Best Stock Market Indicator Ever

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See Is This the Best Stock Market Indicator Ever? for a discussion of this technical tool.

The charts below are current through the week’s close.

 

Monthly OEXA200R Over the Past Few Years

 

Click to View

 

Interpretation:

The OEXA200R ended the week unchanged at 88%.

Of the three secondary indicators:

  • RSI is POSITIVE (above 50).
  • MACD is POSITIVE (black line above red).
  • Slow STO is POSITIVE (black line above red).

Commentary

According to this system the market is tradable.

The “Printing Press Bull Market” continues. It could be seriously argued that since 2009, Fed intervention in its various forms has for all practical purposes simply camouflaged a second full blown Great Depression. Realistically however, Fed Chair Bernanke can only feed the economy so many cans of QE Red Bull before it eventually crashes. Consider the following realities:

  • After five years GDP remains feeble. 
  • U6 (actual) unemployment is over 14%. Many of the long term unemployed will never gainfully work again because they have either gone on disability or their skills are so rusty that employers will never hire them for the equivalent of their former positions. For many of those lucky enough to find work it doesn’t provide as much income as their old job did.
  • The gusher of money coming out of the Fed hasn’t yet caused overall inflation to increase, true – just inflation of the stock and now housing markets. But how can a country print an ocean of new money out of thin air attached to a stagnant GDP without eventually causing inflation? It’s never happened before in history and it won’t happen this time.
  • Southern Europe is in a full blown modern Great Depression, unemployment and other indicators make that clear. The relatively healthier economies of northern Europe continue to drag that ball and chain behind them with no end in sight.
  • The events in Cypress have been nothing short of eye-popping. The global banking system is built on solid faith that depositors can park their savings in an account and have it protected from robbery, as opposed to hiding their cash in a mattress. Cypress, however it turns out, has severely undermined that faith. The idea that a bank can engage in the financial equivalent of internet gambling, reap enormous profits if the gamble succeeds (not to be shared with depositors, of course) but can without warning raid depositors’ accounts if the gamble fails, ignoring deposit insurance and myriad law is mind boggling. And this idea had the quiet approval of the I.M.F. (meaning, the U.S. government). As hair brained as the Cypress precedent is, similar “bail-in” noises are even coming out of Canada.
  • But really, how fragile is the economic picture? Here’s one indication: Atty. General Eric Holder (for Pres. Obama) recently stated that he would not criminally pursue the mega-thieves at Bank of America, HSBC and other too-big-to-jail banks because it would just be too “unsettling” for the economy. The Attorney General is afraid to enforce the law against the largest, most dangerous financial criminals in world history, that’s how fragile it is.

The force driving the S&P to new highs is not actual economic recovery but mass delusion. The idea that no matter what – hell, high water, incompetence or criminality – the U.S. Government will do whatever it takes to keep the systemic banks afloat. That, and the assurance that the Fed will also go to any economically irrational extreme to keep Wall Street and those banks happy (since those banks ARE the Fed, that’s no surprise). All in the slim hope that if the bogus appearance of recovery and prosperity can be maintained for long enough, actual recovery and prosperity will somehow materialize in time. But in the certainty that either way those who control Wall Street and the systemic banks will continue to make a fortune.

The recent bull market in the S&P is based on the same mass speculative self-delusion that has characterized every other financial bubble since the Tulip Mania of the 17th century. Will the market crash next week or next month? Probably not. But all the other bubbles eventually ended, and in the same way that this one eventually will.


Background on How I Use This Indicator

The OEXA200R is a valuable metric used to accurately assess the state of the market in order to make profitable trading decisions. That is, whether we are in a bull, a bear or transitioning from one to the other, as well as market volatility and risk within each of those situations. Historically, it has also given traders a clear early warning signal of impending serious market downturns and later safe re-entry points. While not intended as a day trading tool per se it can certainly be used as background information by day or highly speculative traders. Simply put, the OEXA200R gives traders the ability to identify the most opportune conditions within which to execute their various long, short or hold strategies.

Following a major market correction, the conditions for safe re-entry are when:

   a) Daily $OEXA200R rises above 65%

And two of the following three also occur:

   b) RSI rises over 50
c) MACD black line rises above red line
d) Slow STO black line rises over 50 and is also above red line

Without the solid foundational support of two out of three secondary indicators it is unsafe to trade even if OEXA200R edges above the 65% line. Once two turn positive, the market is considered safely tradable as long as OEXA200R remains above 65%. Volatility and risk for long traders are relatively low. The trend is on their side.

