Lou, 

 Futuremed. Can you do an analysis?

Thank you
Brian
Vancouver Island

Hi Brian,

Thanks for the assignment. Futuremed Healthcare Products Corp. ( FMD TSX) is in need of some immediate attention.The stock has been selling off  for most of the the last eighteen months and that’s never a good thing for investors. FMD provides health care supplies to nursing homes across Canada with government as their primary customer. The management discussion and analysis for the second quarter of 2011 cited increased competition and weaker demand as challenges that need to be addressed.

A survey of the charts will provide better visibility as to the prospects for FMD.

The three year chart provides a number of patterns worth exploring. The double top that formed between December of 2009 and February of 2010 set the stage for the huge retreat that moved the shares from  the high of $9.75  to $6.15 by December of 2010.

A death cross formed in June of 2010 when the stock was trading at $9.00 signalling that investors should have been looking to get off the ride.The stock did get a lift from the  December 2010 lows back to $8.25 by the summer of 2011 but that’s where the trend reversed back to the downside.

The six month chart illustrates the breach of support at $7.00 in September of 2011 and what looks like a another death cross forming. In addition the RSI and MACD are not signalling a reversal of the downtrend. 

 Another thing to keep in mind is that the stock is not very liquid and thin volume can move the stock in either direction.  The dividend yield of 11.8% and a market capitalization of just under $88 million also provide evidence of a higher risk profile.

If you are going to chase FMD make sure that you take into account all of the factors discussed.  The stock has lost a lot of value since early 2010 and the last thing that you want is an investment in health care that puts your portfolio in long term care.

Make it a profitable day and happy capitalism!

Hello Lou:

What’s your opinion on the Colabor Group? They’re now trying to make inroads into the Ontario market from their home base of Quebec.It’s a small company dealing in food merchandising and distribution.

Fairly solid. Carrying some heavy debt from new acquisitions.

Thanks,

Paul from Windsor

Hi Paul,

Colabor Group Inc. ( GCL TSX) fell into a steep decline after they reported their Q1 results citing increased competition in the grocery distribution industry in the markets that they serve. The stock has retraced some of its losses but still has a lot of ground to cover.

What we have to recognize is that GCL is a micro cap company that has expanded rapidly through a series of  acquisitions.  While there is nothing wrong with buying up companies that fit into your business plan it is absolutely required that you don’t lose existing customers in the process.

Lets consult the charts for some guidance regarding this opportunity.

The three year chart traces the sell off that has taken the shares of GCL from the highs approaching $13.00 in May of 2011 to below $8.50 in June. Over the last seven trading days the stock has recovered as investors with a high risk tolerance took advantage of  a severely oversold situation.

The six month chart provides a closer look at the recent trading. The MACD and RSI generated a sell signals in late April of 2011 ahead of the retreat that coincided with the release of the company’s Q1 results.

Bravo to those investors who were booking profits in advance of the flex point. The next scheduled report is for Q2 2011 which the street is expecting on July 7, 2011. Make sure its on your calendar if you own or are thinking of buying GCL.

What is apparent on this chart is that there is resistance at $10.50 and that there is a death cross that has formed. Another thing to consider is that the volume has been somewhat thin as the shares bounced off $8.00 on June 16. At this point in time I would not be chasing the yield in the face of these signals. Its a times like these that it pays to be patient and watch the signal generators for indications that you are not going to find new lows with your capital.

Make it a profitable day and happy capitalism!

Good Morning Lou,

Thank you for the information regarding bankrupt companies in Canada.

I would like to get your opinion regarding a small cap stock in the health care industry. The company is Aim Health Group Inc. Symbol AHG.

Thank you

Monte

Hi  Monte,

Always happy to help investors with a bit of research. My old college pal Richard Babcock used to call me a data freak for my propensity for sifting through information looking for an opportunity. I hope you found what you needed with the bankrupt companies links.

Now as to your interest in AIM Health Group Inc. ( AHG TSXV). Its a great opportunity to review the process I have been using in my Business Communications students at Sheridan. The first step is always to look at the chart. That will give you a visual picture of what has been going on with the company. Its either a good news story, a bad news story, or a story in transition.

The second step is to use the tools available on globeinvestor.com to examine information about the company. You should always review the financial information available. Earnings that beat the street on a consistant basis will generally support an uptrend, profits that miss the street will typically send your invested capital to lower levels, and income after one time items that  meet the street will in most cases lead to a move sideways.

The third step is to check out the news stream to see what the company has to tell us through its news releases and what business news organizations have reported about the company. Finally you need to know what you are dealing with. You referred to AHG as a small cap stock. The range for stocks that are considered a small cap is between $300 million and $2 billion in market capitalization. With a market cap of about $19 million the company is a microcap which implies a higher level of risk.

