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How to Buy Gold Mining Stocks

Sat, 21 Nov 2009 06:00:00 EST

NEW YORK (TheStreet) -- Record high gold prices have investors looking for new ways to get in on the trade and invest in gold.

Mining stocks are volatile but can offer a 3-to-1 leverage to gold's spot price. SPDR Gold Shares, which tracks gold prices, are up 18.43% year to date while Market Vectors Gold Miners ETF has popped 25.06%.

Adam Graf, director of emerging miners for Dahlman Rose & Co., has ideas if you want to buy mining stocks without an ETF. Gold prices are "a currency reaction to inflation and subject to big overall trends in investment demand for gold as an alternative asset class." Graf uses value and leverage models to find the best stocks. Here's how he laid out the strategy:

What are your favorite large cap miners?

Graf: Of the large names I like, the large-cap, liquid, major gold producers, I like Newmont, Kinross and Yamana. In my view, they are all trading at approximately .8 times NAV. In other words, they are trading at 80% of their full intrinsic value. That's how they fall on a value metric.

On a leverage metric, Newmont gives you ... almost the most leverage in the space, Barrick's has lightly higher leverage. And the way I measure leverage is the change in the theoretical forward-looking change in the stock prices over the current stock price. ... So Newmont and Barrick have the most leverage to gold. But I like Newmont better because it gives you almost as much value as Barrick ... but it's much cheaper vs. Barrick.

I like Yamana because it's a smaller company with good growth. While it gives you slightly less leverage than Agnico-Eagle and Goldcorp, and a similar growth profile, again it trades much cheaper. My call on Yamana is not so much of a leverage call, but a value call.

The third company I like is Kinross. The leverage there is not quite as high as Newmont and Barrick, but is still very attractive ... and it also gives value.

And what about some speculative names like NovaGold?

Graf: NovaGold, I have followed that name for a long time. I think it has value. I give the name full credit for all of its assets regardless of the fact that I don't see how a company of the market cap of NovaGold ... can raise the $2 billion, more or less, it would need to either develop Galore Creek or Donlin Creek at 50% interest. ... It's not a favorite name of mine, just because I don't see how they can raise the capital to develop any of the projects that give them value, and I don't see how the pieces of the projects that they own would be interesting to anyone else with the possible exception of the Chinese. And we've seen in the past how strong NovaGold feels about being bought out. It fought tooth and nail to prevent getting taken over by Barrick.

But value wise you still like it?

Value wise it doesn't look bad and actually gives you decent leverage. ... but there are two other names that I think are more interesting and trade cheaper than NovaGold and to a large extent provide the same or superior leverage to NovaGold. On the gold side, Seabridge Gold ... actually provides more leverage than NovaGold does, also provides more leverage on copper side than NovaGold does. And they have been very forthright that they are not interested in developing their projects. They're taking their projects to pre-visibility and have the full intention of selling them to a major for shares. So that is a very different, radically different, path than NovaGold.

Another name that also comes to mind is Northern Dynasty ... Anglo American is earning in 50% of their project and they have a monstrous copper and molybdenum project in Alaska called Pebble. ... In my mind, they offer superior copper leverage vs. NovaGold and actually have a huge gold resource.

>>Slideshow: How to Invest in Gold

-- Written by Alix Steel in New York.

Stocks Pare Losses, Finish Down a Bit

Fri, 20 Nov 2009 16:33:59 EST

NEW YORK (TheStreet) -- Stocks pared losses late but finished in the red Friday, after spending much of the day pressured by tech, energy and a strong dollar.

The Dow Jones Industrial Average closed lower by 14 points, or 0.1%, to 10,318. The S&P 500 declined 3.5 points, or 0.3%, to 1091, as the Nasdaq fell 11 points, or 0.5%, to 2146.

By bouncing off session lows today, the Dow hung on to its gains for the week, adding 0.5%. The S&P and the Nasdaq fell 0.2% and 1%, respectively.

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Earlier in the session, Jeffrey Kleintop, chief market strategist for LPL Financial, posited that signs for the week ahead may be found in the late-session movements.

"This is probably the last day of decent trading volume ahead of next week, which will be really light," says Kleintop. "So, it'll be interesting to see where we end up today -- if we hang around these levels or if we fall off into the close. That might be an indicator of what could happen next week with much lighter volumes on the Street with folks on vacation."