When Daily OEXA200R drops to 65% it is taken as the conservative signal to exit all long positions, sit on the sidelines with your cash and wait for some clarity before proceeding. Volatility and risk increase substantially. Since 2007, this has often been a “tipping point” condition presaging a major market drop.

If the OEXA200R does not rebound but remains below 65%, how to proceed depends on the overall trend of the market, the macro-picture. During the cyclical bull of 2003 to 2007, the market was still safely tradable with OEXA200R in the 50% to 65% zone because there was enough upwelling lift in the S&P at that time to minimize the chance of a sharp, significant market downturn.

The problem is that we can by no means confidently compare our present situation to that of 2003 – 2007. There is no strong, steady wind pointing the market weathervane in one direction, it is being buffeted by swirls and gusts in unpredictable ways. To better understand this, take a look at the charts below, in particular the overall trend of the OEXA200R during the 2003 – 2007 cyclical bull compared to the trend from 2007 to present.

 

Click to View

 

 

Click to View

 

The S&P chart indicates that for the past five years we have not had a steady upwelling trend in the market comparable to 2003 – 2007. Absent that underlying support, the OEXA200R has undergone significant gyrations since 2007. Notice also that even in spite of the Fed-fueled rally, the S&P volume has experienced a steady decline since 2009, a classic Bear indicator.

If the OEXA200R drops below the 50% line we regain clarity as to the market’s direction. That will be the strong signal to exit any remaining long positions immediately in expectation of a serious, imminent market decline. Conversely, it will also be the clear signal to go short to take advantage of that sharp decline.

In my opinion, the most significant indicator of where we stand today is the fact that the market is above both its 140 year historical trend line and the trend line for the secular bear that began in 2000. These are the marco-forces that will gravitationally pull the market back into equilibrium at some point in the near future.

How far will the market drop? QE3 might save the day once again, temporarily. But in light of the factors mentioned above, it should come as no surprise if by 2014 we end up experiencing a market event worse than that of 2008 – 2009. Luckily, OEXA200R should give us ample advance warning of the next major correction however we want to trade it. Buckle up!

 


NoteStockcharts.com offers free access to the $OEXA200R indicator on a daily and weekly basis. The monthly view requires a subscription. Stockcharts allows users the option to download the last two years of indicator data. Unfortunately, I have not found a source for longer-term $OEXA200R data for performance back testing. Meanwhile, here is a link to a chart that gives a better look at the correlation between the $OEXA200R and the S&P 500 over the past decade.

 

 

(c) John F. Carlucci

Stonecap Securities Top Picks

TGR: How do investors make money in this space?

CD: By seeking out investment vehicles that limit exposure to input cost creep, but also deliver the benefits, assuming that the metal price continues to go up. Some of those investment vehicles may be royalty companies, which tend to pay a big lump sum upfront for a royalty stream and then receive a certain amount off the top of ounces produced every year after a mine begins production. They don’t pay an ongoing cost associated with the ounces that are delivered to them and therefore avoid the creep of input prices.

“We will see precious metals start to move upward in price again.”

One of the reasons that these royalties companies have tended to trade at a premium relative to mining companies on a net asset value (NAV) basis is that you do not pay for extended mine life. Even though mine planning can keep the margins constant and can reduce ounces produced from a deposit as the grade goes down, it also tends to lengthen the life of that deposit. It’s a question of would you rather have a 1% net smelter return (NSR) on 100,000 ounces for 10 years or a 1% NSR on 80,000 ounces for 15 years? At the end of the day, the total ounces you receive under that second scenario is larger, though in any one period the total ounces received is less than the first scenario. Royalty companies offer investors exposure to gold without a lot of the risks associated with owning mining companies.

TGR: While you haven’t covered many royalty companies in the past, you just launched on a company called Premier Royalty Inc. (NSR:TSX), which was spun out of Premier Gold Mines Ltd. (PG:TSX). Tell us about the company and your investment thesis.

