Welcome to Wednesday. Yesterday, we got out of a number of positions and still have some open. We exited SOLF out of the gate for an 11% gain on our last portion of that position, which led us to an overall gain close to 9%. We also exited DRYS for a gain of 3.5% as the stock went soaring before earnings. Finally, we got out of half of our week long position in China Sunergy (CSUN) for a 4% gain, while holding the other half.
(looks like coal is in China’s future…to the left)
To start the day we had a Short Sale open in Green Mountain Coffee Roasters (GMCR), a position in First Solar (FSLR), and a half position in CSUN. We were able to exit GMCR this morning on a limit cover for a 2% gain at 33.62. It was a long while to get that 2%, but we end in the green. CSUN is sitting down 4% for us right now after a large drop to finish yesterday. We have a 5% stop loss on this one at 4.55. We will be watching it closely. First Solar has bounced back from yesterday, and we are down just 0.5%. I expect both of these positions to rebound to close the week and still like them.
Let’s get settled into a new Midterm Trade in the Buy Virtual Portfolio…
Overnight Trade: Cardiome Pharmaceuticals Corp. (CRME)
Analysis: I do not tend to Overnight Trade companies that are under $5, so this makes this one risky for sure. I am providing this warning that the stock is volatile, trading at all-time lows, and it is below $5. If what happens that should happen with Cardiome’s earnings, however, this could be a very nice pickup. One of the first reasons that I was attracted to Cardiome was because the company was estimated to turn to a profit from one year ago. The company is estimated to an EPS of 0.38 vs. a loss at -0.01.
The company is moving to a profit due to the fact that their product Brinavess was approved for sale in the EU, Iceland, and Norway. The company is marketing the drug through Merck and is paid licensing fees. The company has announced that they received at least $30 million in an initial payment from Merck upon approval. This payment alone would increase Cardiome into its highest revenue ever. When combining this fact with the undervaluation the company currently has, CRME could be off to the races tomorrow.
Additionally what intrigued me to this position was the fact that the company would receive up to $200 million upon regulatory goals and approval goals being met as well as over $340 million in sales milestones. That is a lot more than just $30 million. The milestone was announced at the beginning of September, and the company should have also received money for sales of the drug and other fees. Merck, itself, had a blowout quarter and in nearly every story commented on the success of Brinavess.
The company, additionally, holds significant undervaluation, which is part of the riskiness of this position. At the end of October, Cardiome announced that it had to halt another of its drugs in Phase III of the pipeline that treats similar ailments as Brinavess but in an oral form. The company said there were health risks with the drug. The company wants approval from the FDA before moving forward despite a private health board noting that the drug was not unsafe. This might negatively affect outlook.
Even if outlook is a bit less bright than it could have been, this company is moving into profitability for the first time in company history. That alone should help the stock tremendously. The stock currently holds an RSI at 24 with extreme overselling and has ridden its lower bollinger band for quite some time. The company has dropped 30% since that news and over 50% in the last three months.
It is time for CRME to get back some of those gains, and if it can break $5 tomorrow, it will soar even higher.
Entry: We are looking to get involved at 4.60 – 4.70.
Exit: We are looking to exit tomorrow morning on earnings release.
Stop Loss: None.
Good Investing,
David Ristau
