How To Assassinate a Stock

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
The broader markets ended the week flat, as the Dow Jones and the S&P 500 managed minuscule gains of 0.04% and 0.16%, respectively. The NASDAQ and Emerging Markets Index (EEM) also posted similarly flat weeks, with NASDAQ losing 0.98% and EEM down 0.72%.
 
The story of the week in your Bull Market Alert portfolio relates to Questcor Pharmaceuticals (QCOR). Questcor actually shot up 14.81% the day of my recommendation last Monday. However, the very next day, a short selling firm, Citron Research, issued a negative report on Questcor, sending the stock tumbling. This offers a perfect example of how a single firm with a shady reputation can manipulate — and profit from — the collapse of a company’s stock price by issuing a blatantly self-serving and deceptive analyst report.
 
I believe Citron’s issuance of this report was both suspicious and unethical… and possibly even illegal.
 
Here’s why…
 
Citron itself made a ton of money from betting against the stock by issuing its negative recommendation. But because the firm disclosed this, this was technically not illegal. After all, if you bet against a stock, and write a negative blog post on it, and the stock drops, it’s not your fault. You’re just exercising your right to free speech, right?
 
More questionable was the fact that Citron issued its report during Questcor’s “quiet period” before its earnings set to be released on July 24. Citron knew full well that the company would be unable to respond legally to the allegations made in the report. That’s why all reputable analysts hold off on issuing reports during quiet periods. Citron clearly feels it is playing by a different set of rules.
 
On its substance, Citron’s report simply re-hashed old arguments about generic alternatives to Questcor’s leading drug, Acthar. But other analysts — who unlike Citron are biotech specialists — were quick to jump to Questcor’s defense. Analyst firm Jefferies, in a research piece discussing Citron’s report, maintained its buy rating and $60 target on Questcor.  Piper Jaffray, Oppenheimer and Roth Capital also all maintained their very bullish outlook on the stock.
 
I note that all of these firms have much better reputations than Citron. In fact, if Citron would have any Chartered Financial Analysts (CFA) working at it (which it does not), there is no doubt that they would have their charters revoked. And as a CFA charter holder myself, I would be the first one to report them.
 
Citron is not the first entity to criticize Questcor. In January, another firm with a similar reputation issued a report critical of the company. It raised several issues, including financial relationships with doctors, insider selling, and Acthar’s role in the marketplace. Questcor answered these questions, and its stock eventually recovered from the hit it took due to that report. Since then, the company has expanded remarkably. Six months from now, the same will be said of Citron’s report.
 
So what does this mean for your position in Questcor?
 
With legitimate analysts putting a target price on the stock that is 50% higher than its current level, this may represent the best buying opportunity of the year in Questcor.
 
That said, trading is all about managing your risk. And despite the questionable drop, as a general rule, I don’t change stop prices once I have set them. So with the stock near its stop price of $40, you may get stopped out soon.

Portfolio Update

Bank of Ireland (IRE) fell 9.05% over the past five trading days. Bank of Ireland’s technical chart setup is quite positive. IRE began trading in a “rolling” pattern one month ago, trading up off of its 50-day moving average (MA) and down from its 200-MA. IRE’s price level is right on the 50-MA at the moment, and IRE appears ready to move up from here. Just two cents below its 50-day moving average, IRE is a HOLD.
 
National Bank of Greece SA (NBG) fared somewhat better than its Irish rival last week, dipping only 3.73%. Greek finance ministers started work last week on a new 11.5 billion euro austerity plan to support Greece’s recovery efforts going into 2013 and 2014. Holding tight to a well-established $1.50 support level, NBG is a HOLD.
 
Monster Beverage Corp. (MNST) added 0.41%. Analyst firm Equity Research sees positive moves ahead for several soft drink makers, such as Monster and Coca-Cola Inc., as the London Olympics grows closer. Olympic events not only provide global market exposure for soft drink products, but sales to a global crowd, as well. MNST is scheduled to report earnings on Aug. 2 and is a BUY.
 
Novo Nordisk A/S (NVO) remained flat last week. The 30 analysts covering NVO have a collective “Overweight” rating on the stock. NVO will report earnings on Aug. 9 with analyst estimates looking for $1.45 earnings per share. NVO is a BUY.
 
3D Systems Corp. (DDD) lost 8.02% last week, making its past two-week gain/loss nearly a wash. I’ve mentioned before of DDD’s thrice-repeated “50-day moving average bounce-to-a new 52-week high.” It seems a fourth iteration may be in the making. DDD took a convincing bounce off of its 50-day moving average last Friday and another 52-week high may be in the cards. DDD is scheduled to report earnings on July 26 and is a BUY.
 
Pharmacyclics Inc. (PCYC) corrected 10.04% after several weeks of flying high. PCYC pulled back just a bit last week, hitting the brakes right on the 20-day moving average, and began trading sideways. Analyst firm Bernstein initiated coverage on PCYC last Friday, setting a “Market Perform” rating. PCYC is a BUY.
 
Standard Pacific Corp. (SPF) rose 1.41%. SPF’s trading action tells a much more bullish story. SPF quickly moved back towards its $6.55 high after a dip early in the week. This is normally a sign that buyers are waiting on the sidelines trying to buy on any opportunity that may present itself. SPF is scheduled to report earnings on July 26. SPF is a BUY.
 
Questcor Pharmaceuticals (QCOR) lost 14.13% last week. Falling below its 50-day moving average, and scheduled to report earnings on July 24, Questcor is now a HOLD.
 

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