Three New Plays for 2009

Add DNA & CBST Calls, ETH Puts

PLAY: Buy the DNA March 80 Calls (DWN CP) 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 CBST May 20 Calls (UTU ED) 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).

PLAY: Buy the ETH February 15 Puts (ETH NC) at market, good for the day. Place a protective stop limit at $0.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

Dear Bottarelli Research Member,

Last week, we reloaded the put-side of our ledger by adding Verizon April 30 Puts (VZ PF) and Salesforce.com May 25 Puts (CRM QE). This week, I’d like to even out our put/call ratio by adding two powerful upside call-play candidates in the biotech sector.

Going into 2009, I feel that biotechs will be the market’s top-performing sector. My rationale for this viewpoint is both political and economical. You see, since disease and illness spreads during times of both economic booms and busts, healthcare-related companies can withstand recessionary environments. And with our new governmental leaders favoring emerging biotech companies over price-gouging Big Pharma names, I feel that biotech companies will enjoy powerful upside growth in 2009.

In terms of today’s two call plays, the first pick is a more conservative play, while the second is a more speculative position. But no matter how you define them, they both stand to gain 100% to 200% over the next three months.

At the same time, I’d also like to take advantage of this week’s upside move by adding a third LEAPS play on a $17.00 furniture company that I feel will be trading in the low single-digits. If this move occurs, this play could be a 100% to 200% gainer as well.

So on that note, let’s get started!

Your first biotech play comes in the form of Genentech (DNA – NYSE). I rate this one as a more “conservative” play simply because DNA is undoubtedly the best biotech company your investment dollars can buy today.

Considered “the founder” of the biotechnology industry, Genentech has a power-house product pipeline that generated trailing three month revenues of $12.68 billion. Plus, they also have more than 100 new projects in their pipeline which cements their prospects for longer-term earnings growth. Some of their most lucrative drugs currently on the market include:

• Avastin: Treats metastatic cancer of the colon/rectum and small cell lung cancer.
• Rituxan: Treats B-cell non-Hodgkin’s lymphoma.
• Herceptin: Treats node-positive or node-negative breast cancer.
• Lucentis: Treats neovascular (wet) age-related macular degeneration.
• Xolair: Treats asthma.
• Tarceva: Treats metastatic non-small cell lung cancer.
• Nutropin: Growth hormone that treats hormone deficiency in children and adults.
• Activase: Treats acute myocardial infarction (heart attack) and acute ischemic stroke (blood clots in the brain).
• Pulmozyme: Treats cystic fibrosis.

With $5.93 billion in cash and quarterly revenue growth of 17.30%, buying DNA anywhere under $80.00 looks like a steal. Plus, the stock has been a strong outperformer this year, posting a 10% gain versus the S&P 500’s loss of nearly 40%. So as the first order of business, let’s add DNA calls to our LEAPS ledger now!

PLAY: Buy the DNA March 80 Calls (DWN CP) 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 biotech call play is a little more speculative, and it comes in the form of Cubist Pharmaceuticals (CBST – NASDAQ).CBSTrecently came to my attentionbecause it was one of only four stocks on the entire market to register a new 52-week high. As I studied the company, I found their story to be quite compelling. You see, they have a drug currently on the market called Cubicin, which is the most successful antibiotic drug launch (in dollar terms) in U.S. history.

The drug combats Methicillin-resistant Staphylococcus aureus (MRSA), which is a bacterium responsible for difficult-to-treat infections in humans. MRSA strains were first reported in the late 1990s, making them relatively new to the medical scene. And they’re resistant to a large group of antibiotics, including penicillin and cephalosporin. And lately, MRSA strains have rapidly spread in the United States. In fact, they’re now the most common cause of cultured skin infections. That’s why Cubist is in such a tremendous position of power.

In their most recent earnings report, CBST reported that their total net revenues increased 50% to $294.6 million (versus $194.7 million a year before). In the third quarter of fiscal 2008, CBST reported year-over-year revenue growth of 40.9%, giving them positive EPS growth over the past two years. In fact, Cubist reported $112.4 million in revenue in the third quarter, and sales of Cubicin accounted for $110.6 million of that total. So as you can see, Cubicin is well on its way to becoming a true blockbuster. And according to Cubist, they believe they’ll achieve annual sales of more than $750 million in the U.S. alone. This will certainly continue pushing shares of CBST higher.

Adding to the bullish catalyst is the fact that the FDA has been extremely unsympathetic to the latest group of antibiotic drug candidates. They recently rejected Johnson & Johnson’s Doribax, Wyeth’s Tygacil, and Targanta Therapeutics’ Oritavancin. These three rejections reduce the antibiotic drug competition for current leaders like Cubist.

Now, the one and only threat to Cubicin is the recent speculation that it’s vulnerable to generic drug competition. You see, the FDA approved Cubicin in September of 2003, which means that their drug patents won’t expire until 2016. But tricky generic drug companies could challenge those patents prior to 2016 by claiming that they do not apply to their generic version of the drug. On this speculation, shares of CBST have moved off their 52-week highs, but I consider this a great opportunity to buy longer-dated calls.