CD: I’ve come out with a buy recommendation and a $1.80 target price. The stock is around $1.55/share. My valuation thesis and reason to own it are very simple. The comparable companies, Sandstorm Gold Ltd. (SSL:TSX) and Silver Wheaton Corp. (SLW:TSX; SLW:NYSE) and Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), are trading on average around 1.2 times NAV and 16 times forward-looking cash flow. Based on my estimates, Premier Royalty is trading at around 0.9 times NAV right now and 12 times forward-looking cash flow. As the company gains more visibility in the public market and attracts more investors, it should trade more in line with its peers.

“When the precious metals complex starts to move up again I would not be surprised to see the gains in silver exceed the gains in gold on a percentage basis.”

I also like Premier Royalty because it’s got $30 million ($30M) in cash. It’s a very challenging market right now to raise money, so royalty companies have become a go-to source of capital for companies with good projects. Premier Royalty has the war chest to buy royalties on quality projects and the marketplace right now doesn’t provide mining companies with a lot of other options.

One of the things I really like about Premier Royalty is it only has around a $100M market cap. It has a bunch of operating royalties right now that are generating about 7,000 oz gold per year to its account, so it’s not as if it’s just a pile of cash waiting to do business. The company actually has royalties under its belt, but it’s also positioned to acquire new ones. It can also acquire royalties on a much smaller scale than its competitors because it just takes more to move the needle for a billion dollar company than it

does for a $100M company.

TGR: Can you give us a ballpark figure for what Premier is going to be looking for in royalties?

CD: Some of its existing royalties are generating less than 500 oz/year to its account. When you look at 50,000 or 60,000 oz/year operations with a 1% NSR, these generate some 500 oz gold per annum with a value (today) of around $800,000. That certainly doesn’t move the dial for a Franco-Nevada, but it can be meaningful to a company like Premier Royalty, especially if it can put a bunch of similarly sized deals together.

Premier Royalty is going to look at every opportunity in the royalty space that’s out there and might compete with some of the other players in trying to bid on the larger ones. But on the smaller ones, which are less material to a Franco-Nevada or a Sandstorm, the company can actually bid on them because it is only a $100M market-cap company and adding hundreds of ounces of annual royalty production can move the needle. The space it is going to be most successful in is the sub-1,000 oz/year stream. That’s 1% NSR on a 100,000 oz/year operation.

TGR: You follow a number of companies with operations in Mexico. Tell us about some of your favorites.

CD: One of the ones I cover is Argonaut Gold Inc. (AR:TSX), which operates a couple of mines in Mexico right now and is in the process of trying to build a third over the next year or so. It’s been a big success story. The company’s IPO was priced at around $3/share in 2009 or 2010 and it was up in the $10–11/share range for much of 2012. I had a Hold on it in early 2013 and it came down to the $8/share range, so I moved it back to a Buy. Argonaut is currently trading around $8.25-8.50/share. It’s a company I like. It’s got strong management and has really delivered into the expectations that it set.

While Argonaut has been experiencing margin pressure, it has done a very good job of keeping costs tight and has generated a very good return from operations. It’s a company I’ve recently gone bullish on again. My current target on it is $10.75.

TGR: Last fall, Argonaut bought Prodigy Gold Inc. A lot of analysts didn’t like that acquisition. We’ve seen the share price come off its highs since then. What’s your view?

CD: It is a very different beast for Argonaut compared with where it has normally played. Prodigy’s Magino asset is in Ontario, which is a different permitting and operating environment from Mexico. Although Argonaut paid a reasonable price for the asset on a per ounce basis, it is still a big change for the company jurisdiction-wise. It also will be the largest project from a capital expenditure (capex) and production standpoint. While many analysts may be negative, I’m taking a wait-and-see approach with a healthy dose of skepticism given that Argonaut has not been active in Ontario before.

TGR: But Argonaut is still very active in Mexico, right?

CD: The two assets the company has producing right now are in Mexico. The next asset to enter the production queue, San Antonio in Baja Sur California, is a Mexican asset as well. When I moved my rating to Buy at $8/share, one of the things I told clients was even if you strip out the Prodigy acquisition, the stock still is worth $8/share. You get what you pay for. If Prodigy works out, the stock should be worth more than $10/share.

TGR: Can you tell us about another Mexican play?

