Add TEVA Calls & EEM Puts

“Obama’s List” Part II, Plus Global Armageddon

“Drug companies could take some big hits as Democrats struggle to hammer out a workable universal healthcare scheme. Pfizer and GlaxoSmithKline both fell 8% the day after the election. But there could be some winners in health care. TEVA could benefit from any assault on drug pricing.”

- Barron’s, November 10^th 2008

PLAY: Buy the TEVA January 2010 45 Calls (WTX AI) at market, good for the day. Place a protective stop limit at $2.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

PLAY: Buy the EEM March 25 Puts (MBY OX) at market, good for the day. Place a protective stop limit at $1.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

Dear Bottarelli Research Member,

Last week, we began adding longer-dated calls on a new series of plays called “Obama’s List,” which are companies that’ll benefit tremendously over the next four years of Democratic leadership.

The first pick in this series was the Archer Daniels Midland January 2010 20 Calls (WRA AD), and thus far, these calls have performed quite well. In just the first week, your ADM calls have traded up 15%, and I fully expect them to move higher in the weeks and months to follow.

In today’s alert, we’ll continue this strategy by adding a second “Obama’s List” pick, which is detailed below. At the same time, I’d like to combine this pick with a special put position that acts as a “pseudo-hedge” and protects you from a complete global meltdown.

As you’ll see, there’s mounting evidence that some of the world’s top emerging markets are poised for devastating downside moves. Some have described it as “Global Armageddon.” Others are calling it a global “Death Spiral.” Whichever term you choose, adding these puts to your LEAPS ledger protects you from any global sell-off that could be on the horizon. When you consider the very real threats now facing the global marketplace, adding these puts is a very savvy move.

So on that note, let’s get started…

Your first new pick comes in the form of Teva Pharmaceuticals (TEVA – NYSE).

Based out of Israel, Teva is the world’s top generic drug companay. They develop and manufacture generic pharmaceuticals in North America, Europe, Latin America, Asia, and Israel. Their principal products include the following:

• Copaxone for multiple sclerosis.
• Azilect for Parkinson’s disease.
• Easi-Breathe, an advanced breath-activated inhaler.
• Spiromax/Airmax, a multi-dose dry powder inhaler.
• Cyclohaler, a single dose dry powder device.
• ProAir, a treatment of bronchial spasms linked to asthma.
• Qvar, an inhaler for chronic bronchial asthma.

The tactical thesis behind TEVA is two-fold. First, they continue to report stellar earnings despite a truly horrible global environment. Their sales in Q4, for example, increased 20% to a record of $2.84 billion — fueled by generic versions of GlaxoSmithKline’s epilepsy treatment Lamictal, Glaxco’s antidepressant Wellbutrin, Johnson & Johnson’s Risperdal, and Novartis’ hypertension fighter Lotrel. These strong numbers show you that TEVA is well-insulated against weak market internals.

Secondly, the Obama-lead Democrats have pledged to push for cheaper alternatives to branded drugs. This is certainly bad news for Big Pharma stocks like Pfizer and Merck. But for TEVA, they’re in perfect position to reap the benefits of this political agenda. After all, TEVA currently has 145 products awaiting FDA approval, many of which are current brand-name products whose patents are due to expire. If you add up the sales from these branded products, you’ll arrive at U.S. sales of over $96 billion. That’s quite a forward pipeline for TEVA to capture, especially with the political tailwinds now at their back. Therefore, as our second “Obama’s List” pick, let’s go ahead and add longer-dated calls on TEVA now!

PLAY: Buy the TEVA January 2010 45 Calls (WTX AI) at market, good for the day. Place a protective stop limit at $2.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

The second play for today comes in the form of put options on the iShares MSCI Emerging Markets Index (EEM – AMEX).

The EEM is an investment vehicle that serves as a benchmark for international stock performance, which corresponds to the price and yield performance of the MSCI Emerging Markets index. As you can see from the chart, this collection of international markets has gotten slaughtered lately, but I fear that the worst is yet to come. For example, this past Monday, China announced a bailout plan. Russia is right behind them with a bailout plan of their own. And then there’s Iceland and Romania, who are each on the verge of complete bankruptcy.

As I mentioned above, some global economists have described the global credit crisis a death spiral, simply because all of the hot money that was once rapidly flowing into these emerging countries is now exiting in record numbers. At the same time, you’ll soon see double- and triple-digit inflation levels hitting these emerging countries, which could directly lead to deep depressions. As a precautionary measure, I’d like to add puts on EEM now.

In terms of a specific look under EEM’s hood, their top ten holdings include companies like Brazilian Petroleum, China Mobile, Gazprom, Petroleo Brasileiro, POSCO, Samsung, Taiwan Semiconductor, and yes, even Teva Pharmaceuticals. So in a way, adding calls on TEVA (from above) combined with puts on the EEM offers you a natural buffer against further downside on either position. As a so-called Global Armageddon play, let’s get positioned on EEM puts now!

PLAY: Buy the EEM March 25 Puts (MBY OX) at market, good for the day. Place a protective stop limit at $1.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

UPDATES

ADM January 2010 20 Calls (WRA AD): So far so good. We’re up as high as 28% in a week, and the future continues to look bright. Hold.