Stocks plunged on Thursday after a mix of economic reports left investors antsy about the economic recovery, and slumping chipmaker stocks received an analyst downgrade, weighing on the major indices.

But with no major economic reports on tap to end the week, many investors took their cue from Dell'sunderwhelming quarterly results after Thursday's closing bell, which cast a pall over the tech sector for much of the day.

Dell said profit fell 54% in the third-quarter alongside disappointing gross margins. As market share continued to shrink, Dell missed on several fronts, reporting adjusted earnings of 23 cents a share vs. a 28-cent forecast, while sales slipped to $12.9 billion vs. a $13.5 billion estimate. Shares closed down by nearly 10% today.

"Clearly, there were expectations for better results than we got, and there's a significant amount of disappointment," says Michael James, managing director at Wedbush Morgan Securities. "Yesterday was focused on semiconductors, with a little spillover into hardware, and today everything is really coming for sale. The markets had a big move earlier. We'd gotten through 1100 on the S&P, but had difficulty making further inroads into higher territory earlier in the week, and I think that prompted people to be ready to sell stocks. And the negative technology comments yesterday and today certainly made it easier to sell things than be a buyer."

The Nasdaq Computer Index fell 0.7%, while the Philadelphia Semiconductor Index dropped 0.8%.

Observers continued to focus on the dollar, as a months-long inverse trend between equities and the greenback continued today. The Dollar Index was higher by 0.5%.

The Nymex's January delivery contract for crude oil declined 74 cents to settle at $77.46 a barrel, which was up from session lows.

Losses in the energy sector accentuated broader declines throughout, as the Philadelphia Oil Service Sector Index, the NYSE Arca Oil Index and the NYSE Energy Index fell 2.2%, 0.7% and 1.2%, respectively.

Industrials led the percentage decliners on the Dow, with Caterpillar and General Electric sliding 1.1% each. Tech bellwether Cisco dropped nearly 1%.

Merck helped lessen the blows on the Dow, touching a 52-week high during the session. A European medical advisory committee recommended European Commission approval for the fertility drug Elonva today. By the close, Merck added 3.2%, or $1.13, to $36.46.

"I think there's a wait-and-see attitude towards the holiday shopping season," adds Kleintop, about the broader earlier declines today. "The consumer discretionary sector did pretty well, but it stalled out here lately, so we're waiting to see that if we're going to see any continuation in this rally."

Overseas, European Central Bank President Jean-Claude Trichet reignited some fears about the global economic recovery while speaking in Frankfurt. Trichet touched on the need to unwind the ECB's emergency liquidity measures in order to stave off inflation.

The FTSE in London dropped 0.3%, as the DAX in Frankfurt slid 0.7%. In Asia, Hong Kong's Hang Seng dropped 0.8%, and Japan's Nikkei dipped 0.5%.

More earnings releases were added to the mosaic of retailer showings this week. Gap reported late Thursday afternoon, revealing third-quarter profit and sales in line with Wall Street estimates.

AnnTaylor shares fell over 1% after the company said it swung to a third-quarter profit, blowing past estimates for 7 cents a share with adjusted earnings of 20 cents. Still, the women's retailer anticipates sales in the fourth quarter to land just below third-quarter results.

"In a lot of cases, I think they were sandbagging in terms of their expectations for the holiday season," Kleintop says of the many retailer earnings this week. "With their stocks up a lot, there was no incentive for them to raise the bar. Now they're just going to keep the bar low and exceed that."

Profit for J.M. Smucker doubled in the second quarter, as the recently acquired Folgers coffee brand propped up sales. J.M. Smucker beat profit and sales forecasts, while boosting its 2010 earnings guidance. Shares were bid higher over 5% today.

D.R. Horton, the biggest decliner on the S&P, narrowed its loss in the fourth quarter, but noted that "market conditions in the homebuilding industry are still challenging." The homebuilder lost 73 cents a share, though the consensus centered on a loss of 30 cents a share. Shares slumped over 15%.

Elsewhere, The Wall Street Journal reports that some Goldman Sachs shareholders are calling on the firm to pass along more earnings to investors by reducing the firm's bonus pool.

