All I can say about yesterday’s move is: “Wow.” I know from your emails that many of you are very nervous about the run this market has had, especially after the big one-day drop on February 27. But the pattern of the recovery from that drop convinces me that much, much higher numbers are in store.

The quiet, high-level consolidation we had through Tuesday often bodes well for the market in the long run, because it usually indicates that there is a lot of latent buying power available just under current market levels. Given the remarkable rate of growth in M3, with the Fed now pumping money out at an 11.8% annual rate, and the consequent continuing decline in the dollar, the available buying power is not surprising.

In the short term, it actually can be better for the market to consolidate its gains, take a breather and have another brief, scary decline to build up bearish sentiment. That certainly would have provided the energy to launch the S&P 500 to my 1510 next-step target by the end of May.

The big question is: What comes after 1510? It is most likely that we will see a normal retracement to the last breakout point at 1438, with a slim chance the S&P 500 could even get back as low as 1408. If that happens, there will no doubt be fear in the air and every talking head trying to tell you what to do. You should not let fear grab you and instead realize that, at this point, even 1408 would just be part of the normal two-steps-forward, one-step-back pattern of an unfolding bull market.

So why aren’t we selling our stocks ahead of this possibility and buying them back after the drop? Because after yesterday’s breakout the 1510 target is in sight, and there is still a chance that we will blast right through 1510 in the kind of expanding pattern that we saw in 1995, with the whole move up from last July’s low being an initiating pattern instead of a terminal pattern. That would fit my economic forecast for another good year in 2008. It also would fit the Presidential cycle for a strong market in 2007 and high-level churning in 2008. And it would fit with what the Fed has been doing with the money supply, which is causing the dollar to weaken at a rapid clip. I know it is not intuitive that a weaker dollar is good for the stock market, but it is. Another 20% drop in the dollar could add 20% or 300 points to the S&P 500 all by itself.

With the longer-term pattern lining up for much higher levels, my “goal” forecast of 1800 on the S&P by the end of this year still stands. Once we break 1510, the next stops should be 1605 and 1690. In these very strong market patterns, the upturns often continue for much longer and extend much higher than most investors can imagine. There certainly will be opportunities for events to derail my 1800 forecast, and I expect August to be an especially important month this year, as it often gives us a big clue as to how the year will end up. A correction then that is reversed by mid-October will mean a blow-off is coming. A correction that doesn’t reverse could mean high level churning for as long as six months. But either way, I think we will see 1800 on the S&P 500 before this bull market is over — and maybe a lot more.

All this means you should be fully invested, and if we get a retracement to 1438, you might even think about going on margin or buying some more LEAP options. I will be in touch each week with an update on the market’s current condition and if I see trouble or opportunity on the horizon, I’ll send you a Flash Alert with the exact action information you should take that day.

Overall, current earnings reports and guidance are coming in at or above Wall Street’s expectations, providing good support for stock prices. We’ve had a few more companies report this week: Affymetrix (AFFX), Comcast (CMCSA), Harmonic (HLIT), iRobot (IRBT), Millennium (MLNM) and Plug Power (PLUG). Also, I want to review the conference calls of the three that reported after the close last Thursday: Energy Conversion Devices (ENER) with their business update; and Packeteer (PKTR) and Zhone Technologies (ZHNE) with quarterly reports.

Biotech MegaShift

Affymetrix (AFFX) reported after the close yesterday, and the stock was hit hard today — down $3.59 at the close. I was looking for $90 million in sales and five cents a share, both above the consensus, due to accelerating shipments of their newest microarrays. But the company did only $80.4 million and lost a penny a share from operations, before a five cent restructuring charge. Their new products did sell well, but their older line of genotyping products is losing market share to Illumina. Affymetrix has new genotyping products coming this summer that should accelerate revenues in the second half of the year, but Wall Street remembers the delays associated with the latest microarray introduction. The company forecast a revenue range from $365 million to $385 million this year, compared to the consensus Wall Street forecast for $385.4 million.

On the conference call, AFFX said the Genome-Wide 5.0 DNA mapping product just introduced in mid-February was a strong seller, accounting for about one-third of their whole genome mapping samples for the quarter. They’ll have a full quarter of sales of that product in the June period, and they are on track to launch the 6.0 system in midyear. This analyzes an industry record 1.8 million markers across the human genome on a single chip. It is working well in beta sites now.

Three-fourths of their revenue was from consumables, which are a steady source of sales. They shipped only 41 new hardware systems in the quarter, and now have just under 1,600 in the field. They’ve made a number of moves recently to make the systems more useful, such as the NuGEN deal I discussed last week to let researchers analyze the extensive archives of previously unstudied cancer biopsies for biomarker discovery and validation. The goal is to increase consumables used per system per quarter, which offers more leverage to the bottom line than selling new systems.

Gross profit margins continue to improve, up four percentage points from the December quarter, which was up three percentage points from the September period. AFFX confirmed their target to hit the mid-60% level by the end of the year.

Overall, this was a disappointing quarter, but the upcoming 6.0 launch should send the stock back up. It never went below my $26 buy limit all day, so I am raising the buy limit on AFFX to $27, while keeping the $40 target price.

Millennium (MLNM) reported this morning that Velcade sales rose 10%, in part due to the new co-promotion deal with Ortho, and the company achieved pro forma profitability, while reducing its GAAP loss for the fifth-straight quarter. They have $819.2 million in cash, and the investment income on that accounted for most of the increase in profitability — but we’ll take what we can get. MLNM confirmed their previous target for $240 million to $260 million in Velcade sales this year, primarily to multiple myeloma patients. The drug is being used off-label for other indications. They also said they will be proforma profitable for the year, and end the year with more than $800 million in cash, after collecting between $140 million and $150 million in royalties.

One of the biggest reasons I expect MLNM to do well is that their huge and growing royalty flow funds a lot of research, so they don’t have to dilute us with stock sales. They also are in a position to acquire other companies and products when they see something at an attractive price. The stock was down 32 cents today, but has not broken below my $11 buy limit. I am raising the MLNM buy limit to $12, while keeping the $23 target price.

QLT (QLTI) reported March quarter sales of $32.7 million with proforma earnings of eight cents a share. Visudyne accounted for $20.6 million in revenues to the company in the quarter, based on $61.2 million in overall worldwide sales by Novartis. Total sales dropped 42.7% from last year, including a 72.4% drop in the U.S. to only $8.4 million due to the competition from Lucentis. Management said U.S. sales have stabilized. For the rest of world, sales fell 30.7% to $52.8 million, and forthcoming competition in Europe could drive them lower in the near-term. Also, the European Union is going to remove the Occult indication from the Visudyne label in Europe. This is based on the post-approval clinical trial, which I discussed last fall, which did not reach statistical significance. It’s not clear that will have much effect on EU sales, but I expect it to have some because there have been some doctors treating Occult vessel growth secondary to age-related macular degeneration with Visudyne. Not all of them will discontinue it, but most will.

Eligard worldwide sales for the quarter hit $41.8 million, up 145.6% from last year. At this point, Eligard hormone therapy is expected to grow 16% or more for the whole year, and has become the major driver of value in Wall Street’s mind.

I still expect the combination therapy trials of Genentech’s Lucentis and QLT’s Visudyne to show better outcomes than either drug alone, which is why I have not changed my target price. On the conference call, management said they are seeing adoption of combination therapy, and this is a leading indicator of Visudyne sales. Average daily sales increased from 105 vials per days in January to 116 per day in February and to 230 vials per day in March. The estimated Visudyne share of total U.S. macular degeneration patients climbed from 12% in January to 15% in March, with doctors expressing continued intentions to treat more patients with combination therapy in the months ahead. This is a significant improvement over the previous two quarters, which showed an intention to treat around 10% of patients in the U.S.

QLTI has an ongoing market research program, and now about 54% of retina specialists surveyed say that they expect to treat a greater share of wet AMD patients with Visudyne plus an anti-VEGF therapy like Lucentis over the next year. This result was higher than other therapies for AMD and slightly higher than the result achieved in the prior survey.

All of this coincides with the release of data at ophthalmology meetings in the first quarter. There were several retinal specialist meetings in the spring, with numerous combination therapy presentations on investigator-sponsored studies and individual case histories. There will be three papers and 22 posters involving Visudyne plus anti-VEGF combination therapy at the upcoming Association for Research in Vision and Opthamology (ARVO) meeting May 6 through May 10 in Ft. Lauderdale.

With current Visudyne sales so low, combination therapy picking up, the ARVO meeting just over two weeks away and Eligard growing rapidly, the stock should be at its bottom. Novartis will be distributing both Lucentis and Visudyne in Europe, so it is possible that EU sales could dry up the way U.S. sales have. But I think the results of the combination trials will be out in time to prevent that, and start overall Visudyne sales headed back up for a long time.

During the quarter, QLT paid their $112.5 million portion of the recent litigation settlement, but still finished the quarter with $269.8 million in cash and equivalents. QLTI should be bought under $8 before the ARVO meeting for my $16 target.

Content on Demand

Comcast (CMCSA) reported March quarter results this morning. Revenues rose 32% from last year to $7.4 billion. They added a record 1.8 million customers in the quarter, and now serve 52.6 million “revenue generating units,” as they call us. (Did you know you are an RGU?) CMCSA reported 26 cents a share, up 73% from last year, but that included a one-time $300 million gain related to the dissolution of its Texas-Kansas City Cable Partnership. Pro forma earnings without that boost were 17 cents a share, right on projections.

The company repeated its goals for 11% revenue growth for the year, as well as their $5.7 billion capital spending budget — good news for Harmonic. The heavy capital spending is paying off in more digital and VVD — voice, video and data — subscribers, with a lower cancellation rate.

The next big news here will be day-and-date Video on Demand releases of major box-office movies, with Comcast making the movie available the same day it opens in theaters. Trials are ongoing, but the motion picture industry has finally realized that there are two different audiences here, and their fears of cannibalizing theatre seats have just cost them money in the past. Comcast is doing everything right, and today’s little sell-off because the company only met the consensus and only reiterated guidance is silly. I’m raising the buy limit $2, and I want you to buy CMCSA while you have this opportunity under $28, for an unchanged $62 target.

Harmonic (HLIT) reported yesterday after the close, and it dropped $1.43 today. Revenues hit $70.2 million, up 25% from last year and about 4% above the consensus, but their gross profit margins were on the low side due to a product mix issue. This was not a result of competition, and management said it would be a one-time event this year. They sold a lot older digital cable Quadrature Amplitude Modulation boxes (QAMs) to the cable industry, which have a lower profit margin than newer models. They did seven cents a share pro forma, one penny under the consensus estimate.

