Monday, January 4, 2010

2010 Speculative Strategy-Gateway Post

This post will serve as my Gateway post for the new 2010 speculative strategy discussed in Item # 1 of my first post for the new year. 2010 Strategy/Interest Rate Risks- Bonds/

To summarize, I know now about how much my taxable accounts will earn in 2010 in cash dividends and interest. I intend to invest all of that amount during the year in what I am calling the new speculative strategy for 2010. This is possible since I do not have any need for this income. If I had any need for those cash distributions, I would not be using this strategy.

The investments will have two components. The first will be a continuation of the Lottery Ticket strategy that has been successful so far, where the investment is limited to $300 with certain caveats. For the most part, the LT selections are small companies, whose share prices have fallen to below $6, and a lot of the bad news is already baked into the share price. Nonetheless, they are viewed as highly speculative. There has been a general preference to find small companies with decent balance sheets, a significant amount of cash for the size of the company, little or no debt, low price to sales and price to book, and something else that interests me. So, the Lottery Ticket buys is an old strategy and the transactions pursuant to this approach will continued to be listed in the Gateway Post for Lottery Tickets: LOTTERY TICKET PURCHASES: LINKS IN ONE POST Some of the more successful LTs in 2009 did not fit the description just made, however. This would include the most successful one, the purchase of GRTPRF at $2.9. Others include C B Richard Ellis ($2.39 & $3.49), a far larger company than the normal selection for an LT purchase and CBG has debt issues; ISF ($4.6), a hybrid security issue from ING Group; and LXPPRD ($7), a cumulative REIT preferred stock.

The second component of the strategy will involve investing more money and will include the common stock of larger companies. These companies will be primarily non-dividend paying companies, or those with insignificant dividends. I will not be focusing so much as criteria such as cash per share and low price to sales. The Old Geezer views those firms as more speculative than the ones bought in March and April of 2009, for example, where most of the common stock buying was in consumer stable companies paying good dividends, particularly at the prices purchased, and several of those firms have had a long history of raising their dividends. It is just hard for me to see much upside now in those kind of companies bought last March, including Coca Cola, Unilever, Heinz, Sysco, and Campbell Soup. I also do not see much upside in my bond positions in 2010. In fact, I would be mildly surprised if my bond portfolio gained anything in value by 12/31/2010.

While the OG views anything other than a treasury bill or a FDIC insured saving account (or similar investments) as speculative, just a question of degree, dividend paying consumer staple stocks are viewed as less speculative than companies like Corning or Cisco. Companies like the later two would be typical of those which may be purchased in the newly created 2010 speculative strategy.

There will be certain exclusions. First, the retirement accounts will still be managed with an income focus. The general approach is to use distributions from income generating securities to purchase more of the same, achieving a compounding effect over time. The second exclusion will be bank stocks that are part of a separate approach now dubbed the Regional Bank Stocks stratagem.

I am going to keep a running tally of the proceeds realized from selling LTs and stocks bought in the new speculative category. All of the proceeds will be used to add what I would view as more conservative income producing securities.

The first purchase in 2010 under this new strategy was to add 60 shares of Anika Therapeutics bought this morning at the open. ANIK is being taken out of the LT category with this purchase.

The purchase of 50 shares of VTAL made on 12/31/2009 was included in this new category at the time of its purchase. Since the recent purchases of Activision, Berkshire Hathaway and Yahoo fit into this category, I am going to move them into this Gateway Post, which makes them also subject to LB's rules for this category upon their sale.

Lastly, I may invest my cash flow before it is received. I have a good idea now the amount of that available cash for 2010.

1. Added 60 to Anika Therapeutics at $ 7.69 (ANIK) (own 100 shares now-2010 Speculation Category)(see disclaimer) : I did notice last Thursday that Anika fell over 10% to close at $7.63 on almost five times normal volume. This came close to wiping out my unrealized profit, with the shares bought at $6.45: Item # 8 Bought 40 Anika as Lottery Ticket Apparently this was a reaction to Anika's acquisition of Fidia Advanced Biopolymers for 17.1 million in cash and 1,981,192 million shares of stock. This firm had 11.1 million in revenue for the F/Y ending in 9/2009.

Anika claims that the acquisition will be accretive to earnings in the second year of the combined operations. Fidia, a small Italian company, has patented technology for hyaluronic acid-based products for the regeneration of connective and structural tissues damaged by injuries, aging or degenerative diseases. Anika also disclosed in the press release announcing this acquisition that it intended to develop its own sales force to directly commercialize its own products in the U.S. Possibly, an institutional investor was disappointed that Anika did not sign a distribution deal for its MONOVISC product, which normally would include upfront payments.