CD: I was the first to launch on Aurcana Corporation (AUN:TSX.V; AUNFF:OTCQX). The company is a silver producer that has two operating mines in Mexico including one called La Negra, which is a little cash flow machine. It’s also got the Shafter project in Texas, which unfortunately has been more challenging. As a result, the share price has suffered recently.

“Resource investors need to seek out investment vehicles that limit exposure to input cost creep.”

Shafter could be much bigger than La Negra: 3.5–4 million ounces (3.5–4 Moz) silver, compared with 1.5 Moz at Le Negra. Although the company has a plan to expand production at Shafter to 5 Moz, it still hasn’t quite gotten to the 3.5 Moz stage yet, so the jury is still out on this asset.

My take on it is La Negra alone is worth $0.75/share and the stock is currently trading around that level. If you buy it, you’re getting La Negra at the right price, and you’re effectively paying nothing for Shafter. If Shafter works out, I see lots of upside and if it doesn’t work out I don’t see a ton of downside.

The biggest challenge the company has is manpower. Hiring skilled workers for underground mining in Texas is not easy. Aurcana has been mining Mexico, which has a strong mining culture and history. Finding people there to drive machinery underground is not a challenge. It’s a different story in Texas. And bringing labor in from Mexico isn’t as simple as you’d think. You have to prove that there’s no American able to do the job. In my opinion, labor has been the single largest challenge for Aurcana at Shafter.

The company also had an issue with some filter presses. The presses should be installed by the end of the first half of the year. I have ramped down my assumptions on Shafter pretty aggressively. I only have it throwing off around 1 Moz silver this year as opposed to its potential 3.5 Moz annual production profile. Shafter probably won’t come fully on-line until halfway through the third quarter or the fourth quarter although Aurcana did declare commercial production there in December 2012.

TGR: So Aurcana could be positioned to have a good 2014?

CD: Absolutely. But with Aurcana, the shares are going to remain in the $0.70–0.80 range until we get positive news on Shafter. Given the struggles the company has had at Shafter and the current market conditions, investors are unwilling to ascribe any value for Shafter.

TGR: What are some companies you’re following outside of Mexico?

CD: One is Orvana Minerals Corp. (ORV:TSX), which is operating in Spain and Bolivia, and also has a development asset in the United States. This one has not had a great track record with its share performance since I initiated coverage. That unfortunately is tied to the fact that the El Valle-Boinás/Carlés (EVBC) mine in Spain was much more challenging than expected. It didn’t have a great 2012 from a share performance perspective, but I think operations at EVBC have turned around. The Don Mario operation in Bolivia has value too, though it’s a much smaller operation. Don Mario has turned around as well.

I’ve recently gone back to a Buy on it from a Hold. My only concern is the balance sheet needs some work. The company has a big debt facility with Credit Suisse coming due over the next four and a half years. As long as the operations continue to generate free cash flow it can pay that debt down, but it is going to be touch and go. Management doesn’t have a lot of wiggle room. A couple of bad quarters or even one bad quarter might require tapping new sources of capital.

TGR: The Orvana assets have bounced around from a few different companies. What makes you think that Orvana has figured it out?

CD: EVBC has been operated by Rio Narcea Gold Mines Ltd. and others. It was shut down primarily due to metals prices. It’s not as if Orvana has a magic formula here. The mine was acquired by Kinbauri Gold Corp. The company’s drilling showed that there were more resources there in addition to what was left behind. Orvana came in, bought it for cash and then put it back into production. It was not a very smooth startup. The company went through a couple of mine managers in the process. Ground conditions ended up being much more challenging than anticipated. That took time and money. That’s why the shares were moribund for quite some time. But on an operating basis, Orvana’s management seems to have hit its stride. In the last year, the company put in a new shaft, which has dramatically increased the number of tonnes that can ultimately be pulled out of it on a daily basis, and reduced the cost per tonne. It spent a lot of money sinking that shaft and putting in the hoist, but it is now paying off and you can see that in the last couple of quarters that the operations have really turned around after the shaft came on-line.

TGR: I understand you have a sell story. Tell us about it.

CD: San Gold Corp. (SGR:TSX.V) is the only Underperform in my universe right now. It has the Rice Lake mine in Manitoba. The operation has just struggled and absolutely failed to deliver on the expectations company management set for the project. The capex budget that came out back in February was for me the death of this story. It showed that there is no free cash flow for at least a couple of years to come. It’s just going to be a money pit. In fact that was the title of my note. Shares are trading around $0.25/share. I have an underperform rating on the stock. My $0.30 price target was set when the stock was at $0.50, so on paper it might not look to be a Sell right now, but I have a lot of fear here.