Comcast's bid for NBC Universal hit a snag, with the Financial Times reporting that GE and Vivendi are at least $1 billion apart in their valuation of the French concern's stake.

Gold rose higher to settle at $1,146.80 an ounce after adding $4.90.

-- Written by Sung Moss in New York.

Orient Paper: Good Value Play

Fri, 20 Nov 2009 11:31:28 EST

Third-quarter earnings are now behind us, so I thought it would be useful to give a recap of the performance of a few names I follow to see how they've done and what their prospects look like.

I have been a big fan of Orient Paper , and I'm liking the stock more every day. Even with my high expectations for the company, I was blown away by the company's spectacular third-quarter numbers. And apparently the market agreed with me.

Numbers were released after the close of trading last Friday, and on Monday the stock shot up as much as 31% to a new high of over $10. Keep in mind that when I first wrote about this "boring stock" a few weeks ago (in comparison to hot initial public offering A123 Systems ), the stock price was only a split-adjusted $4.40. Normally, I would take an opportunity like this to take a few shares off the table, but in the case of Orient Paper I didn't sell a single share because I still think the best is yet to come.

Third-quarter revenue increased 67% from the same quarter last year and 36% from the previous quarter. Better yet, gross profit and net income both increased a whopping 107% from the previous year. Gross margin for the quarter was 23%. Growth like this means that looking at the backward-looking price-to-earnings on financial Web sites is meaningless. Google Finance still shows a P/E ratio north of 10, but at a market cap of $111 million vs. quarterly earnings of $4.8 million, a real P/E is about five times, assuming the company can continue at this level with no growth.

But wait, it gets better. The company also released its outlook saying that it expects to not only continue at these levels but "to continue strong revenue and net income growth trend for the fourth quarter 2009 and into fiscal 2010." In other words, despite the recent price spike, buying Orient Paper in the $10 range means investors will likely be paying only three to five times next year's earnings.

It gets even better. My main reason for investing in ORPN was that I see it as an uplisting play, and this is still very much in the cards. Although the company has not yet announced any uplisting, it has given all the clues. ORPN now has a majority independent board (as required by the Amex and Nasdaq), they upgraded their auditor to BDO Limited (also a sign of an uplisting) and they recently conducted a reverse split and are well above the price thresholds for both Nasdaq and Amex. The key question is valuation. The question is: With triple-digit growth in a high-margin business, what P/E will investors place on this stock once it trades on a senior exchange.

The following table is my usual back-of-the-envelope analysis on ORPN's forward P/E. Assuming a very midcase scenario of 50% growth in earnings, a stock price of $20 still leaves ORPN on a P/E of only 8.7 time. This is a stock I plan to hang onto for some time.

Orient Paper's Forward P/E

Earnings growth:		25%	50%	100%
12 month earnings:		$24.0m	$28.8m	$38.4m

	Market cap	PE ratio	PE ratio	PE ratio
$10.00	$125.00	5.2	4.3	3.3
$15.00	$187.50	7.8	6.5	4.9
$20.00	$250.00	10.4	8.7	6.5
$25.00	$312.50	13	10.9	8.1
$30.00	$375.00	15.6	13	9.8

Another stock I follow, which reported blowout numbers, was Hong Kong Highpower Technology . The company reported quarterly growth in EPS of over 150% with gross margins of 25%. Gross profit was up 49% year-on-year and 70% sequentially. Chairman and CEO George Pan noted: "As we head into the fourth quarter, we believe 2009 will be a much stronger year for us in terms of profitability and overall financial performance. Our net income through the first nine months is already double of where it stood for the comparable time frame in 2008. This strong financial performance is mainly the result of the fading effects of global economic recession on Hong Kong Highpower Technology's business and better raw material cost management."

These positive results and comments drove the stock up by over 50% from the low $3 range to over $5, and the stock now sits at about $4.50. At this price, assuming zero growth in the business, HPJ is trading on a forward P/E of only 7. So again looking at trailing earnings via Google, Yahoo! or Bloomberg is meaningless.

