The more I think about it, the more it seems like Apple is really just a REALLY successful marketing company. Their slow pace of innovation in the last few years is really disappointing.

To stay competitive in the tech sector, you have to keep on innovating (Red Queen Hypothesis definitely applies to tech). For instance, you see GOOG rolling out new services every quarter. You also see YHOO adopting EBAY's PayPal service to power its new wallet services.

But what's AAPL doing? For the last couple years, all they've been doing is squeezing every last penny out of the iPod, iTunes, and Mac franchise. They take ordinary technologies and dress them up to make them look shiny and appealing to "hip" Americans, who consider Apple to be a luxury brand. And yes, for the last couple years, they've been VERY good at this… But what's next?

They're making iPods that are slightly smaller, slightly cooler. They even made one that plays video on its tiny screen. I'll admit, they've completely cornered the MP3 market, but where is the innovation? When they run out of ideas on what to do to next, the value of the iPod brand will depreciate, and they will lose sales (PiperJaffray analysts have found that iPod sales may be beginning to slow down).

Then there's their laptop business. I think they really messed up by switching to Intel chips. By porting OSX to the x86 architecture, they are making it possible for PCs to run OSX. Even though I don't think AAPL's hardware is very innovative, I think that OSX is a goldmine. OSX is such a solid operating system that people are willing to pay extra for overpriced hardware to run it. Now the PCs and Macs are able to coexist, will people still be willing to pay the extra amount for a Mac? PCs are dirt cheap compared to Macs. How do you think Apple users are going to feel when they see people running OSX on Dells? or running XP on Macs? By allowing XP and OSX to coexist, AAPL is diluting the value of the Mac brand. I know that it is currently illegal to run OSX86 on a PC w/o a license, but keep in mind that OSX is just as susceptible to software pirates as XP is. This WILL become a significant issue in the near future.

I'm impressed by the pricing and specs of the MacBook (except for the black one, which has a braindead $200 premium on it), and I am sure that they will move billions of dollars of product, but this expectation is already priced into the stock. MacBook sales will have to beat analyst expectations (which are high) in order for AAPL stock to make another bull-run.

Oh and iTunes. It's a decent service, but that market is getting more and more competitive as services like Rhapsody, Napster, allTunes (I personally use this one), etc, chip away at iTune's marketshare. Good luck Apple. $1/song might have been appealing to users a few years ago, but in the tech world, times change really fast, and now people want dirt-cheap, non-DRM, flat-rate music downloads.

As AAPL teeters on its 200DMA, I will be watching closely to look for hints on how the smart money is trading AAPL. Also, if you look at the OBV on AAPL, you will see that sell volume has been predominant in the consolidation channel (bearish divergence).

And nevertheless, even though I am bearish on the stock, I have to admit that the black MacBook Pro looks pretty cool.

UPDATE (5/30 11:20AM PST): AAPL is being dragged down with the market and has broken down at the 200DMA.

So I thought of this idea the other day, and I call it "Market Terrorism." I thought of this idea after watching the second season of 24 where business executives involved in the oil industry try to get the US to invade the middle east to drive up oil prices. Does this sound familiar or what? If not, let me jog your memory… Bush, "WMDs", Iraq, $60 oil, Cheney, Haliburton, big oil making record profits. 

Anyway, I don't really care for politics, so I'll continue…

"Market Terrorism" is when people perform acts of terror in order to drive up their stock holdings.

I honestly wouldn't be surprised if it already happens in real-life, considering the extent to which people will go to make money.

For instance, with the birdflu being a hot topic in the news, a "Market Terrorist" could bet big (ie, buy call options) on bird-flu stocks, and then somehow get the bird-flu into the US. It shouldn't be that hard… Just fly to China, smuggle in a chicken infested with the disease, and dump the chicken in Times Square. Consequently, the news of birdflu cases reported in the US would drive up these stocks like CRAZY, and the market terrorist would make a killing… only at the risk of causing a world-wide epidemic…

Also consider 9/11 and the effects that the attacks had on airline stocks. Anyone involved in the plot could have easily made 2000% returns by playing put options on airline stocks.

Do you think acts of market terrorism have occurred in the past?

Can Homeland Secuirty try to monitor securities for abnormal put/call activity to predict acts of terrorism?

What do you think?

I learned this trick from "darrelldemello" from the Yahoo message boards. Basically, it seems that ADVFN has a nice system in place which allows you to see the number of shares bought at the ask and the number of shares sold at the ask.