These guys just did a $50M convert, which will fund capital development. It’s a Hail Mary pass. If management is successful using this $50M, it might in three years start generating free cash flow again in significant amounts. The $50M convert was the last kick at the can.

TGR: Do you have any other companies you want to talk about?

CD: Why don’t I suggest the Canadian name that I think you should own instead of San Gold, which is St Andrew Goldfields Ltd. (SAS:TSX). The company is in the Timmins Camp. I had a Hold on it for quite some time and then I went to a Buy last fall. The company delivered three quarters in a row of free cash flow so it is adding to the treasury. St Andrew Goldfields also had some recent sexy exploration success beneath the Hislop pit. It’s only one hole so it doesn’t prove anything yet. But if it pulls a few more of those, it will start to define a high-grade ore zone. It’s run by Jacques Perron who is a great operator. As much as it struggled in 2011, St Andrew Goldfields turned itself around in 2012 and it’s very well positioned for 2013. I have an $0.80 target and the stock is currently trading at around $0.45/share.

TGR: Thank you, Christos, for your insights.

CD: Thank you.

Christos Doulis, before joining Stonecap Securities as a mining analyst in September 2010, spent 16 years in a wide variety of roles with a focus on the global mining sector. Most recently, Doulis was a partner at Gryphon Partners, a diversified global corporate advisory consultancy specializing in mining and resource company mandates. From 2006 to 2008, Doulis was a vice president in the Mining Investment Banking group at Blackmont Capital. Doulis began his professional career in 1994 with Scotia Capital as an equity research associate.

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Kraft Foods Group : Update Target $ 56

KRFT : NYSE : US$51.37
BUY
Target: US$56

Update

We are increasing our target price (to $56 from $50) to reflect our increased confidence in the cost savings opportunity.

We see several years of improvements ahead following good initial progress on costs in Q4, the first quarter reported as a standalone company.
Besides the expansion of Lean Six Sigma and de-layering the organisation (the two major sources of efficiency that we detailed in our November 2012 initiation report), the rollout of Integrated Business Planning, supply chain rationalisation, SKU rationalisation and distribution efficiencies should between them provide ample scope for margin improvement over the medium term.

However, near term, we think the top-line is likely to be weak given pressure on the U.S. consumer, commodity deflation and difficult comps.
Impact :
We raise our forecasts (by about 5% in 2014 & beyond), and our target price by 12% to reflect this increased confidence in the cost savings. We now expect an 8% CAGR in EBIT over the medium term vs. around 5% previously; the Q1 expectations are detailed on pg. 5 (CG est. EPS $0.66). The shares have risen 14% since November and we see 9% further upside from the current level. BUY.
Valuation
Our new $56 target implies a 2014E PE of 17x and a 3.8% dividend yield. These ratings would put KRFT in-line with global Food companies but ahead of U.S. Food companies; however, the internal improvement at KRFT is a unique attraction, along with the high yield.
Share performance catalyst
Upgrades to consensus forecasts should drive the shares higher. The next opportunity for upgrades should be the Q1 results in early May.

Tembec Inc. SALE OF SKOOKUMCHUCK NBSK PULP MILL

English: Tembec mill in Kapuskasing, Ontario, ...

English: Tembec mill in Kapuskasing, Ontario, Canada (Photo credit: Wikipedia)

TMB : TSX : C$3.35
BUY 
Target: C$4.00

COMPANY DESCRIPTION:
Tembec Inc. produces forest products, pulp, paper, paperboard, and chemicals. The company’s Forest Products division produces softwood lumber, hardwood lumber, hardwood flooring, etc. The Pulp division manufactures various types of pulps, while the Paper division produces newsprint and paperboard including coated covers, bleached paperboard for packaging, and bleached linerboard.