New Energy Systems (formerly known as China Digital Communications) saw a considerable drop in its share price despite posting very solid earnings. Many people have asked me why the stock would drop by 15%-20% despite posting very positive numbers. There are a number of reasons. First, the company reaffirmed full year guidance (rather than raising guidance) despite posting a very strong third quarter. Many investors have taken this to mean that either the fourth quarter will be weak or that the company has no visibility. Second, the company recently filed an S8 filing that granted shares of the company to various consultants. In this case, NEWN gave out shares representing 20% of the company. So despite strong revenue growth, there is still significant dilution to shareholders. Finally, there was no indication that the company had located a CFO or begun the board restructuring process required for a Nasdaq listing, meaning that any such uplisting (which requires an application process) is still months away at least.

China Sun Group is a stock that continues to puzzle me. In October, the company released earnings,which I thought were very solid, along with a notable increase in cash. The stock then sold off from $2.10 down to the mid $1.70s range. The company then made two major announcements that had been eagerly anticipated by investors.

The first was that customer test results on its lithium iron phosphate product had come back with positive results and that over 20 new potential customers were currently testing the product. The second was a press release announcing "key academic and government alliances". The result of all this news flow? The stock has now drifted down to the $1.50 range. The only theory I can offer on China Sun is that too many people made too much money too quickly. The stock was at 19 cents in March and skyrocketed to $2.10 less than six months later -- a rise of over 1,000%. It is notable that in the current price range liquidity has basically dried up in the stock. Yesterday, it traded only 22,000 shares, compared to 1 million to 2 million shares being traded on certain days on September and October.

Recovery Waits on Bank Regulators

Fri, 20 Nov 2009 10:17:32 EST

NEW YORK (TheStreet) -- Banks are in a holding pattern these days, waiting to hear specifics from regulators about new capital requirements.

The situation has, for a large part, put the brakes on lending, industry consolidation (beyond swooping in on failed institutions), and even capital investment in their existing businesses, at the same time as economists, market observers and government officials are urging banks to put money to work in order to aid in the broad economy's recovery.

"Regulatory uncertainty is having a chilling effect on all operations," says Scott Talbott, a lobbyist with The Financial Services Roundtable, a trade group representing Citigroup , Bank of America , General Electric and other large financial companies.

The issue comes up again and again in conference calls with analysts, though the impact of this uncertainty is often overlooked.

"It's still too early to tell exactly where the capital regulations are going to come out," said Goldman Sachs CFO David Viniar, during the bank's presentation related to its third-quarter results last month. "We manage our risk very, very conservatively and always have, but I think we're still in a wait-and-see mode."

One reason that U.S. regulators seem to be dragging their feet is a desire for domestic standards be comparable with international rules, although it's not as if the rest of the world has arrived at any sort of consensus.

"You've got speed cameras on the road without knowing what the speed limit is," says Kinner Lakhani, London-based analyst at Citigroup who follows European banks such as Deutsche Bank and UBS .

Lakhani says U.S. and European banks currently operate by different standards, and some countries are taking a tougher stance. Switzerland, for example, is adopting standards for the Core Tier 1 capital ratio metric that could be materially higher than what is expected to be the international norm.

A further issue is that banks have to address how they will fund themselves. A recent study by Moody's Investors Service says banks in several countries will see a steep rise in funding costs as they look to lock in longer-term funding and wean themselves off government guarantees.

"Capital is a 2009 story and funding could increasingly become a 2010 story," Lakhani says.

Mark Fitzgibbon, analyst at Sandler O'Neill, thinks U.S. legislators and regulators are not waiting for international consensus, despite frequent discussion of international standards set by the Basel Committee on Banking Supervision.

"I think Basel's kind of a joke," Fitzgibbon says. "It's resulted in a lot of paperwork, a lot of fees for the people involved in it, but it really hasn't done much."

Fitzgibbon expects more clarity from U.S. legislators and regulators in about six months.

"There will at least be broad brush strokes of the new plan in that timeframe," he says.

Given the near-term uncertainty, however, big banks like JPMorgan Chase and Wells Fargo aren't doing much lending, a fact that is partially obscured by large acquisitions they have made in the past 12 to 18 months, which make it hard to pinpoint exactly where and how their balance sheets are growing.

