In the May 17 Radar Report, I wrote about “Marconi, Mesh Networks, IPv6 and You.” Much of that discussion was about the emergence of wireless standards and using the Wi-Fi spectrum to build a much faster broadband delivery network based on a mesh topology. If you recall, mesh networks route data between nodes and are self organizing in that they can route messages to where connections and bandwidths are available. One of the great applications of mesh networks is that they can take existing Wi-Fi spectrum and install Wi-Fi routers to find each other, which blankets a city with a Wi-Fi mesh and runs at speeds up to 20 megabits a second.

Since our first talk on mesh networks, a number of you wrote about your frustration at not being able to buy a stock to participate in this dramatic technology shift to a much higher speed, much lower cost wireless alternative to cable modems and DSL. Well today, I have just the stock for you. I have found a wireless Internet Service Provider –WISP — that uses WiMAX technology and fits our WiMAX MegaShift perfectly.

Will O’ The WISP

TowerStream (TWER) came public in January through a reverse merger into a public shell, and just moved from the Bulletin Board to a full NASDAQ listing today. As happens with so many reverse merger stocks, there have been no analysts following it. But on May 15 they did a presentation at an Oppenheimer Conference on Mobility: Moving Beyond Voice. This week, the company is on a road show for a $40 million secondary public offering through Lazard Capital Markets, Canaccord Adams and Morgan Joseph. The stock is starting to move up on more serious volume, and before this train leaves the station, I want you to get on board.

TowerStream installs fixed WiMAX transmitter/receivers (transceivers) on tall buildings in major cites, connects them via a mesh network and sells access to them only to businesses by undercutting the local phone company’s prices and offering more features. Their business model is simple and elegant: Negotiate control of the tops of tall buildings, use the DirecTV/Dish installers to put antennas on the customer premises and offer software-upgradeable services at a discount.

Right now TowerStream’s transceivers are live in eight cities, including New York, Boston, Chicago, Miami and Los Angeles. In January, they acquired from Speakeasy the famous Seattle WiMAX installation that was the first city-wide installation in the U.S. They’ll be in 10 cities by the end of this year, 20 by the end of 2008 and 30 by the end of 2009.

The reasons customers love them include:

• Easy installation. With the phone company, they typically bring a cable into the basement, and if your server is on the 23rd floor, it is your problem to get down there. On the other hand, TowerStream puts a small dish outside a window on the 23rd floor and runs a wire to the server room.
• High reliability — 99.999% uptime is available. Unlike the Competitive Local Exchange Carriers (CLECs), TowerStream does not use the Regional Bell network in any way.
• Very high speed. The Wi-Fi mesh network nodes connect to each other and hand off the signal until it gets to a physical connection to the Internet. Every one of TWER’s WiMAX nodes is directly connected to the Internet, and then all the nodes are connected to each other via the mesh network.
• Price. TWER competes with the RBOCs (Regional Bell Operating Companies), the CLECs and some cable companies. Here’s a look at the price differences:
1. Basic 1.5-megabit service — T-1 equivalent, but with full Quality of Service for clear Voice over Internet Processing.
   TWER: $389 a month; RBOC: around $600 a month
2. 3.0-megabit service — the basic T-1 service, plus an additional 1.5 megabits whenever available (nearly always).
   TWER: $500 a month RBOC: Not available
3. Five Nines service — two T-1 basic services connected to separate WiMAX antennas for 99.999% guaranteed reliability.
   TWER: $600 a month; RBOC: Not available
4. 6-megabit to 10-megabit service — customer gets 6 megabits basic and can request periods of 10-megabit service.
   TWER: $1,650 a month; RBOC: $2,500 a month for 6 megabit, not scalable to 10 megabits
5. 10-megabit to 100-megabit service — RBOCs are not required to share lines above 45 megabits, so CLECs cannot compete above 45 megabits.

TWER: $3,600 to $5,000; RBOC: $4,500 for 45-megabit service

6. 100-megabit to 1-gigabit service — Prices are negotiated at this level. TWER can provide bandwidth in 100-megabit increments in a week or two — a matter of days in a rush situation. The RBOCs take months to get their optical fiber and repeaters installed, if they can provide the service at all.

As you can see TowerStream is set to trump the competition. Need more proof? Just take a look at the Wi-Fi mesh technology that I wrote about two weeks ago. A company will install 700 Wi-Fi antennas to cover Richardson, Texas, with a consumer broadband mesh network. TowerStream, on the other hand, installed only four WiMAX antennas at a total cost under $1 million to cover New York City with a business broadband network. That’s a much better business model — lower costs and higher revenues. Plus, the company has been able to get a new city’s network cash flow positive in about a year. From there, TWER can simply add antennas to either increase bandwidth or expand into the adjacent boroughs. They don’t buy expensive spectrum unless it is absolutely necessary, because they can operate in the unlicensed bands.

TowerStream has built the company thus far with 15 salespeople, but just before their reverse merger in January they increased that to 36 employees, with plans to go to 80 sales folks by the end of this year and 200 in 2008. Once a network is installed, the incremental revenue from a new customer has very little incremental cost, and falls straight to the bottom line as profit, so adding salespeople is the fastest way to grow both revenues and profits. I expect they will go from $1.6 million in sales in the March quarter, equivalent to $6.4 million a year, to a run rate around $40 million a year by the end of 2008.

After the secondary offering that I mentioned above closes, there will be about 39 million shares outstanding, and the whole company will have a market capitalization around $300 million. That is a very small capitalization from Wall Street’s point of view, but I think it gives the stock lots of headroom for a double or better by this time next year. I want you to buy TWER under $8 for a $17 target.

Biotech MegaShift

LEAPS (Long-term Equity AnticiPation Securities) I’ve received a couple questions recently about what LEAPS are, and how they work. So here’s a brief overview: LEAPs are long-term call options that expire in January — one, two and sometimes three years out. I usually recommend the strike price closest to where the stock is trading. This gives us over two years for the calls to make money. Also, I typically recommend LEAPS when I expect to see the common stock make a big move fairly quickly. Big moves in a short time are perfect for a LEAPS strategy for two main reasons: The extra shares you control leverage your profits, and the time premium you paid on the LEAPs doesn’t erode significantly, so you don’t lose much there. In general, if the LEAPS you are considering sell for no more than 25% higher than their theoretical value, this can be a winning strategy to improve your returns. Your broker can help you determine the theoretical current value for this or other LEAPS.

Dendreon (DNDN) jumped sharply today when the company announced exactly what I told you they would. With the huge short interest, though, I am not surprised that there is so much FUD (Fear, Uncertainty & Doubt) circulating about this company. I told you that the current clinical trial is under a Special Protocol Assessment with the FDA, and that Provenge will get approval if it shows a statistically significant survival benefit at either the interim peek at the data around April 2008 or the final data due in 2010. I also told you that the company has powered the interim peek for approval — that means there will be enough patient data to meet the 95% statistical significance level if Provenge works as well in this trial as it did in the prior two.

Here’s a typical negative response from Jonathan Aschoff, an analyst with Brean Murray & Co. He said that today’s rally was unwarranted because the ongoing study will likely fail its primary goals, as did two earlier Phase III trials. “If this one fails, it will be the third time around” and likely doom the medicine, he said.

But what he neglected to say is the primary goal this time is survival, and the last two times it was tumor shrinkage. He also neglected to say that the two prior studies met the secondary goal of survival. I don’t believe these are accidental omissions, because he went on to repeat the current FUD rumor on Dendreon: The prolonged-survival data was seen in a trial whose design may have favored Provenge, by including too many sicker patients in the placebo group and not enough such patients in the group taking the vaccine.

This is almost certainly completely false, because (1) this is an old trick that the FDA caught on to more than 20 years ago, and (2) Dendreon hired numerous ex-FDA examiners to hammer on the application during the rolling filing process, looking for any weakness, and stacking the deck with sick patients is elementary school stuff.

Pierre asked: “I have read with interest that any drug must meet the FDA’s standard of 95% certainty that any positive results claimed for its use are not due to chance. What was Dendreon’s score and can you comment on Richard Miller’s (president and CEO of Pharmacyclics and adjunct professor of oncology at Stanford University Medical Center) piece that appeared in the Wall Street Journal of May 10?”

Dendreon hit 95% certainty on their secondary endpoint of survival. I talked about Richard Miller’s similar turndown in the April 19 Radar Report, and I agree with him completely that the FDA must change its method of dealing with new biologics for terminal diseases. I go beyond his position, though — I believe the FDA should put all its effort into insuring safety in Phase I and Phase II trials and leave efficacy decisions up to doctors and their patients. If any firm wanted FDA efficacy approval, they could voluntarily do a Phase III trial and then use FDA approval on their label.

Vic asked: “What about another company, a competitor — could they get approval earlier? If so, the market will be occupied by them. The stock DNDN will not go up, right?”

No one else can get a prostate cancer personalized vaccine into the market before Dendreon. All of these diseases have multiple submarkets and often there is room for a cocktail of drugs to treat the problem. I am not worried about competitors, at this point. My main concern is just getting Provenge approved.

Roberto asked a series of questions: “I too smell a ‘rat’ with the massive shorting of DNDN and the volumes starting May 9, 2007. Please read this conspiracy- sensitive writer’s article. I don’t know if his figures are correct.

Yes, I saw this. There undoubtedly is naked short selling in DNDN. It is easy to hide with a complaisant market maker. In the last half of the 1980s, I had one of the largest short funds in the U.S. I know how it works, and what the shorts did was urge people like Dr. Fleming to write to the FDA. That’s all it took for the bureaucrats to win over the Commissioner.

Have you or DNDN contacted Thomas Fleming PhD’s about his thinking as to what constitute “more clinical data on efficacy?”

No need to, it is obvious. He wants to see the data from a trial with survival as the primary goal. That is precisely the trial that is now underway.

Hypothetically, when DNDN and FDA jointly unmask the test subjects, and Provenge-takers’ incremental life span form a three-sigma normal-curve cluster that is at least four months longer than those in the normal curve fit for the longest living test subject on the placebo, will such constitute as the missing and now-FDA-required “more clinical data on efficacy?”

Yes.

If so, when will such “unmasking” take place within the chronology of the FDA Phase tests?

Next April or May.

Another ISSUE is the absence to-date of a Partner whose expertise is in the appropriate process control, and manufacturing. Otherwise, test results may not materialize on the larger target population.

All of the Provenge used in the trials comes from a large contract manufacturer certified by the FDA

Do you see the likes of established names line Genentech or Amgen getting involved? Is DNDN the holder of the requisite patents such that they may enjoy leverage as a valuable partner for the Big Boys?

Yes and yes. The overseas partner certainly will be a big company. DNDN will try to stay independent in the U.S., which is practical because most advanced prostate cancer patients are treated in less than 500 clinics around the country, so a relatively small sales force can cover most of the market. But DNDN does have the patents if it comes to a buyout.

Please comment on the above many bases for Dendreon’s value even before you do your pencil pushing. In short, don’t you think there is a possibility that the FDA’s COMPLETE RESPONSE LETTER of May 9, 2007 (aka Approvable Letter) is the sugar coating around a bitter hoax that Provenge could still potentially be?

Nope.

How and what analyses have you done to rule this out?

Everything I have done on this stock and this drug has been aimed at whether it works and whether it can be approved. I was right on what the Advisory Committee would do because I was right on the science. I was wrong on what the FDA would do because I was wrong on the politics. The head of Chiron told me 25 years ago that developing drugs is not about curing patients, it is about getting FDA approval. Sadly, that hasn’t changed.

In response to the delay of Provenge’s approval, the company has cut 40 marketing people, or 18% of the work force, as they won’t be needed for a year. DNDN remains a strong buy under $7, which I expect it to revisit as the shorts spread FUD. My target remains $40.

Isolagen (ILE) was the topic of a question from William: “I bought Isolagen’s September 2007 call option (ILE IZ) on 4/10/07. At that time the stock was trading at $4.47. Now it is at $3.60 and I have lost a little over half of my investment. Do you expect some good news between now and the third Friday of September 2007 or should I cut my losses?”

They will restart the clinical trial in the next several weeks, but I’m not sure it will come in time to save your option position. In general, I don’t buy options on stocks selling for less than $20 a share, and virtually never if they are under $10. ILE is still a good buy up to $4.50 for my $9 target next year.

New Energy Technology MegaShift

Connacher Oil & Gas (T.CLL) held their business update conference call this week, and it was quite positive. The slides will be on their website for a few weeks. Their Pod One steam-assisted gravity drainage production program is nearing completion, and they are on target to start pumping oil in June or July, targeting 10,000 barrels a day. They are finishing 15 pairs of horizontal wells to use their steam-assisted gravity technology to extract bitumen from the oil sands.

