Biogen Idec / Tysabri

Biogen Idec took a beating today. Unfortunately, or fortunately I have a small position in this company. It will take some time to sort out all the data / info. For now, I'm holding onto the position, the downside is limited. The analysts have basically written off Tysabri in their models. I'm betting that Tysabri will eventually get back onto the market as a mono therapy use. So far the problem appears to be a combo therapy of Avonex and Tysabri.

This is a good example why one should diversify their portfolio. No one was expecting this news at all. This may be a good opportunity to look at other biotech issues. The market punished everyone in the group.

401k Re-Evaluation

Things have been busy at work, I just no time to research new companies. In the mean time, I've been checking out my 401K and finally decided to make some changes. I'm happy with the funds offered by the company.

My current holdings in the 401k plan are:

15% Templeton Foreign
25% Heritage Mid Cap Stock A
10% Mid Cap Growth / Artisan Partners
25% Mid Cap Value / Wellington Management
10% S&P 500 Index
15% Small Cap Value / Perkins Wolf McDonnell (Janus)

I just got rid of Putnam Voyager and replaced it with the S&P 500 Index fund. I've been patient with the Putnam Voyager fund, but it has under performed for a couple of years. So out it goes...

I contribute the max (18% of income) to the 401K plan and people think I'm crazy. I don't know why!? I also contribute 15% of my income to the employee stock purchase plan. As you can imagine, my paycheck is very small after all of these deductions.

Pfizer / FDA Panel Vote on Cox 2

Just looking at the headline news on the FDA panel votes on Celebrex and Bextra can give investors a heart attack. I wasn't too concern with Celebrex, but I had my doubts on Bextra. Looks like the panel voted for both to remain on the market with additional warnings. Finally, some good news for Pfizer...

IBD's EPS Ranking

I'm an avid reader of the Investors Business Daily (IBD) and I use their EPS ranking system in my stock research. I like to position my portfolio with relatively high EPS rankings (80 or above). Here are the company rankings in my portfolio:

Microsoft 45 (EPS ranking 1-99)
Amgen 91
Biogen Idec 99
Genzyme 89
Fisher Scientific 92
Qiagen 91
Cytyc 91
Pfizer 87
Las Vegas Sands 80
Invitrogen 95
Genentech 98

I know, why do I still have Microsoft??? It's a value play, I believe people are under estimating their new operating system release (Longhorn).

I will usually hold onto the stock as long as their EPS ranking is 80 or above. As a growth investor, you want to pick companies with strong consistent EPS growth over time. This system has worked for me over the years.

Overall, Good Q4 Earnings

Well, I'm just waiting for one more company from my portfolio to report Q4 earnings. Las Vegas Sands (LVS) is expected to report in early March. I'm not worried about that one since all signs are pointing to very strong Q4 earnings. The stock is starting to break out, looks like it's pricing in strong earnings.

Qiagen (QGEN) reported today and beat estimates by one penny. Stock sold off a bit, looks like sell on the news. I basically characterize it as in-line revenues and earnings. This is a long term play in the field of molecular diagnostics. They have growing earnings and generating a nice free cash flow.

I'm still keeping an eye on Apple. Everyone is still gobbling up the iPods. My coworker just purchased not only an iPod, but also a Shuffle. When I research companies, I like to use the Peter Lynch philosophy. Just observe what's around you (i.e. which stores are always crowded, what people are buying, etc...). That's actually how I came up with one of my early winners (Qiagen). I use to work in a research lab and everyone was raving about the Qiagen DNA purification kits. When the company went public, I just bought as much as I could at the time and it's paid off nicely. Apple may be a bit extended at this point, I'm willing to be a bit patient and wait for a small correction to get into Apple.

In summary, the companies in my portfolio reported good Q4 earnings. A few missed by a penny - no big deal (no blow ups). So looks like I will not be making any major changes to my portfolio. As you probably noticed, I trade very little. I like to minimize transaction costs and taxes. But I will bail out of a position if something is wrong (i.e. big earnings miss).

Risk Management

So I'm still hanging on to my 100 shares of Las Vegas Sands (LVS) from the IPO. I usually don't play the IPO's, but this one was too tempting. The stock definitely had a nice correction and looks like it wants to break out. If I had more cash on hand, I would add to this position.