Lets go through the process and get an idea of what is we might expect from AHG.

The three year chart depicts a story in transition. The shares have been range bound for the last year with resistance at $0.17 and support at $0.10. The choppy nature of the chart calls for a review of how the stock has been trading.

If you go to the Chart tab on globeinvestor.com you will see that these shares can go days without trading. It didn’t trade for sixteen out of the last thirty days. The average daily volume of 35,348 for the last three months was only exceeded in six of the fourteen days it did trade over the last thirty days. In summary, not a very liquid stock, which again ups the risk profile on the investment.

The six month chart provides a close up of the recent activity in the stock. The stock caught a bounce in May of 2011. That called for an examination of the news stream which you can access under the News tab on globeinvestor.com. On May 05, 2011 the company reported that it had engaged Canaccord Genuity Corp. to initiate a strategic review. A strategic review is code for ” We Can’t Keep Going On Like This!!!”  What you can also see from the news stream is that AHG doesn’t communicate much. As we used to say in Calgary,” If you want to sell a book – you have to show a book”. You have to tell to sell!

From my review of the financials they generate revenue and have earnings. Not aggressive revenue or robust earnings but revenue and earnings none the less! What I also noted when looking under the Analyst Ratings tab on globeinvestor.com was that the company has no analysts covering them. AHG isn’t  under the radar, it is under the sonar!

From the information that I have gleaned from the process I see a microcap which operates in the health and wellness area, that has revenue and earnings, but has been poor in telling its story to investors. The strategic review that it has begun with Canaccord should rectify that problem. If you are comfortable with the risk associated with a microcap company then I would say that AHG is on the verge of moving higher.

Happy Capitalism!

Hi Lou,

I had the misfortune of holding a large position of Cardiome for 15 years, and the latest news does not look good. What is your opinion of the company now and should I sell now and move on, I averaged $10.00 per share.

Thanks,

 Alijah

Hi Alijah,

May last post on Cardiome Pharma Corp.( COM TSX) was on May 31, 2010 for Mario. At the time it looked like COM had gotten ahead of itself. It was recommended that Mario wait for a convincing break above $9.00, where there was resistance and confirmation of support at $8.00, before committing new capital. The advice proved valuable as the stock gave up a lot of ground soon after the report.

The charts will provide a good basis to help you answer the questions you have asked.

The three year chart tells the story of COM as it traded in a range bound pattern through August of 2010. It bounced off support at $8.00 and met resistance at $9.00 through five oscillations but then burned through support all the way to $4.60 in November of 2010. It did catch a bounce off the lows and advanced to $7.00 where it met resistance along the 200 day moving average.

The best outcome from this point would be for COM to trade in a range between resistance at $7.00 and support at $5.00

The six month chart illustrates investor reaction to the Q4 results reported on March 10, 2011. Not good to say the least. At this point it looks like we will be lucky to climb back to support at $5.00. Given the selling momentum we may have to retest the lows at $4.60 before we get some buying conviction.

In terms of your dilemma I would say most of the problem is holding a non dividend paying stock for 15 years. You could have been trading this one for income as COM has provided lots of opportunities to generate profits since 1996.

 I don’t know if you should sell now and move on but I do know that if you have been in it for all these years I would assume you know the story very well. If you can leverage that knowledge with some trading signals I think you will be well served marrying the two.

Happy Capitalism!

Good Morning Lou,

I am watching Lululemon Athletica .It is trading above the  50 and 200 MA, vol is steady, can this stock  go to $70.00?

Thanks
Smita

Hi Smita,

Thanks for the assignment. I love the Lululemon Athletica(LLL TSX) story in that I remember their founder Chip Wilson from his days in Calgary. Back in the early 1980′s Chip started a retail operation called West Beach with a location on the Stephen Avenue Mall. Chip always had a positive attitude and is one of those people who brings out the best in the people he interacts with. Lets consult the charts to see if LLL has the stuff needed to get the price up to $70.00.

The three year chart illustrates the steady advance from the March 2009 lows. LLL has made a move above $50.00 which has provided resistance over the trading history of the stock. Your target of $70.00 is in what I like to call unexplored territory. We have no experience at those levels. No signs of resistance, no signs of support, your basic information void.

The six month chart depicts the move above $50.00 sparked by the release of the company’s Q2 results which was outstanding. LLL moved up from $34.00 on September 10 to $51.39 in about 10 weeks for a 48.2% return. Sweet!

