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Fresh from "Sin City" —
Taipan discovers a two-month, 180% profit opportunity in the hedonistic, plague-ridden underbelly of humanity
by Christian DeHaemer
The trite platitude at the poker table is that if you don't know the sucker — it's you! It's a bit of wisdom that can be ascribed to all of Las Vegas, the gambling mecca of the New World. On my most recent trip, my admiration for the city of illusion grew exponentially.
You have to admire a town that passes itself off as having the best of everything — including heretofore unduplicated wonders of the world. There is a New York skyline, including the Statue of Liberty as well as the Empire State and Chrysler buildings. There is an Eiffel Tower and even a Venetian cityscape. Pseudo-Venice is surreal, with white puffy clouds overhead and romantic gondolas drifting by. It is true to the original, with the exception that the canals don't smell like dead cats. (And one needn't bother with those pesky foreigners.)
 Daydream reliever
Vegas is about exchanging core dreams for cold cash. Even its name is a lie, meaning "grassland" — when it's really a desert. Vegas is the ultimate fantasy machine — refined over the years — designed with the sole purpose of separating fools from their money. The project is so well conceived and so ingeniously plotted, the very sidewalks are aligned against you.
We all know about the pure oxygen pumped in to keep hapless dolts awake at their slot machines, pulling the levers until the black grime of a thousand hands is ground like greed into their sticky palms. There are no clocks. Windows are absent. Time does not exist.
The constant clown music is set just below the clanging sound of the winning slot machines. And don't forget the copious amounts of free booze sloshed out by silicone-racked harlots and delivered right to your table.
When I tried to flee this adult cartoon and take a simple walk outside the complex, I was obstructed by sharp plants and zooming taxis. Finding a sidewalk, I started blithely down the path, vainglorious in my escape. It meandered past styrofoam porticoes and Disneyesque cupolas, weaving through a dense and beautiful desert garden and ending in a secret gate... the other side of which I found — the casino. Brilliant!
Parallel universe
The comparisons to Wall Street are obvious. Both are popular industrial dream-sellers run by ethnically and sexually homogeneous insiders who give up just enough bait to keep the pigeons flocking to the feeder.
The lure of easy riches, coupled with exacting, state-of-the-art demographic information and slick media engines, align to take the greatest possible amount of your hard-earned cash. Even your last quarters are sucked into the clanging machines at the airport on your way out of Dodge.
But you can beat them at their own game
I've been talking about float games and the legal manipulation of stocks for a couple of months now. Last month, I told you about Capstone (CPST:NASDAQ), an over-inflated alternative energy company that was soon to be inundated by an abundant supply of stock.
Taipan recommended that you short CPST above US$90. If you followed that advice you would be up 53% in under a month. As I write this, Capstone is trading at US$42, just above support. I would claim that this validates my lock-up theory, if I hadn't already backtested more than 1,000 stocks going back a year.
Diary of a lockup expiration
Someone once said, "Never invest on a level playing field." Good advice. In investing, as in life, you always want to bargain from a position of strength.
Advantages are gained from doing your homework, having a friend in the right spot, or good old-fashioned experience. In this case, the lockup expiration gives you the edge. The methods of the Wall Street dealmakers, compounded with SEC regulations, give you a unique opportunity to profit.
This month I'd like to recommend a stock in an industry that has been growing faster than the gross population of kids with scooters. I will follow the same effective trading method we used to profit so handsomely from Capstone. Only this time, we are going long.
 Mutants among us
ViroLogic (VLGC:NASDAQ) is a biotech company developing products to improve the treatment of viral diseases. With a technology that goes by the name of PhenoSense, ViroLogic wants to become an important cog in the treatment of AIDS and hepatitis B and C.
PhenoSense HIV is a test that measures resistance and susceptibility of a patient's HIV infection to antiviral drugs, and provides doctors with the information they need to prescribe the most effective drug treatment.
The idea is that each patient has his own degree of ability to fight certain strains of HIV. To effectively treat HIV, doctors must know which strain the patient has and how it is reacting to the various drug cocktails used to treat it.
Prior to PhenoSense HIV, determining the correct personal treatment was difficult because of the mutating nature of this affliction.