Going forward, orders for video processing products in the March quarter exceeded those for QAMs, so gross margins will bounce back to the 44% to 45% area for the next three quarters. As is obvious from Comcast’s capital spending forecast, this is going to be a great year for digital video. Management forecast $140 million to $150 million in sales for the combined June and September quarters, approximately at the consensus.

There is no real reason for the stock sell-off today. The gross margin impact of a mix shift is understandable and already behind us, and I have no doubt management is guiding conservatively for revenues in the next two quarters. They have expenses under tight control and plenty of cash. With arch-competitor Tandberg now folded into Ericsson, I expect at the very least a couple of quarters of confusion in that sector, making it easier for Harmonic to show a good order book for the rest of the year. Take advantage of this dip back under my $10 buy limit to start or build positions in HLIT for my $16 target.

Telkonet (TKO) has been the subject of several emails, such as this one from Michael: “I am concerned about the decline in TKO in recent weeks, and would appreciate your comment. To what do you attribute the decline? Are there any upcoming events such as earnings reports or other announcements that we should look for that will move the stock to the upside?”

I think the decline is entirely attributable to two things. First, there has been a large block of stock overhanging the market that finally traded on Tuesday, under $2 a share. Second, the American Stock Exchange sent TKO a letter in mid-April saying that they needed another independent director to be in compliance with its listing requirements, and also that it needs to automatically refer all related-party transactions to its Audit Committee. TKO took the position that they were in compliance, the AMEX rejected that position, and TKO just appointed a new independent board member and also implemented the Audit Committee rule. I believe this issue is behind them.

The next financial news will be their earnings report in the form of an SEC 8-K filing, probably around May 10. The next press release on new contract wins or an investment by a strategic investor could come anytime. TKO remains a Top Buy under $5 for my $15 target.

Zhone Technologies (ZHNE) reported last Thursday, and I got the basic numbers into last week’s report. To recap, they did $43.1 million in sales and lost three cents a share. The consensus of four analysts was for $41.8 million and a loss of three cents a share, so they hit their number. DSL revenues grew 15% sequentially.

They guided for $44 million to $45 million in sales this quarter, with a smaller EBITDA loss — pretty much on consensus expectations. They also said they can grow to near the $50 million level without increasing operating expenses, and they have several cost-reduction programs underway with their silicon suppliers.

The stock dropped after the conference call on heavy volume, but it bounced back this week. Management said their primary goal is achieving positive quarterly proforma EBITDA by the end of 2007. The company expects to announce several next-generation access products this year, and the European companies that had paused capital spending in the last half of 2006 to make basic network topology decisions are now ordering products. I didn’t hear anything to make me change my mind about Zhone — it will take a while for accelerating sales of the new products to overcome declining sales of their legacy products, but they don’t seem to be losing out to competitor. In fact, their technology and product introductions seem to be well ahead of most of the competitors. ZHNE remains a buy under $2 for a $5 target price.

New Energy Technology MegaShift

Energy Conversion Devices (ENER) held their business update call last Thursday just after the Radar Report went out. As I said last week, they preannounced a big revenue shortfall, apparently from everything except the now-profitable solar business, and an equally big restructuring plan. I thought Wall Street would like it, as they usually move stocks up that lay out a restructuring program to cut costs, but the stock was knocked down $2.54 last Friday and has been flat since.

Management pointed out on the call that United Solar and the Cobasys joint venture with Chevron are doing well, and mentioned that some Ovonics memory technology licensees are getting ready to introduce OUM phase-change memory in production products. I am sure they are referring to Intel (INTC) and STMicroelectronics.

Management said the restructuring plan “marks a turning point in our company’s recent history. It sets a clear path to streamline our corporate structure, reduce expenses, reach sustainable profitability and shift the company’s primary focus from research and development to commercialization and marketing.”

Not much to dislike there. They added that R&D will be reoriented to “a predominantly self-funded model focused on high potential technologies with a clear path to commercialization.” Not much to dislike there, either. This is the kind of corporate change Wall Street almost always applauds.

The obvious plan is to make the new Ovonic Materials business breakeven, with royalties from the phase-change memory business funding limited R&D projects. That will let ENER be valued as a solar energy stock, where they are profitable. At the same time, they have an investment banker looking at Cobasys, as does Chevron, and I would not be surprised to see an initial public offering that equaled a meaningful percentage of ENER’s current market capitalization. It’s a smart plan.

I’ve never modeled in much value for the phase-change memory agreements, but at the recent Intel Developer’s Conference the technology was everywhere, and it is obvious that Intel intends to bring a 128 megabit product to market this year, to replace hard disk drives. Phase-change memory uses a fraction of the power of a hard drive, with higher performance and much better durability in mobile products. It’s also a powerful alternative to flash memory, and is one of the reasons I think SanDisk could be in trouble going forward.

As I said last week, this restructuring is a serious attempt to become a sustainable and profitable company, to keep R&D going on new solar and battery initiatives, while getting rid of excess R&D projects. I think Wall Street read it wrong. I don’t think ENER will get below my $32 buy limit again, so I am raising my buy limit to $35, while keeping the $55 target.

Plug Power (PLUG) reported this morning, and although the stock closed down 10 cents today, it was all good news. They did $2.6 million in sales compared to the $1.8 million consensus, and lost 13 cents a share compared to the 15 cent loss consensus. They installed a record 63 GenCore systems in the quarter, and management reiterated their goal to install 400 systems this year. They have 533 systems in backlog, compared to 227 systems this time next year.

Plug Power shipped 41 GenCore systems in the first quarter of 2007 compared with 15 in the first quarter of 2006, but they only booked three orders during the quarter, compared to 52 in last year’s March quarter. This does not worry me; order timing depends on lots of external factors. I expect orders to bounce back in the current quarter.

The New York Power Authority and New York State Police have a test program to install 24 GenCore systems in different parts of the state. In January, a GenCore system provided backup power to a New York State Energy Research and Development Authority office for more than 60 hours during an extended power outage caused by an ice storm. This month, a New York State Department of Environmental Conservation radio communications site remained operational during multiple winter storm related outages, including the recent Nor’easter. PLUG remains a buy up to $5 for my $10 target.

Robotics MegaShift

iRobot (IRBT) reported this morning, and I am about to read through the conference call. They did $39.5 million, compared with the consensus for $29.4 million and $38.2 million for the same quarter last year. They reported a loss of 20 cents a share pro forma, according to my quick calculation, compared to the consensus expectation for a 29 cent loss. The stock was up 98 cents today but is down 44 cents in the aftermarket, so there may be another adjustment in there. If I see anything in the conference call transcript, I will send you a Flash Alert on Friday. Otherwise, IRBT remains a buy up to $18 for my $30 target.

Subscriber Question

Robert asked: “Does the San Jose Mercury News article on the (un)likelihood of Steve Jobs being indicted change your opinion on whether AAPL is a buy?”

Robert, my answer is: Not yet. It is quite true that typical SEC behavior is to decide in advance who they will bring civil suits against, and announce them all together. At the same time, the Justice Department normally announces any criminal cases related to the civil suits. So the fact that the SEC named only the former general counsel and the former chief financial officer, while Justice did not say they would indict anybody at Apple, suggests that Steve Jobs may be in the clear.

Trouble is, the former CFO, Fred Anderson, has an impeccable reputation in Silicon Valley that he values very highly, so on Tuesday he said Jobs “mislead him” about board actions on stock-options awards. He said Jobs told him that the board had approved options grants when, in fact, it hadn’t.

He added that Jobs knew more about Apple’s backdating than either Jobs or the company has admitted. He said that he warned Jobs in 2001 that the company’s reported profit might have to take a hit if the date of a particular grant to Apple executives was changed. That is the first testimony that Jobs had reason to know there were accounting implications to backdating, which is a crucial part of fraudulent behavior. After the Al Gore whitewash “investigation,” Apple acknowledged that Jobs was aware of the backdating and even helped pick favorable grant dates in some cases. But the company’s internal probe found no wrongdoing by Jobs because he didn’t “appreciate the accounting implications.” Fred Anderson’s testimony blows that argument away.

Realize that Anderson has already made his deal with the SEC — a $3.5 million fine, but no admission of guilt — and he has nothing to gain from the legal process by talking about Jobs’ real role.

At the same time, the media said that while Anderson pointed a finger at Jobs even after settling his case, the former general counsel declined to do the same thing. But let’s parse her attorney’s statement: “Everything that Heinen did related to Apple’s options grants was ‘fully understood and authorized’ by Apple’s board of directors.” And who sat on that board of directors? Steve Jobs.

Normally, the SEC would squeeze lower-level players to get the guy at the top. They didn’t squeeze Anderson, but he volunteered. Will they squeeze Heinen? Maybe not. The Wall Street Journal wrote that the Justice Department has been putting tremendous pressure on its San Francisco office to drop the case against Jobs. One U.S. District Attorney was dismissed and another prosecutor working on the case is “on leave.” The SEC even announced that it would not take any actions against Apple itself, praising the company for how it handled its internal investigation and reported it to the agency. This even though Al Gore’s report said Jobs did not benefit financially from the backdating, which was a straight-out lie (see the December 28, 2006 Radar Report for details) and the SEC knows it. The details have been in the Washington Post, for heaven’s sake.

So the odds certainly are higher that Steve Jobs will walk. But they aren’t 100% — nowhere near. And I don’t think we should look at the stock until this issue is resolved.

Earnings season is here, and expectations are low enough to make me think that it will be regarded as a mild positive for stocks. A number of companies have already announced first-quarter earnings that were better than expected, giving a nice boost to those companies’ shares.

We’ve only had one reporting company before today and that was Intel (INTC), which did very well as discussed below. But the pace will be picking up pretty quickly, as Energy Conversion Devices (ENER) gave a “business outlook update” and Packeteer (PKTR) and Zhone Technologies (ZHNE) presented March-quarter results after the close today. My brief take on these three reports is below, and I will send you a Flash Alert on any news that might require a fast update. And then next week, the floodgates open.

But before we move into updates on our holdings, let’s take a brief look at how the markets have been acting recently and what we can expect throughout the rest of earnings season. Last Friday, the S&P 500 finished above its closing price from the day before the big global sell off on February 27, so that whole decline has finally been recovered. The market has been rallying nicely, but it is due for a rest to consolidate these recent gains and build up more bearishness, which will then drive the next leg upwards to 1510 on the S&P 500. It may just go sideways for two or three weeks until earnings season is over, maybe dipping to the 1462 breakout level, or it could retrace all the way back to 1438 and still just be consolidating. But, as we just saw, a quick, scary decline like the February 27 free-fall often turns out to be an extremely bullish sign. So, I’d rather see the retracement, because that is more likely to be followed by a slingshot move up to 1510.