Despite these obstacles, some smaller banks have grown their balance sheets without doing acquisitions. Sandler's Fitzgibbon cites Short Hills, N.J.-based Investors Bancorp and Smithtown Bancorp , on New York's Long Island, as two examples.

Of course regulatory uncertainty is not the only reason banks aren't lending. There is also the fact that their standards are higher, and fewer borrowers are able to meet them.

"On the residential mortgage side sure if you went back to 100% LTV loan-to-value loans that were no-doc you'd probably have a lot of people willing to take out mortgage loans again, but when you start looking at 80% LTVs and full doc, you know the demand isn't quite as strong," says Jeff Harte, another Sandler O'Neill analyst.

In other words, the fact that banks aren't lending may be a good thing.

"This economy does not need more debt," says Dick Bove, analyst at Rochdale Securities. "I don't think you can look at the consumer and say, you know, I really believe consumers are underleveraged and they need more debt."

He took the idea further with regard to corporations, striking an ironic tone: "I think what the corporations really need is more debt. I mean that's what makes them successful. It's not selling products or investing in capital expenditures or hiring people. What makes them successful is debt. They need more."

But lending is not the only thing being put on hold while regulators and legislators sort out the new rules. Acquisitions, dividend increases, stock buybacks, hiring -- to some extent all these things are waiting for Washington. And until the clarity on capital requirements comes, a convincing recovery in the economy may have to wait as well.

-- Written by Dan Freed in New York.

Intel Charts: Upcoming Opportunity

Fri, 20 Nov 2009 09:25:10 EST

By L.A. Little of tatoday.com, author of Trade Like the Little Guy.

Upgrades and downgrades! Double bookings! What is all this fundamentalist chatter? One day the analysts tell us the fundamentals are sound, while the next they're not. For most folks, it's like a deer caught in the headlights, unable to make a move.

Bank of America/Merrill Lynch added more confusion Thursday by downgrading both Intel and Texas Instruments. That sent the semiconductor group into a tailspin. Although I can't make sense of these analysts and their reasoning, I can look at a chart and see what it's telling me. After all, the chart is a reflection of all those fundamentals. So, when I take a look INTC, what I see is an upcoming opportunity. Here's why. Let's start with the short-term time frame which reflects the confusion of which I speak.

On this time frame, what you see is gaps up and down and prices pretty much all over the map. The highlight of this chart, though, is the high-volume high sitting at the top of the chart. High-volume highs have a way of acting like a magnet on future prices. At some point, that high will get tested. So, from a little longer-term perspective, that becomes your target, or your minimum target, actually. If we step back to the intermediate-term time frame, then we can start to consider the parameters of where you can buy without undue risk.

If you remember the Bank of America chart from Thursday, we had the same chart pattern in which a high-volume weekly bar anchored support zones. INTC has that at the $18 to $18.50 zone and again at the lower $15.50 to $16 zone. The only way to get to the lower zone is for prices to first trade and close under the higher support zone and to do that on a weekly basis. If that happens, then the lower zone becomes the target on this time frame.

Now, since we know that a high-volume high is sitting out there at $21 and hasn't been tested, and if volume dries up as prices move into the higher support zone and price holds, then you want to be all over INTC with a stop below the support zone. Your target becomes $21 and your risk is about $1. The reason you have to carefully monitor what happens at the higher support zone is that when you look at the long-term time frame, INTC could possibly retrace as low as $15.50 to $17 and have absolutely nothing wrong with it.

In fact, that would be the ideal place to make your purchases. But in trading, as you know, the ideal isn't often served up on a silver platter. So you have to instead create a trading plan that accommodates for a potentially deeper pullback, yet accommodates purchases at higher prices. (If the market provides you with the information you need to do so). In the case of INTC, the market will tell you to buy at the $18-ish level if prices pull back to that area with light volume and if the sellers cannot break it lower on a weekly basis. Under those conditions and at that price point, your risk is the least and your reward is the highest. That's where you move in and make your trade.

So, until next time, keep trading the charts!

At the time of publication, Little was short Semiconductor HOLDRs , of which Intel is a significant component.

Biotech Stock Mailbag: FDA Playbook

Fri, 20 Nov 2009 06:01:45 EST

BOSTON (TheStreet) -- The Biotech Stock Mailbag is thinking about roast turkey and all the fixings, but first, let's answer some email.

