increased value. This low entry basis steadily improved the ROI. The selection of 3-4 month strike dates helps me keep up with the upward movement should a 10 bagger arise." – Anonymous

"I'm twenty-two and utterly green when it comes to investments and the stock markets. So, I just wanted to take a little time to say thank you, as I find your publications (the daily ones and the Penny Letter I subscribe to) highly informative and intriguing. I do have one little question: Why do you write the name of the presidential candidate Obama, with capital letters? It's not hard to see that you disagree with his thoughts upon at least certain subjects, but why the literary tool of capital letters? It's like you're screaming on paper." – Paid up subscriber Kari Kristine Haugberg

Porter comment: It just happens naturally when I type his name... OBAMA! I think it's a natural outgrowth of his political campaign. OBAMA! is the perfect political creature. He is an utter and instant creation of our flimflam political process. He's the Diet Coke of politics. A candidate from central casting, who knows nothing and has no agenda other than power. He is perfect... OBAMA!

Regards,

Porter Stansberry

Baltimore, Maryland

September 20, 2007

When the Leaves Fall, Biotech Sizzles

Rob Fannon, editor, Phase 1 Investor

The fall is the hottest time of year for the biotech sector.

Over the last 20 years, the AMEX biotech index (BTK) has gained an annual average of 16%. About 80% of those gains happened in the fall, as recently highlighted by The Wall Street Journal. The index fell only once during the last six months of the year.

Similarly, the Nasdaq biotech index (NBI) rose from September through November in five of the last six years, with an average three-month gain of 9%.

But why is the back-to-school season such a boon for biotechs? News flow. Since most biotech outfits have no quarterly profits to speak of, they broadcast news about clinical trials, FDA decisions, and other research and development efforts.

Also, some of the biggest medical investing conferences take place during the fall months, including the Newsmakers in the Biotech Industry, Bear Stearns Biotech Confab, and the UBS Global Life Sciences Conference. These and medical society conferences give the companies an audience for their updates.

FDA decisions abound this time of year, as well. Biotech companies tend to file new drug applications with the regulatory agency around the end of the year so they can trumpet their progress in annual reports. Since the standard FDA review timeline is six to 10 months, thumbs-up (or thumbs-down) decisions tend to cluster in the fall.

This year, the Phase 1 portfolio has clearly reaped the benefits of the "autumn boom." Alnylam (ALNY) and Sangamo (SGMO) are hitting new 52-week highs on a daily basis. Arena Pharmaceuticals (ARNA) and Crucell (CRXL) have recently reported important clinical and R&D milestones. Better yet, we took advantage of the lazy summer to add some great biotech bargains to the portfolio.

As fall migrates into winter, analyst George Huang and I will continue to log airline miles hopping from one major conference to the next, keeping tabs on the data trends and likely new investments.

In the meantime, there's no better time than now to take a position in biotech. The sector has been one of the top performers over the market's last few tumultuous months... and it's entering a time that has historically been very lucrative for its investors.

Good investing,

Rob Fannon

Editor, Phase 1 Investor

Stansberry & Associates Top 10 Open Recommendations

*Formerly American Real Estate Partmers (ACP)

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