If we see 1510 or better by the end of May, I am mindful of the old saying: “Sell in May and go away.” The trouble is, so are a lot of other people. So, if the S&P can get that high that quickly even with other people selling, it may mean the upside pattern is expanding as excess liquidity (dollars from the Fed printing press) pours into assets. The dollar is getting hammered day after day, and the British pound just went over $2 for the first time since September 16, 1992. Money fleeing the weak dollar heads for assets like gold, oil, metals, real estate and stocks, and that could set up a blow off to 1800 on the S&P this year. We surely do not want to miss that.

So, my inclination right now is to stay invested until the market tells us a more serious correction is in front of us. If that occurs, then we may sell very selectively to reduce our exposure and the number of positions in the New World Investor portfolio. I still have new recommendations that I’d like to make, but none of them are urgent and I’d like to be able to swap old positions for new ones rather than just keep adding to the list. The trouble is that most of our existing positions are too well positioned to sell. So, for now, I’m going to hold off on making any new recommendations, but when the opportunity arrives to take some profits off the table and roll that money into another exciting company, I’ll be sure to let you know. Now, let’s take a look at some of our current holdings.

Biotech MegaShift

Affymetrix (AFFX) and 30 leading European cancer researchers launched the Collaborations in Cancer Research Program, an alliance to use Affymetrix equipment to study new approaches to 10 different cancers. There will be regular meetings to exchange information, which will be easier with all the researchers using the same platform. This is a way for AFFX to leverage their own R&D by discovering what the researchers need, and then creating those products.

The company will also co-market a new system from NuGEN Technologies that should create significant new demand for Affymetrix gear. There are millions of old tissue samples in storage embedded in paraffin, many of them small and/or degraded over time. Researchers can’t use existing RNA amplification techniques to get enough material to study. NuGEN’s system amplifies and labels the nucleic acid in these samples, which can then be analyzed using standard Affymetrix equipment.

Affymetrix will announce earnings after the close next Wednesday. I am looking for $90 million in sales and five cents a share, both above the consensus, due to accelerating shipments of their newest microarrays. The stock has stayed above even my raised buy limit, but before I raise the limit again, I think we should see the numbers and hear the guidance. This is also the kind of stock that is subject to a “summer swoon” and may give us a chance to buy more shares under the current $26 limit for no reason other than general market weakness. Of course, if they say anything negative and the stock drops, I want you to buy AFFX on any dips under $26 for my $40 target.

Amgen (AMGN) was up $2.31 today after a clinical trial failed! What a strange story. The widely anticipated “145″ study was designed to evaluate whether increasing or maintaining hemoglobin concentrations with Aranesp in combination with chemotherapy increased survival in small-cell lung cancer patients. It failed to show a statistically significant difference in progression-free survival, although it did demonstrate a significant change in hemoglobin concentration in favor of Aranesp that might be useful in other venues.

But the reason the stock went up was that the trial clearly showed that the risk of death did not increase in patients who were given Aranesp, compared with those who were given a placebo. Aranesp’s safety has become the largest overhang on the stock, so the market paid more attention to the safety data than the efficacy data.

This is the first step towards getting the stock back on track. The next step is the April 23 earnings conference call, followed by the May 10 Oncologic Drugs Advisory Committee meeting at the FDA to consider safety, at which this data should play the deciding role. That means if you have been on the fence about buying the AMGN January 2009 $70 LEAP call (VANAM), now is the time. It jumped $1.12 or 19.6% today, but VANAM is still a great buy up to $12.50 for my $25 target.

Dendreon (DNDN) retraced all the way back below $16, not quite getting under my new $15 buy limit. I doubt all the shorts have covered, and there is still a lot of negativity surrounding the May 15 FDA approval date. For all the reasons I went into last week –Provenge combination therapy with Taxotere and the current FDA Commissioner — I still think Provenge will be approved.

I’ve had a lot of questions about what to do now with DNDN. So, I’d like to address a number of these concerns now.

John wondered: “Can you let me know how often the short interest position is updated, as the last date I can find is March 12th (approximately 32%) and I’m wondering how big or small that position is now, which will clearly be an influence as whether to buy, hold or sell before May 15. At some point we shall have to revert to fundamentals to value the business.”

Short sale data is collected once a month, as close to the 15th as possible. The exchanges report the data about a week later, and NASDAQ reports it a few days after that. I believe the April data will be as of the 16th, and NASDAQ will report it between April 25 and April 27.

Aneil asked: “Do you think FDA approval is priced into Dendreon at this point? What is a realistic price forecast for DNDN after the FDA approves the drug and shorts start to cover? How many short positions do you think are covered by now? Ameritrade does not even allow me to short DNDN at $18 a share.”

FDA approval definitely is not priced into the stock at this point — I would say the stock will hit $25 or $30 on that news. A marketing partnership or two (one for the U.S., one for Europe) would add another $10 a share or so. Short covering is just gravy. My guess is that about half of the shorts were covered by April 16, which is the next “as of” date. But the fact that Ameritrade won’t let you short suggests they can’t borrow the stock, and if that is true, very few shorts have covered. Knowing how the shorts behave, though, I find that hard to believe.

Incidentally, did you know that at most firms you can short the stock in your margin account while owning it in your cash account? That way, you can put on or take off a short position for price protection, without disturbing your cost basis on the underlying stock.

Michael H. asked a crucial question: “Does the potential approval of Provenge represent a paradigm shift for the FDA in its approval process, and does its rejection of Pharmacyclics’ Xcytrin reveal a struggle within the FDA over this shift? Or was the data for Xcytrin significantly poorer or different that it can be distinguished from Provenge in a way that the FDA can avoid setting a confusing or conflicted precedent? Your thoughts and evaluation would be appreciated.”

Indeed it does mark a paradigm shift, and the new FDA Commissioner is behind it. There is a real struggle between the process-oriented, old-line bureaucrats in the oncology division and some of the newer folks in biologics, led by the Commissioner. The data for Xcytrin was no worse than for Provenge, but the oncology division won’t even consider the application because it barely missed statistical significance. Pharmacyclics said that they will file anyway under protest to force a review. I know Richard Miller, the M.D. and ex-Stanford radiologist who founded and still runs the company, and without even talking to him, I can tell you that he is furious. He is in this business to reduce suffering and save lives.

Xcytrin treats brain metastases from non-small cell lung cancer, in combination with radiation, and a 554-person study showed a 5.4 month improvement in time to neurologic progression, when memory loss started getting worse. Nothing else has worked in these patients. And the treatment has a great safety profile. This is just the kind of — you should pardon the expression — crap that the FDA Commissioner is trying to derail. But the oncology division is a notorious quicksand pit for both useful drugs and Commissioners, so I’m sorry to say that I don’t think Pharmacyclics will get very far, even if the FDA does review the drug.

Pete asked: “Could you comment on Cell Genesys? I’d like to know what you think about their prospects for approval of the prostate cancer drug that they have under trial. The results seem to be better than what Dendreon had with Provenge. Might this be a company worth investing in? I’d like to know your opinion.”

Cell Genesys is developing a vaccine for advanced prostate cancer, but it is many years away from the market. By the time the company does their Phase III trial, the standard of care will be Provenge, not a placebo. By then, Dendreon’s “Phase IV” trial in 500 men will be done, and if the results are good enough, Cell Genesys may not have the efficacy needed for approval. I’m also not sure how the company is going to get through the next three years to a potential approval, as they burn close to $30 million a quarter and have only $125 million in cash.

Timothy asked: “What odds do you give for outright approval of Provenge? I was at the panel meeting and although the final tally was great, that didn’t happen until the chairman got the definition changed from “establish” to “substantial,” and his admonition that this isn’t a black and white vote. Doesn’t this give the FDA a lot of wiggle room for the decision?”

You are right about what happened, but the FDA already has all the wiggle room it needs if it wants to turn down Provenge. If my read on what Commissioner Andrew von Eschenbach is trying to do is wrong, or he doesn’t have enough power to pull it off, the FDA could turn it down. But following last week’s analysis, I think the odds of approval are as high as 90%.

Mike wrote: “I have a long position in DNDN that I plan to hold through approval and beyond. What I am wondering is if I should be trying some sort of option strategy (betting on approval of course) to further capitalize on what I think is a very safe bet. Please respond ASAP (time is of the essence) with how to make this play and what the ramifications would be. Also, in your opinion, what are the odds the FDA give their approval before the 15th of May.”

Mike, if you are talking about buying calls, I would not buy the May contract. I don’t think there’s much of a chance that the FDA will make a decision before May 15 — that just isn’t their style — and they could easily delay a decision for a week or two. That would make May contracts, which expire on May 18, worthless.

Given that, the most attractive contract today probably is the August $15 call (UKOHC), which sells for just over $6 and expires on August 17. But if you already own a good-sized position in the common stock, it may be smarter to put less money on the table and buy the August $22.50 contract (UKOHX) for around $3.75.

I expect the stock to appreciate towards $20 as the date approaches, and at that time it may make sense to buy an insurance put. At that time, the May $15 put (UKOQC) should be under $2 and the $10 put (UKOQB) around 50 cents. You could buy the May put contract, because if the FDA doesn’t speak by May 15, the bears will pound the stock. At this time, though, I am not officially recommending any Dendreon options in New World Investor. But if you get the chance before May 15, I recommend that you buy DNDN under $15 for a $40 target.

Isolagen (ILE) drew a couple of questions, especially about their UK operation. Miles wrote: “I have two questions about ILE. First, what is the timetable for Phase III to be completed? And for data to be submitted to the FDA? Second, if the product is so great, why shut down their UK operations? Was it not profitable? Why not? Why should we expect a U.S. operation to be profitable, but a U.K. one was not? This, I think, is what’s holding me up from buying this one. I believe these questions may be in the minds of many of your readers.”

First, the current Phase III trial is for wrinkles and nasolabial folds, and it is being done under a Special Protocol Assessment, which means neither the company or the FDA can change the trial requirements without consultation and agreement. And if ILE hits statistical significance in the trial, they automatically get approval.

The October 2006 agreement was for two identical trials, with 200 patients in each trial. They have already completed enrollment of both studies and started injections. However, they have encountered some scheduling problems and a manufacturing variability problem, and they are talking to the FDA about agreeing on some changes to the trials. Both sides have to agree. This delay probably means that the trial will not conclude until the end of the summer, with follow-up studies and data in the first half of 2008. I’d expect a filing for approval in 2008.

