Arena Pharma: Bullish (Foreseeable) Future And My Recommendations Of 30 Top Biotech Companies

By: Steve Bauer | Sat, Jul 7, 2012
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In my last blog posting on Arena Pharma Corp. (ARNA) I presented clear warnings ahead of the announcement of the new weight-loss drug. Much news has transpired with the company in a short period of time. Major new-product announcements have now been made using up all their guns.

This article is a guide for your future of investing wisely in ARNA. My goal is to provide you and clients with consistent annual profitability. If you would like more than this quick insight into my work you might want to begin by reading "My Methodology." It is available upon request.

The table below provides my current recommendations for thirty of my favorite biotech companies. (Please see the disclaimer at the bottom of the table).

As for ARNA's "bullish (foreseeable) future," that too is as clear as can be. My valuation work is presenting warnings and concerns. Technically, Arena Pharma is not moving as might be expected with all the positive news.

Investing for profit is all about future price per share. Clearly, I am long-term bullish on Arena Pharma, but I expect a meaningful shorter-term pull back. Therefore, I am issuing another bearish warning to be considered by shareholders.

All the news and hoopla do not change the factual picture that the valuations and charts present. It seems that few investors know or think about the wisdom of this axiom of the stock market. It reads something like this: "Never buy or sell based on news!"

I received a number of Emails asking my opinion about ARNA. My answer was as polite I could be after reading the questionable opinions of so many people. My replies said: "I am not smart enough, at this time, to begin to assess the direction of this company for the longer-term. You may be interested in knowing what biotech companies I valuate regularly. The recommendations below will provide further insight into my work. The Biotech industry is continuing to go bonkers on the upside, as it should from my earlier ( past two years ) valuations. However, you will note on my table that some Biotech companies are not doing well. The biotech bullish cycle will end, but not all that soon so be prudent when taking profits and don't let your losses continue.


My Favorite 30 Biotech Companies

Company / Sym. /
Price
Current Recommendation -
Buy / Hold the Security /
Hold Cash / Sell
  Company / Sym. /
Price
Current Recommendation -
Buy / Hold the Security /
Hold Cash / Sell
Acorda Therapeutics
(ACOR) $26.
Sell / Hold Cash Dendreon
(DNDN) $7.50.
Sell / Hold Cash
Alexion Pharma
(ALXN) $104.
Hold the Security ImmunoGen
(IMGN) $18.
Hold the Security
Amgen
(AMGN) $75.
Hold the Security Incyte
(INCY) $25.
Hold the Security
Amylin Pharma
(AMLN) $31.
Hold the Security Jazz Pharma
(JAZZ) $46.
Sell / Hold Cash
ARAID Pharma
(ARIA) $18.
Hold the Security Lexicon Pharma
(LXRX) $2.50.
Hold the Security
Arena Pharma
(ARNA) $10.
Sell / Hold Cash Medivation
(MDVN) $95.
Hold the Security
Biogen
(BIIB) $146.
Hold the Security ONYX Pharma
(ONXX) $68.
Hold the Security
BioMarin Pharma
(BMRN) $42.
Hold the Security Questcor Pharma
(QCOR) $52.
Hold the Security
Celgen
(CELG) $66.
Sell / Hold Cash Regeneron Pharma
(REGN) $122.
Hold the Security - with caution
Charles River Lab
(CRL) $34.
Sell / Hold Cash Seattle Genetics
(SGEN) $26.
Hold the Security
Gilead Sciences
(GILD) $52.
Sell / Hold Cash Theravance
(THRX) $27.
Hold the Security
Halozyme Therapeutics
(HALO) $10.
Sell / Hold Cash ViroPharma
(VPHM) $24.
Sell / Hold Cash
Human Genome Science
(HGSI) $13.50.
Sell / Hold Cash Vertex Pharma
(VRTX) $56.
Sell / Hold Cash
Idenix Pharma
(IDIX) $11.
Sell / Hold Cash Vivus
(VVUS) $30.
Hold the Security
Illumina
(ILMN) $41.
Sell / Hold Cash Later  

 

The Biotech Industry Group remains very strong, as it should from my earlier ( past two years ) valuations. However, increasing caution is the focus on this, my current analytics. Please remember, you are not at client, and I am not available 24/7 for updates. The above recommendations are for approximately the next three months. Consider using stop losses. Do not make investment decisions based on the above recommendations. Always contact a seasoned financial analyst or Email me before making any investment decisions. I would like to point out that while the Biotech and Pharma Industries are currently doing very well, you will note there are more than a few of these large caps biotech companies that have already taken large percentage losses from their peak. This should tell you, loud and clear, that you need guidance when investing in this new, wild and wooly stock market.