After all, as of this writing, Cubist has not been notified of any patent challenges for Cubicin. This tells you that the recent pullback was nothing more than a fear-driven move sparked by message board banter and analyst rumors. And even if Cubicin was challenged, you better believe that Cubist will rigorously defend their drug. After all, you don’t take a relaxed approach to the most successful intravenous antibiotic launch in U.S. history. With their competition getting rejection letters and CBST hitting new 52-week highs, I’d like to play this one for further upside. Therefore, let’s use the recent pullback to add longer-dated calls on CBST now!

PLAY: Buy the CBST May 20 Calls (UTU ED) 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).

And finally, I’d like to add puts on Ethan Allen Interiors (ETH – NYSE). This company features retail home furnishings in the United States, and as you can imagine, the stock has taken a big hit in the current economic climate.

As of June 30^th 2008, Ethan Allen operated 159 company-owned stores and 136 independently-owned stores. But as of last month, ETH said that they’d be closing 12 stores — and I suspect more could be on the way.

After all, their numbers do not look good. For example, their balance sheet shows $79 million in cash versus $203 million in debt. Plus, their income statement shows quarterly earnings growth of -57.60%, which is probably why Standard & Poor’s lowered its corporate credit and senior unsecured debt ratings two notches to BBB-. That’s only one notch above junk status.

When I look at this stock, I see a lot of similarities to our recent put play on Zale (ZLC – NYSE), which gained 168%. ETH looks like a stock that should be trading around the $5.00 to $7.00 level, so let’s get positioned to profit off a further decline.

PLAY: Buy the ETH February 15 Puts (ETH NC) at market, good for the day. Place a protective stop limit at $0.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

UPDATES

Verizon April 30 Puts (VZ PF) & Salesforce.com May 25 Puts (CRM QE): Our two newest put plays are trading at or near our entry prices, so maintain each play for more downside selling pressure. Hold.

PPH February 50 Puts (PPH NJ): Despite my bearish view on Big Pharma, last week’s market up-swing has officially stopped out these puts. From a chart perspective, I continue to rate the directional bias on PPH as down, so going forward, I may re-enter PPH puts with an extended expiration time. But until then, this position has been closed. Sold.

MCD June 55 Calls (MCD FK) & ADM January 2010 20 Calls (WRA AD): We took 50% profits on HALF of each of these two positions, which leaves us holding the remaining half for more gains. Be sure to lock in additional profits as these plays achieve 100% profits. Hold.

Teva Pharmaceuticals January 2010 45 Calls (WTX AI): Here’s another company that’s positioned to hand us profits based off my bullish thesis on biotechnology. As the top genetic drug-maker in the world, TEVA looks quite strong going into 2009. Hold.

iShares MSCI Emerging Markets Index March 24 Puts (MBY OX): Our downside play on the deterioration of emerging markets continues to look strong. Be sure to lock in HALF of your profits at the 50% level. Sell half at 50%.

Casey’s General Store February 30 Puts (CQO NF): We locked in 57% profits on half of our position last week, which leaves us holding the remaining half for more selling pressure. Sell remaining half at 100%.

AKS January 2010 15 Calls (YDF AC), Ultra Financials June 8 Calls (UUF FH), Excel Maritime March 15 Calls (EKN CC), & Tesoro January 2011 5 Calls (ZGC AA): What a major come-back, especially in the dry bulk shipping and steel sectors! This sets a positive tone going into 2009, so maintain these positions for more recoveries. Hold.

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 feel that metals could be one of the strongest sector performers going into 2009, and this bodes well for all three of these 2010 positions. Hold.

SPECIAL “END OF YEAR” RENEWAL

Don’t forget, you can now lock in our special “End of Year” renewal offer that extends your LEAPS membership for the lowest price in the history of Bottarelli Research LEAPS. As I mentioned, a new “Age of Volatility” is upon us. In other words, the incredible volatility levels that we’ve seen this year are no longer the exception — they’re now the norm.

The only way to prosper during these times is by carefully positioning yourself in the best call and put plays — and locking in gains the instant these plays move your way. Over the last three months, you’ve seen this tactical strategy work perfectly, as we locked in profits of:

• 130.36% on Visa January 55 Puts (V MK)
• 48.12% on Wynn Resorts January 35 Puts (UWY MG)
• 171.79% on AutoZone January 100 Puts (AZO MT)
• 168.52% on Zale February 20 Puts (ZLC ND)
• 88.52% on Toyota Motors January 65 Puts (TM MM)

As we head into 2009, I want to ensure that you continue receiving these winning plays, and that’s why I’m offering you the opportunity to add 9 months onto your membership for the lowest price of the year. Please don’t miss out.

This special offer expires on Saturday, December 20^th, so act now. Give yourself an early Christmas present and lock in this discounted membership offer now!

https://www.bottarelliresearch.com/renew/?service=leap&offer=150264F1RS

Sincerely,