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The Winner-
George Bush and Avanir Pharmaceuticals (AMEX: AVN) |
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George Bush has been re elected for
another four years, and the market seems to like it. All three major
indexes: the DOW, S&P 500, and the NASDAQ gapped opened this morning.
If there is going to be one, the perennial Santa Claus rally has begun.
I am hoping to see the strong traditional
November, December, January rally. If it materializes, many ships will
rise with the tide.
So far, 2004 has been a virtual non-event
year for the market, and there is a great deal of apathy amongst individual
investors. Fund managers are tearing their hair out as a year of mediocre
performance does not lend itself the large year end bonuses.
We did fairly well the first three
months of the year, gave back all the gains over the summer, and rebounded
just about back to where we started from in the Fall. If you weren't exclusively
in energy, it has been a tough year to make money.
Cash laden balance sheets, strong
corporate performance, and reasonable growth have been stalemated by sky
rocketing energy prices, weak job growth, record levels of deficit spending,
and geopolitical turmoil. It has been a proverbial Mexican stand off for
the entire year. Perhaps the current rally has enough legs for the Bulls
to eke out a small victory in 2004- we'll see over the next two months.
In the meantime, in the October
9th edition I highlighted three stocks that looked pretty good technically
for a year end rally. Two fizzled on good earnings reports that apparently
didn't measure up on Wall Street. Avanir Pharmaceuticals (AMEX: AVN)
has been a clear winner, and appears to be setting up for higher levels.
Neurodex is the first drug
product in clinical development specifically intended to treat PBA. Also
known as emotional lability, PBA is a symptom complex that is often characterized
by uncontrollable laughing or crying and is experienced by an estimated
one million patients with neurological conditions such as ALS, Alzheimer’s
disease, multiple sclerosis (MS), stroke and traumatic brain injury. AVANIR
intends to begin submission of a new drug application to the U.S. Food
and Drug Administration before the end of 2004 seeking marketing approval
for Neurodex for the treatment of PBA.
The stock is behaving as if the market
believes the NDA will be approved. I believe the stock will probably trade
much higher once the filing of the NDA is announced. Should the drug be
approved by the FDA, higher levels in the stock would be appropriate.
Several analysts have price targets
on the stock ranging from $5 to $7. This is a good one and could continue
to improve. However, it is risky. Should the FDA approval process get derailed,
the stock will get clobbered.
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Comments
on the American Water Star (AMEX: AMW) Conference Call |
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Last Thursday Roger Mohlman, Chairman
and CEO of American Water Star, held a conference call to bring
shareholders up to date on current events at the company.
I have listened to the call four
times, and want to share the following observations. For starters, here
is a quote from Mr. Mohlman as regards the company's prospects for growth
in 2005:
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At 30% capacity these plants
could easily generate between $80 and $100 million in '05.
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Does this mean he is projecting the
company will achieve this revenue level in 2005? I'm not sure. Later in
the call he states the company is "entering into and have entered into
a handful of quite large agreements".
He further explained the company's
revenue stream in 2005 would come in as follows:
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Branded Product (Hawaiian Tropic, Mixers,
etc.) - 15% to 20%
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Private Label Product (Bottling AMW's
product for someone else under their brand) - 55% to 60%
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CoPacking Arrangements (Bottling Someone
else's product under their name) - 20% to 30%.
The company has yet to formally announce
any copacking or private label contracts. Since their production capacity
has just come on line over the last two months, it is too early to pass
judgment on the viability of the prediction.
His discussion concerning the WalMart
relationship was enlightening. Paraphrasing, he states: "The bad news is
WalMart
is our customer. The good news is WalMart is our customer."
Reading between the lines, I believe
he is saying there was an interruption in business flow from WalMart in
the September quarter. His comments, taken in concert with the abysmal
performance in the stock, lead me to believe the September quarter will
be terrible.
A sub par September quarter is probably
already priced into the stock. There could be some additional downside
risk, but the majority of the damage has probably been done.
As disclosed in the call, Mohlman
has invested between $20 and $25 million of personal and family money in
the company. He controls somewhere in the 50% range of the stock. Therefore,
at about $.50, the stock is trading at roughly his cost basis for his hard
money.
If the company can achieve the kind
of results its Chairman expects, there is a lot of upside from current
levels going into 2005. I don't believe the market will give this company
the benefit of the doubt. They will have to prove their claims with hard
numbers. However, if he can deliver as implied in the conference call,
the stock is a potential five to ten bagger over the next two years, and
therefore worth continuing to follow.
This one has been awful out of the
gates, but could turn into a great idea in 2005. The company simply has
to deliver the sales. Unlike a lot of other public companies, the Chairman
has certainly put his money on the line right along with the other shareholders.
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