I'm building up my cash position for a potential real estate purchase. It's tempting to use the cash for some stock purchases, but risk control and discipline is a big part of investing. Let's take look at risk control... My number one rule is to never average down. I've only averaged down on extremely rare cases. These were instances in which I really researched the facts and had a strong conviction for the stock to go back up. In the majority of the cases, if you make a purchase and the stock starts to go south, consider cutting your losses. Don't average down unless you are absolutely sure of the down side risk. Example: Look at the chart of Krispy Kreme, just a straight down trend. Anyone trying to average down Krispy Kreme would have been wiped out. The hardest part of investing is to learn to cut one's losses. I still find it hard to do at times.

Looks like there's more upside to this market. A lot of my individual holdings corrected back to their 50 day moving average. I'm looking for a nice bounce. We'll see...

M&A Week

So this is the year of the rooster. I wonder what this means for the financial markets?

Anyways... Three of my holdings made acquisitions this week. Here they are: (1) Invitrogen acquires Dynal Biotech, (2) Genzyme acquires Verigen and (3) Cytyc acquires Proxima Therapeutics. Looks like M&A activity is starting to pick up in the biotech area.

I would have to say the Invitrogen deal was the most exciting of the three deals. Why do you say? Well, the Invitrogen deal is immediately accretive to earnings. We're talking about some nice numbers. They expect this deal to add $0.06 to earnings in 2005 and $0.24 to earnings in 2006. That's why the stock went up big yesterday. I still see much more upside in Invitrogen. These are the deals I like!

Looks like today was a day for "profit taking" for the overall market. Fisher Scientific reported good numbers, beat by a couple of pennies, but the stock fell anyways. The only reason I can find for the sell off was the guidance for Q1 earnings (they guided at the lower end of analyst estimates for Q1). But they increased free cash flow projections and reiterated fiscal year earnings. I actually see this as a slight plus due to the higher free cash flow. Free cash flow is how you really determine the companies valuation. Anytime you increase free cash flow, that's a big plus.

Google / Gmail?

Looking back, I wish I jumped into the Google IPO. As they say: could of, should of, would of... It's interesting to watch it pullback after announcing pretty good numbers. Google is a great company, I use their search engine and email, but it's just to expensive. I'll just sit back and watch. It's priced for perfection, it cannot disappoint at all. Look at what happened to eBay, it's still feeling the pain. I just got some more Gmail invites, that's what got me going on Google. Anyone out there interested in a Gmail account? I have a few left...

Rally Mode

I was expecting the market to start rising, but not like this. Hey, I'll take it! The jobs report today was on the softer side, I guess ok news is good news. This probably means the Fed will not have to jack up the rates aggressively. Also Altria (Phillip Morris) won an appeal against the government, so they are off the hook for a big payment. Altria (up 5%) contributed to a big percentage of the Dows jump today.

I heard on CNBC that the mutual funds are finally seeing some nice inflows. So what have people been waiting for? My guess is that tax season has finally arrived and people came to their senses and started to fund their retirement accounts. When I walk by the Fidelity offices, I just see long lines. I already contributed to my Roth in early January. I was an early bird.

I'm still deciding how I want to play the pharma down turn. I already have positions in Pfizer and JNJ. Debating if I should play the Pharma ETFs.

So yesterday I mentioned Cytyc and Qiagen went up on big volume. There was no follow through with Cytyc, but Qiagen gapped up and continued to advance with higher volume. I still could not find any news on Qiagen. It's expected to report earnings on the 14th, so I guess I'll have to wait to see what's brewing.

Little Breakouts

I've been so busy at work, I really don't get a chance to check out the markets. I look forward to the day when I'm financially independent then I can focus on the markets 24 / 7. I'm shooting to reach this goal within 10 years.

So what's up with Cytyc (CYTC) and Qiagen (QGENF)? They both went up on huge volume. There's no news to account for these moves. Cytyc looks like it just bounced off its 200 day moving average (weekly chart). Qiagen is breaking out from a long base. Both companies are due to report soon, so we'll see. Qiagen is one of my favorite small cap plays, not really well known since it's based in Germany. I've held onto Qiagen since the ipo and have experienced the ups and downs, but have done well over all. It will be interesting to see if there's any follow through tomorrow. I like the feel of this market, still think there's more upside.