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Grabbing Bottoms: Juicy Bottoms to Ogle Closely

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January 13, 2010 – Comments (8) | RELATED TICKERS: MIPIQ.PK.DL , MYGN

I recently outlined my new biotech trading strategy for 2010 in this post. In retrospect, the post was overlong, turgid, and mostly unreadable. I'll repeat the only important lines to save wasted effort. How does one identify a bottom in baby biotech? One must be cognizant of the following factors: market capitalization, cash, debt, burn (or profit), historical stock performance, catalysts, and long-term potential. With no further ado, I will place my self-esteem on the line and open my real biotech buys and sells to the CAPS community. Most of these postings will describe stocks that should be watched for a bottom. Actual buys will be described explicitly. If you note factual errors or glaring misapprehensions in my analyses, please comment.

Molecular Insight Pharmaceuticals (MIPI): Only fitting that I should kick off the GBMB strategy with a bitter pill like Molecular Insight. The current market cap is 51M with a share price of 2.04. Cash is 72M, debt is 170M. Recent quarterly burns have averaged 16M until the most recent of 25M. The multi-year low is 1.7 from March 2009, from which the share price climbed back over 6 before staggering down to the current level. As the descent has approached 2, the stock is showing signs of resistance with sudden jumps back upward as was observed two days ago. In terms of catalysts, the pipeline has been quiet since the last quarterly report, likely contributing to the decline in share price. No trial results are expected in the near future for their oncology candidates, but outlicensing or partnerships are possible. The most advanced candidate is the diagnostic cardiac agent Zemiva which is apparently awaiting FDA approval for a phase III protocol, and provides the best prospect for a recovery in share price in the near future. CAPS is unhelpful as the stock is currently unratable. In summary, MIPI always looks bad on paper with weak pipeline candidates and substantial debt, but tends to live much higher than the current cap. There are no likely large-scale negative catalysts or threats to viability apparent in the near term. The market is awaiting any reason to restore the share price above 4. Probable GBMB buy below 2.

Myriad Genetics (MYGN):  Market cap of 2340M, share price 24.3. Cash is 358M, debt 0. The company has had positive cash flows for six straight quarters, most recently 30M. The share price peaked at 46 in April and has been hammered since then on skepticism of the rate of future revenue growth. The share price skidded again today after an Oppenheimer analyst downgraded the stock, noting that demand for the company's BRAC genetic test was not increasing in the troubled economy. But we bottom-grabbers love to see downgrades, especially in the stocks we're watching but haven't bought yet. Last I checked, speculative biotechs were valued for their long-term growth potential rather than next quarter's profits. And BRAC is a proven winner with about 86M in revenues the last two quarters. The long-term potential of Myriad is outstanding, with revenues likely to resume their upward march with the inevitable economic recovery, and the prospect of additional molecular diagnostic tests. Active CAPS green thumbers include Portefeuille (multiple) and Vanamonde, who are both underwater. Player #70 Valuemoney green thumbed more recently. Smart guys all. The danger here is the next revenue numbers expected February 2nd, which could present a negative catalyst unless all lowered expectations have been priced in. As recorded in my outperform pitch, I recently feasted on a Myriad bottom at 22.46 and sold a few weeks later for a $3000 profit. The taste of that bottom remains in my mouth and I would love another bite. I would re-evaluate Myriad for another GBMB buy below 23.

I had intended to report on another two or three stocks on my GBMB list, but once again my verbosity has worked against me. More to come later ...

8 Comments – Post Your Own

#1) On January 13, 2010 at 10:44 AM, hrc777 (< 20) wrote:

Thank you for your post.  I am partial to bottom fish myself, but biotech has long been an enigma.  Consequently I've avoided this area, always wondering what I'm missing.  My overall outlook is quite bearish, but this seems like an area that might stand up a little better.  Your willingness to contribute is appreciated.  hrc

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#2) On January 13, 2010 at 11:01 AM, FreeMortal (29.43) wrote:

Turgid - Adjective used by one with a well developed vocabulary yet  is conscious of it enough not to hit you with both barrels this early in the morning.

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#3) On January 13, 2010 at 11:20 AM, hrc777 (< 20) wrote:

Had a quick look at MYGN.  Looks as though $10 of the fall was the June spinoff.  I assume your attraction is focused more on the quality of their pipeline than "the inevitable economic recovery"  The cash position is the only thing I can see that appeals on the balance sheet.  Dont care for the continual increase in shares issued, but hopefully that has ended with their current revenue stream.  Still, it held up well in the fall/08 masacre.  Interesting.  hrc

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#4) On January 17, 2010 at 1:46 AM, valuemoney (< 20) wrote:

Couple of notes on MYGN.... though I am sure u are fully aware.

EPS is deceiving yet..... no taxes being paid.... EBIT and net income are same.... even on this years interum

Retained earnings still negative

I could never invest real money in this equity.

Pick was made at time I thought there might be a downward tick in market near term..... was only looking for 10 points on pick... I too was bottom fishing........ I am smart but know VERY LITTLE about this particular equity.... and I did not mean to put a 5year outperform on MYGN ..... 5y are meant to be SOLID pick for me NS is 'not sure' or a guess. This should have been a NS pick. I will change that.

All said, I liked your blog. And am pretty confident my Outperform pick will pan out.

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#5) On January 17, 2010 at 1:46 AM, valuemoney (< 20) wrote:

Couple of notes on MYGN.... though I am sure u are fully aware.

EPS is deceiving yet..... no taxes being paid.... EBIT and net income are same.... even on this years interum

Retained earnings still negative

I could never invest real money in this equity.

Pick was made at time I thought there might be a downward tick in market near term..... was only looking for 10 points on pick... I too was bottom fishing........ I am smart but know VERY LITTLE about this particular equity.... and I did not mean to put a 5year outperform on MYGN ..... 5y are meant to be SOLID pick for me NS is 'not sure' or a guess. This should have been a NS pick. I will change that.

All said, I liked your blog. And am pretty confident my Outperform pick will pan out.

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#6) On January 30, 2010 at 12:55 AM, valuemoney (< 20) wrote:

Did you bottom feed again at 22.46 this week on MYGN? I see it gained 5% + today and wanted to see if u picked any up.

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#7) On January 30, 2010 at 2:11 PM, zzlangerhans (99.85) wrote:

Indded I did. See here as well as my MYGN pitch replies.

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#8) On March 15, 2010 at 3:57 PM, msIRA (99.99) wrote:

Hope you are still holding your MYGN. Because it is going HIGHER!

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