ILE is also about to file to do a Phase III trial for acne. They submitted a protocol to the FDA last December, met with the agency on March 2, and based on that meeting, they will file for the Phase III. That trial should start before the end of the year, with results in 2008 and approval in 2009.

Regarding the UK operation, the prior management of ILE and the management in London simply blew it. The product was approved with marketing restrictions, and the company’s expected improvements in manufacturing and cost reduction never materialized. They offered doctors large incentives to try the process, and in England’s government-paid health care system, that was an effective incentive. The trouble was that the doctors kept expecting to collect the incentive with every procedure. That meant ILE had negative gross margins, so they were selling the product at a loss.

On top of that, ILE did an informal survey of patient satisfaction, probably intending to collect testimonials, and found a small number of patients (149) who were not happy. The London management offered to retreat them for free, and most of them were happy with those results.

But then the doctors told other patients who had not been surveyed, and those patients started bombarding the company for a free second procedure. The company tried to resist, and then the doctors began bad-mouthing them — big surprise, given that the doctors would collect another incentive fee for the retreatment. The whole thing mushroomed out of control, and ILE London finally decided to offer a $1,800 payment or a free retreatment costing the company $3,600. They took a $700,000 reserve to cover the costs.

But the ill will from all this caused some doctors to avoid the process, and sales started dropping. In the September 2006 quarter, they did $1.2 million versus the $1.6 million the year before, and for nine months they were at $4.1 million instead of $6.2 million. So, the new management took a look at continuing to support an overseas operation that had botched the product launch, had negative gross margins and declining revenues, and said the heck with it. I’m sure it was fixable, but there is much to be said in favor of pursuing big opportunities, like the U.S. cosmetic dermatology market, instead of spending the same energy fixing small problems, like the UK mess. So, they shut it down. It was a gutsy decision, and makes me more confident that these are the right people to run the company right now.

I expect them to make an announcement when they have modified the Phase III protocol with the FDA, and that should start to move the stock back up. ILE remains a buy under $4.50 for my $9 first target.

Content on Demand MegaShift

Intel (INTC) unveiled 20 new products on Monday, and then followed up Tuesday by reporting March-quarter sales of $8.85 billion and 27 cents per share. While these were about in line with Wall Street estimates for $9 billion and 22 cents a share before a five-cent tax benefit, it is pretty impressive that the company could have a slight decline in revenues from last year, a slight decline in gross margins, and still grow earnings. The reasons include the $300 million tax reversal, their expense reduction program, employment down 11% from last year and their continuing share buyback program.

More important, Intel said that gross margins in the second half of the year will improve, with the fourth quarter better than the third. Wall Street had been worried that the slugfest with Advanced Micro Devices might cause price and profit pressures all year. But Intel said that they expect only normal seasonal price declines, and the company is reducing costs faster than prices come down, by implementing new manufacturing technology.

The stock moved up about $1 after the report, pushing our LEAP options up. Wall Street was pleasantly surprised by the gross margin guidance, and a round of upgrades is underway. The next good news will be an acceleration in PC sales, as businesses start upgrading to Windows Vista. I think Intel will earn around $1.20 this year, well above the Street estimate for $1.08, and at least $1.50 in 2008, where the Street is at $1.33. As this strength unfolds, I think the stock will trade up to $35, where our January 2009 $22.50 LEAP calls will be worth my $12.50 target price. They are a Top Buy under $3.50 and a steal at current prices.

Silicon Image (SIMG) drew a question from Mike that I am still researching: “I am quite concerned about SIMG after reading Needham’s recent report on the company. Needham has it as a hold because, among other things, they believe that SIMG management’s view that the market for TV chips will “dis-integrate” into front-end input processors and back-end video processors is wrong. They say competitors are scrambling to introduce single chip System-on-a-Chip (SoC) solutions and believe that the market will quickly adopt SoC. Are Needham’s argument’s legitimate, in your estimation? If not, why? Ultimately, do you still feel that SIMG represents a good investment for us or has it become too risky?”

I have some of my best industry contacts working on this, and I don’t have a hard answer for you yet. It’s a complex issue. Today, two separate processors provide much more power, but increased cost. The SoC solution will have to be a very big chip, and it isn’t clear how much cheaper it will be, assuming equivalent performance.

At the same time, we are at the inflection point for digital TV growth. During 2005 and 2006, the TV market adopted the HDMI standard and we saw an explosive growth rate. More than half of all digital TVs ship with HDMI. From 2007 through 2010, we will see 600% growth in annual unit shipments of HDMI-enabled devices, including virtually everything in the digital living room. No matter what happens with SoC, Silicon Image’s revenues are going to grow very rapidly. But I follow Andy Grove’s dictum that only the paranoid survive, and I will pursue this issue until I have a solid conclusion. As always, subscribers will be the first to know. For now, though, SIMG remains a Top Buy under $13 for my $20 target.

Zhone Technologies (ZHNE) reported after the close today, and the conference call starts in a few minutes. They did $43.1 million in sales and lost three cents a share. The consensus of four analysts was for $41.8 million and a loss of three cents a share, so they hit their number. DSL revenues grew 15% sequentially. I don’t expect the call to be a love fest — the stock is down 17 cents in the aftermarket — but this shows a promising base for resumed growth based on the DSL products. ZHNE remains a buy under $2 for a $5 target price.

New Energy Technology MegaShift

Energy Conversion Devices (ENER) is holding a “Business Update Call” in a few minutes. They preannounced a big revenue shortfall, apparently from everything except the now-profitable solar business, and an equally big restructuring plan. I think Wall Street will like it, but we will have to see tomorrow. It’s down $2.89 in the aftermarket.

ENER said that they will report about $27 million in sales when they file their 10-Q on May 8. The consensus was looking for $32.5 million. About $24 million of the revenues came from United Solar, with all the rest of the company contributing the other $3 million. So, they are consolidating everything into two operational units, United Solar and Ovonic Materials. Then they are cutting $17 million in annual costs in a first-phase restructuring that is already underway, which is to be followed by an additional second-phase that will begin in the September first quarter. Most of the cuts will be in the new Materials operation.

This is a serious attempt to become a sustainably profitable company, keeping R&D going on new solar and battery initiatives, while getting rid of excess R&D projects. If Wall Street reads it wrong and knocks the stock down tomorrow, take advantage of any opportunity to buy ENER under $32. I am not changing my $55 target — these moves actually bring it closer. If I hear anything out of line on the conference call, I will send you a Flash Alert early tomorrow, but I don’t expect to have to do that.

Gasco Energy (GSX) sold 10 million shares at $1.93 last week, and the stock has been mired around or just under $2 ever since. Glenn and many others asked if the stock sale changed my recommendation or target prices, and if GSX is still a Top Buy. I know this stock has been extremely frustrating, as it trades with natural gas prices, but my view of the likely course of energy prices has not changed, so GSX remains a Top Buy with an unchanged $4.50 buy limit and an unchanged $9 target price. Outrageous as it may sound, we are one geopolitical event, bad hurricane season or cold winter away from hitting the target price.

Ocean Power Technologies (OPWT, or OPT on the London AIM Exchange) drew a question from Vince: “I recently saw that there will be an IPO under the symbol OPTT. It seems to be the same company. Can you explain what’s going on? I really like this idea.”

I couldn’t find a pending IPO with OPTT as the symbol. There is a Bulletin Board company named Ocean Power that builds desalinization plants, but it is tiny and not trading right now because they are far behind on regulatory filings. I like OPWT, too, and I recommend that you buy it on any dip under $2 for my $4 target.

Infinity Energy Resources (IFNY) got the well back into production that had a fire in mid-March. The month-long outage, plus the costs, may impact the quarter a bit, but that is not the important factor. Within the next 60 days, IFNY will open the envelopes on bids for different parts of its business and, indeed, for the whole company. Recall that those assets include:

• One of the most productive oil fields in Texas, where this company’s wells lead in productivity due to their experience and technology;
• Natural gas wells in the Canadian Rockies to feed the utilities supplying power to the new Oil Shale Recovery Program, a source of domestic oil that can supply the entire U.S. needs for the next 100 to 200 years;
• And a fabulous 1.4-million acre oil concession off Nicaragua, where seismic studies show five or more monster oil fields.

The stock closed today at $3.47 with a total market capitalization under $65 million and little debt. After they open the envelopes, I expect INFY to trade at $8 to $12 in a matter of days. In fact, if we don’t at least double our money in this stock by the end of the summer, I will be shocked. IFNY is a Top Buy immediately up to $5 for my $10 target.

Security MegaShift

Packeteer (PKTR) reported after the close today, and their conference call also starts in a few minutes. They reported $34.7 million in sales, better than their preannouncement and the consensus $32 million, but lost nine cents a share pro forma, worse than the preannouncement and the consensus estimate of a one-cent profit.

Regarding the additional detail on the shortfall that management promised to provide, CEO Dave Cote said: “After reviewing the most recent quarter, we believe that the revenue shortfall resulted mostly from longer product evaluations and proof of concept trials performed by various customers. We believe this resulted from an increasingly competitive marketplace, and our inability to deliver several product enhancements to our acceleration product lines by quarter end. We currently expect to deliver these enhancements by mid May, and as a result expect a 5% to 10% sequential revenue increase in our upcoming second quarter.”

That would be $36.4 million to $38.2 million in sales, far above the $34.3 million the consensus was expecting.

Dave went on to say: “Along with modestly slowing our planned second- and third-quarter investments in various functional areas in the company, and continuing to accelerate the development and launch of several new products later in the year, we remain very optimistic about our long-term business opportunities. We also recognize the importance of returning to our target levels of profitability as quickly as possible, while delivering new products that are important to our customers and the expanding market.”

That is Cote-speak for “we have figured out the problem, know the solution, and will bounce back fast.” PKTR is a Top Buy up to $12 -It may jump tomorrow, but I would not hesitate to buy it for my unchanged $22 target.

Video iPod MegaShift

Burst.com (BRST) was the subject of an email from Pat: “Michael, any update on Burst.com? I can’t recall any recent comments with their litigation with Apple.”

There’s nothing to report. At this stage, whatever negotiations or discovery processes are underway tend to stay behind the scenes. I would not be surprised if we hear nothing until the day a settlement is announced. I still think that will happen, and BRST remains a buy on any dip under $1.15 for my $2 target.

After eight-straight rally days for the Dow Jones Industrial Average — the longest such streak in four years — yesterday’s drop was hardly surprising. You can attribute it to the Fed notes suggesting that interest rate increases are still on the table if the economy takes off, which apparently surprised some, or to the jump in crude oil prices as the summer driving season approaches, which apparently surprised others.