If you can find strong divergences in the net volume and price, it can usually hint at pro-traders accumulating stock. For instance, if on one day 5mil shares are bought at the ask and 3mil shares are sold at the bid, the NBV (net buy volume) is 2mil shares. Naturally, since the NBV is positive, you would expect to see the stock trending up on that day. However, if you see the stock trending down or flat-lining on that day, then you have just spotted a valuable divergence.

This kind of divergence usually occurs when professional traders (who want to accumulate a stock) hammer the bid with sell orders whenever the stock tries to run up. Then, they place buy orders to catch all the shares that nervous retail traders are selling. It never hurts to buy the same stocks as the pros!

To try this system yourself, sign up for a free account at ADVFN. Then log in and click on the "Trades" tab and type in the stock of your interest.  You will then be able to see the buy/sell volume. ADVFN is the only service I know of that has this kind of info.

I really question the existance of analysts. It's not like you can succeed at investing simply by arbitrarily buying stocks that analysts think are a strong buy. For instance, did you know that those idiots on wallstreet maintained buy recommendations on Enron up until the company collapsed? What about the 2001 tech bubble? I didn't take the time to look this up, but I wouldn't be surprised if tons of analysts set astronomically high price targets on stocks like CMGI, JNPR, BRCM, right before the dot com collapse.

So yeah, what the f*ck is the purpose of analysts on wall street? Why do their downgrades and upgrades have so much bearing on a stock price?

(more…)

on february 28th, elan and biogen idec pulled tysabri from sales and clinical trials. 2 patients who had been taking a combination of avonex and tysabri (avonex is an ms treatment by biogen) developed PML, a rare disease that causes destruction of brain tissue. since then, i've been dilligently following the developments as the two companies review the drug for a possible reintroduction to the market.

my opinion is that the situation is greatly misunderstood by investors because of prejudiced coverage by the media and institutions. the purpose of this post is to put into perspective what has happened and for me to provide commentary to help you understand what is really going on.

PML CASE #3
during the sgcowen health conference in mid-march, ceo kelly martin estimated that reviews would be completed by "the end of summer." at this time, the stock was trading around $7. on march 31st though, the stock tumbled from ~$7 to ~$3 overnight (taking me down with it). a 3rd confirmed case of PML was announced by the 2 companies. the 3rd patient was diagnosed with pml post-mortem (he died in 2003). the 3rd pml case had been on tysabri monotherapy in contrast to the first 2 pml cases who were on combination therapy (avonex+tysabri).
the significance of patient 3 is that s/he was discovered to have been on other immunosuppressive drugs.

[EDIT: patient 3 apparently had a history of treatments with steroids, remicade, and imuran (used in patients of organ transplants to lower the immune response so that the body does not reject the organ, ie an IMMUNOSUPPRESSANT). please refer to ThisIsMs for a full discussion on the effects of each drug]

the key fact to keep in mind is that PML is already known to arise in immunosuppressed patients. since there have been no confirmed cases in tysabri monotherapy (cases 4 and 5 are unconfirmed), it can be speculated that combo therapy could be the culprit.

ELAN AGM
elan's AGM, which took place at the end of may, was very upbeat. kelly martin stated that it was a matter of "when, not if" tysabri would find a path back to ms patients. i listened to this AGM webcast live and believe me, it inspired a lot of confidence and excitement in my investment w/ elan. if you're new to elan, you should definitely listen in to the recorded AGM.
the important thing to get from the AGM is that it was the last time that ELN officially briefed investors on tysabri. outlook on tysabri has been pretty grim lately, but keep in mind that nothing has officially changed. things brings us to PML "cases" 4 and 5.

PML "CASES" 4 and 5
a few weeks after ELN's successful AGM, and 1 day suspiciously before BIIB's AGM, jeff krasner of the boston globe published a frontpage article which bore the headline: "A fourth death may be tied to Biogen's MS drug." this article alone caused eln stock to plunge from ~$8 to as low as $6.10 the next day. elan's PPS has yet to recover from the damage done by this article. shouldn't someone be held responsible for the losses sustained by shareholders like me?
this "case" has since been rejected by biogen over a CC. in fact, there exists an article saying that the patient referred to as the '4th case' was shopping when she found out that she had "died." considering its been over a month since this report, we can assume that this case is not valid since ELN and BIIB would have been required by the SEC to report it officially. the same can be said about the '5th case' which was brought up by the WSJ (i dont have a subscription to read about it). so, in other words, there have been 3 confirmed cases of PML so far. 2 are combination therapy patients and the other is a monotherapy but immunosuppressed patient.