The company is just about to file all the regulatory materials for Pod Two, another 10,000 barrels a day operation. The Montana refinery that they bought from Holly Corp. will need to be expanded to 20,000 or 25,000 barrels a day to accommodate Pod Two production.

Connacher just raised $100 million in a very nice convertible offering that is secured by the assets it purchases, but not the whole company balance sheet. The independent consultants are in the process of updating Connacher’s proven and probable reserve position, and I expect a significant increase in both of these when the results are announced in the next few months.

This company has gone from buying a lease to producing oil in about half the normal time, and almost on their original budget. T.CLL is very well run, and they have at least three more Pods identified to get them to 50,000 barrels a day of production over the next few years. At even $50 a barrel, that’s over $900 million in annual revenues! T.CLL is a Top Buy up to $4.50 for my $7 target.

Ocean Power Technologies (OPTT) drew a question from Peter: “You put out a Flash Alert to buy OPTT before Wall Street ‘catches on’ to the confusion and the stock takes a quick jump to the mid-$20′s. Why then is this not a Top Buy? Is the jump not so quick?”

I think the jump will be quick, Peter, but after that there is not a lot of news coming soon to push it up further. OPTT just won part of the major Cornwall contract, and the company needs to complete projects in Hawaii, the North Sea and Cornwall to generate more interest. If Congress puts wave power in the new energy bill, that would be a plus. As I say below, OPTT almost makes it to Top Buy status, but I’m trying to hold that list to 10 stocks. But OPTT is still a great buy up to $20 for my $40 target.

Security MegaShift

Packeteer (PKTR) has a 6.3% shareholder, Elliott Associates, which filed with the SEC a copy of their letter to the Board of Directors asking the board to consider a sale of the company. The letter said that PKTR has “proven unable” to capitalize on its “leading technology.” It noted that the industry is becoming increasingly competitive. Elliott said that Packeteer’s technology may be “extremely valuable to a larger acquirer looking to enter the wide area network optimization market or to supplement its current product offering.”

Well, duh. But that doesn’t mean this is a good time to sell the company. Packeteer’s new, close relationship with Microsoft has many drivers. One is that competitor Riverbend’s products actually break Microsoft server security. Another is that Packeteer has a much broader product range, all fully compatible with Microsoft servers. Therefore, Packeteer can replace the Microsoft server in a branch office environment, allowing the customer to move the server back into a central location, where it is easier, less expensive and safer to manage. Packeteer is Microsoft’s best friend when it comes to selling servers.

Packeteer’s new iShaper “Branch Office in a Box” got a rave review from market researchers IDC, which said: “When the remote branch opportunity is evaluated, it is critical to look at the totality of requirements at the branch. The remote branch is no longer the poor stepchild. The time has come when the remote branch can realize the same application performance experience as workers at the main site. Many enterprise IT organizations see a strategic opportunity to provide value at the branch as the branch is often the closest point of contact to the customer. IT organizations recognize that the branch is essential to their ability to create a real-time datacenter. Additionally, they want to deliver resources to support branch office growth while keeping operational and management costs in check. Key customer requirements include providing access to core business applications; maintaining service levels of these applications through guaranteed performance and application response times; and ensuring security, regulatory compliance, and business continuity. This product introduction is significant on a number of fronts, but most importantly because it brings together a combination of features not currently available in any other platforms. It brings the idea of a branch in one box closer to reality.”

Microsoft called their relationship with Packeteer its most extensive joint-development and marketing pact to date with a developer of network appliance hardware, and said: “We will be working together on next-generation products, and will develop joint-marketing programs for customers. In that sense, this deal is unique.”

With Microsoft recommending them and recent insider buying, I think this is a time for Packeteer to show what it can do on its own, before anyone thinks about selling out. Buy PKTR under $12 for my $22 target.

Market Outlook

We’re off. The S&P 500 was poised between 1513 and 1523 last week, and I’ve been waiting to see which way it would break. A break down would have meant a retest of 1440, and then a sharp move up to new all-time highs, and probably over 1600. The break up that we got yesterday to a new record closing high almost certainly means that the intraday high at 1553 will be the next barrier to be overcome. You can expect tests back down to 1523 from time to time to build up enough negative sentiment to propel stock prices to higher levels. But at this point we would need to see a dramatic break of 1523, and then of 1495, to believe the trend has a serious chance of changing. The way yesterday’s market shrugged off the drop in China in the morning, and then built a record-breaking rally on plain vanilla Fed notes tells me that this is a very, very strong market. “Sell in May and go away” looks like this year it will turn into “Sell in May and pray — for a chance to get back in.”

All of this is being driven by the ever-weakening dollar, which hit a new low yesterday. And I see nothing coming from the Fed to change their unstated weak dollar policy, especially after today’s GDP revision showed growth virtually stalled in the March quarter at +0.6%. I do see inflationary pressures building in the economy as oil and raw materials prices percolate throughout finished goods prices, and Chinese manufacturers raise prices to hold on to their already-slim profit margins. But with the Fed worried about the depth and length of a housing decline, which they said yesterday that they had underestimated, there is little chance of an interest-rate increase until the inflation genie is out of the bottle. Inflation is the inevitable result of a weak dollar policy, and in this case probably the only serious restraint on the Fed’s continued debasement of the dollar. They’ve gotten away with a weak dollar for a long time without paying the inflation price, and I think they can continue to play their game for the next year or two.

When the dollar is falling, you do not want to own dollars. You want commodities, real estate and stocks. When inflation finally hits, you do not want to own dollars or bonds. Again, commodities, real estate and stocks will protect your net worth. Growth stocks will do much better than the average stock, and our MegaShift stocks should do the best of all.

In regards to the state of the market, I’ve received a couple subscriber questions that I’d like to address. First, Mary asked: “A while ago you spoke about terrific EPS and the bell curve, how EPS performances like this would lead to slower market performance. Do you still think we are out there at two standard deviations from the norm, and if so could you update us on where we are now?”

Mary is referring to numerous studies that show the market does not do as well when earnings are growing rapidly as it does when earnings are growing slowly. The reason for this is because the Fed normally is being restrictive when earnings are growing fast and everything is peachy keen, and it switches to being accommodative when business slows.

Earnings growth in the March quarter came in at +8% or so, the first quarter under double digits in about three years. I expect growth to slow quarter-by-quarter this year, because profit margins appear to have peaked. So we are no longer growing at a rate two standard deviations higher than the average. It’s hard to imagine the Fed being more accommodative than they have been, but they certainly aren’t in a mood to tighten up when the economy is slowing and earnings growth rates are falling. So the next 12 to 18 months should be a good period for stocks.

Irving wrote: “I realize that the market is quite volatile these days and hard to read. Are we expected to continue to hold stocks that are doing badly or should we be selling them when you give us a new best buy stocks list and they aren’t on that list, or should we continue to hold them for long term? Please reassure me we are on the right track.”

I realize this has been a different, frustrating period for technology stock investors, because tech stocks have underperformed the market for three years. That’s very unusual in a bull market, and in the March quarter it finally flipped to show tech outperforming. But, as usual, the outperformance starts in the bigger companies and then (rapidly) spreads out to include medium- and smaller-capitalization stocks. I think we are at the tipping point right now, and we are going to see some dramatic gains in our portfolio in the second half of the year.

The stocks that will do best are those that are relatively problem-free, or if they have had problems in the past, have clearly shown that they’ve put the situation behind them. Also, new companies and ideas that have not disappointed anyone do well, because these are easy ideas for the institutional salesmen to sell to their money manager clients.

The Top Buy list again has stretched out, and I’ve had a number of emails like Irving’s asking me to trim it down, show only the stocks that will do the best in the second half of the year, and address the “sell or hold” issue.

We are going into an environment where almost all of our stocks will do extremely well, so in an absolute return sense, if I take a stock off the Top Buys list, it does not mean that it is a dog or that you should sell it. When I see a stock where the price reflects a better outlook than I am expecting, I will tell you to sell. But Irving’s question goes to the issue of relative return, and whether he should sell one stock to buy another in order to keep his portfolio invested in the Top Buys. That is up to each subscriber, but if you are willing to see stocks that you sell go up without you and never really own a stock to its full potential, staying focused on the Top Buys is a good strategy. But if you don’t want that much trading, just buy the stocks that make sense to you and hold them until I make a sell recommendation. Many of the MegaShift stocks are meant to be held for several years as they emerge and dominate their markets.

At the end of this report, I have revised and “shrunk” the Top Buys list to focus on the next six months only. Remember this doesn’t mean that you shouldn’t be limited to these stocks, because as I said before the Top Buys are merely a smaller list of my recommended companies that I feel are good buys right now. And because TowerStream is a superb example of a new company that has not disappointed anyone and should stay in that desirable position for at least the next couple of years, I’m adding it to the Top Buys list today.

Top Buys

There are 16 stocks and LEAPs currently on the Top Buy list, and I have four more that I could potentially add, in addition to TowerStream. Cutting that in half to 10 positions is very, very difficult, as it requires taking out some stocks that I think could be triples and quadruples a year from now, but they might lag in the next six months until their specific good news comes out. So, here’s what I came up with:

Keep On the Top Buy List

• BioCryst (BCRX) — Too much good clinical news coming in the second half of the year to drop BCRX, plus even a hint that bird flu is accelerating again will shoot the stock up.
• eResearch (ERES) — Finally seeing quarterly revenue acceleration as that big backlog moves into actual revenue-generating clinical trials.
• Rochester Medical (ROCM) — Dramatic quarterly revenue acceleration as their catheters move into widespread distribution, plus a likely settlement in their lawsuit against Tyco and Novation.
• Harmonic (HLIT) — This is a year of strong revenue growth as video becomes the “killer app” and Harmonic is the leading independent video equipment company.
• Intel January 2009 $22.50 LEAP Calls (VNLAX) — Accelerating PC sales in the second half of the year, Windows Vista adoption and WiMAX are all being underestimated by Wall Street.
• Infinity Energy Resources (IFNY) — We need exposure to natural gas during the hurricane and winter seasons, and the company’s restructuring and asset sales will generate positive news for months.
• Rentech (RTK) — Investors and the government are finally focusing on alternative ways to use our vast coal resources, and Rentech has a pilot plant coming onstream soon.
• Connacher Oil & Gas (T.CLL) — The best Canadian tar sands company, with first production this quarter.
• Alvarion (ALVR) — 2007 is the year WiMAX takes off, and Alvarion is a technology and market leader.

Add to the Top Buy List

• TowerStream (TWER) — Taking advantage of WiMAX to create a new business model for Wireless Internet Service Providers and a compelling new stock idea for Wall Street.

Potential Candidates for the Top Buy List in Coming Months

• Affymetrix (AFFX) — I’ll have an in-depth review of gene chip technology in a forthcoming Radar Report, but the takeaway is they introduced their newest chip and will be getting royalties from their biggest rival.
• Energy Conversion Devices (ENER) — I’ll have an in-depth review of solar technology shortly. ENER’s restructuring for profitability should have put the stock up, not down.
• Ocean Power Technologies (OPTT) — The stock is stupid cheap after the botched public offering, but they may not have a lot of news drivers in the second half of the year.
• American Science & Engineering (ASEI) — Quarterly results are lumpy and unpredictable, but the company’s overall trajectory is up and any terrorist incident will skyrocket the stock.

Dropped From the Top Buy List for Now

• Dendreon (DNDN) shot above my buy limit today, as discussed above, and could move higher if they announce an overseas marketing partner. But the big news will be the interim results coming next April or May.
• Amgen January 2009 $70 LEAP Calls (VANAM) — The forthcoming FDA meeting on the safety of Aranesp in the kidney dialysis setting and a Medicare reimbursement review are likely to keep a lid on the stock into the end of the year. I am still confident AMGN will get to $95 by the January 2009 expiration of these LEAP calls, which will make the position worth $25 per call.
• Silicon Image (SIMG) — This would have been the 11th Top Buy, as I am expecting strong sales of consumer electronics at the end of this year. I think there’s a good chance Harmonic or Infinity will be off the Top Buy list in a few months due to price appreciation, giving me room to re-add SIMG before the good fourth-quarter news hits.
• Telkonet (TKO) — Ouch! I’m going to update Broadband-Over-Power lines and TKO in the next issue, and I still think this is going to be a huge stock. Heck, they can connect the iWire to a TowerStream antenna and have a whole building online in a couple of weeks. But it’s clear that investors want to see the current CEO either show strong revenue growth from the EDS and other government contracts, or be replaced.
• Fuel Cell Energy (FCEL) — Although they are the obvious winner in stationary fuel cell power in the long run and should give us multiple hundreds of percent return on our money, in the short run we’d have to see $80 to $100 oil (Hurricanes? Geopolitical? Icy winter?) to move the stock dramatically.
• Gasco Energy (GSX) — Again, $80 to $100 oil will shoot the stock up, and it is dirt cheap exposure to natural gas. But we also get that with Top Buy-rated Infinity, and Infinity has other things going on that can move its stock sooner.
• Packeteer (PKTR) — These activist shareholder situations can eventually lead to good short-term gains, but an acquisition would block us from participating in the long-term growth of the company.

