An AOL poll this morning asked readers if they believe the stock market is "nearing a bottom and will soon stabilize." Of 23,000 respondents, 49% said, "Yes, the market is near the bottom." Thirty-five percent said no. Only 14% had the most reasonable answer: "I don't know."
We could view the 49% vote of confidence as a contrarian indicator that we'll keep falling. Plus, the media is still covering market drops on the front page, indicating the decline hasn't become old enough news yet. The old yarn argues that a bear market finally ends when nobody is seriously pondering it anymore, because everyone is so tired of it.
In the same poll, nearly 50% of respondents blamed the market's decline on corporate corruption. I disagree. Scandal has certainly added to the decline's velocity, but stocks were cascading long before the emergence of corporate malfeasance (society's new favorite word). Let's not rewrite history and lose lessons that the bull market should have taught us.
Let's look at some of our investments. We have news.
Amgen's got a new drug
On a valuation basis, Amgen (Nasdaq: AMGN) may be our most attractive stock; if you have faith that management can get organized, AOL Time Warner (NYSE: AOL) would be the other. Lately, Amgen has issued good news from its California office.
Yesterday the Food and Drug Administration approved Amgen's drug, Aranesp, for chemotherapy patients in the United States. Aranesp is a longer lasting version of Amgen's Epogen. Epogen is the largest-selling biotech drug in history. Epogen must be injected in anemia patients about three times a week. Aranesp can be injected once a week or even every two weeks, vastly improving a patient's quality of life.
This is an interesting story: You might recall that Amgen sold Epogen marketing rights to Johnson & Johnson (NYSE: JNJ) long before it became a blockbuster. As Amgen developed its longer lasting version of Epogen, J&J argued that it was the same drug and J&J should get marketing rights to it. Amgen argued it was a new drug. The case went to court. Amgen won. Now Amgen will market Aranesp against J&J's version of Epogen, called Procrit, which is the only competition in the country. J&J's Procrit had $3.3 billion in 2001 sales. Epogen sold $2 billion.
J&J is working on a longer-lasting version of Procrit to compete with Aranesp. Its drug is in Phase III trials. Although Amgen's Aranesp is beneficial to patients, it's still believed that winning over J&J's Procrit accounts will take time.
At $35, Amgen trades at 26 times expected 2002 earnings, is expected to grow 11% this year, with 26% earnings growth guessed for 2003. The company is expected to announce earnings per share of $0.34 tomorrow. We're happy that Amgen is helping people and creating value so it can help more people.
Sirius needs serious marketing
"Equip your tractor or all-terrain vehicle with Sirius and watch the long days out in the field breeze by."
That sentence is pulled from the Sirius Satellite Radio (Nasdaq: SIRI) website. It is a quaint notion: Farmers across the country listening to satellite radio as they spend long, lonely days on a meandering tractor. Plowing fields -- kicking up dust in the drought -- to the tune of Pink Floyd's "Money." Cha-ching! Hey, maybe a few farmers will get satellite radio for their tractors, but how many?
It's even more difficult to imagine scores of all-terrain vehicle drivers, jumping creeks and logs, listening to the radio over the roar of engines.
Sirius' marketing reminds me of Iridium's for its brick-sized telephone: "When you're in the remote desert, or on an ocean freighter for days, or on the moon (they didn't actually say that), use your Iridium satellite telephone!" Iridium needed users by the millions in order to survive -- like Sirius -- but it went after such a niche market that its failure wasn't surprising.
Luckily, Sirius has car drivers to target -- and there are millions. However, the stock is still tumbling as subscriber estimates are put in reverse. Yesterday, an analyst lowered 2002 subscriber estimates to the 70,000-range from over 100,000. To break even, Sirius needs about 4 million people to sign up for its $12.95-per-month radio service.
We hold the stock short (believing it will decline) because we don't feel the company can reach 4 million subs anytime soon (2005 is the goal). Funds must be replenished next year, and that will be more difficult if Sirius falls short of early subscriber goals. The company carries $560 million in long-term debt, and the stock is under $3, which also makes fundraising a feat. Sirius has lost 65% since we shorted it Jan. 24, while the Nasdaq has fallen 33%.
We wish Sirius real success but believe it's a real long shot. Will you pay for satellite radio?
Earnings this week
Amazon (Nasdaq: AMZN) announces second-quarter results this afternoon -- a loss of $0.06 per share on $789 million in revenue is expected. Including Amgen, four other Rule Breaker companies report results this week -- we recently outlined their expectations. Good luck to 'em!
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Rule Breaker Portfolio Returns as of 7/22/02 Market Close:
RB S&P S&P 500 Port 500 DA* Nasdaq Week -2.98%** -10.69% -- -7.23% Month -12.11%** -17.16% -- -12.34% Year -33.68%** -28.59% -- -34.24% CAGR*** since 8/4/94 19.48% 7.57% 7.88% 7.51%
**Please keep in mind that these figures will be distorted for the RB Port once a quarter when we deposit $12,500 in new cash. See next note!
***Compound Annual Growth Rate using Internal Rate of Return. This performance measure accounts for the periodic deposits. Total return wouldn't be meaningful, because we started adding cash to the portfolio in July 2001. In a total return calculation, or (Current Value - All Cash Deposited)/All Cash Deposited, cash added shows up as returns.