SALE OF BIOGEN'S OCEANSIDE PLANT
biogen recently sold its drug manufacturing plant in oceanside, ca to genentech. a lot of critics claimed that revealed biogen's lack of faith in tysabri return (oceanside was slated to produce tysabri). however, it is important to point out that biib has also developed a high titer method of manufacturing tysabri, meaning a higher production capacity for the drug. also keep in mind that the oceanside plant was part of biogens acquisition of idec.

SIGNS OF A COMPANY IN TROUBLE?
awhile ago, eln's chairman of the board, kyran [edited for spelling] mclaughlin, purchased 90K shares of eln. investors approved of a sharebuyback program during the AGM. eln posted very positive crohn's trial results a few weeks ago. eln will post breakeven EBITDA even without tysabri in its pipeline. eln has a very promising drug for alzheimers in phase2 that can be a even greater blockbuster drug than tysabri. eln is retiring some of its 1billion dollar debt that is due in 2008. elan's nanotech is starting to take off. the new england journal of medicine is considering the possibility of tysabri's return from a scientific standpoint.
are these signs of a company in trouble? with the exception of NCB and a few other brokerages, everyone seems to love to hate elan. but hey, at least now they're actualy considering that tysabri will back. a few months ago, pretty much every analyst on wallst claimed that there was no chance tysabri would ever return.

WRAP UP
this is a great drug with great potential. for now, all signs point to tysabri monotherapy. as avonex combo therapy becomes singaled out as the culprit, and as avonex goes generic, biogen and elan will have to share tysabri as their sole flagship MS drug. the patient reviews should be finished any week now, and a risk/benefit profile revised by the fda. the speculated timeframes for the completion of reviews range from as early as Q3 2005 to as late as Q1 2006. kelly martin and jim mullen seem to continue to stand by their "end of summer" timeframe.

if you'd like to read about tysabri/pml from a very scientific and medical standpoint, go over to the yahoo msg boards and search for posts by 'pinvestment' and 'neuro1111' [edited for spelling], both very well-versed scientists who graciously share their knowledge on the situation. during the writing of this post, i found the tixx webpage to be very helpful. they have a lot of cool documents on the site too. check out their site if you'd like to continue researching elan.

good luck betting on tysabri. thanks for reading.

DISCLAIMER: I hold long positions in ELN, so my discussion may be inherently biased.

My last post was regarding short-term investments. This time I wanted to touch on a long-term investment I’ve been recently researching, Starbucks. This coffee empire is a company I see as undervalued with an almost unlimited potential for growth. Starbuck’s has had a historic routine of overperformance, yet this has resulted in very high expectations for the company. As a result, investors have constantly come to expect these same sort of results from the company which can sour even perfectly decent reports. Last winter, the stock went as high as $64, but has since dropped due to these expectations. But let’s take a look at the facts. Within the last decade, the stock has split four times and I believe another one is way overdue.

Barring the newest ads regarding their doubleshot espressos and frappucinos, how many of you have actually seen a Starbuck’s ad? They manage to save millions on advertisement, as they choose to invest this money in employee training instead. Listed as a fast-food company by the Fortune 500, they have one of the most comprehensive employee training programs available, creating a high-quality product for their consumers.

As well, the company has an excellent business sense, catering to both their employees and their customers. Currently, there are 6000 stores within the US, but by the year 2010, they hope to expand to over 20,000 stores. People joke about seeing a Starbuck’s on every block, but this is no coincidence. The reason for these expansions is due to the high demand for Starbuck’s coffee. They like to call themselves a “coffee company serving people,” but they do much more.

Real estate is a major part of their success. Oftentimes, Starbucks occupy the busiest corners on the street which allow for maximum exposure. Just by building a store on a corner drives up the price of the property and the immediate area surrounding it. If the owners were to sell just their properties alone, they could probably retire.

The company has partnerships with many large names, such as Albertson’s and Barnes & Nobles, not to mention their own line of products. They have their own ice cream, which has become the top selling brand of coffee ice cream in the nation. They just recently bought their own music company, “Hear Music,” in 1999 so they could package their own cd’s. That music you hear in the store, they own it. Starbuck’s has even launched its own credit card, the Starbuck’s Duetto Visa.

With plans to open on the Nikkei Index, I believe Starbuck’s has a bright future ahead and long-term investors would be well advised to take advantage of this stock. That’s all I’ve got for now so good luck and happy trading.