Where is the top? To the moon I guess? Another strong week last week bringing us up to a $SPY new all time high of 167.05 ($ES_F hit 1665.75).
Next stop could be 170.00 as shorts continue to short and squeezed out of their positions. When will they ever learn?
Personally, I’m just staying long and sticking to catalysts for now. There are a few decent ones coming up such as $ATRS $RMTI $XNPT $SRPT which I will explain in greater detail below. For now, it is still a BTFD market.
If any of you guys live in New York, I will be there for a week on a business trip, and I would love to meet some of you guys! If you wanna meet up just shoot me an email or tweet.
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$ATRS (Antares Pharma Inc.)
Finally got in last week. Higher than I wanted, but it is a starters position just incase we take off. I honestly think it might not look back, especially with Sheff and Scott now behind it. Sheff added of Friday which explains why it ran to 4.15 after hours. You guys probably already know why I like this one, it is a rare company that is near profitability as a small cap biotech (which is unheard of). Many think that it is going to be bought out soon, however I do not bet on buy outs. Otrexup has a PDUFA date of Oct 14, 2013 which is the catalyst that could send it flying. 5.50-6.00 is definitely possible by then but.. I HATE CHASING.
$ESI (ITT Educational Services Inc.)
I wrote an article on this one. HUGE profits for us. The new level to watch is 25.10.. below that I might short, but if we hold it, I might get back in long.
When the market is soaring as it has over the recent months, stocks that have been demolished over the last year or so begin to spark. We have seen great recoveries among many stocks, and investors have captured extraordinary gains from these picks. In this article I plan on pointing out a stock that I believe could make one of these great recoveries, and the similarities it has with companies that have already made the journey.
ITT Educational Services Inc. (ESI) offers postsecondary-degree programs in the U.S. that provide diplomas as well as associate’s, bachelor’s, and master’s degrees in information technology, electronics technology, drafting and design, business, criminal justice, and health sciences. As of Mar. 22, the company operated 140 ITT Technical Institutes in 39 states that primarily offer career-oriented degree programs to about 70,000 students. Headquartered in Carmel, Ind., ITT was started in 1946.
What Caused the Recent Spark:
On 4/25/13 ESI reported their Q1 earnings. They reported $1.33 per share in the first quarter of 2013 which surpassed the Zacks Consensus Estimate of $1.28 by 3.9%. The beat could possibly be caused by unemployment dropping and the demand for skilled individuals increasing. This is an incentive for students to get additional education for a better opportunity to find an employer. Regardless of the reason, this caused a pop that got shorts to start worrying. Recent earnings beats have caused massive runs in stocks with high short interest like Molycorp (MCP) for example. On 5/9/13 MCP began a 38% run that isn’t over yet. This run started from them reporting that net revenues for the quarter were $146.4 million, up 9% from the fourth quarter of 2012. This perfect example of a massive run starting from good news is helped by large short interest.
High Short Interest:
High short interest in a stock can cause huge short squeezes that can prove very profitable for those on the long side. A short squeeze is when a lack of supply meets an excess demand of a stock and the price is forced upwards. During a short squeeze, those holding short positions are usually forced to purchase shares where the price increases rapidly, in order to exit their short position. These situations escalate as price rises higher and more shorts are forced to cover the higher it goes. In this case, ESI has one of the top short interests in the S&P 1500 which sits at 37.65% of the entire float. This means there is currently8,753,617 shares short as of 5/13/13. Now, with the new upwards pressure on the stock after a 92% decline from its highs in the recent years, shorts are being tested and it is likely that they will cover their positions.
The float of a stock is the total outstanding shares that are currently being traded by the public. This figure is derived by taking a company’s outstanding shares and subtracting from it any restricted stock. When a stock has a low float, it means that there are less shares to be traded. This is significant because it takes less money to move the stock higher. With only 23.25 million shares in the float, it is much easier to cause the short squeeze talked about above.
Oversold Price Action Creates Limited Downside:
After selling off from $133.75 to $11.69 in the recent years, the share holders have de-risked a ton causing limited downside. This shows that if the company turns things around like it is appearing to, the share price can soar. A 92% decline is pretty significant, and has offered value investors an amazing opportunity to enter. Great declines have seen great recoveries in the past. For example, First Solar Inc. (FSLR) sold off from $317.00 to $11.43 and has now made a recovery of more than 400%+. Their earnings beat and catalyst deal sent them flying just like I believe ESI is soon to do. Again, this was another company with large short interest and also had the “Recovery Breakout Chart” that I will explain next.
Near Perfect Technical Chart:
One main chart breakout that is very powerful is what I call a “Recovery Breakout Chart.”
As you can see on the farthest bottom red line, $20.00 had proved tough resistance for many months. When ESI beat earnings estimates, it spiked again to that resistance, but could not break it. This time however, it remained above key EMA’s (9, 20, and 50). This significant base above the EMA’s pushed the stock higher and broke the important resistance of $20.00 on 5/10/13. When stocks break former highs, it usually triggers a breakout as longs pile on for new highs and shorts scramble to get out of the way. ESI also broke the 200 SMA at 22.70 and closed above it. This is significant because it was the last resistance point until $30.00. With nothing but thin air above this stock, it could easily run another 20% to my next target of $30.00.
$RMTI (Rockwell Medical Technologies Inc.)
Near term catalyst play here. They have Phase III results for SFP (dialysate iron replacement therapy) expected in July & October. They also have an ANDA Supplement for Calcitriol in the second half of the year. On 3/20/13, they diluted with 4.3M shares at $3/share to raise about 12 mil. They have already burned through a significant portion of that and then on 5/15/13 they raised more cash. 11.5M shares $3.05 to raise $32.8 mil. This is expected to last them well into 2014 since they will not have to burn so much after trials are finished. They have a double bottom formation started and I can see this easily rebounding to 3.75-4.00 or higher.
$SRPT (Sarepta Therapeutics Inc.)
We are staying strong here in my biggest position. Last Friday we broke over 36 and started to fill the gap to the 39′s. Like I have said many times before, I am staying long through the AA decision. I currently own 600 shares and am remaining long-term on it. Most think we will have a decision by early Q3. A total of about 15,000 patients are diagnosed annually in the U.S. with DMD, and about 83% can be treated with these exon skipping treatments. Exon 53 skipping patients make up about 7.7% of all DMD patients, and with an annual treatment cost of about $400,000 per year, Sarepta could bring in $415 million annually in the U.S. alone with accelerated approval (Assuming 90% market capture). This does not take into account the other 2000 or so other boys with exon 53 DMD. Without accelerated approval, I believe revenues would be about $276 million annually in the U.S. (60% market share), not taking into account the initial the patients who are not newly diagnosed. So even if AA is denied, and we fall to 17-20, I still we run back up to 35-40 as new trials are ran and steps are made towards approval.
$XNPT (Xenoport, Inc.)