I think the jump in crude prices could be a more serious barrier for the market, as oil looks poised to head for $70 a barrel this summer. But that is only a problem if Wall Street thinks it’s a problem. Last fall we watched the market go steadily up as oil prices went steadily up, simply because the falling U.S. dollar was driving both markets. That’s very likely to repeat this year. And for anyone worried about Fed increases, $3+ gasoline has been a very effective way to keep consumer spending subdued without spiraling the economy into a recession. So, it looks to me like the economy is in a steady, modest growth period that should be good for stocks.

But what about the housing debacle? Isn’t it going to negatively affect the economy? I think the recession in housing is about over, in part because the House Price Leading Index calculated by the Economic Cycles Research Institute bottomed a few months ago. That means the Fed will have no need to cut rates further, and probably won’t do anything until a strengthening economy forces them to raise rates later this year or, more likely, early next year. I think the Fed is a non-issue for many months.

So, I think the direction of the market is still pointing up. Yesterday’s dump brought the S&P 500 right back down to the crucial 1438 level. My guesstimate is that the next move is a springboard up to 1455 and higher. If that’s going to happen right away, the S&P should not break below 1438, .and today’s nine-point recovery was a good start. But even if it got as low as 1428, or even if it went further down to 1408, I would not worry and would not say that the uptrend is broken. Below that, though, I would certainly revise my outlook.

While we are in this benign environment and others are worried, we can take advantage of bargains like Isolagen (ISL), the subject of Monday’s Flash Alert. We also can move with confidence on any opportunities from March-quarter earnings reports, which start in earnest next week. Although most companies have been pretty quiet in advance of the conference calls, there have been some developments worth thinking about.

Biotech MegaShift

Amgen (AMGN) delayed their first-quarter conference call by four days to April 23 so that they can include the top-line results of a Phase III clinical trial of Aranesp, as a treatment for anemia in small cell lung cancer patients receiving chemotherapy. Unfortunately, the delay came a day after the CFO was replaced, so the conspiracy theorists immediately concluded that management knows the results, they aren’t good, and the CFO resigned. I don’t believe anyone at the company knows the results yet, and I think the CFO was dumped because he hasn’t been effective in communicating with Wall Street. The obvious evidence of that is the slide in the stock from late January till now. The CFO’s replacement, who joined Amgen last year as VP of operations strategy, previously was managing director of investment banking at Morgan Stanley for 18 years. He certainly should know how to talk to the Street, and he probably wouldn’t be eager to take the job if he knew terrible news was coming.

Having said that, Amgen does have some issues and meetings coming up that they have to wade through to get the stock back on track. Recall that Aranesp, their second-generation stimulator of red blood cell production, is approved to treat anemia associated with either chemotherapy or kidney failure. Aranesp and the first-generation product, Epogen, accounted for $6.6 billion in sales last year, or 48% of revenues.

But Aranesp started to see troubles last fall when a Danish trial in head & neck cancer was halted due to a higher death rate. About the same time, a Phase III trial for anemia in cancer patients not being treated with chemotherapy failed to reduce the need for red blood cell transfusions and showed an increased risk of death. Amgen said that it would not file with the FDA for approval for this indication, which accounts for about 10% of Aranesp sales on an off-label basis. The FDA then required a “black box” warning on Arenesp’s packaging, warning doctors about the risk of death if the product is used in high doses, with the standard caution against off-label use.

All of that brought the stock down from its $77 high last October to $68 in February, where I recommended buying the two-year LEAP calls. The Oncology Advisory Committee will hold a meeting on May 10 to review Aranesp’s effects on survival and tumor progression in cancer patients, and Medicare is reviewing all of its policies related to this class of drugs, including reimbursement levels.

In truth, little has changed since my recommendation. Aranesp is still the best drug for beating chemotherapy-related anemia. It’s too bad that it didn’t work in non-chemotherapy cancer-related anemia, but that was just one of many potential drivers for future growth. Amgen still has the best pipeline in the biotech or pharmaceutical industry, with a whopping 48 molecules in the pipeline. The “black box” warning, which I discussed in the March 15 Radar Report, applies to a small portion of Aranesp’s sales.

In regards to my recommendation to purchase the Amgen LEAPs rather than the common stock, subscriber Kenneth asked: “At what intervals should we continue to buy these LEAPs as they go lower? Like you, I believe they will be a lot higher 21 months from now.”

Amgen should report an excellent March quarter, with revenues up 15.6% to $3.7 billion and earnings up 18.7% to $1.08. No doubt the May 10 Advisory Committee meeting will pressure the stock until then, and I am sure Medicare will take any excuse to try to chip away at the reimbursement rate. But the important thing about all these issues is that they will soon be behind us, and when the pressure on the stock lifts, I expect it to get back to its old highs by the end of this year and easily hit our $95 target by the end of 2008.

That would mean the January 2009 $70 LEAP call contract (VAMAN) would hit my $25 target ($95 minus $70 equals $25). I am making it a Top Buy at current levels, before the earnings report and the Advisory Committee meeting. So the answer to Kenneth’s question is: “Now!”

I’m not changing the $12.50 buy limit, because I expect AMGN stock to bounce back to $70 just on these two events. If you are starting or adding to a LEAPs position, you could just as well buy the $60 call (VAMAL), which would be worth $35 at expiration if my stock price forecast is correct. You’d make about 400% on your money instead of over 500%, with somewhat less risk. But to keep things simple, I am sticking with VANAM for the Radar Report, but the two contracts will trade in lockstep.

Biogen Idec (BIIB) drew a question from Saty: “What is happening with BIIB? It is nowhere near the possible target price of $23 from $12.”

BIIB will report first-quarter results on May 2, and the whole key to the stock is the rate of acceleration in Tysabri sales. With as many doctors and clinics trained as they have, I am expecting an upside surprise and increased guidance. That is the key to getting the common stock from today’s area of around $45 to over $68 by next January, where the January 2008 $45 LEAP call (YZUAI) will be worth $23 or more. With just three weeks to go before the earnings report, buy YZUAI up to $12 for my $23 target.

Dendreon (DNDN) shot up to $25 on Tuesday on a short squeeze, then plunged to $18 when the JMP Securities analyst said that Provenge only has a 50/50 chance of approval and Leerink Swann staged a teleconference with three FDA experts who tut-tutted that Provenge will not be approved. Some of the “owners” of the 23 million shares sold short must have breathed a sigh of relief as they covered their shorts yesterday and today with somewhat smaller losses than they were facing.

There are two reasons why the shorts are wrong. First, at the end of three years, 34% of the patients who took Provenge were alive, compared to 11% who got the placebo. So the drug improves three-year survival chances from 1-in-10 to 1-in-3. Oh, and you don’t have to go through chemotherapy, either. If you do want chemotherapy, it is the very nasty Taxotere, and guess what? Patients who take Provenge along with Taxotere tolerate the chemotherapy better and have a much better chance of survival than those who take Taxotere alone.

Pretty compelling, yes? But I will admit that the old FDA might have turned Provenge down anyway. That brings us to the second reason the bears are wrong: The new FDA Commissioner, Dr. Andrew von Eschenbach. He has said that he wants to change the FDA to be “a bridge, not a barrier” and “put patients before process.” So he took Provenge away from the usual chemotherapies panel, a stickler for “process,” and had it reviewed by the Cellular, Tissue and Gene Therapy panel. He also has said that he wants to end the suffering caused by cancer by 2015, and that medicine is on the verge of a new paradigm in cancer treatment to bring immunotherapies to the patients who need them. And he is a prostate cancer survivor.

So, I think the FDA will do just what the bears are saying they won’t do: Break historical precedent and approve Provenge on May 15, requiring only completion of the ongoing trial as a “Phase IV” post-approval trial. Really, the precedent was broken when the advisory committee voted to approve Provenge. From 1998 to 2005, of the 38 drugs recommended for approval by the drug advisory committee, all were subsequently approved by the FDA except one drug whose application was withdrawn before FDA made its decision.

What will approval mean for DNDN? The company has numerous patents around the antigen cassette technology used to make Provenge. The market for the initially approved indication, androgen independent prostate cancer (does not respond to hormone treatment) is at least a billion dollar market. Dendreon will do trials to see if Provenge helps earlier stage patients with androgen dependent prostate cancer, a $4 billion to $5 billion market. They’ll also restart their breast cancer and head & neck cancer trials using the same antigen cassette technology — a couple of more billion dollar markets for starters, and both expandable to earlier patients.

I think approval will put the stock in the $30 to $40 range as the remaining shorts cover, and then when they sign their first distribution deal with a major pharma, it will go over $40. So, I am putting DNDN back on the buy list with a $15 limit and a $35 target price.

Geron (GERN) said that the Patent Office issued a preliminary ruling rejecting three of the key human embryo stem cell patents held by the Wisconsin Alumni Research Foundation and licensed exclusively to Geron. This should not affect GERN stock much, because the appeals will take years and the Patent Office often changes its mind. Geron would still have the use of the technology, and already has moved far beyond it. With the California stem cell initiative finally spending some money, Geron is well-positioned for the inevitable positive news stories about this powerful technology.

Roberto asked: “What are the differences between the workings of Dendreon and Geron “cancer vaccine?” Is cellular functioning and response patentable? Otherwise, those who spend for R&D may run out of money to develop the cure.”

Great questions, Roberto. Dendreon extracts cells from the patient’s tumor, amplifies them, attaches an antigen and reinfuses them to “teach” an immune system to attack those cells. Geron is working with a “silver bullet” technology targeting telomerase, which occurs in everyone’s cancer cells and hardly anywhere else. They both can be thought of as therapeutic vaccines, but they are otherwise totally different. Geron licenses its basic patents from Baylor University, but in both cases there are complete patent estates around the drug, the method of making it and the method of using it. If telomerase is going to work, Geron has the funding to complete the necessary R&D. I think it may work, and the payoff is gigantic if and when it does. Buy GERN under $9 for a trading move to $18 on good news from either their stem cell or telomerase programs. Longer term, I think this stock will go much, much higher.

Isolagen (ILE) makes me proud of you — you are legging into the stock without running it to the moon. My guess is that we collectively have taken something close to half a million shares away from the market makers, still under the $4.50 buy limit. If you missed the Flash Alert on Monday, please read it on the website and get on board “the next Dendreon.” Buy ILE under $4.50 for my initial $9 target.

ViroPharma (VPHM) drew an insightful question from David: “If Genzyme’s Tolevamer outperforms Vancocin in its Phase III clinical trial results to be released in the second half of this year, would ViroPharma stock take a significant hit? Should we consider getting out before then?”