Investment recommendation


Tembec announced the sale of its Skookumchuck NBSK mill for $89 million, including working capital, to Paper Excellence. The transaction
is expected to close in Q2/13 and is subject to certain conditions and approvals. The Skookumchuck mill has capacity of 255,000 tonnes  of
NBSK with its pulp shipped to North American and Asian customers.
The transaction implies a price per tonne of $350/t. Tembec management disclosed on its Q1/F13 conference call in late January that it had intended to sell the NBSK mill within the next 12 months. The Skookumchuck mill is the only NBSK mill that Tembec was operating, therefore, not a core asset within its portfolio. We expect that most of the proceeds from this transaction will go toward the boiler/turbine upgrade project at Tembec’s Temiscaming facility.

As of the last conference call, Tembec indicated that the project’s schedule has been pushed back, and that it is currently re-evaluating the project’s timeline and capex requirements. Overall, we had expected this announcement in the first half of 2013 to improve the liquidity toward the funding of its green energy initiative. We view the announced transaction as moderately positive as it should improve the company’s liquidity
position and enable it to move forward on the green energy project. We are reiterating our BUY rating and raising our target price to C$4.00
from C$3.50.
Investment highlights
 We have revised our estimates assuming that the transaction closes in late Q3/F13 with proceeds of $89 million. We will revisit our estimates as necessary following the update on the Temiscaming project timing expected with the Q2/F13 results in late April.
Valuation
Our 12-month target price of C$4.00 represents an EV/EBITDA multiple of 5.4x our F2014 EBITDA estimate.

Omeros Corporation Q 4 Update

Left knee arthroscopy

Left knee arthroscopy (Photo credit: Bekathwia)

OMER : NASDAQ : US$4.09
BUY 
Target: US$13.00

COMPANY DESCRIPTION:
Omeros is a biopharmaceutical company focused on products for inflammation and central nervous system disorders. Omeros has multiple products in clinical development and a rich preclinical pipeline. Lead product OMS103 is in Phase 3 studies to evaluate improvement in functional outcomes post arthroscopic ACL reconstruction.

Investment recommendation


Reiterate BUY, $13 target on potential of OMS302 in cataract surgery, OMS103 in meniscectomy. OMS302 is in development for pupil dilation maintenance in lens surgery, where dilation is key for lens placement and recovery. 302 is OMER’s second Pharmaco-Surgery asset after OMS103, now in Ph3 for meniscectomy surgery. Our $13 target is based on pNPV analysis.
Investment highlights
 Commercialization planning underway for OMS302 in lens replacement surgery; NDA in Q2/13, MAA in mid-2013. We think OMER may seek
accelerated approval based on unmet need. The marketing plan currently revolves around a KOL base, as OMER believes a typical community MD will be guided by KOL opinion. OMER is currently recruiting KOLs in a clinical advisory capacity: 30 are onboard with only a month of outreach. OMER intends to recruit ~80 KOLs, which we think could be leveraged on the commercial front on approval. Reimbursement research and  stablishment of payor codes (e.g., HCPCS, SCOD, or pass-through systems) is ongoing.
 A second Ph3 trial of OMS103HP in meniscectomy is to begin mid-‘13; we expect a VAS-AUC post-op pain primary endpoint, based on Ph2 data. In the first Ph3, OMS103HP missed the KOOS primary endpoint, but hit the prespecified secondary VAS-AUC post-op pain endpoint (p=0.0003). OMER noted the primary endpoint in the next trial will be pain, with a secondary endpoint looking at opioid sparing (which may hit significance). A second trial of the same design is slated to start in H2/13. Each trial will be “substantially” smaller (we think 30%+) than the first KOOS-based Ph3 trial.
 OMS824 moving into Ph2 trials in Huntington’s Disease; MASP-2 program to enter the clinic in mid-2013, and GPCR work is leading to partnerable candidates. OMS824 was well tolerated in Ph1 trials, and a Ph2 is slated to start H2/13. INDs for MASP-2 and PDE7 compounds are on track, with both slated to enter the clinic this year. Early-stage work with GPR17 agonists shows promising potential for remyelination.

Trading Alert Diana Shipping / Sector

English: CNBC’s “Mad Money with Jim Cramer” ca...

English: CNBC’s “Mad Money with Jim Cramer” came to Tulane University’s Freeman School of Business Oct. 19, 2010 to broadcast in front of a live audience as part of the show’s “Back to School Tour.” (Photo credit: Wikipedia)

Shipping AMP Watchlist

Jim Cramer‘s Shoutout for Diana Shipping highlights the sector.