Security is not a headline issue these days, but large amounts of money are still getting spent on everything from defending computers against viruses and hack attacks to figuring out what is really in the container that just arrived from Nigeria listing “handicrafts” on the bill of lading.

Why is this? People want to feel secure. Whether it is ordering the latest version of the iPod from the Apple website or flying across the country in a jet, people want to know that their credit card information isn’t being spread across the Internet and that there isn’t a chance of a gun or a bomb boarding the plane to California. And our government wants to make sure that our borders are secure and protected against any possible terrorist attacks, as well.

To take advantage of the large amounts of cash that are being spent to keep our nation and our personal information protected, we started investing in companies that were part of the Security MegaShift back in August 2005. In this MegaShift, we’ve had holdings that fought cyber crime, like Symantec (SYMC) and Check Point Software Technologies (CHKP). We exited Symantec and Check Point back in October before the consumer introduction of Windows Vista. That seems to be a good move so far, as the early feedback that I was getting about Vista security being miles ahead of the old Windows 2000/Windows XP level turns out to be true. It used to be a joke to use “Microsoft” and “security” in the same sentence, but now independent computer consultants are telling users to dump their Norton products (made by Symantec) in favor of Windows Live Update.

But the Security MegaShift isn’t limited to just cyber crime. It also covers vehicle tracking, the management of data traffic and smart cards. Plus, there are X-ray inspection systems that search trucks and containers at our borders, air cargo and, of course, the ones we walk through at airports.

One of the interesting areas of security is Biometrics — using technology to scan fingerprints, retinas or the whole body to positively identify someone. I had a lot of questions on biometrics at the Las Vegas Money Show, and I wanted to update you on this area, even though I am not ready to recommend L-1 Identity Solutions (ID), the leading company in this area. The company was formed by the merger of Identix (fingerprints) and Viisage (facial features). It has a $1.5 billion market capitalization, almost 10X sales, and is not making any money, yet the stock is near its 52-week high.

When most people think of biometric identification, using fingerprint readers, retina scanners or full-face video scan and compare, they immediately think of applications like stopping terrorists from getting on planes, or allowing access to top-secret government facilities. But it turns out that the real market is commercial applications to reduce the time required to wait in line while someone checks an ID. In the last year, Pay By Touch supermarket systems that combine a fingerprint scan with a seven-digit phone number have replaced credit and debit cards for three million users in the U.S. In Japan, more than two million people use a palm scanner plus a debit card and PIN to get cash from an ATM. The Dutch bank ABN AMRO uses voice technology to verify a customer’s identity for telephone banking.

You may have seen the built-in finger scanners on many new laptops, especially those shipping with Windows Vista, or on high-end cell phones. You can buy the same technology for your house and garage door locks, or a safe. It even comes in some memory sticks and flash drives, just in case you lose it or a bad guy gets hold of it. If you log on to your company’s computers from home, they may be tracking your typing rhythm to be sure you are you.

The sudden commercial interest in biometrics comes from the two benefits of all advancing technology: It got better and cheaper. Fingerprint and palm scanners used to have problems with farmers and others who worked with their hands, children or other people with small hands, sweaty hands, and so on. And the terminals cost a bundle to build and deploy. Now, with ever-cheaper and more powerful microelectronics to improve functionality and reliability, plus the Internet for virtually no-cost communications, biometrics can grow rapidly.

At the same time, Federal regulations are tightening. Banks are now required to have two-factor identification — something you know plus something you have — to reduce online fraud due to identity theft, since the simple stored account number and password is too easy to hijack. So they are using the password — something you know — plus things like RSA tokens, fingerprints or keystroke dynamics — something you have or are — to identify you. I used an RSA token for years to get on my Bloomberg system, but tokens can be lost or stolen — some people have been known to forget to bring them to the Money Show — and they are expensive. Bloomberg moved to fingerprint ID a couple of years ago.

At this point, the big drivers for biometrics adoption include: 1) Retail, which accepts a lower level of security in favor of convenience, and 2) Banking, which accepts a lower level of convenience in favor of security. In the retail world, there is always a clerk watching the transaction, so a thief only gets one or two chances to fake their ID. In online banking, a sophisticated hacker could get hundreds of tries, so banks demand more complex systems. But eventually these two applications will converge into something that is both more secure and more convenient than today’s systems. At that point, we should see an explosion in biometric revenues, as systems move to Internet and cell phone transactions. That will also drive the current proprietary systems into a common standard; so for example, any fingerprint sensor on any laptop will let the user log in directly to any website.

As I wrote in the December 2004 issue of Technology Investing on Korea, once commerce goes mobile onto cell phones, the market size explodes. Japanese and Koreans can use their cell phones to buy things in retail stores and restaurants, and the easiest way to secure the transaction is with a built-in fingerprint reader. The fingerprint market alone is growing rapidly:

From “The Economist” Nov 30th 2006

As you can see, in addition to the commercial applications, government will continue to be an important, if slower-growing, part of the market. All new U.S. passports have an identity chip in them, and this could easily be combined with a biometric ID system to provide a way to slash waiting times to get on a plane or re-enter the country. It’s ironic that the old “Big Brother” worries about these systems will be much less than expected, simply because people are likely to be using them commercially before the government can get its act together to deploy them.

Biometrics is just one part of the Security MegaShift that we will all be living in for the rest of our lives. And while I’m not ready to recommend L-1 Identity Solutions just yet — I’ll be sure to let you know when the price is right — we already have one of the leading companies in this area in our portfolio. This company is a very attractive stock right now, and they just reported excellent March fourth-quarter earnings.

American Science & Engineering (ASEI) reported $45.9 million in sales, up 12.5% from last year and 83 cents a share pro forma, up 18% and beating the Street estimate of 80 cents. It was a solid quarter, and management also announced a $35 million share buyback program plus cash dividends beginning in the current quarter. The stock jumped $4.52 on Tuesday in response, in part because there was a 20% short interest.

Consensus estimates for the normally-weaker first and second quarters average $37.9 million and 51 cents a share for June, followed by $38.7 million and 54 cents a share for September. But the range is huge: June-quarter revenue estimates go from $32.9 million to $45 million, and earnings range from 40 cents to 77 cents a share. ASEI has “lumpy” results depending on when they can recognize revenues on products that may have shipped weeks before the quarter closes, and also on the mix of products, as their gross profit margins also vary substantially by product. For example, there were two large orders for Z-Backscatter vans that slipped from the March quarter into the June quarter, which would have added $5 million to the already-good March-quarter results.

Instead of just looking at the March-quarter results, I think it is smarter to focus on the year. ASEI just reported $153.2 million in sales and $2.38 a share for the March 2007 fiscal year. (Pro forma earnings hit $3.18 a share.) I think they will do $175 million to $195 million in sales this year and report $2.50 to $3.00 a share. The consensus is roughly at the low end of those ranges, so there is room for an upside surprise. New orders grew 19% for the year to $190 million, and 21% in the March quarter, both faster than revenues. So the funded backlog is up to $105 million, 53% higher than last year, and there is another $61 million in unfunded backlog for add-on shipments where ASEI has already won the contracts. Some of those programs are scheduled to be funded in the June and September quarters, and most will be funded by the end of ASEI’s March 2008 fiscal year.

On the conference call, management said that the SmartCheck passenger screening system is working well at the Phoenix airport. It is used for secondary screening, where someone sets off the metal detector or is randomly selected, and then given a choice of a pat-down search or walking through SmartCheck. About 80% choose SmartCheck. These results should be announced shortly and then there will be an announcement of pilot projects at JFK and LAX. That should be big news for the company. Although it has started to move up, ASEI remains an excellent buy up to $59 for my $93 target.

Biotech MegaShift

Biogen Idec (BIIB) LEAPs went through another symbol change, with our January 2008 $45 call contracts going from YZU AI to IDK AI. Yes, I know that was the original symbol for the 2007 contract — apparently the Chicago Board Options Exchange is into recycling. The stock has been up on takeover speculation, and yesterday 51,943 calls traded, compared with 9,053 puts, on more than nine times the normal volume. BIIB would be a great acquisition for several different big pharma companies, near or at my $68 target for the common stock. That would make the $45 call worth $23. Continue to buy IDK AI under $12 for my $23 target.

Geron (GERN) said that researchers have been able to make human embryonic stem cells differentiate into clusters that secrete insulin in response to elevated sugar levels. The company thinks that it is feasible to produce therapeutic cells to treat Type 1 or juvenile diabetes, and they will now go on to animal tests.

If you need an example of “hero” just talk to a kid who has been waking up in the middle of the night from the age of one (or less) to have a finger pricked, blood tested and an insulin injection. It’s also the last thing they do at night and the way they greet the day. I think “hero” can be expanded to include the parents, too. Stem cell therapy would be a great advancement in treating this disease. Buy GERN under $9 for my $18 trading target.

Content on Demand MegaShift

There’s been some interesting consolidating going on in the video market that’s worth an update, as it leaves Harmonic (HLIT) in a stronger position to be the next company acquired. You probably remember that Cisco acquired Scientific-Atlanta in early 2006. Scientific-Atlanta’s strength is set-top boxes for cable systems, and their main competitor, General Instrument, was acquired by Motorola at the end of 1999.

In the last six months, Motorola has been acquiring companies and technology to give them the pieces that they need to compete with Cisco in Internet Protocol Television (IPTV). MOT still can’t compete with Harmonic in the “head end” at the broadcast studio, cable TV central office, or telephone company IPTV central office, but they have bought companies in video on demand, switched broadcast, DSL routing, ad insertion, video software and MPEG-4 encoding technology for a total of around $600 million.

In February, Ericsson agreed to buy Tandberg TV with similar technologies for $1.4 billion, so it looks like MOT got a pretty good deal overall. Alcatel-Lucent, the fourth big competitor, has been very successful in Europe and uses Harmonic equipment in its bids.

Once Tandberg is acquired, Harmonic will be the only independent video company with a complete head end solution. It also happens to have the technically best solutions. So any company that acquires HLIT freezes out the other independents, and if MOT makes the bid, Alcatel-Lucent winds up buying gear from a competitor.

While there is a reasonable chance of a buyout of HLIT at or above my target price, that isn’t why this is a good time to own the stock. Assuming the company hits the consensus 10 cents a share for earnings in the June quarter, they will have reported four straight profitable quarters totaling 40 cents a share, making the P/E ratio at today’s close a modest 22X. HLIT remains a Top Buy up to $10 for a $16 target — on their own or in a buyout.

Telkonet (TKO) was the subject of a new write-up from ThinkEquity on May 8 with a sell recommendation and a 50-cent target price. A week later, they issued a second recommendation, changing the target price to zero and predicting that the company would be in liquidation within weeks.

So my first question was: Why? ThinkEquity is an institutional firm. They haven’t covered TKO before, although the two authors from ThinkEquity who wrote this recent article also wrote a negative report on the company a couple of years ago when they were at Needham & Co. Telkonet is too small to be of institutional interest, and it is highly unlikely that any of ThinkEquity’s clients own it. Some of their hedge fund clients may be short it, but if the company is going into liquidation, why bother to write it up? The shorts will clean up anyway.

It is a very gutsy call on their part. I’ll have a full analysis of yesterday’s March 10-Q filing in next week’s Radar Report, but on March 31 TKO had $6.9 million in current assets, including $2.2 million in cash, and only $4.6 million in current liabilities. Companies with cash don’t go into liquidation.

I get some of the ThinkEquity research, but I haven’t seen the full text of this one yet. However, I understand the summary says: “Our concerns with Telkonet are company-specific. Telkonet is a low-quality company with a history of broken promises, limp investment in R&D, a terrific cash burn rate, a terrible balance sheet, a track record of increasingly desperate and dilutive offerings, a messy capital structure, a disjoint acquisition plan, secretive management, and an astronomical Price-to-Sales multiple.”

I assume the broken promise relates to the strategic investment that they were expecting, but it is curious that the other big event the company was promising at the time — the EDS contract — didn’t get mentioned as a kept promise. Bigger investments in R&D would just increase the losses and have not been necessary (yet) to maintain the #1 position in broadband-over-power lines for inside the premises. Like the ThinkEquity authors, I also have not liked some of TKO’s acquisitions, and think they were done for short-term reasons rather than as part of a strategic plan. Fortunately, most of them could be sold at a profit.

