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Hello Readers,
“Sell in May and go away”, the old market adage goes. The trouble is that the May selling started in early April, and, as we pen this copy, it doesn’t seem likely to stop anytime, soon. There are, of course, the usual bugaboos that we have harped upon over the last few Newsletters, especially the uneasiness in Europe. However, we think that traders are beginning to realize that the recovery isn’t much of a recovery at all, and this has been spooking them. Also, all of the “good” earnings news may not have been all of that great when one considers that most expectations were on the low side, making numbers easy to beat. However, here is the “real” good news, which, to us, is a sad commentary. If the markets drop a thousand or so points, the Fed will probably rush in with added liquidity. As we have periodically said, welcome to the new age of market socialism.
And, once again, we have not closed any positions for over a month, which makes this our longest drought of 2012, but we did have a nice first quarter. And yes, the market downdrafts are still playing havoc on small stocks, and that is still adversely affecting our Current Portfolio.
Here are the headlines since the last Newsletter about companies in the Current Portfolio; dates in parentheses are when we first recommended them. We are not giving updates about companies on the “Endangered List” unless we feel the news is highly significant.
Axcelis Technologies(ACLS)(4/5/12). Will release quarterly earnings on May 3.
Mattson Technology(MTSN)(4/5/12). Company posts pretty good quarterly numbers; balance sheet remains strong. Company’s paradigm E Etch System moves into production at major CMOS image sensor manufacturer.
Echo Therapeutics(ECTE)(3/20/12). Announces key patents covering its Prelude SkinPrep system and Symphony tCGM system. To present at Diabetes Association on June 8.
Celsion Corp.(CLSN)(3/5/12). Says Data Monitoring Committee unanimously recommends continuing of Phase III HEAT study of ThermoDox in primary liver cancer.
Geron Corporation(GERN)(2/5/12). To announce earnings of May 2. Receives USPTO patent for CNS-tumor treatment method.
Nanosphere(NSPH)(1/20/12). To release quarterly results on May 1, the day after we post this Newsletter.
Navidea Biopharmaceuticals(NAVB)(1/5/12). Sets earnings call for May 3. Extends PDUFA date for Lymphoseek by three months. Presents favorable comparison of Lymphoseek to Sulfur Colloid at oncology foundation working group,
Anadigics(ANAD)(11/20/11). Sets earnings call for May 1, the day after we post this Newsletter.
ECOtality(ECTY)(11/5/11). EV Project marks milestone with over 24 million miles of EV operation. Revenue growth looks good but losses need a lot of trimming; balance sheet still seems okay.
Antares Pharma(AIS)(8/5/11). Announces Epinephrine auto-injector settlement agreement between Teva and Pfizer. Watson and Antares announce the introduction of Gelnique 3% for treating overactive bladder.
Cover-All Technologies(COVR)(7/20/11). Announces general availability of NexGen ISO BOP product.
Idera Pharmaceuticals(IDRA)(6/5/11). Announces initiation of treatment in Phase 2 clinical trial of IMO-3100 for psoriasis.
MediciNova(MNOV)(5/20/11). To release asthma and COPD trial results over the next few months. Receives notice of an Australian patent allowance for a method of treating neuropathic pain.
Energy Recovery(ERII)(5/5/11). Repurchases over one million shares. Resets earnings call for May 3.
Jamba, Inc.(JMBA)(3/20/11). About a dozen or so news articles and press releases, including a notice that the company will release earnings on May 7.
Oculus Innovative Sciences(OCLS)(3/5/11). Sabby Management reports 7.11% passive stake in company. OCLS plans to raise $3.1 million in secondary offering.
Biodel(BIOD)(2/20/11). Company upgraded by JMP Securities.
Network Engines(NEI)(2/5/11). Quarterly numbers basically unchanged from a year ago; balance sheet still looks okay.
Sprint Nextel(S)(1/5/11). Amid the usual several dozen releases and stories, the company released quarterly numbers, which were perceived by many as being pretty optimistic.
Astex Pharmaceuticals(ASTX)(12/5/10). To release quarterly results on April 30, the day we post this Newsletter.
Pixelworks(PXLW)(11/20/10). Latest numbers a little light on revenues with some paring of losses; balance sheet still looks pretty good.
NovaBay(NBY)(4/20/10). Says that NeutroPhase supports healing of chronic wounds.
Novavax(NVAX)(4/5/10). To release earnings on May 4.
Cytokinetics(CYTK)(2/5/10). Presents preclinical data on CK-2017357. Recent balance sheet looks pretty healthy.
GLOBALScape(GSB)(5/20/08). To release earnings on May 8.
CytRx(CYTR)(1/5/10). Initiates Phase 2 clinical trial with INNO-206 in pancreatic cancer. Receives NASDAQ extension.
USA Technologies(USAT)(6/5/09). To release earnings on May 2. Hostile takeover talk swoons around company. Upgrades its ePort Connect Service Platform. Demonstrates new consumer engagement services.
Our picks for this issue are another biotech trading on the AMEX and a NYSE-listed health care provider for seniors.
