The stock market sold off last week, as expected, and we could get some further declines from profit taking, due to the Gasping Realization (by many) that Obama isn’t going to live up to his most publicized promise (which we never believed) that taxes would not be raised on 95% of the population. In fact, we believe everyone will be taxed to high heavens to pay for his outrageously ambitious agenda, which could be a serious threat to any recovery in the economy and the markets. It is conceivable that his reckless spending may result in the future downgrade of our U.S. debt, which could be catastrophic for the U.S. Interest rates would soar because the Asians won’t want to buy our debt and there is the distinct possibility that we won’t be able to service our new huge load of debt at those much higher interest rates. We believe Obama’s next move will be to try to get rid of the interest deduction for real estate, since he knows it would generate a huge amount of tax revenue, but it would cause untold hardship for homeowners and real estate investors and would result in the biggest tax increase for the middle class that our nation has ever seen.
Our favorite coal stocks include James River Coal (JRCC) 19.44, Arch Coal (ACI) 16.12, Patriot Coal (PCX) 8.22 and Alpha Natural Resources (ANR) 25.46, which have all corrected 20% from their recent highs, and we believe they are a good buy at these prices. We have immediate sell ratings on the following stocks that have heavy insider selling: FedEx (NYSE: FDX, Stock Forum) 52.98; TD Ameritrade (NASDAQ: AMTD, Stock Forum) 15.90; Southwestern Energy (NYSE: SWN, Stock Forum) 39.05; Dendreon (NASDAQ: DNDN, Stock Forum) 20.52, and Nike (NYSE: NKE, Stock Forum) (Again) 49.64. Last week we bought OncoGenex (NASDAQ: OGXI, Stock Forum) 8.20 at prices ranging from 8.39 to 9.22. It is a very thinly-traded stock and we expect it to move substantially higher. Most of the below stock picks are speculative grade, but have good charts and are at historic low prices. Our normal buying strategy is to buy 40% of a particular stock now and buy 30% more on each 20% decline from our original buy price … for good entry prices.
Our stock picks (Based on Friday 5/15/09 closing prices): Wuxi Pharm A Tech (WX) 7.98; Fuqi Intl. (FUQI) 7.61; Aryx Therapeutics (ARYX) 5.98; Zale Corp (ZLC) 3.96; Biocryst Pharma (BCRX) 3.19; Arena Pharma (ARNA) 2.91; Alexza Pharm. (ALXA) 1.93; Rae Systems (RAE) .97; Xoma Ltd. (XOMA) .83 (SPEC).
Our option picks:James River Coal (JRCC) 19.44-JUN17.50 CALL (.JQMFW)-Closed Friday @ 3.30 Ask-A BUY UP TO $4.00; And the SEP20 CALL (.JQMID)-Closed Friday @ 4.10 Ask-A BUY up to $4.50; Alpha Natural Resources (ANR) 25.46-JUN25 CALL (.ANRFE)-Closed Friday @ 2.95 Ask-A BUY up to $3.50; Patriot Coal Corp. (PCX) 8.22-JUN7.50CALL (.PCXFZ)-Closed Friday @ 1.55 Ask-A BUY up to $2.00. This Market Letter was published at 8:30 AM on Monday 5/18/09.
* Cotton’s “Stock of the Week”
** We hold a position in the stock or option
Go to stockcharts.com to view the above stock picks