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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: NateC who wrote (10942)	6/3/1999 8:43:00 AM
From: Herm	Read Replies (1) \| Respond to of 14162

Thanks for the compliment! Although, this has been a collective effort and I'm greatful for that. BTGC Gets Plug by Michael Murphy BTGC has been one of my holdings for a few month now. I've worked it up to 800 shares so far. I just keep applying the WINs approach and rack in those premies month after month lowering my nut and buying up more shares on the dips. The fact that BTGC has not taken off is bizarre. There is no reason for this stock selling so cheap other than it is in the biotechs arena which has been taking a beating for the past 10 months. Here is Murphy's take on BTGC! PS - I got my notice that VVUS will be paying to settle their law suit. So, I should be getting back some of my money I gave back to VVUS about two years ago. The Safest Way to Make Your Fortune From the Technology Revolution Biotechnology is in an eight-year bear market. Of the 260 public biotech companies, only 14 are profitable. I expect that number to almost triple by the end of 2000 as many years of drug development pay off in FDA approvals, followed by successful drug introductions, rapid revenue growth and, ultimately, profitability. Today, Wall Street is simply unwilling to buy any biotech stock until the company is profitable. Although I have some strong ideas on which companies will turn profitable next, and which ones will get drugs approved, we can make plenty of money safely in this industry by investing only in companies that are currently profitable. As with our tech stocks, we won't bet on start-ups, chase overvalued stocks or risk our money in companies that have yet to turn a profit. And we'll invest only in companies with a commitment to R&D that assures even greater profit growth tomorrow. Biotechnology General (BTGC) is a good company selling at the lowest valuations of these 14 profitable stocks. What really intrigues me is that Biotechnology General is in a similar position as Amgen was just before it became an institutional darling and shot up more than 50 times over the next 11 years. Amgen had just completed a year with revenues of $70.2 million based on two products. Biotechnology General just completed a year with revenues of $76.8 million, also based on two main products. But Biotechnology General has half the market capitalization that Amgen had in 1988, and already has additional products approved and in the pipeline. In spite of its relatively low valuation, BTGC has a good record. Most of the R&D and manufacturing are done in Israel, where costs are lower. It's had 13 quarters of steadily growing revenues and earnings. In terms of sales per employee it ranks third, behind only Amgen and Biogen. It has over $70 million in cash and excellent profitability. I have two ways to value a biotechnology company. First, I add up the last five years of R&D spending. That is their investment in their science. I don't give them any credit for R&D more than five years old, because this industry is moving too fast. I also don't give them any credit for money they spend on administration, marketing, manufacturing or FDA regulatory activities. Just R&D. Then I try to pay less than 10 times what they have invested in their science, and preferably no more than 7 times. Biotechnology General spent $59.6 million in the last five years. Ten times that would be a market capitalization of $596 million or $12 a share; seven times would equal $417.2 million or $8.50 a share. At a recent price of $6-1/4, the stock is undervalued. If a biotech company is profitable, I also use our Great Growth Flow methodology. BTGC's historic growth rate in revenues is over 40% per year; I am forecasting 25% per year. Either one is well over my 15% minimum required to make the cut as a great growth flow company. Pre-tax profit margins average a whopping 32%--that's why I love the pharmaceutical business. Those profits are after spending an amazing 24% of sales on R&D. Again, both of these figures are far above my 15% minimums. Growth flow--earnings per share plus R&D per share--is around 75¢ a share. That's worth 10 times, or $7-1/2 a share, before adjusting for the rapid growth rate. I would add at least a 20% premium for the growth rate and be willing to pay up to $9 for the stock on this basis. .........