The test has many benefits over conventional methods of testing a mutating resistance. Whereas PhenoSense has a rapid turnaround of only 14 days, the standard test requires three to four weeks. Furthermore, PhenoSense provides highly accurate (95%), reproducible, and individualized drug-susceptibility results.
The assay can be performed on small plasma samples (e.g., viral loads as low as 500 HIV RNA copies/mL), and can detect sub-populations of drug-resistant virus at concentrations as low as 10% of the total virus population.
ViroLogic (VLGC:NASDAQ)
Share Information |
| New shares eligible for sale: |
10,822,517 |
| Percent of shares outstanding: |
54.80% |
| Percent of float at IPO: |
216.45% |
| Shares outstanding: |
19,763,000 |
| Average daily volume: |
59,097 |
I'll skip the detailed explanation of how it works. But just so you know, this kind of laboratory analysis does not require FDA approval and is regulated by the Health Care Finance Administration (HCFA) instead.
Reduces costs
The PhenoSense HIV Select panel costs US$775. The PhenoSense HIV Comprehensive panel costs US$895. The costs are higher up front over traditional methods, but it offers more accurate tests and substantially reduced costs over time.
Adam Smith investing
This is a supply and demand play based on the sudden availability of new shares in the market. The current market capitalization is US$206 million. There are 19.8 million shares outstanding. VLGC expects to control losses in 2001 — US$0.63 a share, down from US$10.4 over the past four quarters. Q3 losses are expected to be -US$0.31 a share.
The current float is 5 million shares. However, on October 29, 2000, the lockup will expire and 10 million new shares will become available for sale. As you can tell by the chart above, the two-month selloff is well underway.
HISTORIC AND QUARTERLY RESULTS REVENUE
(Thousands of U.S. dollars) |
| |
1999 |
2000 |
| MAR |
85 |
877 |
| JUN |
166 |
1,947 |
| SEP |
0 |
— |
| DEC |
818 |
— |
| TOTALS |
1,069 |
2,824 |
| EARNINGS PER SHARE (U.S. dollars per share) |
| |
1999 |
2000 |
| MAR |
0.51 |
4.193 |
| JUN |
0.51 |
-0.28 |
| SEP |
0 |
— |
| DEC |
5.93 |
— |
| TOTALS |
-6.95 |
-4.473 |
Note the classic double-top formation and the first downleg of the "Flying V" Lockup Effect. Eerily similar to the Capstone chart, isn't it?
Flood tide
Our purpose is to buy after the dip, about a week following the flood of new stock onto the market. Typically what happens is that insiders — including venture capitalists who are holding stock at pre-IPO prices — sell some or all of their shares.
As this happens, the company releases positive news to help buoy the share price. The underwriters will also take this opportunity to reiterate their "strong buy" recommendations.
In this case, the underwriters are CIBC World Markets, ING Baring and Prudential. There are no other covering brokers. All three currently have "strong buys" on the VLGC. Brilliant!
Surge of optimism
This spark from Wall Street's media machine should kick off a new uptrend. Taipan will determine this by using the MACD indicator. If a new uptrend does not develop by November 17, we will let it go and move on to the next trade.
I will let you know on the Friday hotline as well as in the e-dispatch when this new uptrend occurs. If you have not already signed up for Taipan's FREE daily e-dispatch, please do so.
Plan to sell this stock roughly two months after you purchase it — gain or loss. This is in no way a long-term holding. Brian Hicks, our resident Biotech Buddha, tells me that Q4 is traditionally a banner time of year for this market segment, due to the plethora of conferences. And he should know, as he sits under the Bo Tree of Biotech Happiness.
As a pure play on Wall Street greed, mortal sin and the continuing ascent of modern medicine, buy VLGC three days to a week after October 29, 2000, as soon as the chart shows an uptrend. You should be able to get in under US$5. Our sell point is the next resistance level, around US$10-US$14 on the share price.
Contact: ViroLogic, 270 East Grand Avenue South San Francisco, CA 94080. Phone: (650) 635-1100 Fax: (650) 635-1111; Investor Relations Website.
In addition to his duties at Taipan, Chris DeHaemer is the editor of The Hammer.
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