The January rally continued last week as the S&P 500 kept defying gravity. For the week, the Nasdaq climbed 2.8%, the S&P 500 jumped 2% and the Dow rose 2.4%. With your options in Ford (F) now up 61.02%, sell half of your call options here to lock in your gains. Hold on to your stock and your remaining options for now.
Last week’s Bull Market Alert pick, Melco Crown (MPEL), got off to strong start, notching a solid 5.77% gain. But the big news in your Bull Market Alert portfolio was in European banks. The National Bank of Greece (NBG) soared 41.90% and Bank of Ireland (IRE) jumped another 17.1% — for the second week in a row. Although they have been a long time coming, these are exactly the kinds of “option-style” gains you can get in these massively oversold opportunities. Based on its price action, I am moving NBG back to a BUY.
Global markets are now overbought by the standard of almost every major technical indicator. I expect the market to pause for breath and consolidate its recent strong gains over the coming weeks.
This week’s Bull Market Alert pick is a bet on a DNA revolution through Life Technologies (LIFE). DNA sequencing is the biggest revolution in the treatment of diseases, possibly in history. Within a decade, we all will have our DNA sequences mapped, allowing doctors to prescribe drugs tailored to our genetic make up. The technology for this took a massive leap forward recently, when LIFE launched its Ion Proton Sequencer. This device can read your DNA within 24 hours, at a cost of just $1,000. That price is down from $10,000 and the time required has been reduced from weeks with the previous technology. The potential of this technology is enormous, and puts it ahead of rivals Illumina and Nanopore, which offer similar results but with much higher-priced machines.
Today, LIFE still makes most of its money from molecular biology kits, cell culture reagents and advanced instrumentation. That revenue mix means 80% of its business is consumables, allowing for a predictable, underlying revenue stream. The company announces earnings on Feb. 7. Wall Street’s expectations are for $3.7 billion on revenue and $3.71 earnings per share, rising to $3.9 billion, and $4.07 per share in 2012. That puts it on a forward price-to-earnings (P/E) ratio of only 11.15 — a bargain for a company in its sector.
The stock gapped up sharply upon the announcement of the Ion Proton Sequencer. But with the stock pulling back from a strong recent run to about $45.37 on Friday, now is a good time to open a position in LIFE. Mizhuo Securities has a target price of $65 on the stock — a solid 43% upside from Friday’s closing price. Set a stop price on LIFE of $38.50. If you want to play this pick more aggressively, try the May $50 call options.
Portfolio Update
Alexion Pharmaceuticals (ALXN) dipped 1.00% last week while hitting yet another 52-week high in the process. Expect increased volatility as investors digest Alexion’s recent acquisition of Enobia Pharma and position themselves for ALXN’s earnings report. Alexion reports earnings on Feb 9. ALXN is a BUY.
Bank of Ireland (IRE) had another tremendous week, jumping 17.01%. The recent bout of positive Irish news reports is acting as a buying catalyst for this flagship Irish bank. Couple this good news with the recent breach of the 50-day moving average, and IRE is like a coiled spring just waiting to explode higher. IRE is a BUY.
National Bank of Greece SA (NBG) popped up an incredible 41.90% last week. Greece is in intense negotiations with its major creditors. Markets are reacting very positively to the prospect of a deal to avoid a Greek default in the coming weeks. Friday also brought favorable reports detailing German support for Greece, as long as Greece is willing to implement the necessary reforms. NBG is a BUY.
Companhia de Bebidas Das Americas (ABV) rose 2.64%. ABV continued its run off of its 50-day moving average last week and once again hit a new 52-week high. ABV, which reports earnings on March 1, is a BUY.
ProShares Ultra S&P500 (SSO) went up 3.15% over the past week, rising at twice the pace of the S&P 500. Hold on to this position as long as the S&P 500 continues its move towards my expected target of 1,345. SSO is a BUY.
MasterCard Inc. (MA) was nearly flat last week, dipping just 0.77%. MA appears to be finding support near its $338 level. Additionally, Bank of America’s recent earnings report stated that its credit-cardholder spending increased 6% over the last quarter. MA is a HOLD for now.
Ford Motor Co. (F) continued its run, gaining another 3.71% over the past five trading days. Ford announced a significant reduction in its Lincoln dealerships — cutting them from 500 to 325. This move will yield tremendous savings in overhead and decrease unhealthy competition between its dealerships. Ford will announce earnings on Jan 24 and pay a $0.05 dividend on Jan 27. F is a BUY.
Intuitive Surgical, Inc. (ISRG) dropped 2.72% last week. ISRG’s quarterly report failed to meet the Street’s expectations last week. Although missing the target did not sit well with investors, the dip in the stock price found strong support last Friday at the 50-day moving average. ISRG is still a BUY.
Melco Crown (MPEL) powered 5.77% higher during its first week in your portfolio. Forbes recently reported an increase in disposable Chinese income. This disposable income, coupled with new transportation projects such as a rail line to Guangzhou in China and a large bridge connecting to Hong Kong, are allowing gambling money to flow freely into the Macau region. MPEL breached its 200-day moving average last week and maintained strong support just above that level. MPEL reports earnings on Feb 21. MPEL is a BUY.