This Small-Cap Biotech Could be Your Ticket to 91% Profits

This Small-Cap Biotech Could be Your Ticket to 91% Profits By Melvin Pasternak, Ph.D. -- January 19, 2013   Print | PDF Biotech stocks have a history of volatile moves, but the swings in this issue could make the calmest trader seasick. Between April 2009 and April 2010, biotech stock Dendreon (NASDAQ: DNDN) surged nearly 2,000%, from a low near $2.60, to a peak near $54. By July 2011, as management cut sales estimates of its flagship product, the stock had given up 80% of its value and fell to a low near $10.40. There was a countertrend rally to the mid-teens, but after falling to the mid-$3 range, shares can now be picked up in the low $6 range. Here's what makes me excited now about the stock technically... Also In Today's Issue Warren Buffett's 'Tax-Free Dividends' Did you know Warren Buffett gets "tax-free dividends"? According to the SEC, it's true. But thanks to a little-known phenomenon called the "Dividend Vault," now you could get "tax-free dividends" too. With all of the tax changes being made, "tax-free dividends" could be the best way to increase your income in 2013. Click here for more. For Retirees Who Don't Have a Nest Egg Think your retirement is shot because you don't have enough saved up? Think again. We've found 10 "Retirement Savings Stocks" that could help you enjoy the retirement you deserve. They pay many regular investors thousands a month... and it just takes a few hundred dollars to get started. Click here to learn all about these stocks today. It has broken a major downtrend line going back to mid-2011. In December, DNDN stock cut through resistance just above $5 like a knife through butter. True, there is some resistance in the $7.80 area, but if this barrier can be exceeded, then the stock could move quickly to between $10 and $12. The shares are volatile, but in this case, volatility would be the trader's friend. Dendreon's extreme moves are driven by trader speculation about the promise of its drug pipeline in general -- in particular its flagship prostate cancer drug, Provenge. The 2009 to 2010 rally was based on traders' anticipation and then the formal FDA approval of the drug. However, following approval, the stock paradoxically stalled, and then sank because adoption by the medical community was slower than the company anticipated. However, sales of Provenge are slowly ramping up, as the medical community becomes more comfortable with it. In 2011, revenue from Provenge was about $228 million. Last year, sales of the prostate cancer drug increased to about $240 million. Sales could also get a big boost from European approval, which could take place in the middle part of this year. Dendreon management anticipates this approval, although management can be wrong. The technicals certainly paint a renewed bullish picture for DNDN stock. In late July 2011, shares were trading near $40. At that time, management sharply cut revenue estimates for Provenge, and the stock was slammed. Within weeks, it plummeted to below $10, rebounded slightly, and then sank as low as $6.46. A rally brought shares back to around $17, which provided a second point on the major downtrend line. But by October 2012, they reached a low of $3.69. Since hitting this October low, shares have steadily climbed, and a minor uptrend line has formed. In early January, the major downtrend line was broken, a highly significant bullish signal. Shares are now creeping up toward important resistance near $7.80. If $7.80 resistance can be broken, then the stock will bullishly complete a base. According to the measuring principle for the basing pattern, calculated by adding its height to the breakout level, shares could reach a target of $11.91 ($7.80-$3.69 = $4.11; $4.11+7.80 = $11.91). At current levels, this target represents 91% returns. The bullish technical outlook is supported by solid fundamentals. For the full 2012 year, analysts project revenue will surge 52% to $323.8 million, compared with $213.5 million last year. Analysts anticipate first-quarter 2013 revenue will increase 2% to $83.7 million, from $82.1 million in the comparable year-ago period. As often the case with high-risk, high-reward biotech stocks, the earnings outlook is not as upbeat. Analysts expect