BACTERIN INTERNATIONAL HOLDINGS, INC. (AMEX: BONE) – $2.00. Twelve-month hi-low has been $4.90 – $1.61. Based in Belgrade, MT, with about 115 employees, this biotech has 42.08 million shares outstanding, $16.6 million in total current assets, $23.17 million in total assets, and $17.67 in total liabilities, of which $6.73 million is long-term debt. Institutional ownership is around 12%. Two analysts rate the stock a “strong buy” and three have it as a “buy”. www.bacterin.com
Granted, the balance sheet for Bacterin International Holdings, Inc. is not what we usually look for, but the company has shown tremendous revenue growth over the last three years while greatly paring its losses. The growth is probably due to the company’s plethora of promising products in its arsenal.
Trading on the AMEX for just under a year, Bacterin’s products are used in various applications, including enhancing fusion in spine surgery, relief of back pain with a facet joint stabilization, promotion of bone growth in foot and ankle surgery, promotion of skull healing, and cartilage regeneration in knee and other joint surgeries. Its biologics products include OsteoSponge, a form of demineralized bone matrix made of human bone that is used as natural scaffold for cellular in-growth and exposes bone-forming proteins to the healing environment; OsteoSponge SC, a subchrondral bone void filler and cartilage regeneration scaffold; and OsteoWrap, which wraps around non-union fractures to assist with fusion, as well as is used in conjunction with hardware plate system. The biologics division also comprises OsteoLock and BacFast facet stabilization dowels that are used to augment spinal procedures; and hMatrix dermal scaffold that promotes cellular ingrowth, tissue vascularization, and regeneration.
Bacterin also makes and sells sports allografts for anterior and posterior cruciate ligament repairs, anterior cruciate ligament reconstruction, and meniscal repair; milled allografts; and traditional allografts for orthopedics, neurology, podiatry, oral/maxillofacial, genitourinary, and plastics/reconstructive applications. In addition, the company offers coatings for medical devices; OsteoSelect DBM putty, an osteoinductive product used by surgeons as bone filler in the extremities and pelvis; and custom surgical instrument kits for use with allografts.
At the end of April, Bacterin announced that a peer review article in Dove Press Journal has determined its OsteoSponge allograft exhibits ideal properties for bone regeneration, similar to those autographs (graft of patients own bone) with the distinct advantage over autografts, in that there is no risk of complications at the harvest site or donor pain postoperatively.
For FY2011, ending 12/31/11, revenue was $30.14 million with $3.1 million in losses compared to FY10 revenue of $15.42 million with $19.47 million in losses. FY2009 revenues were $7.3 million with $4.13 million in losses.
Put aside the scarcity of cash/cash equivalents. There are nearly a half dozen analysts favoring the stock, but, most importantly the numbers show some nice steady growth over the last three years, which is an indication that the company’s products may be catching on.
Our 24-month target for the stock is $3.50 to $4.00.
For more information, contact BONE at 406-388-0480.
FIVE STAR QUALITY CARE, INC. (NYSE: FVE) – $3.60. Twelve-month hi-low has been $8.70 – $2.15. Based in Newton, MA, with over 16,000 employees, this provider of long-term care facilities has 47.9 million shares outstanding, $141.51 million in total current assets, $583.47 million in total assets and $303.28 million in total liabilities, of which $76 million is long-term debt and $37.96 million is other liabilities. Institutional ownership is around 48%. Three analysts rate the stock a “strong buy” and one has it as a “hold”. www.fivestarseniorliving.com
At first glance, the debt of Five Star Quality Care, Inc. causes a raised eyebrow, but it seems more than offset by cash and property. Also, the company just entered into a new $150 million credit facility. So, what’s the main attraction here? The company is growing and making money in a rapidly booming market – the aging baby boomers.
Founded in 2000, and public for over ten years, Five Star operates and manages senior living communities in the U.S. These communities include independent living, assisted living, and skilled nursing facilities (SNFs). The company provides nursing and healthcare, physical therapy, occupational therapy, speech language pathology, onsite pharmacy, radiology, laboratory, telemetry, hemodialysis, orthotics/prosthetics, and institutional pharmacy services. As of December 31, 2011, it operated 245 senior living communities containing 27,159 living units comprising 207 primarily independent and assisted living communities with 23,736 living units and 38 SNFs and 3423 living units. Five Star also leases and operates two rehabilitation hospitals with 321 beds; and 13 outpatient clinics affiliated with these rehabs, as well as own and operate five institutional pharmacies.
For FY2011, ending 12/31/11, revenue was $1.28 billion with $64.2 million in net income compared to FY2010 revenue of $1.2 billion and $23.49 million in net income. The company has recorded twelve consecutive quarters of profits.
The stock price took a dive about a year ago when the company announced it was entering a transitional phase, whatever that is. Our thinking here is that phase seems to be pretty much over and the boomers keep getting older.
Our 24-month target for the stock is $5.50 to $6.00.
For more information, contact FVE’s Elisabeth Heiss at 617-796-8245; eheiss@5sqc.com
Look for the May 20, 2012 Newsletter to be posted on 5/16 or 5/17.
Thank you,
George