– The Stock Market Companion –
15MinuteStocks
Market Update
April 29, 2010
——- Stock Market Investing since the 1980’s ——-
Published all Market Days
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 Today’s SMC Watchlist

– Executive Summary – 

The markets were UP today, on VOLUME.  Concerns in Europe melted away overnight and European bourses were up, leading to renewed interest in stocks in the US – or at least short covering (“Shorts” are speculator/investors who have borrowed shares and sold them high, with the hope of buying them back lower.  “Short covering” occurs when these same investors must buy back the shares that they borrowed, often in the face of rising stock prices when things don’t go as they planned).

In the US, oil prices were firm but energy companies took a hard hit with the Gulf of Mexico oil platform disaster from last week now leading to a major environmental concern.  Goldman Sachs will certainly appreciate British Petroleum (BP) being the focus of the evening news.  Click here for more details.

The Stock Market Companion (SMC) sold all its shares of YRC Worldwide at $0.59/share (approx.) and all of its shares of the US Natural Gas ETF (UNG) at $7.00/share.  We sent out an SMC Intra-Day update for a (near) real-time heads-up highlighting our actions.

We are in this for the long haul, and we are working with the market that we have to work with.

Dendreon (Ticker: DNDN) received FDA approval for their prostate therapy – Provenge.  The stock closed at $50.18/share.  For the more risk tolerant SMC subscribers, this is a great gain.  Please see below for more of an idea of what we can expect from the DNDN share price going forward, based on projected Provenge therapy costs and projected earnings.  The SMC has :

1. Brought this stock to the attention of all subscribers when the stock was moving above $30/share (approx.) on volume.
2. Profited +11% from a slice from the middle of the run, showing everyone when and how we did it.
3. Highlighted the risks of owning a one-drug wonder company stock going into FDA approval (MDVN was an excellent recent example of stock price destruction when things don’t go as planned with the FDA).

We wrote on April 26th, the “Ideal outcome = FDA approves DNDN’s Provenge treatment. Stock response = Gap Up. At that point, we can see if the stock stabilizes or sells-off.”  Now we have the opportunity of determining where the stock goes from here.  Prudent investors invest after the FDA has made its decision.  Gambling and guessing is what takes place immediately prior to the announcement.  Those are poor odds, in our opinion.

The SMC only puts money at risk when the odds are stacked in our favor.

(For our concise market assessments, market details, stock ideas, and SMC return on investments – see below) 

 

– Markets “At a Glance” –

(Please scroll down to the end of the report to see your favorite benchmarks – Dollar, Oil, Gold … closing prices and daily direction.)

Market	Price (Today’s Close)	Unit of Measure	Today’s Direction
SP-500	1,206.78	Index	UP = +15.42 points
DOW-30	11,167.32	Index	UP = +122.05 points
NASDAQ	2,511.92	Index	UP = +40.19 points
NASDAQ 100	2,042.59	Index	UP = +35.30 points

 

– Market Trends –

Trend	SP-500	DJ-30	NASDAQ	NASDAQ 100
Short Term	Down	Down	Down	Down
Intermediate	Lateral	Lateral	Lateral	Lateral
Long Term	DOWN	DOWN	DOWN	DOWN

*Summary of terms from Trader Vic II-Principles of Professional Speculation (pg. 140-141)
*_________* Represents a change in trend rating.

It’s hard to imagine the markets not following through to the south after Tuesday’s sell-off.  At the SMC we are “open for business” and watching for the next opportunities to emerge.

– Today’s Highlights –

We covered the two major events that were influencing the US markets in our Executive Summary (above) –

1. An abrupt, overnight improvement in investor sentiment in Europe.  

2. Increased understanding of the magnitude of the environmental issues in the Gulf of Mexico near Louisiana, following last week’s oil rig explosion and collapse.  British Petroleum (Ticker: BP) lost 15 billion (approx.) in market capitalization today alone.

We are going to focus on the importance of THIS AFTERNOON’S FDA approval of Dendreon’s (DNDN) prostate treatment – Provenge, from a stock investment standpoint.  Please click HERE to read an excellent overview (WSJ Online Article) and then proceed to our analysis below.