I don’t find management secretive, but it is bothersome to me that the CEO lives in North Carolina and runs the company from there, with frequent visits. I know that should be easy to do these days, but I am old-fashioned enough in this area to remember Bill Hewlett and David Packard’s MBWA — Management By Walking Around — and that was long after H-P was a development-stage company.

The “astronomical price-sales ratio” made me downright suspicious. That is true of any development-stage company, and it is a cheap, misleading shot that makes me wonder what the authors’ real agenda is.

I also found it strange that ThinkEquity liked TKO’s technology, but still trashed the stock and implied it has no value in an acquisition. Perhaps management will address these issues directly in their Rodman & Renshaw Conference presentation on June 19. In any case, I will have more next week on TKO, but this company has major contracts with the government, both directly and through EDS, plus their building monitoring program with GE that can be monetized. TKO remains a Top Buy up to $5 for my $15 target.

China MegaShift

Huaneng Power (HNP) moved over my $45 target for a few days last week, and it is now trading around $41. I am still very interested in the potential of the pebble bed nuclear technology, and I think we should stay in this stock. So, I’m raising the target price to $48 and keeping HNP as a hold.

New Energy Technology MegaShift

Energy Conversion Devices (ENER), via their Cobasys joint venture with Chevron Technology, won a nickel metal hydride (NiMH) battery system contract for U.S. Army hybrid electric heavy trucks under development by Armor Holdings. The Future Tactical Truck System will use a 280-volt power unit from Cobasys because it was the only U.S. supplier with an appropriate system. Obviously, this could develop into a very large contract, and puts Cobasys in a better position to go public. Buy ENER while it is under $35 for my $55 target, which I expect to see after they announce that Cobasys has filed for an IPO.

Video iPod MegaShift

Burst.com (BRST) jumped on very heavy volume a couple of weeks ago on a rumor that they were about to settle the Apple lawsuit or be bought by Apple, sending the stock briefly over my $2 target. I think a royalty deal with Apple would put the stock well over $2, but an acquisition price is more likely to be in the $3 to $4 range. A $250 million valuation would equal $6.25 a share, and that is not out of the question either. I am reluctant to raise the target price banking on an acquisition, so I think the best course of action is to move BRST to a hold for my $2 target. My experience is that it often takes two or three months from the time these rumors first hit to when a deal is actually announced. Be patient.

Market Outlook

Today was an important day. The S&P 500 ran up to 1530 on Tuesday, and I expected the usual correction back to the breakout point, 1510, before an assault on the old highs from 2000 at 1552. But Wednesday’s sharp decline set up an alternative possibility that 1510 would not hold, and sure enough, the S&P closed at 1507.51 today. If it does not immediately turn around on Friday and head back over 1510, at least, I think the big drop through 1495 to 1440 could be underway. From there, enough negative sentiment would have built up to propel us over 1552 and probably up to 1608 or so during the normally-weak summer months.

However, if we do get a recovery above 1510 tomorrow that holds, I think the S&P will wend its way up to 1552 and then have a tough time getting through there. We’ll know a lot more tomorrow, and I will send you a Flash Alert if there is a decisive move in either direction.

Greetings from Las Vegas, the place that is testimony to the fact that no idea is too dumb to get funded — “Hey, let’s build a town in the desert and hope people come here and put their money into boxes for us” — and, having gotten enough funding, eventually work out. Las Vegas has been through four iterations since I’ve been coming here: First as a real den of sin and iniquity run by the Mafia, then as a den of sin and iniquity run by professional hotel people, then as a destination family resort, and now as a museum of sin and iniquity run by public companies.

When I caught a Greyhound out here during my sophomore spring break to count cards playing blackjack and earn enough money to pay for my second semester’s tuition, it was the kind of place where a dead man found in the desert with a few bullets in his back was ruled as a suicide by the local sheriff. By the time I was coming back regularly for the heady early days of the COMDEX personal computer show in the 1980s, the pros had taken over. Unlike their predecessors, they reported some of their earnings and paid taxes, and the sheriff absolutely insisted that all bullets had to be front-entry to count as a suicide.

For some reason, in the 1990s Las Vegas decided to cater to families, with numerous hotels and attractions aimed at kids. There was something about the atmosphere of watching circus acts in an environment of nearly naked ladies, smoking, drinking, carousing customers and, of course, people committing suicide in the desert that made it not quite like Disneyland, and that idea was quietly dropped. Now, Las Vegas is back to “what happens in Vegas, stays in Vegas,” which the customers think refers to the glossy shows that pass for sin and iniquity these days, but the management thinks it refers to your money.

As you have probably guessed by now, Las Vegas is not my favorite place in the world. I think their city motto should be: “Not As Bad As Atlantic City.”

But that’s just me, and by staying focused on the 10,000 Money Show attendees here to make money — instead of contributing it to the local economy — including many New World Investor subscribers, we had a useful, productive time. At the technology lunch yesterday, the attendance was at least twice as high as at the February Money Show in Orlando, and all three of the other panelists agreed that this is not a time to be overweight in technology.

Wrong. I thought the most telling rationale from one panelist was that tech stocks underperformed in 2004, underperformed in 2005, underperformed in 2006, and underperformed through March of this year. They outperformed in April, which was described as: “The only bright light.”

April. Did something happen in April? Oh, yeah, earnings reports — when most tech companies reported better than expected numbers for the seasonally weak March quarter, and they gave better than expected guidance for the June quarter. And those companies with real insight into the second half of the year, like Intel (INTC) and Taiwan Semiconductor said that the second half looks much stronger, as usual. Considering the number of holidays and events in the second half of the year, plus the way corporations tend to disburse their capital spending budgets, it’s always a little surprising that people don’t get it that the strong second half is the norm in this business.

Regarding the slogan “Sell in May and go away,” I’ve been saying in my presentations here, as well as a number of times in previous Radar Reports, that we just have to let the market tell us what to do next. A decisive move up over 1510 and then 1518 on the S&P 500 means this market is incredibly strong, with so much liquidity available that we are headed over the old highs at 1552 to 1610 for sure, with the real possibility of a parabolic move to 1800. A failure to hold above 1510 and then a break of 1495 should mean a retest of the 1440 breakout level, which would build up enough negative sentiment from the “I told you to sell in May and go away” crowd that we then can mount an assault on the old highs.

Yesterday, the S&P powered over 1510 yet again, and today it fell back again, continuing the consolidation around 1510. Don’t be sucked in to trying to forecast which way the breakout will go — just watch it. If it breaks to the upside, you’ll have time to put your cash to work or go on margin in many of our stocks that might be moving up but will still be below their buy limits. If it breaks down 5% to 1440, the NASDAQ will probably drop 7% or so and give you a chance to put money to work at even better prices.

These opportunities are in front of us only in part due to the excessive caution typified by my fellow panelists at yesterday’s lunch. It is far more important that the pace of technology advances continues at a rapid rate, not just in computing, but in networking and communications. And we now know that the pace will continue not just through 2011 to 2012, which used to be the end of the visible semiconductor technology roadmap, but on through 2020 to 2025, thanks to the technology advances from IBM and Intel that I covered in the original Intel LEAP recommendation in the February 8, 2007 issue.

In today’s issue, I want to discuss the Content on Demand MegaShift in the area of wireless networks, where the basic technology started with Guglielmo Marconi in 1897, and the Intel breakthroughs mean dramatic changes are coming over the next several years.

Marconi, Mesh Networks, IPv6 and You

Content on demand means just that — people at work or in their homes who want to be able to connect to or download whatever information, audio or video they want, whenever they want to, to whatever device they want to use, and easily move it between devices. That requires a high-speed broadband connection, typically faster than DSL and not subject to slowdowns due to other users, as a cable modem is. The technology to provide content on demand to fixed locations like your business desktop or your living room is well known, and it is just a question of getting the pipes built and installing the video and other equipment required to get the job done. At this point, most of the pipes are optical fiber, either to or very close to the ultimate user.

But pulling fiber is expensive, and in lower-density rural areas, especially those with difficult terrain like mountains, it’s often economically unviable. And even in the suburbs or office parks, where pulling fiber is relatively easy and cheap, only the fixed locations get served. But people also want content on demand to their mobile devices, and that is where Mr. Marconi and his 1897 patent applications come in.

Essentially, “wireless” means “radio” that exists in many new forms, but they all trace their roots back to Marconi, who discovered how to produce and detect radio waves over long distances. The chart below from The Economist shows the cost per delivery history and projection for wireless, and it looks the same as the cost per transistor for semiconductors, for many of the same reasons:

From “The Economist,” April 28-May 4 2007, Special Report, page 4.

This is a log scale, so every horizontal line marks the same percentage drop — a factor of 10X — in cost per delivery of a radio signal. Looking at recent history, the cost of digital cellular (GSM/CDMA) is about 10% of the cost of the analog cellular that it replaced. The new data services like 1xEV-DO or Edge, which work over digital cellular networks, are in turn 10% of the cost of trying to deliver data over a voice system. WiMAX is listed as about the same price now, but dropping rapidly to be 10% of the cost of 1xEV-DO or Edge. That’s why I am excited about WiMAX, where we have a basket of three different recommendations: Alvarion (ALVR), Airspan (AIRN) and Terabeam (TRBM), plus the Intel LEAPs.

The efficiency of wireless communications, as measured by the power to process data, has increased by a factor of one trillion in the 110 years since Marconi invented radio. It will increase by about another 10,000 times by 2025. In the period directly ahead, WiMAX will play a big part in the increase in efficiency and the accompanying decrease in cost.

But I think WiMAX is going to be a lot more important than just the next cheap wireless standard on the Marconi line, because it is the most logical way to connect together mesh networks.

Mesh Networks

Mesh networking is simply a way to route data between nodes, but a key thing to note is that mesh networks don’t have a center. A cellular network runs with a tower at the center of each node, communicating with the cell phones or other devices in its area, and handing the signal off to the next tower as the user moves. A typical corporate computer’s network runs with a server, or many servers, at its center. When you connect to the network, your connection is over a local area network that feeds everything into that server, and the server then passes the data on to an internal computer or links outside the company to other servers or the Internet. The Internet itself is a mesh network — a lot of computers (big servers) talking to each other, rather than a central computer. Your Internet Service Provider at home, or ISP, has the same network architecture model as the corporation; you connect to the ISP, and the ISP then connects to the network, rather than to another, even bigger computer.

Mesh networks are self-organizing, in the sense that they figure out how to route messages according to where connections and bandwidth are available. If one ISP’s computer goes down, it does not stop the Internet. If the main East Coast trunk line from New York to Washington is cut by a backhoe, as happened a few years ago, the Internet slowed down just because so much capacity suddenly vanished, but it didn’t stop.

The Internet is the biggest mesh network, but these networks can also be very small. For example, sensors smaller than grains of rice can be stirred into a paint can and then painted on a wall. They can use energy from sunlight, room heat or even vibration for power, send out a signal to find each other, self-organize into a network and make the entire wall electrically alive. That wall can then monitor temperatures for fire, or detect the presence of human warmth and turn on and off lights or air conditioning. If someone bangs a chair into the wall and breaks a few hundred sensors, no problem. The rest will reorganize around the dead spot and continue to function.

Between these two extremes lie thousands or tens of thousands of applications for mesh networks. One of the most obvious is to take the existing Wi-Fi spectrum and install Wi-Fi routers that are smart enough to find each other, blanketing a city with a Wi-Fi mesh. But unlike plain vanilla Wi-Fi, this one runs at up to 20 megabits a second — 30X or 40X most people’s DSL speeds, and 5X to 10X cable modem speeds.

That mesh can connect to a computer or directly to a WiMAX backbone that, in turn, connects to an ISP’s computer somewhere else. It is even possible to think of the WiMAX backbones forming their own mesh network, ultimately leading to a highly secure facility that creates the connection to the Internet. Think of a less-developed country with rural villages spread all over mountainous territory. Each village gets a low-cost Wi-Fi mesh network that connects to a WiMAX backbone. The WiMAX backbone collects all the towns in an area, and then interconnects them to either a central wireless backbone, or a high-capacity optical line, or directly to computers that connect to the Internet. Nobody has to pull any cable or manage any local servers that need periodic software updates and occasionally break. The network itself tells you where the bottlenecks are, so you don’t waste money adding WiMAX send/receive units when the problem is not enough Wi-Fi hotspots, or vice-versa. And the whole thing can deliver high-definition video, voice or data just as if you were in mid-town Manhattan. Video telephones will finally be a reality.

If we are going to add two to three billion people to the Internet quickly, while increasing everyone’s available bandwidth by 20X to 50X to handle high-definition video and end dial-up forever — all of which have to happen — mesh networks with WiMAX look like the only cost-effective way to do it. With up to six tunable radios on a single chip today, the access points are cheap enough to put almost anywhere.