Lululemon is on a  path driven by a product line that resonates with its target market. The price point for the yoga wear provides for healthy margins and same store sales continue to move higher.

LLL is a growth story operating in a high margin segment of the clothing retailing sector. As long as they continue to open stores and sell the lifestyle message that yoga is good for you and Lululemon has the best clothing for yoga you have a good chance of making your $70.00 target.

Now that LLL has moved above $50.00 that level now provides support for the next advance. The company is expected to report its Q3 results on November 30, 2010 so circle that date as a flex point that will confirm the advance .. or not.

Happy Capitalism!

Hi Lou,

Could you give me your thoughts on Sears Canada. The company has recently issued 2 special dividends at $3.50 each time and the shares have dropped by $7.00.The company still has another $300M in cash and will the company declare another special dividend? Is the parent company Sears Holding doing this to bring the share price down and then take out the remaining 10% shares.

Thanks,

Lou

Hi Lou,

Thanks for the assignment. Sears Canada, Inc. ( SCC TSX) now has one future and that is to produce cash for its parent company. Sears Holdings Corp. (SHLD NASDAQ) is under the control of financier Eddie Lampert who consolidated Sears and Kmart with the intent of stripping the cash out of them  and using it to invest in other companies. It is the same strategy that Warren Buffett used by taking control of Berkshire Hathaway Inc.( BRK.A NYSE) and turning it into an investment management enterprise. The question is will Lampert do as well as Buffett.

The three year chart tells the tale of Lampert’s efforts since merging Sears and Kmart five years ago. All the expectations of how things would unfold as a vehicle for investment didn’t quite come to fruition as the Great Recession had everyone including Lampert playing a different game called hang on to the wheel she’s headed for the ditch!

There is a definite double top on the chart that appeared in the March – April period of 2010.  A double top is a reversal pattern that provided a warning that the advance from the November 2008 lows was at risk. The downtrend is now firmly in place and what has to be asked is what could possibly move this stock higher?

The six month chart again depicts the story of a stock in a steep decline with no indications that it has found support for a rebound. It’s clear that Lampert will squeeze this pip until it squeaks. If you  think that getting a return of capital through a special dividend is worth the loss of capital as the stock declines then fill you boots. For my money it doesn’t make sense to get into a game where the business model was based on assumptions that have not quite worked out regardless of a possible offer to the minority shareholders.

Happy Capitalism.

I have been holding BVF for quite some time at a cost of $22.76. With the merger with Valeant how do I figure out what the price will be towards the end of the year if it does happen.

Would appreciate your expert opinion.

Thank you
Barbara

Hi Barbara,

Thanks for the assignment. Its been quite a long time since I have even thought of Biovail Corp. ( BVF TSX) as anything other than a short. BVF has been selling off since 2001 when it traded above $80.00 a share. I guess you jumped in at $22.76 anticipating a bottom and then found new lows with your money. Been there, done that, ate losses myself! Looking at the value of the stock since the announcement of the merger with Valeant Pharmaceuticals International (VRX TSX) I think the short term good news is already baked into this pie and its about execution of their plan as we go forward.

The three year chart paints the picture of a stock that finally found a bottom in late 2008 and then built support at $14.00 in 2009 and developed a nice base over the last 12 months till it popped on the deal announcement on June 21, 2010.

The six month chart illustrates the frenzy that transpired on the deal with VRX. The RSI is signalling that the stock is currently over bought and the MACD looks to be bending to the downside. What I do like in this chart is the big flag pole that has been built and what seems to be a pennant forming. This sort of pattern is a continuation pattern that in most cases indicates that there is more to come on this advance. We still have to be patient in that the pattern isn’t complete yet but please understand that there are no guarantees that it will.

What I do like about the future of the combined company is that J. Michael Pearson, Chairman and CEO of VRX will be the CEO of the combined company. The stock chart for VRX indicates that under new management the combined company has a sustained uptrend and lots of support along the trend line. Pearson is talking tough about cutting spending and staff and as a shareholder you have to like that.

At this point I would say that you have a good chance of seeing this investment get back into the black for you by year end.

Happy Capitalism!

Hi Lou,

What’s your take on Cardiome Pharma ? It seems to be performing amazingly well so far this year including through the recent ” correction ” – I was thinking about increasing my position – any advice Lou ?

Thanks !

Mario

Hi Mario,

I have been asked a number of times over the last 7 years to take a look at Cardiome Pharma Corp. (COM TSX). With a few exceptions the stock has been in a sell off for most of the last 5 years after hitting a high close to $15.00 in July of 2005. It spiked back to $13.00 in 2008 but it was for a short period that wasn’t sustained. Lets run a few tests to see if adding to your position will improve your financial health.

