Sunday, January 27, 2013

Arena Pharma Could Gain 100%

Arena Pharma (ARNA) is a biotech company with a recently approved weight loss drug.  It has been years since the FDA has allowed a new weight loss drug on the market, and there is a great need for this type of medicine since many people in the U.S. are overweight.  Arena does have competition from Vivus currently, but Arena's drug has less restrictions than Vivus prescription medicine.  Also, Arena has more sales support than Vivus.

As of January 25, 2013, Arena was selling for $8 and change per share.  It could easily go to $20 per share in the next year or two.  A lot depends on how fast the company can market the drug and whether or not the drug becomes popular.  Arena's prospects will also improve if their product gets approval in Europe and Asian countries.  I think a good plan would be to designate 4 or 5% or your portfolio to Arena.  Consult with your financial adviser before you buy the stock, though.

Sunday, November 11, 2012

Westport is a possible double in 18 months

Westport Innovations (WPRT) is a company that designs natural gas engines for small, medium, and large vehicles like 18-wheeler trucks.  Clean Energy (CLNE) is building a nationwide filling station infrastructure for natural gas vehicles, and the completion of thousands of refueling stations is the main obstacle to mass adoption of natural gas cars and trucks.  The system will eventually get built, though, because natural gas is cheaper than regular gasoline and diesel.  Westport is also involved with Caterpillar in making natural gas engines for industrial equipment.  The company's revenues are growing at a good pace, too.

The stock has found good support in the lower $20 range.  WPRT jumped over $2 per share this past Friday.  You will need to be patient because it is a volatile stock, but the company will succeed over time.  I own shares of the company, and I believe it will be worthwhile to own as long as you make it a small portion of a well diversified portfolio where most of your holdings are dividend stocks.

Sunday, September 9, 2012

Buy Whiting Petroleum

The search for multi-bagger stocks can be frustrating at times.  When you find a proven winner, you need to hang on to it.  For example, at $680 per share in September 2012, Apple has grown around 8 times in the past several years since the low of $85 per share in March of 2009.  Gaining this much money over several years can be a life changing event for good.

Since Apple is now the largest company in the world, it is unlikely that it will grow another 8 times.  Therefore, we need to look elsewhere for multi-bagger stocks.  One possible stock for gaining 200 to 300% in the next several years is Whiting Petroleum (WLL).  They own a lot of acreage in North Dakota where the oil business is booming.  In fact, North Dakota is now the 2nd highest oil producing state in the U.S. after Texas.  Whiting is already up 10% in the past month, and they may have a 20 year supply of oil in North Dakota.  Now is the time to buy WLL and hang on for the next several years because we will always be using oil.

Tuesday, December 27, 2011

Beazer Homes

It has been very frustrating for home-builders in the past couple of years due to the large inventory of available houses. One of the latest reports claims that we have just a six month inventory of houses now. This means it is time to buy home-building stocks like Beazer, BZH.

The company has been trading in a range of between $2 and $2.50 lately. Insider buying took place when the stock was around $2 per share. You may want to follow the insiders on this pattern. Even if you don't want to hold Beazer for the long term, you could make around 25% for your money during each trading cycle between $2 and $2.50 per share. If you do this twice a year, you will be ahead by 50%, and you will be easily beating the general stock market.

Saturday, December 3, 2011

No Man's Land

As we move into the month of December for the stock market, we are basically entering a DMZ or no man's land where the upside and downside stocks are about equal. I took profits in the past couple of weeks on ERX, the 3X oil ETF, and TVIX, the double volatility index. After the recent stock market highs, it is not a good time to buy anything.

I have a limit buy order for TVIX at $38, and I will buy ERX again if it drops to $37. Until the European debt crisis and our own Congressional gridlock problems are resolved, I can't recommend any individual company stocks because the fundamentals don't matter anymore in our current world situation. If we were in a true bull market, it would be worthwhile to buy good companies based on fundamentals of year over year growth and other factors. But this is not the case in 2011, and 2012 may not be any better since it will be a major political year. So, the best course of action is to buy leveraged ETFs when they are low, and sell them when you have gained 20% or more. You will be able to repeat this cycle several times during the next year, and you will make a great profit if you are willing to be patient.