One of the valuable skills needed to have mesh networks catch on quickly is the ability to get city approvals and contracts to use light poles and such in exchange for free city communications and a dedicated channel for fire and police. Then that company has to raise money to install the network — roughly $10 to $20 times the number of people in the city — and manage the operations. If that sounds like MobilePro (MOBL) to you, you are right. As that company sells operations to get Cornell Capital out of their lives, I am hopeful that they will be able to keep the municipal Wi-Fi operation and take advantage of the coming mesh network MegaShift.

IPv6

One of the biggest changes coming from much cheaper communications, both at the semiconductor and the mesh network level, is the practical connection to objects as well as other people, websites and data. Rentokil has built a better mousetrap, with a sensor and small radio. When it triggers, it calls Rodent Central to tell a building owner that there’s a need to dispose of the body. Nobody has to check all the traps every couple of days — always forgetting a couple — because the trap tells you when it needs service. In fact, if several traps go off in an area, one would naturally deploy additional traps until this extra pressure was under control. Ultimately, all these devices — mousetraps, refrigerators, kids’ tennis shoes, utility meters, cars, pallets of Weber barbeques headed for Wal-Mart and whatever else you can think of — need their own Internet address. Then they can be queried and controlled remotely, over the Internet, at low or no cost. But under the current Internet Protocol version 4 (IPv4), we were running out of addresses. Enter IPv6, which has been in development for many years, and finally is ready for prime time.

Because IPv6 has been ballyhooed for so long, a lot of people aren’t paying attention anymore. But IPv6 is enabled in every new UNIX server that ships, and the Office of Management and Budget has set June 30, 2008, as the date for government agencies to show that they can run IPv6 on their networks. It will spread rapidly around the world over the next few years, and provides one more reason to upgrade computers and servers to function in this more complex world.

You

How will all this affect you? Profoundly. The falling cost of wireless connectivity will create the Generation “Y”rless that grows up thinking that the world is pretty flat in terms of access to information and other people. Education and mobility in less-developed countries will improve dramatically. The downside of that is that outsourcing will continue at a rapid clip, with many U.S. jobs disappearing overseas. The upside is that there will be a couple of billion more consumers for U.S. goods and services. Whether you, your kids or your company win or lose in this flatter, cheap communications world depends on how you position yourself. If you just ignore it, you lose.

As far as investments go, this is going to be a tougher world for Comcast (CMCSA) if they try to fight the wireless companies, but they (and AT&T or Verizon) have the option of buying the early leaders and riding the technology, as they have done with Voice over Internet Protocol (VoIP) technology. It’s great news for Harmonic (HLIT) because it makes video ubiquitous and even a necessary part of e-commerce, and maybe ushers in the videophone era of person-to-person communications. The more video that needs to go over the Internet, the more HLIT grows. It’s also good news for Silicon Image (SIMG), both because more people will buy complex consumer electronics if they can download the content cheaply, and because moving voice, video and data without a loss of quality is what SIMG is all about. UTStarcom (UTSI) will benefit from their leading position in Internet TV in China, which they can take to less developed countries that install high-speed networks.

It may make life harder for Telkonet (TKO) and Zhone Technologies (ZHNE) if wireless mesh can compete with broadband-over-power lines and DSL, respectively. But while mesh networks supplant DSL, they are probably more compatible than competitive with broadband-over-power lines, because wireless can be a tricky installation inside a building. TKO will be able to connect their box to a mesh antenna as easily as to a DSL or cable modem line on the incoming side, and continue to distribute the signals over existing electrical wiring inside a building. The company will have to increase its operating speeds for this to work, but they plan to do that anyway.

Lots of bandwidth makes it less necessary to prioritize traffic, and that could have an effect on Packeteer (PKTR) in several years. But from the content provider’s point of view, bandwidth will remain an expensive asset that needs to be closely managed for many years to come, so PKTR should be O.K. for the next few years.

The Intel January 2009 $22.50 LEAP calls (VNLAX) should be a big winner, partly because anything that increases computing and communications usage is good for Intel, but also because of their key position in WiMAX. Of course, as I mentioned above, the worldwide WiMAX buildout is also great news for Airspan, Alvarion and Terabeam.

The two biggest forces driving technology today are Universal Connectivity and Convergence of voice, video and data, with WiMAX about to take center stage in wireless transmission. Taken together, these comprise the Content on Demand MegaShift, and we are well positioned to profit from it. All of my Content on Demand recommendations are great buys right now, as I expect we will see much higher levels as wireless connectivity becomes standard.

Before we move away from our content on demand discussion to look at our two companies that reported this week and subscriber emails, I’ve received a question about TKO from Rich. He asked: “Does TKO have the same ‘death spiral’ financing arrangement as MOBL? Because from all the ‘NASDAQ threshold securities fails’ I see on Bloomberg every day for this stock, just like for MOBL, makes me think there are either massive shorts out there on TKO, or else they do not have very favorable financing agreements. With all the positive fundamental news on the stock, I just don’t understand why TKO continues to tank. One analyst has the stock going all the way down to 50 cents. Please advise.”

TKO does not have a death spiral convertible, but there certainly are naked (i.e., illegal) shorts in the stock. They just registered 2.3 million shares of stock to cover a warrant for stock exercisable at $4.17 that is held by people who participated in the recent $40 million private placement. It is possible some of those folks have been shorting the stock, planning to cover their shorts with this registered stock. That would not be legal, as I understand the law, but unfortunately it is quite common.

It is especially strange to see the stock not respond to this week’s excellent news that Telkonet won a $4 million Department of Defense-related agency contract to deploy secure broadband-over-power lines iWire systems at hundreds of DoD locations. These networks have been validated to the Federal Information Processing Standard 140-2 security level, and equipment will be shipped from inventory beginning this quarter, helping cash flow.

They’ll be presenting on June 19 at the Rodman & Renshaw Security Conference in New York, and may pick up some investor interest there. TKO remains a Top Buy under $5 for my $15 target.

Biotech MegaShift

On Amgen (AMGN), Kulwant wrote: “Michael, your double-down bet on VAMAN looks scary due to more negative news from the Government and downgrades by two or three more analysts. Are you still fairly positive that the stock will come back?”

You mean the risk of more negative news from the government, in the form of lower reimbursement for Aranesp for kidney dialysis, or even an FDA warning for kidney dialysis. Medicare meets in mid-September, and since they have already said that they will not reimburse for Aranesp used either off-label or in higher than approved doses, the only shoe left to drop would be reimbursement in the dialysis setting. But that has never been an issue for Aranesp when it’s used according to the approved label directions, and Amgen is very, very good at keeping their reimbursements high. So while there is always a risk until the negotiations are over, I really don’t think that it is high or justifies any further decline in the stock.

For the same scientific reasons, I think the FDA review of Aranesp for kidney dialysis will come out with no changes. But even if there are small changes, they are more than discounted in the stock and it would be worth it to get the uncertainty behind us. I do still think the stock will come back strongly as Amgen accelerates some clinical programs and possibly makes another acquisition to take up any slack in Aranesp sales growth. The Amgen January 2009 $70 LEAP call (VAMAN) is still a buy up to $12.50 for my $25 target (equal to $95 on AMGN) on or before expiration.

Rochester Medical (ROCM) also drew a question from Kulwant: “ROCM used to be an A-rated stock on IBD and now it is C+. Is your view based on earning momentum, or sales growth, or a combination of the two?”

And Dennis asked: “Do you really believe $40 is achievable by yearend? How so?”

Rochester settled their lawsuit with CRR Bard and Premiere, and Premiere started distributing Rochester’s catheters on March 1, so there was only one month of sales in the March quarter. There will be three months in the June quarter. In addition, I am expecting a settlement with Tyco (which just settled a bunch of shareholder lawsuits this week) and the other distributor, Novation. At that point, Rochester also will sign a distribution deal with Novation.

These distributors will drive Rochester’s top line, and the company knows how to convert that to earnings growth. I expect the stock to move up on the Tyco settlement and then on accelerating revenues and earnings quarter-by-quarter for the rest of the year. As I laid out in the March 29 Radar Report, they can exit the year at a $1.20 to $1.40 per share run rate, and a 30 P/E multiple — low for a company facing this kind of growth — gets you to a $40 stock. So, ROCM remains an excellent buy under $23 for my $40 target.

New Energy Technology MegaShift

Connacher Oil & Gas (T.CLL) had a record quarter for revenues, earnings and cash flow. Conventional production more than doubled from last year thanks to the acquisition of Luke Energy, and their Canadian tar sands Pod One steam-assisted gravity drainage production program is on schedule for August operation. Thanks to their acquisition of the Montana heavy crude refinery, revenues hit $65.9 million and cash flow from operations hit $11 million. They earned three cents a share, about half from conventional production and half from the refinery.

They had to increase the projected cost for Pod One by 13% to $256 million, and said that they postponed their proposed $50 million flow-through financing in favor of finding alternative construction financing. They will eventually raise the $50 million, if only to start building Pod Two, where field work is scheduled to begin in early 2008.

Connacher holds a 26% equity interest in Petrolifera Petroleum Limited, which cost them $7 million and has a current market value of more than $225 million, a significant percentage of Connacher’s total market capitalization of $535 million. Eventually, it will be a source of cash to build out the tar sands infrastructure. T.CLL remains a Top Buy up to $4.50 for my $7 target price.

Infinity Energy Resources (IFNY) had an unusually difficult first quarter, with a fire closing their most productive well for a few weeks and a customer for their Colorado oil that simply refused to pick it up because some refineries were down. The company also suffered downtime due to a deep freeze in Wyoming that hit the fields in February. Infinity reopened the well on April 12 with no diminishment of daily production levels, and signed a new contract effective May 1 with a buyer for their oil that happily takes everything they can pump. Production in the current quarter will be up nicely. They are back into positive cash flow, after a neutral March quarter and before a $623,000 one-time charge to settle a volume deficiency issue that they have been arguing over since 2003.

But for the first quarter, they posted $2.1 million in revenues, down 11% from last year, on a 28% decline in oil production. Natural gas production dropped 3% and had a 9% drop in prices compared to last year. It was a quarter to forget.

In happier news, Infinity has completed the process of collecting bids for various parts of the business and has identified the parts that will be sold or partnered. This process began in the middle of the December quarter. They did get indications of interest to take over the whole company, but they are not going to do that. Instead, they will sell the Pipeline Field in Wyoming, which is pretty much drilled up. They’ve had a problem running at full production there because the third-party compression and gathering company had downtime issues for 20% of the first quarter. While the second quarter so far has been normal, this field is more valuable for another company that is already there, willing to drill a couple of more deep wells to see if that is economical, and has some clout with the compression and gathering company. Infinity has offers and will sell this asset shortly.

They are also going to find an operating partner for their Labarge prospect, a coal bed methane play with about 253 billion cubic feet of recoverable reserves. Infinity will retain an interest in the field, while the new partner does the drilling to prove up the reserves. They are in active talks with a potential partner now.

For their Piceance Basin properties, some of the new seismic data that Infinity has acquired suggests that there may be more potential here than they previously thought, and they want to take a little more time to check that out. So, they decided to do more studies and engineering work before they decide whether to drill a few wells themselves or bring in a partner. They have actively interested potential partners who already have operations in the Piceance Basin, and if one of them bellies up to the bar with a good enough offer, they will take it now. Otherwise, they’ll put in a modest effort to get closer to the go/no/go decision on drilling wells.

The Sand Wash Basin in Colorado — one of the main reasons we bought the stock — is a keeper. The well that they have there is one of the most productive in Colorado, and it is surrounded by over 30,000 acres of oil rights held by Infinity. The well fire slowed production for the quarter, of course, but since mid-April they are back to full speed, 200 barrels a day. Infinity is looking at seismic to decide where to drill the next couple of wells, and management said that if someone really wanted to come in and take over the drilling program, the company would consider it, but they are not actively trying to partner this play. They made it clear that it would be a very lucrative deal for Infinity if they ever did partner.

The final domestic property is the Barnett Shale gas play, mostly in Erath County, Texas. Infinity was the pioneer in this area and has done extremely well, so other independent oil companies are coming in and signing leases at 10X to 100X what Infinity paid. That doesn’t show up on the balance sheet, but it is real value nonetheless. The company can continue its drilling program with one rig and get seven to 12 more wells in this year, or they could partner with someone and dramatically increase drilling activity. They have offers and are considering them right now.

The big non-U.S. “bluebird” is their large lease holdings offshore from Nicarauga. They just took a trip down there and have hired someone to communicate between the provincial and federal governments, to be sure the locals have input to future decisions. Both sides are very pleased that IFNY is playing the peacemaker, and every government wants the oil and dollars to start flowing as soon as possible. Management described this as a live, very active project. They expect to be drilling within two years, unless they get a partnership offer that they can’t refuse.