The three year chart provides a view of the spike high at $13.00 in 2008 and then the steep drop to the lows of March of  2009. COM traded in a channel between support at $4.00 and resistance at $5.00 for most of the next 9 month. The stock broke above the $5.00 resistance level in December of 2009 and advanced aggressively to its current high at $9.00.

If you look at the gap between the current price of COM and the 200 day moving average you can see that there is quite a bit of space. This usually suggests that a stock has perhaps gotten ahead of itself and could be on the verge of a pull back. What is also evident at this time is that $9.00 has become a line of resistance.

The six month chart  illustrates the overhead resistance at $9.00 and the golden cross that formed after January 18, 2010. In late April the MACD turned lower indicating that advance that started in December 2009 was starting to weaken.  Even though the MACD looks to be trying to turn higher volume has been thinning out lately which puts a caution flag on the track calling into question the recent bounce off the 50 day moving average before May 25, 2010.

Before you commit new money to your existing position in COM let it make a sustained break above $9.00 and watch for continued support at $8.00 so that you hold onto the profits you have already earned.

Happy Capitalism!

Lou,

I don’t know if you can explain this one to me but I am quite mystified.

PharmaGap came out with a press release that confirms the drug candidate they have kills 100% of prostate cancer cells etc… In short a fabulous press release…

http://www.theglobeandmail.com/globe-investor/news-sources/?date=20100513&archive=ccnm&slug=607241_1

On the news 13,000,000 plus shares of 78,000,000 total shares have traded so far today and the stock goes down! I can’t believe it. Does that mean this is a scam? Pump and dump deal?

Insights would help.

Dan

Hi Dan,

There are so many reasons for the shares of PharmaGap Inc. (GAP TSXV) would sell off after the release of news regarding the tests conducted by the National Cancer Institute  (NCI) in the United States. The primary reason is the concept of feeding the ducks when they are quaking.

When buyers are bound and determined to buy the stock and the stock doubles in a few days and you happen to own some of the shares it is in your best interest to sell and take a profit. In three days GAP traded from a low of $0.14 to a high of $0.30. If you capture some of those gains it can pay for something if not for everything.

The two year chart shows a rather choppy trading pattern for GAP suggesting that you have to trade this stock for income instead of holding out for a long sustained advance.

The RSI on the six month chart provides indications that GAP was overbought and likely to see some selling coming into the market. Yesterday the stock opened at $0.30 and then gave up lots of ground by the time the session ended.

Other reasons to explain the selling on the news out of the NCI was that the test mentioned in the press release is not part of a clinical trial. The fact that GAP’s lead compound GAP 107B8 had an effect on a panel of cancers does not in anyway confirm that it will be safe to consume in the dosage used in the test or that it will effective when ingested by patients.

Another factor to consider is the Market Cap of Gap. At $9.8M it is a microcap stock which by its very nature adds a significant level of risk to the investment. As far as your question of pumping and dumping in the stock I can’t say but its clear that there are a number of other issues that need to be recognized and managed if you are going to hunt in this gap.

MAKE IT A HUGE MAY AND HAPPY CAPITALISM!

Hi Lou,

I always enjoy reading your columns.

I’m interested to know what you think about the huge drop in Shopper’s Drug Mart over the past few weeks. Do you think that the market has overreacted and it may be a good value buy?

Thanks,

Sophie

Hi Sophie,

Thanks for your kind words, they are very much appreciated! You ask a great question about Shoppers Drug Mart (SC TSX) which, like the entire pharmacy sector with operations in Ontario, has taken a hit due to a change in regulations that will cut the allowances they receive from generic drug makers. Long term the real losers will be the small independent drug stores who have a limited capacity to withstand these sorts of changes. Lets examine the case for an investment in SC.

The three year chart tells a bleak tale of betrayal as SC barely recovered from the Great Recession as consumers pulled back on their spending and then had its legs cut from under them by the sudden change in a policy that had been in place for decades. There was support at $43.00 but that got taken out on the announcement. The RSI indicates an oversold situation which demands an examination of the six month chart for an signal that we might have found some support.

The six month chart illustrates a bit of buying coming into SC. The RSI does seem to have come off the lows and could be a signal that the early stages of bottom fishing has begun. In addition the MACD also seems to be bending to the upside. The last two candlesticks on the chart show that the selling that began in August has taken a bit of a breather.

The $35 is a support level that the stock has to hold if we expect a return to the uptrend. At this point I would suggest that anticipating a bottom is where we get into trouble. The best time to buy a stock is when its going up and that is clearly not the case here.

Happy Capitalism!