David B. writes, "I have a general question about FDA clinical trials. On Tuesday both Cerus and Discovery Labs released news about proposed clinical trials. Cerus received feedback from the FDA that its proposed trial apparently did not have sufficient statistical power, and needs to go back and rework the design with more participants. Discovery submitted a trial design and expects feedback in the first quarter of 2010. Do all companies have to reach an agreement with the FDA on a design before initiating a trial? Or does the FDA just have to agree the trial design is safe, and unlikely to lead to harm? If the company and the FDA agree on a design, is that the same as what I believe is called a Special Protocol Assessment (SPA)? If companies and the FDA don't have to agree on a design, why would a company ever start a trial without buy in from the FDA on the design, that is, an SPA? If the outcome of the trial is favorable, doesn't having an SPA in place make FDA approval more likely?"

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These are super-excellent questions. Smart drug and biotech companies keep the FDA abreast of their clinical trial program throughout the long drug development process. Typically, a company will have what is known as an "end of phase II" meeting with the FDA, where data from the completed phase II studies are reviewed and design ideas for phase III studies are discussed.

The FDA does not "approve" phase III studies. In other words, drug companies are free to conduct whatever phase III study is desired, as long as the FDA deems the drug being tested safe enough for human testing.

Call it bull if you ever hear a company executive say that the FDA encouraged or "blessed" a phase III study -- the suggestion being that the phase II data were so strong that the FDA has some interest in moving the drug toward approval. Cel-Sci CEO Geert Kersten is guilty of this form of bamboozlement with his company's head-and-neck-cancer drug Multikine.

The FDA doesn't bless clinical trials, at least not officially. The FDA is an impartial evaluator of clinical data; the agency is not a cheerleader or facilitator for drug sponsors.

Given that the FDA is the ultimate arbiter of a drug's risks and benefits, it's wise, naturally, for a company to heed the agency's advice when it comes to designing phase III studies. If the FDA recommends a certain primary endpoint or study design; if the FDA says it would like to see a drug studied in a certain patient population or tested against a specific control, then it would be extremely unwise to discard or ignore this advice.

Common sense, right? You'd think so, but companies ignore FDA guidance all the time. Genzyme did this recently with its cancer drug Clolar. Stupid, but it does happen.

Biotech and drug investors need to think about these issues while doing their research. Has a company held an end-of-phase II meeting with the FDA? If so, what was the outcome? What advice did the FDA provide for the design of the phase III study and how was the guidance incorporated into a final study design?

The FDA won't answer these questions, of course, so you need to rely on the honesty of management to provide straight-up answers. Honest management? Does such a thing exist?

Also, clinical trials don't exist in a vacuum, so take a look at how competitors or similar drugs were tested. If a company settles on an entirely novel study design or primary endpoint, different from what's been used by other companies in the past, I'd want to know why.

A Special Protocol Assessment is essentially a formal agreement reached between a drug company and the FDA that the design and endpoints of a phase III clinical trial are sufficient for a drug's approval.

Now, be careful. Do not assume that an SPA makes drug approval more likely. An SPA study can still fail or produce equivocal data that prods FDA to delay or reject a drug. What the SPA does is ensure that a company's phase III design is the right one to provide the data and answers that the FDA needs to make an approval decision.

In other words, having an SPA is a nice insurance policy against a company that goes all the way through a phase III study and files for approval only to find that the FDA can't use the data to make an approval decision.

Why doesn't every company conducting a phase III study do so under an SPA? Because getting an SPA is a time-consuming process and isn't always necessary. The design and endpoints used in cancer studies -- overall survival, progression-free survival, response rates -- are common and well understood, so an SPA probably doesn't add anything. (Although some cancer drug companies still seek them out.)

But if a company is developing a drug for a disease for which there are no approved drugs, or wants to use a novel endpoint, an SPA is definitely a good thing and something I look for when doing my research.

My column naming Genzyme's Henri Termeer the Worst Biotech CEO of 2009 barely generated a peep on the controversy meter. Nearly all of the email and comments I received were from people who agreed with me. Kinda strange.