Essentially, we are going to wind up with a company that partners or goes it alone in three excellent areas: the Sand Wash in Colorado for oil, the Barnett Shale play in Texas for gas and offshore Nicaragua for oil. Where they can partner on attractive terms, they will, and then use that money to develop properties they don’t partner, until those are ready to partner or sell. It’s a very sensible program.

But subscriber Dennis wrote: “What happened to your very strong and timely purchase recommendation of IFNY? We listened to the presentation today. Nothing of promise was said to bring about your forecasting of a strong appreciation in the market price short term? On the contrary, the company appears to be on the verge of bankruptcy! Can you please elaborate?”

Wow, were we listening to the same call? The company is going to have a series of sale and partnership announcements, each of which should ratchet up the stock price. There was excellent news on Nicarauga. And I have no idea why you would say that they are on the verge of bankruptcy when they have $7 million left on their bank credit facility and are cash flow positive. IFNY remains a Top Buy under $5 for my $10 target.

Ocean Power Technologies (OPTT) drew a question from Joe: “Mike, am I being duped by Ameriprise on my OPWT (Ocean Power Technologies) stock? They (Ameriprise) did a 1 for 10 reverse split and gave me a new symbol called XOWPF. It has $0 worth at the moment. What’s going on?”

What’s going on is that they have not caught up with the symbol change and the U.S. listing. Just tell them XOWPF is OPTT and they need to get your shares into the right form on their books and start using the correct symbol. Someone in their back office missed this — it should be easy to straighten out. OPTT remains a great buy up to $20 for my $40 target.

During the regular trading session on Thursday, Dendreon (DNDN) fell 79 cents to $5.54 on a downgrade by Banc of America, extending the drop that began Wednesday after the FDA issued the “approvable” letter requesting more data about the efficacy of Provenge. Then, after the close, the company held its quarterly call, and in the aftermarket the stock dropped another 56 cents to $4.98. This morning it opened around $5.20.

This is nuts, because there was some very good news on the conference call. One had to piece together a few things that management said with the answers to a few questions to understand it, but here are the main points to focus on:

• The company is already terminating outside consulting related to their build-up to commercializing Provenge this year, including work they farmed out on the manufacturing plant that now can be done by company employees over the course of the next year.
• They will have a meaningful, carefully-constructed reduction in force shortly, and several times they promised another conference call soon to explain their new operating model.
• They are very interested in partnering the non-U.S. rights to Provenge soon.
• The current Phase III study of Provenge has accrued 420 patients and is being done under a Special Protocol Assessment (SPA) that grants approval if their statistical goals on survival are hit.
• Here is the big one: If the statistical goals are hit on the interim results due in 2008, the SPA applies and Provenge gets approval.
• If they miss the statistical goals on the interim results, but hit them on the final results due in 2010, Provenge still gets approval.
• They have enough cash to get through the interim results in theory, but actually would want to raise more money before that, not necessarily by selling more stock to investors. Translation: A cash infusion from a foreign marketing partner is the better alternative.

Dendreon will be having discussions with the FDA only to see if there is any quicker route than the interim results to get Provenge approved. Otherwise, they will focus on getting to the interim results, which are powered to detect a survival advantage similar to the one seen in the two earlier trials. Sometimes, clinical trials are set up in such a way that interim results have to meet a ridiculously high efficacy standard to win approval, such as a 99% confidence level versus the placebo. Management said that is not the case with the current trial, which is what they meant by “powered to detect a survival advantage.”

The FDA also said that the company has to respond to 43 items related to manufacturing that came out of a recent inspection of the Provenge facility. Dendreon said that these are routine and can easily be done long before the interim results are available, so that is a non-issue. Management also made it clear that there is no safety issue about Provenge with the FDA. Finally, the $6.3 million of antigen that they bought in the March quarter in anticipation of approval has a shelf life measured in years, and will be used for the delayed launch.

What this means for the stock price is a move up when they announce their restructuring plan, a bigger move up when they announce their foreign marketing partner and the size of the upfront payment that they will receive, and the biggest move up when they announce the interim data, because under the SPA, success guarantees approval. Just looking at this as a fresh money investment, I think DNDN is a Top Buy around $5, and I would buy the stock up to $7, where it should trade after they announce the restructuring plan. It should be back to $14 after they announce the foreign marketing partner, and into the $25 to $40 range after they announce the interim data, followed by FDA approval. And thank you, Banc of America Securities for giving us this great buying opportunity.

Amgen (AMGN) fell $5.77, or 9.1%, yesterday due to a decision by an FDA advisory panel on what to do about safety questions surrounding Aranesp. The stock slid before the decision, which was announced a half-hour before the close of trading, and then dropped sharply into the final bell. It bounced back 47 cents in aftermarket trading, but this morning it was downgraded by JP Morgan and HBSC Securities to neutral, and by Citigroup and Lazard Capital to sell. That took AMGN stock down another $1.75 as I am writing this, which probably marks the bottom.

Aranesp is the second-generation manufactured version of a naturally occurring protein that increases production of red blood cells. It is approved to treat anemia, a blood disorder, when it is caused by chemotherapy or kidney disease. Most of the sales of Aranesp are for kidney dialysis and are reimbursed by the government.

The panel said that Amgen should be required to conduct additional safety studies of their anemia drugs, even though there have been more than a dozen studies of this class of drugs. The panel wants a large, comprehensive study of whether people who take the drugs die sooner than those who don’t. I am assuming that they mean in the cancer indication, as this meeting did not address the use of the drugs in kidney patients. The FDA said that it would hold a separate meeting on that issue in the fall.

By a 15 to 2 vote, the panel also wants Amgen to expand existing label warnings about the risks of death, blood clots and other side effects when the drugs are prescribed for non-approved uses, often in high doses. In their presentations to the panel Thursday, the FDA staff focused on four studies suggesting over prescribing or prescribing for unapproved uses might increase a patient’s risk of death.

However, a majority of the panelists voted against requesting that product packaging be changed to recommend lower dosing levels. The current dosing levels for approved indications are well-supported by numerous large studies.

Assuming the worst outcome from the panel’s decision on labels, Medicare would stop reimbursing for the use of Aranesp in off-label indications, or at higher than approved doses. Medicare officials already told local plan providers that they can stop paying for Aranesp when it is used in cancer patients who are not on chemotherapy, because that use is not government approved. Last month, Amgen said that action alone will cost about $500 million in sales this year. Medicare hasn’t taken any action yet, but they will release its preliminary reimbursement guidelines in September, taking into account the FDA’s position on Aranesp’s safety.

Aranesp and its first-generation, shorter-acting version, Epogen, contributed $6.63 billion, or 48%, to Amgen’s revenue in 2006. Most of that was for kidney dialysis, and I do not think those revenues are seriously at risk. Medicare may try to use the panel’s decision as a lever to lower their reimbursement levels, but there’s no logic to that, and Amgen has been extremely good at the behind-the-scenes work needed to keep reimbursement levels up.

The second-largest portion of revenues comes from Aranesp’s use in chemotherapy-induced anemia at approved dosage levels, and that is not at risk, either. It is only the off-label indications or high-dosage regimens that will see a reduction in revenues this year, and then I expect sales to that sector to resume growth in 2008.

A $1 move in Amgen’s stock is equivalent to about $1.1 billion in market capitalization. If this whole episode justifies taking $10 billion off of Amgen’s market capitalization, that is the equivalent of $9 a share. Since Wall Street started worrying about this, the stock is down $15 to $18 a share. I think it has more than discounted the worst outcome.

The January 2009 $70 LEAP call contracts that I recommended on February 15 when the stock was at $68.20 have been creamed, falling from $10.50 then to a contract low of $3.90 as I write. At that time, analysts were looking for $100 to $115 as a target for the common stock at the end of 2007, and I was only looking for $95 in January 2009. I have not changed that target for the stock. Once we are through the FDA dialysis review and any Medicare reimbursement changes in September, I expect AMGN to rally back to $75 by the end of the year or early next year.

This is a case of buying when the blood is running in the streets — even though some of it is mine, for sure, and probably some of yours. Amgen has a huge franchise of drugs and what has to be one of the very best pipelines of new drugs in either the biotech or pharmaceutical industries. The stock is right between the $50 and $60 contract strike prices, and if I was recommending a LEAP today, I’d normally pick the $60 contract (VAMAL). But you can buy almost twice as many contracts for the same dollars by sticking to the $70 contract, and the rate of return at my $95 target price for AMGN stock is much higher — 537% for the $70s, compared to 373% for the $60s. With 20 months left for this investment to work out, lower your average cost by doubling up on the January 2009 $70 LEAP call (VAMAN) today. The position remains a Top Buy with a buy limit all the way up at $12.50, and a $25 target price when AMGN stock hits $95, on or before the LEAPs expire in January 2009.

The Fed didn’t say anything new on Wednesday, when they kept the short-term interest rate at 5.25%. And the sigh-of-relief rally pushed the S&P 500 over my 1510 “energy level.” But that the market was quite overbought and due for a correction at least back to test the 1495 breakout level, which happened all at once today — and it looks like the test failed. While it is possible that the market will bounce back and hold 1495 tomorrow, which would indicate a very strong underlying trend, I still think the S&P is headed back to a test of 1440. It is important to remember that even if that happens, it will not upset the longer-term pattern that is now lined up to go well over 1600 on the next upleg, and possibly to 1800 by the end of the year.

I know moves like this are hard to contemplate, but when markets break into new high ground — as the Dow Jones Industrial Average has already done, and the S&P 500 will do when it closes over 1528, or touches 1553 on an intraday basis — they can go parabolic. That could even be starting right now from the 1491 level, but it would be healthier to see the correction down to 1440 first and then work our way back up. And it’s also important to remember that the trouble with all parabolic markets is that they are followed by collapses. But for now, there’s little to do but ride through the tests and enjoy the run when it resumes.

If we do get a significant pullback, I will have a couple of new stocks to recommend for you. Otherwise, it’s just a question of watching our MegaShifts play out and taking advantage of situations with good results and better outlooks that haven’t moved much yet. That pretty much describes our first earnings reporter this week — BioCryst (BCRX). So let’s start there.

Avian Flu MegaShift

Recent scientific publications showed that the H5N1 avian flu virus is very, very close to a mutation that would make it easily transmittable from human to human. Researchers studying the mutations that led to the Spanish Flu virus were able to identify the “mutational distance” to be covered to get to easy human-to-human transmission, and it is much shorter than previously estimated.

I’m writing this in an office that I am currently sharing with four wild ducklings — the mom duck and the other four ducklings disappeared a couple of days ago, most likely into a fox or coyote. But my four-year-old duck rescuer has little interest in hearing about bird flu, and like the Centers for Disease Control, my main line of defense is to hope it doesn’t happen here. At least I’m no less prepared than they are.

Despite the Center for Disease Control’s lack of preparation for an avian flu breakout, there is a company out there that’s not sitting on its hands when it comes to fighting this deadly disease. BioCryst (BCRX) reported $9.2 million in revenues, up dramatically from last years $771,000, as they begin to recognize revenues from the $102.6 million federal contract that they won in January to develop peramivir for potential use in national stockpiles to treat infected citizens. They lost $8.8 million or 30 cents a share, compared to consensus estimates for $7.1 million in sales and a 27-cent loss. They have $42.8 million in cash, plus the rest of the $102.6 million contract. On the conference call, management said that the contract will carry peramivir all the way through clinical trials to a New Drug Application, with no dilution to current shareholders. Neat!

Last week, BioCryst reported positive results in a mouse study, in which 40% to 60% of mice infected with H5N1 survived after one or two injections of peramivir. All the mice that received two shots the day they were infected, plus one a day for the next seven days, survived.

Due to the mild flu season in North America, the company will continue the Phase II trials for intramuscular peramivir in South America, Southeast Asia and Australia/New Zealand. Assuming all goes on schedule, they’ll be able to start Phase III trials for the intramuscular version in the fourth quarter of this year. BCRX pointed out that a single shot of peramivir quickly enters the patient’s systemic circulation, quickly achieves high concentrations in the plasma, and blankets the virus. That kicks the flu virus hard, and should make peramivir an attractive therapeutic option.

BCRX will also move the Phase II intravenous trials for hospitalized flu patients to South America and Southeast Asia. Right now, there is no specific therapy for hospitalized flu patients, and in just the U.S. we average over 200,000 patients hospitalized every year due to flu and its complications, with approximately 36,000 deaths per year. The company has designed these clinical trials in careful consultation with the FDA, as this is a serious unmet need.

The Fodosine program in cutaneous T-cell lymphoma is also progressing, as the FDA has now given comments on the company’s draft version of an application for a Special Protocol Assessment (SPA). BioCryst is about to respond and thinks the pivotal Phase IIb trial can begin in the September quarter. As you may remember, under an SPA if you hit statistical significance, you get approval without any Dendreon-like surprises.