Casy’s General Store February 30 Puts (CQO NF): Once again, so far so good. We’re up as high as 28% in a week, and I can’t imagine that CASY can maintain their lofty P/E multiple. I continue to feel like the stock should be priced at $13.00 per share. Hold.

Visa January 55 Puts (V MK): We locked in a 50% gain on half of our position, and we’re holding the remaining half for more upside. The number of credit card “swipes” this holiday season is almost guaranteed to be way down over previous years and that means severely reduced transaction fees for Visa. Maintain your puts for more upside. Hold.

AKS January 2010 15 Calls (YDF AC): Steel stocks remain one of the most under-valued sector groups right now. AKS is a steal at current levels (pun intended), so maintain your 2010 calls for an eventual recovery. Hold.

Ultra Financials June 8 Calls (UUF FH): After locking in profits on half of our position, we’re holding the second half of this longer-term rebound play in the financial sector. Hold.

Wynn Resorts January 35 Puts (UWY MG): In a newly published Time Magazine article titled “Dark Days Ahead for Asia’s Las Vegas,” author Ling Woo Liu writes, “In the wake of the faltering global economy, Macau is not such a sure bet anymore. The problem is that some of the (casino) giants embarked on overzealous building sprees.” And now, thanks to the global credit crunch, these building projects are quickly racking up insurmountable debt at a time when casino profits are quickly falling. It surely does not paint a strong picture for stocks like WYNN here in the near term. Maintain your puts for more downside. Hold.

Auto Zone January 100 Puts (AZO MT): The hot air continues to seep out of AZO. The only thing that’s kept AZO shares up this week was Thursday’s freakish end-of-day rally, and even those gains were quickly sold off. Remember, Sears Holdings (SHLD – NASDAQ) was once just as resilient as AZO, trading over $120.00 per share. But just today, shares of SHLD hit a new 52-week low at $38.00. The same fate will fall upon AZO. I maintain my $60.00 price target. Hold.

Tesoro January 2011 5 Calls (ZGC AA): The more oil prices fall, the better it’ll be for refiners like TSO. In fact, TSO has done a good job of maintaining its value despite this week’s bearish overtones. There’s a good chance TSO has set its low. Therefore, over a 24-month time horizon, this continues to look like an explosive winner. Hold.

Zale February 20 Puts (ZLC ND): We sold half of our position at the 50% profit mark, and we’re holding the remaining half for more upside. The company plans on closing over 100 stores, and this simply cannot be good for the stock price. Zale’s chart also shows no signs of recovery, so maintain your puts for more upside. Be sure to sell another contract at the 100% profit mark. Hold.

Toyota Motors January 65 Puts (TM MM): Continuing the theme of Zale and Visa, we also sold half of our Toyota put position for a nice 50% return. Auto sales are the worst we’ve seen in many, many years which has prompted government bailout talk among the Detroit-based automakers. Just ask AIG shareholders how well they fared during their bailout, and you’ll see why it makes sense to maintain our TM puts. Hold.

American Capital May 25 Calls (DQS EE): Unfortunately, we must close this position now. One of the main reasons for owning ACAS calls was their incredibly strong dividend. Well, on Monday, ACAS shocked investors by deciding not to pay out their dividend. They also reported wider than expected losses. I feel completely betrayed by this company. Their executives should be ashamed of themselves. We have no choice but to close this position. Sell.

Excel Maritime March 15 Calls (EKN CC): I don’t know if you follow the movements of the Baltic Dry Index, but if you do, then you know that it has dropped over 90% during the last 10 months. This is a truly shocking drop. You can even argue that it’s worse than the dot com drop. But unlike dot com stocks, dry bulk shipping is a vitally important global industry. It’s not going away anytime soon. Therefore, I think that we’ll see an aggressive bounce in stocks like EXM. As a quick review, we entered the EXM March 15 Calls (EKN CC) on September 29^th for $3.80, and we sold HALF of our position when they traded up to $6.40. This was good for a 68.42% gainer. But now, these calls have fallen back down to $1.15, and I’d like to add to them at these reduced levels. After all, the dry bulk sector can pop just as quickly as it can drop. And with current levels so dramatically reduced, there’s really nowhere to go but up. Let’s reduce our cost basis and add to our EXM March calls now.

PLAY: Buy more Excel Maritime March 15 Calls (EKN CC) at market, good for the day.

Apex Silver Mines January 2010 2.5 Calls (YSB AZ), Southern Peru Copper January 2010 25 Calls (YPV AE), & Barrick Gold January 2010 40 Calls (WRX AH): I continue to believe that all the metals — and especially gold — are on the verge of a major upside move. This should bode well for all three of these positions leading into to their January 2010 expiration dates. Hold.

America Movil January 2009 70 Calls (AMX AN), Petroleo Brasileiro January 90 Calls (PMJ AR), & Entergy January 140 Calls (ODF AH): Still no signs of life for these three positions. Since they’re at such nominal values, we might as well continue holding for a miracle. Hold.

Sincerely,