I think the Street has completely discounted Vancocin as a long-term profit center for VPHM, and remember that the company itself has always expected generic competition in 2009. I suppose the stock could get hit on any good news for Tolevamer, but it may come from higher levels if VPHM announces some acquisition and in-licensing deals first. I am sure these are on the way; the only question is timing. Also, Tolevamer is not an antibiotic, and there may be some benefit to administering both Tolevamer and Vancocin for c. difficile diarrhea. Buy VPHM on dips under $13 for my $28 target.

Content on Demand MegaShift

If you want to get a peek at some of the stunning technologies coming in this area, watch this nine-minute video from a February 2006 conference in Monterey. Jeff Han is a research scientist for New York University’s Courant Institute of Mathematical Sciences. This was the first public demonstration of his intuitive, “interface-free,” touch-driven computer screen, which can be manipulated intuitively with fingertips, and responds to varying levels of pressure. It is great stuff, and just one example of why I am so excited about the profits we can make in this sector.

Zhone (ZHNE) had four insiders buy over four million shares in total at the end of February and beginning of March. Ed asked: “I’ve been holding a large number of ZHNE shares for some time. Recently insiders have been buying globs more! What’s your take on that? Good time to buy more?”

It almost always is a good time to buy when insiders buy, and my only hesitation is that they’ve done this before and been wrong. But this time I suspect their timing is right, as the growth in Zhone’s new products is finally set to overcome the decline in legacy products. Also, the insiders would not do this if they knew that they were going to fire Mory Ejabat — a step that would leave the company rudderless. So the answer is “yes”, this is a good time to buy ZHNE under $2 for a $5 target.

New Energy Technology MegaShift

Lessened geopolitical tensions with Iran were supposed to drop oil prices back into slumberland — surprise! As world economic growth drives forward (pun intended) and the summer driving season hits the U.S., oil price levels look great for our alternative technology stocks. I am expecting good guidance from all of them on the March earnings calls. For now, continue to buy any of the New Energy Technology stocks that are currently trading under my buy limits.

WiMAX MegaShift

MobilePro (MOBL) was the subject of a question from George: “I understand that you recommended MobilePro as a highly speculative company that might well not make it. Question: Is it not in Cornell Capital’s best interest to stop the dilution of the stock and ensure the success of this company? If MobilePro goes under, how does Cornell Capital gain? Also, if new capital could be obtained and Cornell Capital removed from the equation, how big of a pop might there be given the current business fundamentals? Finally, do you feel comfortable with the trend of their business/orders? I would think key corporate members are looking for a place to land if/when they go under and might not be focused on the work at hand.”

Cornell Capital is being investigated by the SEC for short selling stocks of companies to which they have lent money — possibly “naked” short selling, which would explain the large number of “fails to deliver” that plague MOBL — and making their money as the stock collapses. If MOBL had to file bankruptcy, Cornell Capital would squeeze out the shareholders and own all the businesses, technology, etc. They could then restructure the company, sell some parts, buy other things and take it public again some day. I am not saying that they are selling short or that this is their plan, but an awful lot of companies they get involved with wind up selling for pennies. I was counting on Jay Wright, an experienced Wall Streeter, to steer around this trap, but he has fallen into it. If he can find another source of funding, the stock will be in double digits (cents) in a hurry, and I think we should hang in there for that possibility. As for management distraction, you are right — but at least we haven’t seen many bailing out yet. MOBL remains a hold to see if the CEO can resolve the situation.

Many of you are sitting on substantial profits in Dendreon (DNDN) and in good what-have-you-done-for-me-lately form, I’m already getting emails looking for the next one. Fair enough — I happen to think our portfolio is full of potential rockets, where a single event or two can create doubles, triples and more.

But in the Biotech MegaShift specifically, there is a lot to learn from Dendreon. Why did it “work” so well? And why did it take so long? I want to take a look at the answers to those questions and compare DNDN to a new recommendation that I have for you today.

1. Why did the investment work?

A. First, the technology was solid. By that I mean there was clear evidence of a clinical benefit and few questions about safety.

DNDN — Clinical trials showed that Provenge extends survival in men with recurring prostate cancer who have not responded to hormone treatment. It uses the patient’s cells, so the chances of rejection are low. I knew of no safety issues with the treatment until the FDA staff notes were posted, and even if I had known, the side effects were infrequent enough to require little more than careful observation.

New Recommendation — This company’s product is already approved in the U.K. and sold from 2002 to 2006. It replaces a product that has a shorter half-life in the body. It also uses the patient’s cells, so the chances of rejection are low and the half-life is longer.

B. Second, the company is selling a cold drink to a thirsty crowd.

DNDN — Recurrent prostate cancer is often terminal, and there was no other drug or treatment alternative that seemed to work well in these men.

New Recommendation — Product is cosmetic, not dealing with a life-threatening illness, but the market of aging baby boomers is hundreds of times as large as recurrent prostate cancer patients, and they are eager to maintain their youthful appearance (“70 is the new 50″).

C. Third, management ran the company carefully, focused on FDA approval and conserved cash.

DNDN — Although their process is applicable to any solid tumor cancer, as soon as they realized that Provenge might be approvable for prostate cancer, management stopped clinical development of the same process for breast and head & neck cancers in order to conserve funds. They took every opportunity to talk with the FDA so that they could cut and run if it looked like they were wasting money pursuing Provenge approval. That included requesting and getting approval for a “rolling” Biologics Licensing Application, requesting and getting Fast Track review, and using numerous consultants who were ex-FDA examiners to review and hammer on everything that was submitted to the agency. In addition to cutting costs, DNDN did several small stock offerings and had about $100 million in cash when Provenge was approved by the FDA Advisory Committee.

New Recommendation — Although their process is applicable to many areas requiring soft tissue regeneration, including periodontal disease, reconstructive surgery, cosmetic surgery and cosmetic dermatology, the company focused on getting U.K. approval for the biggest market: cosmetic dermatology. They then brought the product to the U.S., where they are in Phase III trials. They have completed a Phase I trial for a second application for periodontal disease, but that was a low-cost, low-risk initiative. They have about $24 million in cash today, enough to get them through this year. They have closed the U.K. operation for now to save money, and sold labs in Switzerland. Like DNDN, I expect them to raise more cash from time to time.

2. Why did it take so long?

DNDN — I first recommended the stock in July 2005 and you would be polite to say it “languished” for almost two years before the rocket took off. The reason was simple: Wall Street did not believe the story. Specifically, they did not believe that Provenge would be approved. So, they did not move the stock until actual approval was imminent.

Should I have waited until just before approval to recommend it? While 20/20 hindsight would say “yes,” I’ve seen many other situations where Wall Street changed its mind and moved the stock long before approval. And I knew Dendreon was in constant talks with potential partners, so if a big pharma had bellied up to the bar, the stock would have jumped overnight. Our DNDN investment easily could have paid off much earlier, but it took a while. Ultimately, we will have a $40 or $50 stock here — a “10 bagger” or 1,000% return from the lows we bought it at — and the wait will have been worth it. (Even from today’s levels, the stock will probably be higher after FDA approval and the partnership agreement. But I wouldn’t be surprised to see it back at these levels sometime after approval, although eventually we will see $40 or $50. If you want to take your original investment off the table, just for peace of mind, I have no problem with that. Otherwise, continue to hold DNDN.)

New Recommendation — Their first U.S. Phase III clinical trial was not conclusive, and the stock tanked. The company now has new management and a new Phase III pivotal trial of the Isolagen Process is underway. The FDA agreed to a Special Protocol Assessment, which essentially means if the trial hits statistical significance, the Isolagen Process gets approval. I don’t know if Wall Street will wait until the Phase III results are announced, or start moving the stock up based on the new management’s track record in cosmetic medicine, so like, DNDN, I think we should get onboard before it could really start moving.

So, enough mystery, who is the next Dendreon?

Buy Isolagen

Isolagen (ILE) develps autologous cellular therapies for soft tissue regeneration in the United States and, until recently, the United Kingdom. “Autologous” means that they extract some of the patient’s cells, multiply them dramatically in the lab, and then reinfuse them. Their lead product, the Isolagen Process, is used by dermatologists to correct and reduce the normal effects of aging, like wrinkles, creases, sun damage and nasolabial folds. Is there a market for this? Ask yourself, do you know anyone over the age of 45 who wants to look younger? There is your answer.

In the beginning, this will be a high-end cosmetic procedure paid for by the patients. That’s about a six million person market in the U.S., or a $1.8 billion a year market at $300 per treatment, once a year. It won’t start at that level, but this is the kind of market that can grow 100% a year for a few years. Plus, I expect it to become a reimbursed procedure over time, either by competing health plans or in the form of expanded health savings accounts, where people can spend pre-tax dollars on whatever health care they want. There is also a medical need for autologous cellular therapy in sports and other injuries, burns and birth defects.

Isolagen’s process replaces using bovine collagen to plump up wrinkled and creased areas. Bovine collagen breaks down and wanders in just a few months, and while the patient can keep getting new injections, many peoples’ immune systems become sensitized by repeated exposure to a foreign substance, developing antibodies and immune reactions. That doesn’t happen if a doctor can use their own cells, and Isolagen’s treatment lasts three or four times as long — about a year.

ILE is depressed because their first U.S. clinical trial failed, even though Isolagen Therapy was approved in the U.K. and sold from 2002 through the end of 2006, when the operation was closed to save money. I had little interest in the stock under the old management, but they got the heave-ho in March 2006, and the company hired Nicholas Teti in June. He built Inamed, the silicon-filled breast implant company, over four years and sold it to Allergan at the end of 2005 for $84 a share. He is widely regarded as a superb manager in cosmetic medicine. Suddenly, I am very interested in ILE.

In August 2006, ILE acquired 57% of Agera, a company that sells advanced skin care systems based on nano-peptide technology. These are sold over-the-counter in the U.S. and the U.K., including anti-aging, anti-pigmentary and acne treatment systems, and they should generate good cash flow while ILE proceeds through clinical trials.

It is obvious from the price of the stock that, like Provenge, Wall Street does not think the Isolagen Process will have a successful Phase III trial or be approved. I think they are looking at the last, badly designed trial instead of looking forward to what the new management can do.

The stock came down from $12 in April 2004 to $1 in November 2005, bounced over $4 in June 2006 and then sold off to $2 at the end of January. It has doubled since then. Like DNDN, I think it ultimately will be a 10 bagger or better from the January lows, getting to $25. For now, though, buy ILE under $4.50 for a $9 first target.