Everything is lining up for a great year for BCRX, which remains a Top Buy up to $19 for my $30 target.

Crucell (CRXL) reported their first quarter of completely consolidated results from the acquisitions that they made last year, primarily Berna Biotech. They did $42.5 million, up 169% from the parent-only number last year. They lost 39 cents a share and used $22.5 million in cash, leaving them with $190.2 million. Based on their results, they raised their guidance for this year’s sales to $297 million to $303 million, and said again that they will be cash flow breakeven on operations this year. Their vaccine business is seasonal, with strength expected in the second half of the year, but it did well in the first quarter based on new products like the 5-in-1 shot that they are selling to developing countries.

(I personally am opposed to giving these multiple vaccines to children with barely developed immune systems and am particularly galled at the fact that one “children’s vaccine” is against hepatitis B, a sexually-transmitted disease. Hepatitis B vaccine has disastrous after-effects in too many children, including mental retardation and death, yet it is pushed on new parents in both developed and developing countries.)

The PER C6 technology — the reason we bought CRXL because it replaces chicken eggs with human cell line production of vaccines — was licensed during the quarter to AbGenomics Corporation, Pfizer Animal Health, Biotecnol SA and the Taiwanese Development Center for Biotechnology. Crucell also got a grant of $2.3 million from the European Commission to advance development of a pandemic influenza vaccine.

On the conference call, management reminded analysts that they now have numerous programs in influenza, both seasonal and avian. They are working in malaria, tuberculosis (one of their biggest programs) and are almost ready to come out with news on yellow fever. They also have two monoclonal antibodies against rabies in the clinic in the United States and India. And there are many more earlier-stage programs.

In spite of my personal reservations about the 5-in-1 vaccine, the company is finding a ready market for it and otherwise has handled the integration of all the acquisitions very well. CRXL remains a buy under $28, where it is now, for my $50 target.

Biotech MegaShift

Affymetrix (AFFX) has one main competitor, and David asked: “You often mention Illumina (ILMN) in conjunction with Affymetrix. Is there enough opportunity for both of them to thrive, and why not recommend it?”

David, Affymetrix has a market capitalization of $1.76 billion, which is a bit less than Illumina at $1.81 billion. Affymetrix will do about $375 million in sales this year, and Illumina about $317 million. I have not factored into these numbers the likely outcome of the lawsuit between the two companies, which is that ILMN will have to pay a 15% royalty to AFFX on a big chunk of its sales. So, AFFX has a price/sales ratio of 4.7X, less than ILMN’s 5.7X. The two stocks are closer on forward P/E ratios, as I expect AFFX to earn 40 cents a share this year, for a P/E of 64.7X, while ILMN will earn about 55 cents for a P/E of 61.3X. Affymetrix is in turnaround mode and growing earnings faster than ILMN right now and also seems to have the momentum in new products. Once we get a little more clarity on the settlement of the lawsuit, I may well recommend ILMN. But for now, I think AFFX is a better investment, and I recommend that you continue to buy AFFX under $27 for my $40 target.

I sent you a Flash Alert on Dendreon (DNDN) yesterday after news of the tragic and unnecessary FDA “approvable” letter hit the stock. There is not much to add today. The key to near-term performance will be whether the company gets clarification from the FDA that an interim analysis of the data of the ongoing Phase III trial, due in mid-2008, will be enough for approval, or whether the company has to wait until 2010 for the study to complete. It will be a month or two before we hear about that.

Once the company knows the ground rules, they can decide if they want to or need to find partners for the drug right away, or if they want to wait. At this point, one or two big partnerships would move the stock up nicely, and also be good for the company as it would let them avoid layoffs and restart their head-and-neck and breast cancer programs. I think that is the direction they will go, regardless of what the FDA says.

To me, Dendreon seems to have good managers. They got all the way to an FDA ruling for a billion-dollar drug on their own nickel, even though it was very tough. They gambled on approval, which would have been a huge win for the shareholders, and lost. Now they are likely to do the next most logical thing, which is to accept the loss and partner the drug. They may have to give away half the revenues, but that still makes it $500 million to them and gives them a chance to get cracking on their next two-billion-dollar opportunities. Buy DNDN under $7; I have not changed the ultimate $40 target.

eResearch (ERES) reported just after the close last Thursday, and I got the numbers into that issue: $21.1 million in sales and five cents a share pro forma. They met the consensus, which was at the top of their $19-million to $21-million guidance range, and guided for $23 million to $25 million and six cents to seven cents pro forma in the current quarter, compared to Wall Street expectations for $24.1 million and six cents. Orders hit $29.7 million during the quarter, far above current revenues, and the backlog now stands at $101.5 million, or about four quarters of business. For the full year, they reiterated guidance for revenues between $95 million and $103 million, and pro forma earnings of 29 cents to 34 cents, a tad above Wall Street’s expectations for $101 million in sales and 28 cents.

With revenues finally accelerating to match the growth in backlog, I was especially interested in the conference call. The new management is streamlining internal operations and very focused on increasing orders by going into new overseas territories, moving their consulting services into a formal consulting group that bids for projects even outside of regular ERES contracts and offering a backend processing service to smaller companies that may want to come into the business. ERES remains the largest provider of outsourced cardiac safety services, and they said that the new international guidelines are finally having a substantial effect on the number of clinical trials scheduling a cardiac safety component. ERES remains a Top Buy all the way up to $16 for my $30 target.

Content on Demand MegaShift

Harmonic (HLIT) did not get mentioned directly on Cisco’s conference call, but Cisco CEO, John Chambers again said that video is driving network demand. He added that the growth of traffic generated by video will lead consumers to drive more Internet traffic this year than businesses for the first time ever. It is insights like this that make me thing Harmonic is going to have an excellent year, in spite of the disappointing gross profit margin in the March quarter. HLIT is a Top Buy up to $10 for my $16 target.

Intel (INTC) held their Spring Analyst Meeting and laid out their plans for the year. Many of you have asked me if the disappointing response to Windows Vista changes my outlook for PC sales growth this year, and the answer is “no” for several reasons:

• Even though Dell and others have reoffered Windows XP machines, Microsoft’s first quarter shows there are early buyers for Vista;
• The issues that are holding corporations back from beginning upgrades are easily solved things like missing printer drivers, or incompatibility with some online websites and some non-Microsoft application software;
• I’m only looking for 10% PC growth this year;
• New PCs are such a good deal on price/performance, whether running XP or Vista, that the vast base of Windows 2000 machines is being upgraded now.

Intel confirmed that their emphasis is shifting from cost-cutting to get lean for the market share wars with Advanced Micro Devices (AMD) towards using processing technology and a high R&D output of new processors to regain their share of the market. They will be introducing many dual-core and quad-core processors for desktops, laptops and servers, mostly designed for their new 45-nanometer manufacturing process (even if they start on the 65-nanometer lines). This is their slide on the road map for Core microprocessors, which will completely replace the Pentium and Celeron lines by the end of this year:

From the Intel Spring Analyst Meeting presentation archived on their Investor Relations website, which can be accessed here.

As you can see in the picture above, Intel’s plan is to take the new Core microarchitecture from 2006, shrink it to 45 nanometers in 2007, then introduce a new microarchitecure on that same processing technology in 2008, shrink that in 2009, then introduce a newer microarchitecture in 2010, and so on. They won’t change both the architecture and the processing size in the same year, to minimize the kinds of production problems that they had in 2004 and 2005.

They also are going to try to start an explosion in hand-held electronic devices that can do Web browsing. Intel calls it the Ultra-Mobile PC (UMPC), but it looks to me like a high-end cell phone with a powerful Web browser built in. Their first UMPC chip is code-named McCaslin, and it is in the new Apple TV. The chip that is destined for hand-held devices is code-named Menlow, and will be out in about a year. McCaslin runs Windows, but Menlow runs Windows and Linux. Linux uses less code storage than Windows to do more. Menlow will be considerably smaller and faster than McCaslin. It will use the new high-K metal material that I talked about in the original Intel LEAP recommendation in the February 8 Radar Report. I still think this will turn out to be one of the most important advances in semiconductor processing ever.

Although Intel is shifting emphasis away from cost-cutting, that effort continues and there will be more layoffs and consolidations during the year. The company presented a summary slide titled: “Good Progress, More to Do” that showed R&D down $250 million or 5% from 2006 to 2007, selling and administrative down $1 billion or 16%, and capital spending down $250 million or 5%, even though they will open two 45 nanometer factories this year and two more next year. To quote a slide: “Result: Bottom line growth exceeds top line growth for 2007/2008.”

Intel also sees a rapidly-developing overseas market of people who are about to buy their first personal computer — 130 million of them, according to their market research. The same research tells them that the majority of these will buy notebooks, not desktops, although they will be purchased at lower price points than we are used to seeing. They’ve even designed a $300 “Classmate PC” laptop with a Celeron processor, a two-gigabyte flash drive and a 7″ screen. The forthcoming Silverthorne chip for UMPC and handheld Web browsing was described as having “2003/2004 mainstream mobile performance.” That sounds like a Celeron replacement product for cheap notebooks headed for emerging markets.

We’ll also see a lot of chips for notebooks in the developed countries. Intel said that the current installed base in the U.S. is “less than half a notebook per household.” They intend to change that with the Santa Rosa microprocessor that just became the fourth generation of Centrino chips when it was introduced last week. It has the new processor architecture, built-in Wi-Fi in the latest version (802.11n), integrated graphics and the new turbo memory feature for much faster data handling. The next laptop platform in 2008 will have a 45 nanometer, dual-core processor with both 802.11n Wi-Fi and WiMAX. It looks like they have delayed their WiMAX laptop program from the end of 2007 to 2008, to match the delay in deploying networks, but they continue to emphasize WiMAX as the inevitable wireless standard. They pointed out that when they launched Centrino in 2003, the attach rate of Wi-Fi was 15%, and it is now more than 95%. They also pointed out they do not plan to support 3G cellular data standards in Centrino.
I am convinced that Intel now has a processing technology lead of at least a year over AMD, and that our LEAPs are going to be a terrific investment. The Intel 2009 $22.50 LEAP call (VNLAX) is a Top Buy under $3.50 — and it is just barely there — for my $12.50 target at the January 2009 expiration, or sooner.

Silicon Image (SIMG) reported last Thursday just before the Radar Report went out, and I gave you the numbers: $69.1 million in sales, up 17% form the prior year, and seven cents a share pro forma. The consensus was looking for $69 million and five cents. The company guided for $75 million to $79 million in sales in the current quarter, compared to Wall Street expectations for $79 million and eight cents.

On the conference call, they said their orders were strong, with a book-to-bill (orders-to-shipments) ratio well above 1.0, giving them increased visibility into the second and third quarters. New business from high definition camcorders and even high-end digital still cameras will boost revenues. However, due to the slow sales of Sony’s PS-3 game console, SIMG revised the full-year outlook down by $15 million, from a range of $340 million to $360 million down to $325 million to $345 million.

That caused the stock to drop 50 cents, but the company has a new $100-million stock buyback program that kicked in this week. My read on SIMG is that they are innovating at the high end of the HDMI standard, HDMI 1.3, and really have a lock on this year’s holiday season shipments of digital TVs and other expensive consumer electronics products. At the same time, they are working to bring quality video to cell phones, which would be a gigantic market for them in terms of units. They probably will exceed the high end of their revenue forecast for this year, hitting $350 million (the midpoint of their previous guidance) and do 40 cents to 42 cents a share. That’s after an extra $3 million tax burden this year that won’t repeat. SIMG remains a Top Buy up to $13 for my $20 target.

Telkonet (TKO) had a great question from Todd: “Mike, you have consistently talked about a strategic partner for TKO over the past year. With contract wins, management letters to shareholders pumping the company and revenue forecasts showing growth in income, something has to be scaring off a partner from pulling the trigger. If this was real, wouldn’t they have come to the table? Please identify the quantifiable risk here. If you liked it at $5, why are you not recommending the kitchen sink at $2.30?”

I’ve talked to management about this, and I think the best way to put it is that they want a big strategic partner to put in a lot of money at the highest possible price. I don’t think they want a lot of money to come in at, say, $3, when they think they can get the stock back to $5 just by executing on their current business, and then do a deal at maybe $7 a share. So the company has less incentive to do a deal with the stock depressed, and any potential partner has a tough time paying a huge premium like 100%. And as for the “kitchen sink” — TKO has been a Top Buy for a long time.

Ronald asked: “Is Motorola now major competition for TKO?”