Biotechnology Industry Chart

Biotechnology Industry Chart


Charts for the Above Companies

These six charts should also confirm that a strong industry group always has a number of disappointing companies participating. It is only by doing frequent fundamental valuations of all the companies can you separate the winners from the losers. If you are not familiar with my valuation work or valuations in general I recommend you learn as quickly as possible.


Valuations for Arena Pharma, ARNA (Click chart for a view of my 20-year chart)

This is the table from my previous ARNA article with current supporting notes. You will note that I presented a divergence of Minus 17+% to Minus 50%. Friday's trading of last week covered that range alone. If this does not tell you that you are not investing but rapping your money around a stick of dynamite, you are a very different kind of an investor.

Here is the table from my previous ARNA article with current supporting data:

  Arena Pharma (June 21st.) Arena Pharma (Now)
Current Price: $11.75 $10.02
Target Price: (from the high) plus 6% / minus 30+% plus 4% / minus 20+%
Trailing P/E None None
Forward P/E (fye 12/31/13) None None
PEG Ratio None None
Price to Sales: 167 - - not so good 167 - - not so good
Price to Book: 41.75 - - not so good 41.75 - - not so good
Dividend (yield) None None
ROI 49.7 - - very poor 49.7 - - very poor
Valuation Divergence: Minus 17+% to Minus 50% Minus 13+% to Minus 40%
Source: Raw data taken from Finviz.
Notes for the above table: Target price is calculated and produces a probable range of the current price over the coming one to three months. Valuation divergence is calculated and produces a plus or minus percent of price over the following one to three months after a given bullish or bearish inflection point.

Comments for the above table: These are very poor Valuations and Target Price Projections. When I do further fundamental studies, the valuation does not improve. Projected earnings growth for ARNA will fall off for a couple years. Good technical and consensus opinion analysis suggests that ARNA will continue to be a modest performer for the coming months. Investing in Arena Pharma at this time, or even holding, is highly questionable at this time.


Market Status

My general market opinion is that the fundamentals are over-valued; the technicals are over-bought, and the consensus opinion is way too bullish. I am currently a bear because my valuations are convincingly negative, and we are in a bearish cycle; it's just that simple!


Summary

Patience and discipline are more important than the above data, tables, charts and information. However, the focus is always the question: do I buy, sell or hold? My question for you is, do you have the patience and discipline to hold cash for a time? And, can you wait until you can be sure to profit?

My criterion for taking a bullish position is that the company must have the prospect within its fundamental valuation and technical charts to outperform the general market, its sector, and industry group.

Currently, the above tables and charts present notable warnings about these companies. It is a fact that, the stock market cycles endlessly both fundamentally and technically. It continuously moves from bullish cycle to bearish cycle and then back to bullish cycle again. Unfortunately, this is a pattern that is not well-understood or taken advantage of by most investors.

This analytic work I do each day is fun and profitable. There is always a list of the best (for buying) and worst (for shorting) companies to further valuate and study. Seeking profits by focusing on the best companies, or perhaps the worst companies is definitely a challenge. The companies between the best and the worst are never considered as a current investment. All companies rotate into favor and out of favor. Each company takes its turn, at being one of the best or perhaps one of the worst. To be consistently profitable, we must always be prepared with, up to date, lists of the best and the worst companies. This work must be complete, well ahead of the pending bullish or bearish market cycle.

Within this present general market bearish time frame, there is nothing (longer-term) wrong with Arena Pharma. This is an on-going process and what happens when companies turn bearish. It is also part of "cycling effect" and the way the stock market works.

I hope you like my methodology and will continue to follow my work / analytics. It won't be long before I can offer you a bullish and up-beat forecast once again.


Conclusion

I am currently bearish on both the world economies and the general market. My more recent postings are focused on securities that should not be currently held in your portfolio. I suggest that it is important for you to understand that holding cash is often a wise decision. During bearish cycles, this advice is always profitable for you. I can assure you that; this is definitely a "bearish cycle" time frame!

I can also assure you that I am longer-term bullish on all of these companies. Their bullish cycle will return again in the coming months. Currently, my "holding cash" advice is both prudent and investing wisely. On going support for Arena Pharma's current status, as well as for many other companies, is available to you. Let me know if I can help.

 


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Smile, have Fun - "Investing Wisely",

 


 

Steve Bauer

Author: Steve Bauer

Steven H. Bauer, Ph.D.

Steve Bauer

Steve has several degrees, i.e. post graduate degrees and doctorate and a great deal of (too much) continued education. For seven years, he did a stent as a University Professor of Finance and Economics.

Dr. Bauer also writes for SeekingAlpha.com. His articles can be viewed at: http://seekingalpha.com/author/steven-bauer?source=search_general&s=steven-bauer

He owned a privately held asset management firm and managed individual investor and corporate accounts as a Registered Investment Advisor - for over 40 years.

Professionally he is a financial analyst and private asset manager / consultant / mentor.

Steve can be reached at senorstevedrmx@yahoo.com

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/