– Stock Investing Specifics and Strategies –

Here are the important metrics and thoughts necessary for understanding the stock investment opportunities at Dendreon (Ticker: DNDN), now that the FDA has give final approval for their prostate treatment – Provenge –

• Dendreon will start patient treatment next week.
• They will treat approx. 2,000 patients in the 1st 12 months.
• The treatment cost will be approx. $93K (This compares favorably in cost to other treatments of advance diseases)
• Dendreon expects Medicare and private insurers to cover the treatment cost.
• Dendreon will now discontinue attempts to find a partner and will take this treatment to the market alone, including Europe.
• The European market is perhaps 1x-2x the size of the US market.  European approval would be several years away.  For our rough analysis, let’s say in 2013 Dendreon is able to meet 25% European market, with similar metrics to in the US.
  
• Dendreon will ramp production 1st in New Jersey, and then bring facilities in Atlanta and Los Angeles online by mid-2011.  N.J. facility will be operating at max. capacity by mid-2011.
• Provenge demand will exceed Dendreon’s ability to supply it.
• The 3 production facilities will generate between $1.2 billion and $2.5 billion of revenue
• Provenge is Dendreon’s sole source of revenue.  Let’s assume a 45% profit margin for our analysis.  Profit margin will not be as good during the initial production phase, but for the purposes of stock investing we will look at normalized margin.
• Dendreon has 132 million shares available for the public and institutions.
• There are 10% of these shares sold short today.  These short sellers will need to eventually cover.  10% is not an overly large short interest percentage, but it does have near term significance.
• Dendreon has 578 million in cash and 69 million in debt.  Net cash balance of $3.85/share.

First year revenues and share price –

• Gross Revenue = 186 million.  
• Gross profit = 83.7 million 
• 1st year Earnings/Share (EPS) = $0.63
• Current price of $51/share and 1st year EPS of 0.63, results in a P/E now of 81

A P/E of 81 sounds expensive, but look what is going on in the 2nd and 3rd years =>

2011 revenues and share price –

• Gross Revenue = $1 billion
• Gross profit = $450 million
• 2nd year EPS = $3.41
• Let’s say that a typical P/E ratio of a stock with this kind of growth rate is 40, the stock price would then be
  (with an EPS of 3.79) = $136/share.  If we say a P/E = 25, then the stock price would need to be $85.25/share.

2012 revenues and share price –

• Gross Revenue = $2.5 billion
• Gross profit = $945 million
• 3rd year EPS = $7.16
• With P/E ratio of 25, the stock price would be $179/share.

If Dendreon doubles its business by expanding in Europe, the stock price would then theoretically need to double from $179/share, simply to maintain its existing P/E value.

There are risks.  Here are some risks –

• Maybe Dendreon is unsuccessful with their production launch.
• Maybe Dendreon’s revenue expectations are too high, or their costs are higher than we expect.
  
• An alternative, more successful or cheaper drug or therapy comes on the market.
• Medicare or private insurers decide not to pay or only to pay a small portion.
• The treatment proves less successful than currently expected.

Our conclusion has to be : At $50 something a share, the stock is not overpriced for the earnings and growth potential of the stock.  There aren’t that many public companies available to institutions for investment with these kinds of growth rates.  Maybe this kind of therapy finds other applications too.

The fact that Dendreon is deciding to take Provenge to the market alone, speaks strongly of their assessment of where their company is headed over the next 36 months.

Near term, today’s gap-up has to be resolved in some fashion.  Perhaps the stock builds a base here and begins moving forward.  Investors who were in the stock from the mid teens or before may decide to take their profits.  This may cause near term volatility in the stock.  The SMC is going to watch this stock carefully for an appropriate entry.

Please remember – at the Stock Market Companion we do not and cannot give individual investment advice. According to the State of Washington RCW 21.20.005 the Stock Market Companion is not a Registered Financial Advisor and we do not render any advice on the basis of the specific investment situation of a particular individual. This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should our SMC Intraday Update, SMC 15MinuteStocks Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  Please seek the council of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : Please understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.        

– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)
1	YRC Worldwide	YRCW	SOLD TODAY	2/26/2010	+35% = Final
2	US Natural Gas ETF	UNG	SOLD TODAY	4/9/2010	-4% = Final
3	Ford Motor Co.	F	SOLD on Tues. at $13.84	4/14/2010	+5.4%  = Final

– Stock Market Companion – Previous Holdings –

Nr	Co.	Ticker	Entry Date	Exit Date	Total Gain or (Loss)
1	ProShares Ultra Short SP-500	SDS	4/7/2010	4/9/2010	(-1.8%)
2	US Natural Gas ETF	UNG	4/5/2010	4/8/2010	(-8.2%)
3	Apple Inc.	AAPL	3/23/2010	4/7/2010	+5.7%
4	Ford Motor Co.	F	3/31/2010	4/7/2010	(-2%)
5	Somaxon Pharmaceuticals	SOMX	3/23/2010	4/6/2010	(-15.9%)
6	Dendreon Inc.	DNDN	3/23/2010	3/31/2010	(-1.4%)
7	ProShares Ultra Short SP-500	SDS	3/19/2010 (1/2 Position)	3/23/2010	(-1.5%)
8	Dendreon, Inc.	DNDN	2/11/2010	3/19/2010	+14.5%
9	General Electric Co.	GE	3/16/2010	3/19/2010	+1.4%
10	Apple Inc.	AAPL	3/5/2010	3/19/2010	+1.3%
11	Ford Motor Co.	F	2/25/2010	3/18/2010	24%
12	RINO International	RINO	3/3/2010	3/17/2010	3.1%
13	Nutri-System Inc.	NTRI	10/16/2009	12/28/2009	+79.7%
14	Palm Inc.	PALM	11/11/2009	11/27/2009	-8.6%
15	Research In Motion	RIMM	12/8/2009	1/5/2010	+6.8%
16	Simple Tech, Inc.	STEC	12/15/2009	1/5/2010	+62.2%
17	US Natural Gas ETF	UNG	12/10/2009	1/8/2010	+6%
18	Human Genome Sci.	HGSI	12/22/2009	1/8/2010	(-0.2%)
19	Ford Motor Co.	F	11/9/2009	1/12/2010	+48.6%
20	Western Refining Inc.	WNR	1/5/2010 (1/2 Share Count)	1/12/2010	(-5.5%)
21	RINO International Corp.	RINO	1/8/2010 (1/4 Share Count)	1/12/2010	(-5.1%)
22	Bank of America Inc.	BAC	1/4/2010	1/12/2010	+4.7%
23	YRC Worldwide	YRCW	1/12/2010 (1% only)	2/4/2010	(-17.1%)
24	Dendreon Inc.	DNDN	2/3/2010 (1/4 Share Count)	2/4/2010	(-2.7%)

* Gains (losses) do not include brokerage fees

– Benchmarks “At a Glance” –

US Dollar	1.324 USD = 1 Euro	USD / EUR	Dollar = Down
Gold	$1,174.3	Ounce	Gold = UP
Oil	$85.48	Barrel (West Texas Crude)	Oil = UP
30 Yr. Fixed Mortgage	5.15	Percent	Flat
30 Yr. Bond Yield	4.59	Percent	Down a bit
1 Yr. CD	1.36	Percent	Flat

(Data Source : Finviz.com Financial Visualizations)

Remember to invest on your own, but not alone.

Signing off for today, your –

Stock Market Companion

** Stock Market Companion Disclaimer **

The Stock Market Companion (SMC) Market Update and Watchlist are published documents to subscribers that show how we (SMC) are viewing the markets and what we are watching, investing in or selling today.  This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should this Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  You understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

Furthermore, the Stock Market Companion, Inc. is a content provider and publisher and not a registered broker-dealer or licensed investment professional.  Our intent is to publish very accurate market information for an audience of subscribers (1000+ subscribers).  By accessing the Stock Market Companion website and/or using the Stock Market Companion products and services such as this Market Update and accompanying Watchlist, you understand and agree that the material provided in the Stock Market Companion products and services is for informational and educational purposes only, and that no mention of a particular security in a Stock Market Companion product or service constitutes a recommendation to buy, sell, or hold that or any other security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.  To the extent any of the information contained in any Stock Market Companion product or service may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.  Before selling or buying any stock or other investment you should consult with a qualified broker or other financial professional to verify pricing information and to solicit advice as to the appropriateness of a given transaction or investment.<

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