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Archive for May 7th, 2010

MYGN – An Update

Posted by mounddweller on May 7, 2010

Well everyone it looks like MYGN has went from a short-term trading opportunity to a long-term investment.  However, given the conservative approach taken in selecting MYGN as a trade, I have no qualms in holding it longer term. 

Let’s quickly review why I originally bought MYGN and why I don’t mind holding them through this rough patch:

(1) outstanding balance sheet – $3.58/share in cash and ZERO debt.  At current price around $17.50, cash on hand is 20% of the market cap.

(2) excellent income statement – net profit margin is > 30% (note: they recently cut earnings forecast so this may drop a little, but it could be cut in half and still be a great number)

(3) excellent cash flow – operating cash flow > 30% and levered free cash flow > 10% of revenue

Now, an update on what’s happened to put the stock on the “1/3 off” sales rack:

(1) March 30 – Company lost a court case regarding the validity of its patents on genes used in its breast cancer susceptibility tests.

(2) May 4 – Company announced 1st quarter earnings.  Revenue only grew 5%.  However, that wasn’t the bad news that sunk the stock price.  It was the lowering of forecasted annual earnings of $1.30 to $1.35 that did that.  Previous guidance had been around $1.50/share.

(3) The overall market has gotten a recent haircut as well.

Combined these three events have knocked MYGN for a loop.   However, I think the market is being short sighted.  First, the verdict on the patent case is already being appealed.  It will be many years before a final decision is made regarding the legality/morality of patenting human genes.  Second, the reduced 2010 full year forecasted results aren’t that bad.  The company still expects growth in excess of 50% over last year!  Finally, last but not least, the current market weakness will pass.  

Now, finally a quick update on my current position in MYGN.  As you’ll recall on 3/29 I bought 300 shares at $24.68/share.  I then sold the APR $25 calls for $0.55.  These expired OTM.  Then, on 4/27 I sold another round of MAY $25 calls at $0.60.  This makes my current net cost $23.53.   Barring a huge rally in the next two weeks these too should expire OTM. 

I now have a decision to make.  Do I try to lower my cost basis by selling OTM NPs  or after MAY expiration do I begin selling CCs below my current net cost?  Time and overall market conditions will determine which will be the best course to follow.

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What Others are Trading – May 2010

Posted by mounddweller on May 7, 2010

All,

Sorry I haven’t been posting much of late.  I’ve been traveling a lot these past few weeks and busy with my “day job”.  Here’s this months post for what you have been trading.  I’ll be back hopefully this weekend with an update on my recent trading activities as well.

Regards,

Troy

Posted in Your Picks | 5 Comments »