Steve P. writes, "Oy Vey! Not that I would say in public, but I think you are probably right about Henri. The most efficient of all orders -- the benign, intelligent philosopher king -- always creates a big blind spot. In this case, not having strong independent thinkers surrounding him and willing to take him on may have really cost Genzyme, its shareholders and its CEO."

Roger W. also agrees: "Thanks for having the bleep to call out Henri for what he's done to Genzyme. He deserves credit for building up the company but his time at the top is done. Bring someone new into the CEO spot to restore Genzyme's credibility, please!"

But there was Paul, who writes, "You naming a worst biotech CEO? Ha! You got to be kidding. Get a real job, looser."

It's "l-o-s-e-r." Not "l-o-o-s-e-r." Why (oh why!) is this word so hard for folks to spell?

An email from Bruce F. "Very often, it seems that critical information about a binary event such as results of a phase III trial, or an FDA decision, leaks to some investors a day or two before it gets to the public. One can see this in trading in Dendreon , both before its most recent phase III results, and also in the put-buying before the negative FDA decision in the spring of 2007.

More recently, Osiris Therapeutics (as you noted), Poniard Pharmaceuticals (put buying) and Vivus have all shown conspicuously heavy and accurate trading in advance of announcements. So, what's up with this? Who is getting this information, and how? Will the SEC ever do anything about it? If not, why not?"

Leaks happen. It would be foolish to assume that they don't. Do they happen very often? I don't think I'd go that far.

Remember that the data for FDA decisions are almost always known in advance, so pre-decision stock activity is more likely investors/traders playing the event, not a leak.

The release of clinical trial results isn't usually scheduled in advance, so big stock moves here can signal a leak. Or not. Don't forget that professional biotech investors spend a lot of time talking to management and/or other experts seeking a more refined timeline for when data may be released. They may use this information or insight, which is not illegal, to guess better than the average retail investor.

In other words, Wall Street is not a level playing field. Professionals have more tools at their disposal than amateurs. That might not be fair, but it's just the way it is.

The best way for an investor to protect himself from leaks is to be on the right side of the drug-approval decision or clinical trial-data release in the first place. That way, either the leak works in your favor, or if the leak is wrong, you still win when the truth comes out.

Leaks are bad. They're illegal. But leaks are also a part of Wall Street that will never go away, and I don't know what the SEC can do to change that. Going after leakers once the deed is done would be a start, but I won't hold my breath.

TJM writes, " BioElectronics has a study that shows ActiPatch is a better pain reliever than Tylenol. Are you a fan of the stock now?"

No.

The "study" is pretty much a joke, right? BioElectronics enrolled college athletes into three different groups -- one treated with ActiPatch used for two days, a second not treated at all and a third treated with Tylenol for 90 minutes.

The company says the study demonstrated that pain relief was greatest in the Actipatch group, followed by Tylenol, then the no-treatment group.

This study tells us nothing. Why wasn't there a true placebo arm, i.e., patients treated with an ActiPatch missing its battery? And the study wasn't blinded either, so patients knew the treatment they were receiving, which certainly skews the results of the subjective, patient-reported pain-relief scale employed in the study.

You know what they say: garbage in, garbage out.

If you're a believer of holistic, hocus-pocus, electromagnetic pain relief, then by all means, go buy an Actipatch and stick it where it hurts. (I'll prefer to pop some Tylenol, but that's just me.) But please, don't get involved with this stock, unless you get a thrill from investing in easily manipulated penny stocks with questionable management and impenetrable, unaudited and opaque financials.

Apple's Decade: How It Can Hit $500

Fri, 20 Nov 2009 06:01:25 EST

Editor's note: This is the fifth excerpt of an e-book on Apple by Jason Schwarz, an analyst at Lone Peak Asset Management in Westlake Village, Calif. Here are Part 1, Part 2, Part 3 and Part 4 .

Let's take a moment to outline the key components of a good investment. Here is what I look for:

1. Economic Timing: As far as I am concerned, economic timing is the only way to find conviction in the stock market. The basic philosophy of economic timing is built upon the premise that you should invest in stocks when the economy is improving and you shouldn't invest in stocks when the economy is worsening.

I apologize to all you brilliant investors out there who utilize your sophisticated strategies, but backtesting shows that investing really is that simple. Those who seek to employ any other strategy are swimming upstream.