full-year 2012 earnings will be -$2.81 per share compared with -$2.31 per share in 2011. However, by the first quarter of 2013, increased demand for the company's leading cancer fighting drug should help push earnings to -$0.43 per share, compared with -$0.70 per share in the year-ago quarter. For all of 2013, the analysts who follow DND stock expect a significant narrowing of losses from -$2.81 to -$1.34. Risks to consider: Dendreon is highly volatile stock. If Provenge fails to receive approval in Europe, the stock could take a beating. While management anticipates European approval, on more than one occasion I have known company officers to be overly optimistic. My strategy will therefore be to set a relatively tight stop allowing for a loss of about 10%, but if the stock fulfills the measuring principle, profits of about 90%. That's a very attractive risk/reward ratio of about 9:1.   Action to Take:  Based on the analysis above, here's how I plan to trade GMCR:          Buy DNDN at the market price          Set stop-loss at $5.68, below support represented by the minor uptrend line          Set initial price target at $11.91 Potential Profit = +90.6% Editor's note: Thank you for reading today's issue. As always, you can send feedback to Editorial@ProfitableTrading.com. Dr. Melvin Pasternak's Trades & Updates Company (symbol) Trade Type Buy/Sell Date Buy/Sell Price Stop-Loss Current Price Total Return SPDR High Yield Bond ETF (NYSE: JNK) Long 01/30/12 $39.94 $34.98 $41.36 +3.6% The Hershey Company (NYSE: HSY) Long 07/02/12 $71.04 $74.58 $77.85 +9.6% Michael Kors (NYSE: KORS) Long 10/08/12 $53.33 $44.30 $58.08 +8.9% Endeavour Silver (NYSE: EXK) Long 11/05/12 $8.82 $7.16 Closed -18.8% Costco (NASDAQ: COST) Long 12/03/12 $104.82 $93.56 $102.36 -2.3% 8x8 (NASDAQ: EGHT) Long 12/31/12 $7.28 $7.63 Closed +4.8% View all closed trades here. Stock prices in this issue are as of the close of trading on January 25. SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK) held relatively steady over the shortened holiday week. The ETF is currently trading between support at the middle Bollinger Band and resistance at the upper Bollinger Band. Daily RSI is still clinging to the overbought 70 level. I'm currently up about 3.6% on the trade. My stop-loss of $34.98 and target of $48.01 remain. The Hershey Company (NYSE: HSY) slid slightly during the week, despite news the company's commodity costs should drop, because of a current sugar glut in the United States. Shares of the chocolate maker are currently moving toward resistance at the upper Bollinger Band. Daily RSI has come off the overbought 70 level, but is hovering nearby. Daily MACD remains on a "buy" signal. The company will report fourth-quarter and full-year 2012 results on Jan. 31. I'm ahead about 9.6% so far on the trade. My revised stop-loss of $74.58 and target of $79.50 hold. Michael Kors (NYSE: KORS) made steady gains over the week, despite news luxury handbag competitor, Coach (NYSE: COH), reported a weaker-than-expected fiscal second quarter. KORS will report fiscal third-quarter results at market open on Feb. 12. Shares are currently testing resistance at the upper Bollinger Band. Daily RSI is heading toward the overbought 70 level, but not yet there. Daily MACD remains on a "buy" signal. I'm currently up about 9% on the trade. My stop-loss of $44.30 and target of $64.98 remain. Endeavour Silver (NYSE: EXK) hit my stop-loss of $7.16 on Friday. This position is now closed. Costco (NASDAQ: COST) rose over the week on news the company will pay a $0.275 quarterly dividend on Feb. 22 to shareholders on record as of Feb. 8. The stock is currently reaching resistance at the upper Bollinger Band. Daily RSI is heading toward the overbought 70 level, but not yet there. Daily MACD is on the verge of giving a "buy" signal. My stop-loss of $93.56 and target of $114.69 hold. 8x8 (NASDAQ: EGHT)  hit my stop-loss of $7.63 on Friday. This position is now closed. -- Dr. Melvin Pasternak Co-Editor, Trade of the Week Stock on the Verge of a Move That Could Land Traders Double-Digit Profits Income Investors Could Almost Double Their Yield With This Trade Chart Says This 250% Comeback Stock Has More Gains Ahead         Disclosure: None. 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