Upping Your Bet on Japan — And High-Risk Irish Biotech Play

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Markets continued their relentless march higher, with the Dow Jones up 0.97% and S&P 500 hitting another new record, rising 1.19%. The MCSI Emerging Markets Index took a breather, rising only 0.11%.

Big gainers in your Bull Market Alert portfolio included Bank of Ireland (IRE), up 5.10%, and Japan’s Sony Corporation (SNE), up 4.43%.

The bull market in Japan continues to roar ahead and generate big profits in your Bull Market Alert portfolio.

On April 25, you sold half of your position in ProShares Ultra MSCI Japan (EZJ) to lock in your 19.71% gains. Since then, your remaining position is up by a total of 24.35%.

On that same day, you also sold your DXJ Aug 2013 $45 call options to lock in a gain of 114.29% for your fourth set of triple-digit percentage gains of 2013.

With the Japanese yen bursting through the 100 yen to dollar level on Friday, I recommend that you get back in DXJ options — specifically, that you buy the DXJ Aug 2013 $50 call options (DXJ130817C00050000).

If you are a subscriber to my VIP Alliance, you’ll recognize that this week’s Bull Market Alert stock recommendation re-visits a recent recommendation from my elite, high-end trading service, Triple Digit Trader.

Note that this is a high risk, volatile play, as last week’s sharp price movements confirm. But with big, short-term upside, I wanted to share this recommendation with you, as well to give you a sense of the kind of picks I make in this high-risk, high-return trading service.

Jazz Pharmaceuticals Public Limited Company (JAZZ) is a diversified biotechnology company with 10 marketed drugs and a market capitalization of $3.38 billion.

The majority of Jazz Pharmaceuticals’ sales come from one product, Xyrem — a treatment for cataplexy and excessive daytime sleepiness in patients with narcolepsy. Last year, Xyrem had sales of $378.7 million, growing an eye-popping 62% year on year.

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Despite Xyrem’s continued high rate of growth, Jazz has been lessening its dependence on its primary drug. In 2011, Xyrem accounted for 88% of Jazz’s total sales. A year later, that dropped to just 65%. This means that although sales of Xyrem are growing rapidly, Jazz is developing other products even faster.

For a fast-growth biotech, Jazz is remarkably cheap, trading at just 7.72 times next year’s earnings. That’s a 60% discount to, say, Alexion Pharmaceuticals, Inc. (ALXN), which, like Jazz, depends on a single drug for the bulk of its revenue.

At the same time, Jazz’s three-year earnings per share (EPS) growth rate is a robust 123%, while the three-year sales growth rate is a solid 64%. That puts its price earnings to growth (PEG) ratio at a rock bottom 0.5.

On May 7, Jazz announced earnings that beat both revenue and earnings expectations. Adjusted EPS increased 50.55% to $1.37 (beating estimates of $1.35) in the quarter versus an EPS of $0.91 in the year-earlier quarter. Revenue rose 80.98% to $196.2 million from the year-earlier quarter, far above average revenue estimates of $189.92 million.

Despite the solid earnings and revenue beat, Jazz sold off sharply after Tuesday’s earnings announcement. But since then, it bounced strongly from an intra-day low of $53.29 on Wednesday to a close of $57.96 on Friday.

Over the medium term, Jazz may also benefit indirectly from improved investor sentiment toward the Irish stock market, which has been a strong performer in 2013. (Your position in Bank of Ireland (IRE) is up 49.08% so far in 2013.)

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So buy Jazz Pharmaceuticals Public Limited Company (JAZZ) at market today and place your stop at a relatively tight $49.50. Brokerage firm Cantor Fitzgerald’s target price for Jazz is $86. That implies more than 50% upside from current levels.

With the stock up 4.85% on Friday, the options are overvalued at the moment. So I am going to hold off recommending options on this until the stock’s price movement has settled.

Portfolio Update

Bank of Ireland (IRE) gained 5.10% last week. Bank of Ireland spiked last week, shooting up through the twice-tested $9.50 resistance level to hit a new 52-week high. I am watching this particular price action closely this week. If IRE holds $9.50, the trading bias for a protracted move higher becomes decidedly stronger. Up 49.08% so far in 2013, IRE is a BUY.

ProShares Ultra MSCI Japan (EZJ) hit another new 52-week last week, but then dipped to close the week flat. However, this slight pullback may be short lived as the Group of Seven finance chiefs signaled tolerance of the yen’s recent slide. The yen closed at a new four-year low against the U.S. dollar on Friday and managed to hold the “100 yen per dollar” level. This week could see renewed gains in Japanese positions. EZJ remains a BUY.

Sony Corporation (SNE) closed the week 4.43% higher after it reported earnings last Thursday, which beat both profit and revenue estimates. Specifically citing the falling yen and better cost controls, Sony reported a Q1 net profit of $435 million — the company’s first profit in five years. Sony also reported a 4.7% increase in sales and projected a full 10% increase for 2013, leading Sony to issue guidance that net profit would increase 16% in 2013. SNE is a BUY.

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Melco Crown Entertainment Limited (MPEL) was flat last week, despite a positive earnings report. MPEL reported Q1 EPS of $0.24 versus a $0.23 estimate. This represents a 9% increase from the same quarter last year. Revenue was $1.14 billion versus a $1.12 billion estimate, and sales increased 11% year-over-year. MPEL’s numbers support a continued bullish bias. MPEL is a BUY.

Delphi Automotive (DLPH) dipped 0.74% last week. NASDAQ released updated “short interest” data for DLPH last Friday, reporting a 25.8% drop in outstanding short shares over the past few weeks. News of this many investors closing their short positions on DLPH bodes well for a future rise in DLPH’s share price. DLPH is a BUY.

Stratasys Ltd. (SSYS) was flat for its first week in your portfolio, but it rose 3.12% in pre-market trading this morning. Stratasys reported earnings of 43 cents per share, six cents better than the consensus estimates of 37 cents. Revenues rose 116.0% year on year to $97.2 million. Gross margins improved to 59% for the first quarter, up from 56.7% in the first quarter last year. SSYS remains a BUY.

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