Saturday, November 26, 2011

Upside versus Downside

Stocks that appear to be on sale may not be worth it. I usually won't buy a stock unless I believe I can make around 100% or more for my money. The downside risk needs to be negligible also. The fundamentals of the stock and the macro view of the world need to be examined before buying a stock regardless of whether the chart looks good or not. It is not worth it to gamble on buying a stock with a possible 20-30% upside versus a downside risk of that same amount.

A recent example of this is GMCR, Green Mountain Coffee Roasters. They sell the Keurig single cup coffee makers, and I love the one that I own. I also enjoy the single cup serving K-cups of coffee that GMCR sells. I believe the company has great products, and they will continue to grow.

However, when it comes to investing, GMCR may not be the best choice. In November of 2011, the stock price had dropped to the mid 60s from a high of over $100 per share. The chart made it appear that GMCR had formed a bottom in the mid 60s, but "the devil was in the details." It still had considerable short interest against it, and when it missed its earnings for the quarter narrowly, the stock sold off in an avalanche and dropped 38% to $42 per share. This was a costly loss of capital for anyone who had just bought the stock in hoping that it would go back to $100 per share. At $42 per share, the stock's PE was still high at 32, and it was a lot higher at $67. At its high around $108, GMCR had a PE of around 80.

So, GMCR had about as much downside risk in the mid 60s as it had upside potential. No one can deny the company's growth, but investing must be done carefully to avoid large losses. Bad things can happen as much or more than good events. Unless the downside risk of a stock of almost nothing, and the upside is fairly certain to be around 100%, it is not worth investing your money.

Thursday, November 24, 2011

Fixed Asset Allocation

In today's turbulent market, it is necessary for an investor to have a good plan to prevent a possible large financial loss in stocks. One way to do this is to allocate one third of your portfolio to shorting stocks, one third for long stocks, and one third for dividend stocks or bond ETFs. For example, if you have $9,000 to invest, $3,000 would be allocated to each group.

It will also be important to keep the gains or losses inside each respective group in your portfolio. For example, if you own TVIX, the double volatility index ETF, as a stock for essentially shorting the market, and the initial $3,000 investment gains another $3,000, the $6,000 stays in the shorting group. When TVIX is high, you could sell it and buy it back again whenever it hits a low point. In this way, you could eventually make a million dollars in the shorting group, and it would not matter then if your long stocks and dividend stocks all went to zero.

This plan will protect you from losing all of your money because the stock market cannot destroy a person in all three of these directions if you are buying and selling at reasonable levels. For example, I know a man at work who bought TVIX in the first half of 2011 for somewhere in the $20 range. Then, when the stock market fell apart in August and September of 2011 due to Congress failing on budget issues and due to European financial problems, TVIX went as high as $100 per share. My friend sold TVIX at $68 after his initial money tripled since the price increased over three times. He made around $20,000 profit in just a few months with a modest investment of around $10,000, and he closed his position with $30,000.

This situation will also be highly predictable for years to come. The world will be wrestling with financial problems until the end of time, and money can be made in the stock market simply by being in the right stocks at the right time. For example, if you are patient with TVIX, you can probably make 200% profit per year just like my friend did. The market volatility will only subside intermittently because the world's problems are too great. When TVIX is low, you can buy it with your allotment of shorting funds and sell it when you are up 50% or more. Every few months, this pattern can be repeated.

For example, if you make 200% on your initial investment of $3,000 on TVIX during the first year, you will have $9,000 in this part of your portfolio. In the second year, the $9,000 can be turned into $27,000 on the short side of the market while it does not matter what the rest of your portfolio is doing. You must maintain a separation of your assets because if one group fails, another one will succeed. Then, in the third year of trading TVIX, your $27,000 could make 200% more, and you will have $81,000. When this money is doubled twice in the fourth year, then you will leave the year with $243,000 in your account all made on the short side of the stock market.

So, the way to survive in a dangerous investing world is to divide up your assets and keep them separated from each other. There will always be a temptation to put all of your money on the long side or all short or all on dividends. Just do all three, and you will most likely have overall big gains in the stock market rather than painful losses.