As we saw last week and this week, the markets’ see-saw actions have left investors a bit nauseated and nervous about being fully invested right now. But we had a prime example last week that by investing in the right MegaShift stocks, we don’t need to rely on short-term actions to make money — these stocks can go up no matter what direction the markets go.

Despite last Friday’s slight down day, we saw one of my favorite biotech companies shoot through the roof, giving us a 147% gain in one day. And this is just the beginning of the profits I expect us to see in Dendreon (DNDN), as the company prepares for possible partnerships and an almost inevitable FDA approval in May.

Our other MegaShift stocks have this kind of potential as well. And today, I want to focus our attention on the New Energy Technology MegaShift — a MegaShift that we will benefit from for many years, as the U.S. not only searches for alternative energy sources but also for methods to find more oil and ways to use it more effectively.

Up & Away

The S&P 500 broke out to the upside this week, and is now building strength to vault over the 1438 resistance level to the next minor stop at 1453, and then on to 1507. That move may have started today, but I’m always suspicious about moves before three-day holidays — they can be caused just by market makers getting “flat” for the holiday. I expect the “summer swoon” to happen from the 1507 to 1510 level, probably all the way back down to 1438, before we surpass the all-time highs towards the end of the year. But that is a ways away, and the market will tell us what to do when we get there, so let’s focus on what’s affecting the market right now — oil prices.

This week’s breakout was attributed in part to a drop in oil prices as the international situation calmed down a bit, and in part to signs that the housing downturn won’t get a lot worse or have a bigger negative impact on the economy than the market already fears. I think the market has housing right — the woes in the sub-prime market are not likely to make housing in general much worse, or likely to drag the economy into a recession. The Fed is printing money too fast to allow that to happen.

But I think the market has oil prices wrong. As a result of printing money, the dollar is falling on world markets, which means the prices of other currencies and real assets like gold, timber, metals and oil will go up. Last year, the market seemed to understand that, with oil prices and stock prices seemingly in lockstep up or down. But now every dip in oil is read to be bullish for stocks and, unfortunately, every increase is taken as bearish. I don’t think this will last long, but it is today’s reality.

Wednesday’s sharp drop in oil prices stopped at the last major breakout level of $64 per barrel. If we see a bounce from this level in spite Iran’s release of the British sailors and marines, oil is headed back to $67 or even over $69 in a hurry. A strong rebound would surprise Wall Street, and might pressure stocks for a while.

But I found it very interesting that as oil dropped Wednesday, gold went up — again, in spite of a supposed easing of international tensions. That’s the reverse of what is supposed to happen. As I said above, real assets like gold and oil should shadow each other’s moves, whether it’s up or down. Events like the happenings overseas, though, can tend to cause a slight disconnect in the short term. But in the long term you should expect oil prices to get back into place with a reversal to the upside and much higher prices soon. I think the upward movement in gold shows that traders aren’t focusing on these one-day events and are well aware of the weak position of the U.S. dollar, which puts upward pressure on gold, oil, metals, U.S. real estate, U.S. stocks and all other dollar-denominated prices.

Oil has been in a range of $60 plus or minus $5 for quite a while, and the fluctuations from the bottom of that price channel to the top and back don’t mean much for our New Energy Technology MegaShift. It will be a big winner as long as oil stays over $50. I expect the range to increase $5 to $10 a year for the next few years, and that is one reason that we are going to make a lot of money with these stocks. Alternative energy and unconventional petroleum sources become more and more viable as the price goes up. In addition, though, there is widespread agreement, even in the current oil-centric administration, that we simply can’t depend more and more on sources of oil that are unstable, don’t like us, or are terrorist states. When a tree-hugging hippie says that we have to go to biodiesel, it is easy for the mainstream to laugh. Twenty years later, when the General Accounting Office (GAO) says the same thing, and the generals confirm it, it gets taken seriously.

And that’s exactly what happened last Thursday, when the GAO released a report saying the U.S. is particularly vulnerable to severe consequences from increasing and unacceptable risks of significant disruptions to oil supplies from peak oil and other above-ground political and economic factors. The GAO added that the United States federal government is unprepared to respond to an oil supply shock, in spite of the Strategic Petroleum Reserve. The report details the above-ground risks and says that they affect a “large majority” of world oil reserves. Iran, Iraq, Nigeria and Venezuela hold one-third of proven oil reserves and are considered at high risk for political disruption. Countries with medium or high levels of political risk contain 63% of proven worldwide oil reserves, and another 22% is in countries where foreign investment is prohibited. We have almost no verifiable information on world oil reserves because OPEC controls most of the reserves, and will not allow independent auditors to verify its estimates. Just looking at annual pumping and exploration data, I believe Saudi Arabia has been inflating its reserve estimates for years — it rarely mentions that the oil from increased production is sour crude, where refining capacity is limited.

Coupled with continually rising demand for petroleum products, the stage is set for a pricing disaster. The GAO pointed out that “most of the U.S. recessions in the post-World War II era were preceded by oil supply shocks and the associated sudden rise in oil prices.”

To prevent a situation like this from happening, the U.S. needs to look into more alternative energy opportunities. But technological solutions like wavepower, biofuels, coal-to-liquids or steam-assisted gravity drainage of Canadian oil sands take time and money to develop and scale up. And while “Conservation!” makes a nice rallying cry, the GAO found that alternative transportation technologies have limited potential to mitigate the consequences in the near term in the U.S. The situation is even worse overseas. California has 1,050 cars for every 1,000 people, while China has 3 cars for every 1,000 people. No matter what the U.S. does, world demand for petroleum will increase every year until rising prices finally curb it.

The GAO examined 11 technologies that could help, five related to finding more oil and six related to transportation alternatives. The five related to finding more oil included:

• Enhanced oil recovery — I have not found a good investment in this area;
• Deepwater and ultra-deepwater drilling — No good investment here, either;
• Oil sands — We already own Connacher Oil & Gas (T.CLL, or CLL.TO on the Toronto Exchange) for their steam-assisted gravity technology;
• Heavy and Extra-Heavy Oils — We own Holly Corp. (HOC) for refining capacity;
• Oil shale — We own the technology leader, Royal Dutch Shell (RDS.A), plus two suppliers of natural gas in the Colorado/Wyoming area: Gasco Energy (GSX) and Infinity Natural Resources (IFNY).

The six technologies related to displacing oil in transportation were:

• Ethanol — I have not found a good investment in this area (see the May 11, 2006 Radar Report);
• Biodiesel — Again, there isn’t any good investments here, even though one of my license plates is BYODESL;
• Natural gas — Not going to be a big player in transportation, but will help pricing for Gasco and Infinity;
• Coal and biomass gas to liquids — We own Rentech (RTK), which is a coal-to-liquids company with an excellent patent position on their production process;
• Advanced vehicle technologies — we own Energy Conversion Devices (ENER), the leader in batteries for hybrid cars;
• Hydrogen fuel cell vehicles — we own Plug Power (PLUG) for forklift trucks, and Ballard Power (BLDP) is another possible investment, but it is too early to buy them again.

The GAO did not address new oil-displacing technologies for stationary power, where we own the clear leader, FuelCell Energy (FCEL). And I also think the GAO missed a big one in wavepower, where we own Ocean Power Technologies (OPWT on the pink sheets, or OPT on the London AIM Exchange).

Otherwise, this GAO report is right on, and I don’t think it will disappear into the bureaucratic maze in a Democratic Congress looking for issues. Monday’s Supreme Court ruling that the Environmental Protection Agency has the authority to start regulating heat-trapping gasses is likely to accelerate legislation in the Democratic Congress to regulate carbon dioxide, one of the main greenhouse gases. Because coal-fired power plants are one of the biggest sources of carbon dioxide emissions, companies providing cleaner coal technologies stand to make a lot of money. Royal Dutch Shell is one of the major companies experimenting with using a combination of heat, steam and pressure to turn coal into a gas. And, of course, Rentech’s coal-to-liquids technology will be invaluable under new regulations.

As I look over our list of investments, I don’t believe there is another investment letter that has nailed this as thoroughly as we have. This is going to be a 20-year MegaShift, and we have the right companies in the right areas to take the maximum advantage of it. Figure out how much of your portfolio should be invested in New Energy Technology, and get there now. The summer driving season is coming, and there just might be hurricanes reeking havoc on our coastlines this year. The experts who totally blew it last year are calling for 17 named storms in 2007, including nine hurricanes, five of them major. That would put our energy stocks through the roof.

How high can they go? Well, let’s take a look back to 2005, when I recommended that you get on board with some great alternative energy companies (Toyota (TM), Energy Conversion Devices (ENER) and Ballard Power (BLDP)). At that time investors weren’t focusing on fuel cells, ethanol or even hybrids. But then Hurricane Katrina struck, sending oil over $70 per barrel — about $3 at the pump. The drive for alternative energy sources quickly became a hot topic of discussion, and we sold ENER for a whopping 119% gain, Toyota for a 37% gain in less than five months and a 32% gain in Ballard.

Now, we own even more companies set to take advantage of the growing desire for alternative energy, less dependence on foreign oil and extracting oil from our country’s own resources. Let’s take a look at some of these companies now.

Energy Conversion Devices (ENER) said Cobasys, the nickel-metal hydride (NiMH) battery joint venture between Chevron Technology and ENER, expanded its headquarters to increase advanced battery system development. Cobasys is the only North American manufacturer supplying NiMH battery systems for hybrid cars, and they have seven supply contracts, including Toyota, Saturn and Chevrolet. Currently, Cobasys is developing lithium-ion batteries for the forthcoming General Motors plug-in hybrid cars. ENER remains a buy if it dips back under $32, and I am keeping my $55 target.

FuelCell Energy (FCEL) sold nine million shares of stock in a secondary offering yesterday, netting $62.8 million. I expect the underwriters to exercise their over-allotment and bring in another $9.4 million. After all the shares are placed, I expect the stock to pop back over $8 pretty quickly. FCEL is a Top Buy up to $11 for my $23 target.

Rentech (RTK) is recovering from the bear raid that pushed the stock down to a ridiculous close of $2 on March 13. They’ve done a couple of brokerage conferences since then and got the Illinois plant permit approval that I’ve discussed before. There is nothing wrong here, and RTK is a Top Buy up to $5 for my $11 target.

In regards to the New Energy Technology MegaShift as a whole, I’ve had a number of questions about our stocks following the price of oil down. I can say that every one of the underlying companies are on track with their technologies, and if oil prices don’t crater into the $40s, these companies will be the leaders as new energy technology starts replacing oil. In the petroleum area, I especially like Rentech, Connacher Oil & Gas, Gasco Energy and Infinity Energy Resources at these prices. I also think that both Fuel Cell Energy and Plug Power are dirt cheap for the leaders in the hydrogen economy. And I sure would like another shot at Ocean Power Technologies under my increased $2 buy limit.