DRYS DryShips Inc 2.11 2.11 2.12 +0.0901 4.46% 4.2M Average BuySell
1/25/13 DSX Diana Shipping Inc 10.57 10.57 10.58 +1.06 11.15% 4.0M Above Average  
1/25/13 FRO Frontline Ltd 2.38 2.38 2.39 +0.18 8.18% 1.1M Above Average l
1/25/13 STNG Scorpio Tankers Inc 8.75 8.74 8.75 +0.02 0.23% 661.5K Above Average
1/25/13 NMA Nuveen Municipal Advantage 14.78 14.78 14.79 +0.0418 0.28% 57.6K Below Average l
1/25/13 DHT DHT Holdings Inc 4.75 4.75 4.77 +0.16 3.49% 25.4K Below Average l
1/25/13 TNK Teekay Tankers Ltd 2.78 2.78 2.79 -0.07 -2.46% 247.8K Below Average l
1/25/13 NAT Nordic American Tanker Ltd 11.57 11.57 11.59 +0.3102 2.75% 508.0K Below Average l
1/25/13 TNP Tsakos Energy Navigation Ltd 4.33 4.33 4.35 -0.01 -0.23% 194.3K

The Baltic Dry Index was at 10,000 prior to the financial meltdown- now at 931 ( 97 % less).

BALTIC DRY INDEX  ( Bloomberg)

BDIY:IND

931.004.00 0.43%

As of 03/26/2013 ET on 03/26/2013.

The opportunities in the sector – if and when the  two issues of an economic recovery and overcapacity are resolved – are truly great.

That is why the AMP ( Apprentice Millionaire Portfolio – available at Amazon.com  0 has this watchlist and owns Diana Shipping.

AcelRx Pharmaceuticals

Clinical trials 05

Clinical trials 05 (Photo credit: Sanofi Pasteur)

ACRX : NASDAQ : US$5.24
BUY 
Target: US$9.00

COMPANY DESCRIPTION:
AcelRx Pharmaceuticals is a specialty pharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of acute and breakthrough pain. AcelRx’s lead product, ARX-01, is designed to provide patient-controlled analgesia (PCA) and overcome the issues currently encountered with IV PCAs.

We’ve taken another look at the stock post the recent Phase III data read, meetings with management, and the Q4/12 update call. We continue to
see long-term potential for AcelRx’s Sublingual Sufentanil NanoTab PCA System (ARX-01) for treatment of post-operative pain in the hospital
setting. With the positive Phase III data set in hand (abdominal study) the path from here still holds several key catalysts for ACRX, including one
last pivotal Phase III study read-out for ARX-01 (placebo-controlled in major hip and knee surgery) expected in Q2/13, an NDA submission in
Q3/13, and potential for an ex-US partnership to come anytime.
Additionally, ARX-04 (break-through battlefield pain) funded by the DoD should also have top-line Phase II results in Q2, where focus thus far has
been limited. ACRX continues to trade at a significant discount to our ARX-01 NPV, which we don’t think will hold. Reiterate BUY rating and $9
target.
Model update – no change to our underlying ARX-01 assumptions We are making some modest changes to R&D and SG&A spend in our model going forward, and our EPS estimates from 2013-2017E are now ($0.61), ($0.49), $0.02, $0.61 and $0.96. Our assumptions around an early 2015 ARX-01 US launch with peak 2022 US sales of $577 million are importantly unchanged, which is where focus is likely to begin to pick up. Current cash position of ~$60 million exiting 2012 should provide  run-way into Q3/14, with the potential for an ex-US partner likely to help bridge the gap of any cash needs.
Valuation attractive as stock trades at discount to our ARX-01 NPV
Our $9 target is based on an equal-weighted 17.0x P/E on our 2017 EPS risk-adjusted forecasts discounted back and NPV on the full and partnered
RoW ARX-01 opportunity using a 26% WACC that can move lower.