Fidia's products are complimentary to Anika's and will provides critical mass of products to enable Anika to develop its own U.S. sales force according to Charles Sherwood, CEO.

It is impossible now to know whether this strategy will succeed. There are more risks for this small company to take on U.S. sales and distribution itself, but then Anika believes that it will make more doing it that way. Only time will tell whether this future forecast is correct. Anika still expects FDA approval of MONOVISC in the second half of 2010. MONOVISC - A single injection. A singular treatment This drug is used to treat the symptoms of osteoarthritis, and is approved now for use in the European Economic Area & Canada. MONOVISC - Features and Benefits

I will stay with this company. I suspect that the decline in the shares had more to do with the decision to distribute products in the U.S. using its owns sales force, thereby foregoing a licensing deal with a larger pharmaceutical company, than the announcement of the Fidia acquisition. But, needless to say, I do not know the identity of those sellers last week, and I am speculating about their motives. The strategy that Anika intends to follow involves more risks. And I do not know now whether or not this risk was forced on Anika due to lack of interest from larger pharmaceutical companies.

I discussed the last earnings report in this post: Item # 8 /Anika/ This is a link to the last quarterly report filed with the SEC: a6090041.htm

Anika does have existing products as described in this statement that I pulled from its last 10-Q:

" Anika develops, manufactures and commercializes therapeutic products for tissue protection, healing and repair. These products are based on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance of the structural integrity of tissues, and the transport of molecules to and within cells. Our currently manufactured and marketed products consist of ORTHOVISC®, which is an HA product used in the treatment of some forms of osteoarthritis in humans; AMVISC®, AMVISC® Plus, STAARVISC™-II, and ShellGel™, each an injectable ophthalmic viscoelastic HA product. HYVISC®, which is an HA product used in the treatment of equine osteoarthritis, INCERT®, an HA based anti-adhesive for surgical applications, ORTHOVISC® mini, a treatment for osteoarthritis targeting small joints available in Europe, and MONOVISC™, a single-injection osteoarthritis product based on our proprietary cross-linking technology and available in Europe, Turkey, and Canada. In the U.S. and several countries in Latin America, ORTHOVISC is marketed by DePuy Mitek, Inc. (“DePuy Mitek”), a subsidiary of Johnson & Johnson (collectively, “JNJ”), under the terms of a licensing, distribution, supply and marketing agreement. Outside the U.S., ORTHOVISC has been approved for sale since 1996 and is marketed by distributors in approximately 20 countries. We developed and manufacture AMVISC® and AMVISC® Plus for Bausch & Lomb Incorporated under a multiyear supply agreement. We also produce STAARVISC™-II, which is distributed by STAAR Surgical Company and Shellgel™ for Hoya Surgical Optics, Inc. HYVISC® is marketed in the U.S. through Boehringer Ingelheim Vetmedica, Inc. INCERT® is currently marketed in three countries outside of the U.S. Our aesthetic dermatology business is designed to have a family of products for facial wrinkles and scar remediation. Our initial aesthetic dermatology product is approved in the U.S., EU, Canada and certain countries in South America. This product is marketed in the U.S. by Coapt Systems, Inc. (“Coapt”) under the name of HYDRELLE™. Internationally, this product is marketed under the ELEVESS™ name. Products in development include a next generation HYDRELLE/ELEVESS™ line extension, and joint health related products."

Apparently after the precipitous drop in the shares last Thursday, Anika decided it needed to give more information and explanations to the investors, and has scheduled a conference call this morning at 10 E.S.T.: Anika Therapeutics


LIST of Securities in 2010 Speculative Strategy Non-LTs-Links to New Purchases Will be Added:

150 Anika Therapeutics (ANIK) at $ 6.3, 6.45, & $7.69

50 Vital Images at $12.68 (VTAL):

100 Activision (ATVI) at $11.6:

100 Yahoo (YHOO) at $15.95

2 Berkshire Hathaway (BRK/B) at $3,298 and 1 at 3244

125 Shares of Nasdaq OMX Group (NDAQ)(added shares 1/4/2009 at $20.17)

100 Shares of Corning (GLW) at $ 19.6

50 CVR Energy (CVI) at 7.75

100 SKILLSOFT (SKIL) at 10.35

100 of the ETF XLK

150 Applied Materials (AMAT)

75 Latin American Discovery Fund (APF)

200 American Software (AMSWA)
Added 50 AMSWA at 5.81 /Bought 50 AMSWA at 6.02-LT (taken out of LT Category 4/1/2010 via compromise between RB and LB)

100 Health Management Associates (HMA)


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