Coming Back to Life!

GPRO, DNA Moving Higher

By Bryan Bottarelli
Friday, May 26, 2006 4:28 PM EST
Fri, 26 May 2006 21:28:00 GMT

Dear Bottarelli Research Member,

Even though they’re designed to be longer-term holds, some of our “Aftermath Report” picks are already shooting higher. Today’s top mover was Gen-Probe (GPRO – NASDAQ). Just look at this beautiful chart:

GPRO

What’s interesting to me is that this pop is coming in virtually zero news. There’s nothing on any of the financial newswires that supports an upside move of this magnitude, which means that we could be seeing institutional accumulation. As money managers run their screens and discover just what a great stock GPRO is, we could be in for a really nice up-move. Hold your GPRO November 55 Calls (PSU KK).

Also making a strong move today is Genentech (DNA – NYSE), as the shares continued to move higher fueled by yesterday’s news of Avastin now being considered for a treatment for advanced breast cancer.

DNA

Since Genentech has asked the FDA for a priority review, we’ll see a decision within six months (rather than the usual 10 months), which means a decision could come by the end of November. This is prefect since we’re holding DNA December calls! We could play a speculative rise right up to the decision! Hold your DNA December 80 Calls (DWN LP).

Over on the put side, Unitedhealth Group (UNH – NYSE) closed up a little today, but it’s nothing that concerns me too much. After all, Forbes ran an article today titled “The Next Big Scandal,” where they identify UNH as one of three top companies being looked at by the U.S. Securities and Exchange Commission and the Department of Justice about the practice of options backdating (the other two big companies named in the article were Vitesse Semiconductor (VTSS) and Affiliated Computer Services (ACS).

UNH

As a quick explanation, options backdating happens when a company grants stock options to an officer or employee on one day – but back-dates the price of those options to a different date. For example, say XYZ company grants stock options to someone on April 15th when XYZ stock was trading for $50.00 a share, but it book-keeps this transaction by recording the date of issue as February 15th when the stock was trading for only $40.00. A move like this gives the granter of these options a $10 break on the cost of them – thus making their books appear better than they really are.

If the Department of Justice has its way, any proven moves like this will require financial restatements – which would undoubtedly lead to investor selling pressure. Based on this back-drop, I can’t imagine anyone taking a long position in UNH right now. As you can see by the chart, two days of strong market upside has only given the stock slight upside momentum. Therefore, continue to hold your UNH July 45 Puts (UHB SI).

Another downside company we have is Gannett (GCI – NYSE). Although this isn’t a new story, newspaper companies like GCI and Knight-Ridder (KRI – NYSE) are still struggling with how to overcome the powerful forces of the Internet in markets where their print advertising has held near monopolies for decades. This will continue to lead to declining readership and falling ad rates. Similar to UNH, the last two days of upside strength has done little to pump the shares. Hold your GCI July 55 Puts (GCI SK).

Rounding out our downside put positions is St. Joe (JOE – NYSE). I found it interesting to read one columnist from TheStreet.com write about why he feels JOE could be valued at $30.00 a share (the stock closed today at $48.83). He based this view on the fact that JOE’s updated land analysis admitted that they no longer consider their land holdings suitable for timber. In fact, some homebuilders I know have said that many acres of their land will not be ready to develop for many generations! Not only that, but early reports are showing diminished sales among some of their top projects – which could all lead to lower-lows for JOE stock. Hold your JOE July 50 Puts (JOE SJ).

With that, I’d like to wish everyone a relaxing and enjoyable Memorial Day weekend. The financial markets are closed on Monday, so we’ll be back at it on Tuesday. Above all, I’d like to pay my deepest respects to all the Veterans. This great nation wouldn’t be what it is without you!

A respectful lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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