Rosetta Resources

University of Texas Permian Basin Seal

University of Texas Permian Basin Seal (Photo credit: Wikipedia)

ROSE : NASDAQ : US$46.56
BUY 
Target: US$69.00

COMPANY DESCRIPTION:
Rosetta Resources is an exploration and production company with operations in south Texas and northern Montana

Investment thesis


The former CEO Randy Limbacher built a deep bench as to executive management, and Jim Craddock (Texas A&M engineer) should capably
move the company forward. Randy’s departure was specific to his own interests and not a reflection of Rosetta’s business prospects.
An equity component to finance the Permian deal is unnecessary, unlikely Pro forma Rosetta’s property acquisition in the Permian Basin for $768
million in cash, the company’s year-end ’13E net debt-to-EBITDA increases from ~0.7x to ~2x, which is in line with the industry median, and should stabilize thereafter assuming ~$1 billion per annum capital plan. Given the company’s latent debt capacity, Rosetta can comfortably
debt finance the acquisition, which is underscored by the company’s ability to access term debt capital at 6%-7%, whereas Rosetta’s current
cost of equity capital is 20%-25%.
Doubling the WTI/condensate spread only has 5-6% equity value impact

Concerns abound as to the deterioration in the WTI/ condensate spread,
with analogies drawn from the erosion in NGLs pricing relative to WTI. The theory of an overabundance of natural gasoline (i.e., condensate)
rests upon the outlook for declining US motor gasoline demand and growing US condensate production. Yet, the condensate discount relative to WTI/LLS this past year has remained steady as lower gasoline imports and demand for condensate to dilute heavier crudes (≤31º API) has sufficiently counteracted this perceived market imbalance. Pro forma the Permian acquisition, condensate comprises ~25% of ROSE’s production.

Even assuming the WTI/condensate spread doubles only lowers ROSE equity fair valve 5-6%.

Dollar General

Dollar General 300

Dollar General 300 (Photo credit: Wikipedia)

DG : NYSE : US$50.91

Dollar General said sales growth this year could surpass the strength it saw in 2012 as increased demand for food
and other basics helps drive gains despite consumers’ concerns about the economy.

The company’s fourth-quarter profit came in well ahead of analysts’ expectations despite lighter-than-anticipated sales growth. Dollar General earned $317.4 million, or $0.97 per share, in the fourth quarter ended on February 1, up from $292.5 million, or $0.85 per share, a year earlier.

Sales rose 0.5% to $4.21 billion. Analysts, on average, expected $0.90 per share on sales of $4.26 billion. Sales at stores open at least a year, or same-store sales, rose 3%. The same-store sales surpassed a 1% rise in such sales at Wal-Mart (WMT) U.S. in its fourth quarter, yet came in at the low end of Dollar General’s forecast of 3 to 4% growth.

The sales gains at existing stores were  helped primarily by consumables, or items such as food and household basics. More shoppers came into the stores and spent more on their purchases, the discount chain said. Dollar General expects to earn $3.15-3.30 per share on an adjusted basis this year, with total sales up 10-12% and same-store sales up 4-6%.

Rubicon Technology UPGRADING TO BUY

Light-emitting diode (LED) #3

Light-emitting diode (LED) #3 (Photo credit: explainthatstuff)

RBCN : NASDAQ : US$5.95
BUY 
Target: US$10.00

COMPANY DESCRIPTION:
AIXTRON is a manufacturer of capital equipment used in the production of silicon and compound semiconductor applications. Specifically, it produces MOCVD deposition equipment for the manufacture of LEDs and other optoelectronic devices as well as deposition tools for silicon-based semiconductor applications.

Investment recommendation


We are upgrading the LED group following our recent supply chain tour of Asia. Specifically for AIXTRON, we believe that the equipment market has finally bottomed; however, we believe a lack of leverage in the company’s model justifies only a HOLD rating.
Investment highlights
 Following our recent trip to Asia we have increased confidence that our 2011 short thesis has played out. We now conclude 2013 will represent an inflection point in LED fundamentals and investor sentiment.
 We believe that increased demand from lighting is beginning to offset the saturation of TV backlighting and that we are on the verge of another capacity expansion cycle.
 While on paper the industry still has significant capacity to digest, we have confirmed that approximately 80% of China’s “capacity” is not operational or salvageable due to limited operational uptime combined with low yields where utilized. As such, we believe that the effective worldwide supply-demand environment is tightening.
 Even with generous assumptions for OPEX growth and GM expansion on top of our base case for MOCVD tools, AIXTRON’s model does not have compelling earnings power to justify upside at its current valuation. We could become more constructive on pullbacks or on signs our more bullish case is occurring.

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