I also recently received a subscriber question from Robert asking: “In the March/April issue of Technology Review, Vinod Khosla opines that Concentrating Solar Power (CSP) has a bright future. Do you have an opinion? Do you have any candidate investments?”

Vinod has a big window in his bathroom with a great view. But if he wants privacy, he presses a button and it turns solid gray, as it actually is a large LCD. It’s a neat technology, but at its current price, I don’t think it has a bright future as a commercial product. I have a similar worry about CSP. Solar makes little economic sense below about $80 oil, excluding subsidies. I’m not sure why taxpayers should be subsidizing it when wavepower and windpower can produce electricity today at four cents a kilowatt hour, the same as oil at $45 a barrel. And I don’t have any public companies where CSP would make a difference to their earnings.

Avian Flu MegaShift

Crucell (CRXL) received a small, 1.7-million euros grant to start an H5N1 vaccine project, which will complement their ongoing H9N2 pandemic flu vaccine research. I am focused on H5N1 as the most likely candidate to jump to humans, but there are three influenza subtypes, H5, H7 and H9, that have caused highly pathogenic avian influenza. All three are pandemic threats and have caused infection in humans in Asia and Europe since 1996.

Crucell also won an important U.S. patent that provides additional years of patent protection for the use of the PER.C6 technology in the manufacturing of flu vaccines. CRXL is a buy up to $28 for my $50 target.

Gilead Sciences (GILD) has performed like a champ, and the January 2008 $50 LEAP call (YGDAJ) closed over my $30 target today. Sell YGDAJ at $30 or better, for 206% gain.

Biotech MegaShift

Dendreon (DNDN) jumped sharply today after Jim Cramer spoke about it during last night’s Mad Money. Cramer was asked a question about the stock, and said that he thinks it can still go up and that it will probably go higher. He was very explicit, though, about the risks after such a huge week last week and again this week, labeling it as very speculative and very risky.

I think we are at the top end of the channel for a while, and I would not be surprised to see the stock slip back to $15 or even $14 as the daytraders bail out. But, a partnership deal could come any day, and the May 15 FDA date is not that far away. I am raising the target price to $21 for now, and if we get there before FDA approval, we may take some chips off the table.

China MegaShift

Huaneng Power (HNP) reported earnings Tuesday. Their profits rose 24% in 2006, due to increased capacity and better rates. They expect unit fuel costs to rise less than 5% this year, but said that utilization of generating plants may fall due to overcapacity in some parts of the country. In this environment, they can get rate increases to catch up to last year’s average costs. I don’t expect China’s growth to slow from the current 10% annual rate, so I am not too worried about overcapacity being an issue for very long.

HNP plans to spend $3.9 billion on capital equipment for 2007 through 2009, mostly to build new plants and retrofit old plants with emission control equipment. That’s a significant reduction from the recent $2.1 billion per year rate. Last year, they added 18 new generating units, both coal-fired and hydropower. The pebble-bed nuclear reactor technology comes online in 2010.

At the end of 2006, the firm’s generating capacity was 27,922 megawatts, up 25.5% from 2005. They generated 159.9 billion kilowatt-hours of electricity in 2006, up 6% from 2005. After the earnings release, the stock jumped over $3, and is now trading well over my $30 buy limit. So, I am moving HNP to a hold for my $45 target price.

Content on Demand MegaShift

Comcast (CMCSA), Cox Communications and Time Warner Cable own a cable TV consortium called iN DEMAND, which signed a deal this morning with major league baseball to carry out-of-market games now and to offer the MLB Channel when it launches in January 2009. Until now, the out-of-market package has only been available on DirecTV, so this is a major competitive improvement.

CMCSA also launched Comcast Digital Voice in several Central California communities. Comcast Digital Voice is a less-expensive, fully-featured alternative to traditional phone service with online call management, voicemail, and only one bill for all of your Comcast services. It is a very attractive motivator to get people to sign up for the cable-Internet-telephone package. Digital Voice is currently available in more than 60 markets nationwide with more than 2.5 million phone customers, and Comcast now has nearly nine years of experience in the phone business.

To show you how valuable the combined phone-data-TV service is, on Tuesday Comcast said that they were acquiring Patriot Media, which has only 81,000 subscribers in the central New Jersey (Princeton) area, for a whopping $483 million, or $5,960 per subscriber. But this is an all-new network in a high net worth area, and many of the subscribers take the full package. So, CMCSA will get almost twice as much cash flow per subscriber as their current average of $435 per year.

During the past year, Comcast has been buying out partners like Patriot Media in local markets, mostly inherited with the AT&T Broadband acquisition, and rolling the subscribers into their system, so far adding about 800,000 subscribers. The latest deal with Insight Midwest gives Comcast full control of another 684,000 subscribers on cable systems in Illinois and Indiana. These systems will generate around $290 million in operating cash flow in 2007. CMCSA is an excellent buy up to $26 for my $62 target.

Harmonic (HLIT) now supports forward error correction in their ground-breaking ProStream video processing platform, a critical requirement for high quality video transmission in IP-based networks. Forward error correction gives satellite, cable and telco video service providers maximum reliability and picture quality. This is an important competitive advantage for HLIT for a variety of video contribution and broadcast applications. Buy HLIT on dips under $10 — it traded there Monday and Tuesday — for my $16 target.

Telkonet (TKO) drew a question from Jim: “Paul McWilliams of Next Inning Research thinks TKO doesn’t have much future. He thinks fiber or wireless has a much broader appeal. Your thoughts?”

Paul is a smart guy, but this is a perfect example of why TKO doesn’t get much respect — yet. First, fiber and wireless are ways to get broadband to a building, and TKO does not compete in that market. So, if Paul was talking about broadband from the local electric utility, it is just not relevant to TKO.

Of course, fiber and wireless also can be used to distribute signals inside a building. If you were putting up a brand-new building, you probably would wire it with optical fiber. TKO is not in the new building market, either.

If you are trying to retrofit a building for high-speed access, you have choices. Back when I did this in our Half Moon Bay office, it cost $25,000 to install CAT-25 coax cable in a 3,600 square feet building. Not cheap, and we didn’t even try to hide the wiring. Optical fiber would be worse. If there are any esthetic issues, like the carved walnut paneling on the Queen Mary, or some of the 1930′s interiors in Donald Trump’s New York condo conversions, fiber is out of the question.

Wireless sounds easy, until you try it. It is very difficult to avoid dead zones, and without knowing exactly what is in the walls, it’s even harder to plan a cost-effective system in advance. Plus, some folks are not that interested in being irradiated all day long. Telkonet is glad to go head-to-head against a retrofit based on wireless or cable/fiber anytime. TKO is a Top Buy under $5 for my $15 target.

New Economy MegaShift

Omniture (OMTR) said that the leading Canadian portal, CANOE (Canadian Online Explorer), with 200 websites covering news and information, sports, entertainment, finance, business, travel, automotive, real estate, classifieds and employment services, picked Omniture’s service to track web surfer’s behavior on their one million web pages. This is a major win for OMTR, with significant revenues and an excellent showcase for their click-tracking services. OMTR is a buy if it dips back under my $15 limit, and the target price remains $22.

Nanotech & Materials MegaShift

Integral Technologies (ITKG) has retreated below my original buy limit. I expect a steady flow of new licenses for their electrically-conductive plastics technology. The stock just got ahead of itself, as I mentioned at the time, and now it has come back much more than is reasonable. I am moving ITKG back to a buy under $2.50, with a $4 target.

Robotics MegaShift

iRobot (IRBT) announced a delivery order from the U.S. Navy to build additional bomb-disposal robots for shipment to the U.S. forces overseas. This latest award of $14 million from the Naval Sea Systems Command brings the total value of the orders placed to date to $66 million. Under the contract, the military could order up to the full $264 million value in robots, spare parts, training and repair services. The U.S. military’s program has requirements for up to 1,200 robots through 2012. To date, iRobot has delivered more than 800 PackBot robots to a broad range of military and civilian customers worldwide. IRBT remains a strong buy up to $18 for my $30 target.

Security MegaShift

Packeteer (PKTR) was slammed after the company announced downside guidance for March first-quarter revenues from an estimated $43+ million to $31 million to$33 million. The shortfall was in the U.S and Europe, and the VP of Worldwide Sales handed in his resignation. CEO Dave Cote will assume responsibility for sales until someone is hired. Despite the bad news, Dave said that he remains optimistic and will have a detailed analysis and explanation of the missing revenue during the upcoming earnings conference call.

This is the third quarterly blow-up since we have owned the stock. After the first one involving Asian inventory, Dave said on the earnings call that he had the problem defined and fixed, and that PKTR would resume growth the following quarter. They did. After the second one involving European revenues, on the conference call Dave said that he did not yet have the issues well enough defined to be sure when PKTR would resume growth, but that he was confident it would. The next quarter showed good growth.

This time, Dave said that he already knows enough to be sure that competitors are not taking market share and there are no systemic problems. He added that PKTR will resume growth quickly, which means in the current June quarter.

I suspect the sales force made sure as much of the pipeline as possible was converted to orders in the December quarter, so they could boost their yearend bonuses. That is typical behavior and is one reason why Dave was forecasting flattish sequential revenues. But the impact was bigger than he expected.

In addition, and more importantly — I trust the guy. He is careful to say what he knows and what he doesn’t know, and he’s good at fixing problems quickly. The stock has a tendency to bounce back quickly from these events, because Dave puts together a rebound quarter following the disappointment. If you have ever wanted to own it, now is the time. I am making PKTR a Top Buy and not changing either my $12 buy limit or $22 target price.

Trimble Navigation (TRMB), which we picked up when they acquired @Road, has bounced back a couple of dollars this week. If you recall, Trimble acquired @Road for about $7.50 a share, which gave us a nice 98% gain. At that time, I recommended that you hold the Trimble shares until the mindless selling was over. With the stock’s recent move up, I recommend that you sell TRMB now.

WiMAX MegaShift

Terabeam (TRBM) said that their Ricochet Networks subsidiary, a wireless Internet service provider headquartered in Denver, will provide Wi-Fi and WiMAX access citywide, beginning in the 2.5 square mile downtown and Capitol Hill areas. The mesh network will be built with equipment from Proxim Wireless, another subsidiary of Terabeam. Ricochet’s existing Denver network uses proprietary cellular data equipment for high-speed Internet access, and has been operating since 2002. It has over 6,000 municipal, residential and business customers, including police cars. TRBM is a buy up to $4 for my $7 target.