No, although they could be some day. TKO is pioneering the in-facility broadband-over-power line industry, and I don’t think you’ll see serious competition from a major company until the industry is much larger. As far as I know, Motorola was not a bidder on the big EDS/TKO contract with the Army and Air Force, and that surely is the biggest BPL contract yet. TKO remains a Top Buy up to $5 for my $15 target.

New Energy Technology MegaShift

Energy Conversion Devices (ENER) had preannounced a disappointing March third quarter and a restructuring plan, with the former knocking the stock down but the latter failing to lift the stock back up, which is usually what happens when companies slash costs. After the close on Tuesday, they reported slightly better revenues than the preannouncement and guided a lot better for the current quarter. The stock lifted in aftermarket trading and held the gain yesterday, but today ENER slid under my buy limit, down $1.91 for the day.

For the March quarter, they did $27.4 million in sales, essentially flat with the $27 million that they reported last year, and they lost 17 cents a share, flat with last year but worse than the consensus expectations for an eight-cent loss. For the June fourth quarter, they guided for $33 million to $37 million in sales, well above the recently-reduced Street expectations for $32.2 million.

On the conference call, management said that they will double the sales staff at United Ovonic Solar by the end of 2008 to take advantage of the wave of interest and government funding in solar power. Their recently-announced restructuring plan is on track. I heard nothing to cause today’s sell-off, and ENER is an immediate buy on this dip under $35 for my $55 target.

Holly Corp. (HOC) reported record March first-quarter results, thanks to expanding refining margins industry-wide. Revenues rose 17% to a record $925.9 million and they hit $1.20 a share. And they said that the second quarter started strong. While I expect product prices to fall somewhat once the refiners catch up their gasoline inventories for the summer driving season, the first named storm in the Atlantic just appeared — weeks before hurricane season officially starts — so if we have a season like 2004 and 2005, gas prices will once again be on the rise. If everything went right for Holly, they could earn $5 a share this year and sell for 15X earnings. But we live in a world where everything rarely goes right, and I’ve already raised my target for HOC once to $65. We’re essentially there, so let’s give them a big round of applause and sell HOC over $65, which will be a 64% gain in just under a year.

Infinity Energy Resources (IFNY) drew two subscriber questions, the first from Michael: “Is it likely that the various offers the company has received for its assets will be opened and disclosed before the May 15 annual meeting so that shareholder action can be taken on any offers if necessary, or do you think the offers will be first disclosed at that time? Or is the meeting likely unrelated to any potential monetization of assets?”

There couldn’t be any shareholder action because it didn’t get in the proxy material. But I’m sure Infinity would love to at least make some of the smaller announcements, such as selling the “non-core” assets that they’ve talked about.

Robert asked: “Any chance that the anonymous seller of oil and gas properties in Texas to Linn Energy (LINE) is IFNY?”

Probably not, Robert. That was a $90 million deal, which would be very material for IFNY and there would be a requirement to disclose it. Also, I don’t think the Texas counties Linn mentioned are the ones where IFNY is active. But major announcements are coming soon, and IFNY is a very timely Top Buy up to $5 for my $10 target.

Ocean Power Technologies (OPTT) and their reverse split drew a question from Jack: “What do you mean: the reverse split was done for cultural reasons?”

Stocks in London typically start trading around $1 a share, while in the U.S. they start around $10 a share. So this 1-for-10 split was to get the stock price up to a level that would look “serious” to U.S. institutions. If they had listed an American Depository Receipt instead, they could have made one ADR equal 10 London shares, and the stock would be at $25 today instead of $17.25. OPTT is a buy up to $20 for my $40 target.

Rentech (RTK) reported March second-quarter results this morning. They hit $16.9 million in sales compared to $25,000 last year, as the fertilizer plant contributed this year. They lost 12 cents a share compared to 11 cents last year, but they had a lot more shares outstanding this year. The dollar loss was $17.2 million compared to $12.5 million. Backing out stock option expenses, this year’s loss was $16.0 million or 11 cents pro forma.

The consensus expectation was for a 10-cent loss on $24.3 million in sales. They only had half a quarter of fertilizer sales, and will have a full quarter in the June period. Sales should be good due to the record acreage going into corn production this year for ethanol, so the demand for ammonia fertilizer will remain strong through the planting season.

The company is on track to convert the REMC facility in East Dubuque and build the first production Fischer-Tropsch facility (PDU) in Commerce City, Colorado. The Air Force put out a Request for Quote for 200,000 gallons of jet fuel produced by the Fischer-Tropsch process, and I expect RTK to win that.

Rentech is excited about the various coal-to-liquid bills that have been introduced in Congress, and they think something will pass to give tax credits and possibly financing for CTL plants. Rentech has a lot on its plate this year — advancing the various projects with coal companies, getting REMC and PDU underway, and probably signing either strategic agreements or technology licensing agreements with some of the many interested parties. RTK remains a buy up to $5 for my $11 target.

WiMAX MegaShift

Airspan (AIRN) reported after the close today, and I’ll be on the conference call shortly. Wall Street was looking for $27.4 million in sales and a loss of nine cents a share, and AIRN was a bit short with $26.7 million and a loss of 10 cents. Before the conference call, management reaffirmed guidance for the June quarter of $27 million to $30 million in sales, but the consensus estimate was up to $31 million in sales and a loss of four cents a share. They also said that they still expect $75 million in WiMAX revenues this year, but are seeing softness in their traditional non-WiMAX products as customers decide what to do next. None of this is very surprising. I’ll send you a Flash Alert if I hear anything important on the conference call, which I don’t expect. AIRN remains a buy up to $5 for my $10 target.

Alvarion (ALVR) mentioned a few things on the conference call that will prove to be important. First, today the real money on WiMAX is still being spent in developing countries, where ALVR has years of experience, partners and customers in over 80 countries. Second, ALVR tends to work with smaller, newer WiMAX-specialist operators in larger, more developed countries, and these are often acquired by the established carriers when the big dogs decide to go into WiMAX. This happened recently in Spain, giving ALVR top-supplier status to the biggest telecom company in that country. Third, in the U.S. they are winning business from some majors against Motorola, including a big win at EarthLink to provide the backhaul equipment connecting Earthlink’s municipal Wi-Fi deployments around the country. They took this business away from the established supplier, Motorola. ALVR remains a Top Buy while it is under $9, with an $18 target.

MobilePro (MOBL) drew thee critical questions, the first from Mike: “I purchased MOBL when you first recommended the stock selling at $0.30 per share. I bought a ton of it in my one IRA. I continue to hold it. Did we miss the mark on this stock or is there some hope that the current management team will successful bring MOBL back from a true penny stock?”

Herb asked: “I notice that Jay Wright , Chief Executive Officer of MOBL just bought 300,000 shares. Do you have anything new to offer on MOBL?”

And Donald followed up with: “When they announced that they were investigating “strategic alternatives”, did that mark the beginning of the end?”

As you know, the problem with MOBL is not their operations, it is their financing — the “death spiral” convertible deal they did with Cornell Capital. Management recently said: “We will, therefore, actively pursue a process with the goal of maximizing the value of our assets, eliminating our debt and returning value to our equity holders.”

That’s great news — especially the part about “eliminating our debt.” They are going to sell pieces of the business to raise enough money to get rid of Cornell Capital, which is being investigated by the SEC and has its own problems. My hope is that they can settle the debt on better terms than are currently written.

The big question is what they hold on to. If it is the municipal Wi-Fi business, we will have a pure play unencumbered by Cornell Capital, and a really good chance of seeing the stock recover. If it is some other part of the business, I will have to re-evaluate whether it makes sense to continue holding it. I will not abandon you on this stock, even if they sell their Wi-Fi operations. As long as there is a chance of recovery, I will continue to follow it. For now, MOBL remains a hold.

FDA tells terminal prostrate cancer patients: “Drop dead!”

And it also tells the FDA Commissioner: “Who do you think runs things around here — you?” In spite of the Commissioner’s best efforts, the FDA issued an “approvable” letter to Dendreon (DNDN) for Provenge, saying that they need to see more clinical data on efficacy before they will consider approval. What this means is that if Dendreon can supply interim efficacy or survival data from the currently active Phase III trial, DNDN could have that data by mid-2008 and then Provenge would be approved in 2009. However, if the FDA wants the company to complete and analyze the current trial, the data would not be available until 2010.

Even if Provenge can be approved in 2009, I estimate about 80,000 men will die six to 36 months earlier than they otherwise would have, due to this decision. What really gets me about this decision is that there is little question about the safety of Provenge. Given that Congress is heavily male, maybe this will turn out to be the straw that resets the FDA’s mission to safety and leaves efficacy in the hands of doctors and their patients, where it belongs.

Thomas Fleming, a University of Washington statistician who was invited to be on the Advisory Panel that reviewed Provenge, actually wrote a letter to the FDA asking them not to approve it. In the letter he said “as a fellow person living with prostate cancer,” he strongly disagreed with the statement that all prostate cancer patients want is a choice. He wants an informed choice. Well, Dr. Fleming, you would have had a choice between a miserable, ineffective Taxotere regimen and Provenge. Now you have an “informed” choice between a miserable, ineffective Taxotere regimen and nothing. What part of “choice” do you not understand?

Thanks to the recent stock offering, Dendreon probably has enough cash to get through 2008, so if an interim analysis will suffice for the FDA, the company has some options. I say “probably” because management will have to lay off half their employees to get there on their own, which will mean almost everyone not directly involved in managing this Phase III trial and getting the interim data analyzed and presented. Their other alternative is to find a marketing partner for the drug now, although it would certainly be on less-favorable terms than what they can get after approval. However, that might let them restart their head-and-neck and breast cancer programs right away, and eventually create more shareholder value sooner than trying to tough it out on their own.

If the FDA is going to require them to complete the Phase III trail, Dendreon cannot make it to 2010 without a lot more money, whether from marketing partners, public secondaries or private placements. If we get into that scenario, I will redo all my cash flow forecasts to see what the current stock would be worth after the possible dilution.

I’m quite sure that Dendreon won’t be worth less than it is trading for today, so you should definitely not sell DNDN now. If you already own shares, I recommend that you continue to hold them. This drug is going to be approved, it is going to be the first of a series of billion dollar drugs from Dendreon’s technology, and we are going to make substantial profits on this stock. But this setback is going to take a while to get out of the stock. I assume that the short sellers are covering today — the stock will trade over 100 million shares today, and there are only 82 million shares outstanding. Until the short sellers are out of the way and we get more clarity from the FDA on the near-term outlook, I am cutting the DNDN buy limit to $7, but leaving the $40 target as a two-year goal.

April was the market’s best month in years, and May is off to a strong start with the Dow hitting new records and the S&P 500 closing over 1500 today. It looks like my 1510 call is right on the money, and I would not be surprised by an intraday spike to 1518 or so. But I must warn you that it is very unlikely that the market has enough unspent energy left to get much higher than that. It needs a drop to build up negative sentiment again. The most likely target for a retest is 1440, although there will be a minor retest at 1490 that should provide a back-and-forth struggle for a few days.

I don’t want you to worry about a 5% retest, because I think this market is headed much higher this summer. The retest will probably be set off by a bounce in the dollar, which has been in freefall. The euro is at all-time highs against the dollar, beating the December 2004 previous record. Very few market analysts realize that the true reason for the current strength in stocks has little to do with the current soggy economy, unexciting single-digit earnings growth or what the Fed will or won’t do with interest rates. Sometimes I feel like yelling out the window: “It’s the dollar, stupid!”

The Fed is creating money like the Great Deflation is just around the corner, which is killing the dollar and causing stocks to be repriced upwards to account for cheapening dollars. Oil will go in the same direction, as will gold, metals, commodities, real estate (yes, even single-family house prices) and anything real that the Fed can’t tamper with.

But nothing in the financial markets moves in a straight line forever, so look for a correction starting soon. After that, we should see the S&P well over 1600 by August, and then after a more vicious decline in the fall, my yearend target of 1800 is still on the table.

Our stocks should do very well in this environment, especially our New Energy Technology MegaShift holdings as oil prices head up. So let the decline come and go, and get ready for a heck of a summer. I hope to see many of you at the Money Show at the Mandalay Bay in Las Vegas May 15 through 17, where we can talk more about this. For now, though, let’s take a look at some of the earnings reports and headlines that a number of our holdings had this week.

Biotech MegaShift

Amgen (AMGN) has an important FDA meeting a week from today to examine the safety and risk/reward profile of Epogen and Aranesp. I think this meeting will go well and put a lot of current investor fears behind the company. Usage of these two drugs in the dosages recommended for the approved label indications accounts for 90% of the drugs’ current sales, and the risk/reward benefit has been reviewed numerous times. The FDA already required a “black box” warning for using them in high doses for off-label indications. Many doctors will continue to do that, but they will step up their monitoring of possible side effects. Others will just stop using them, which may cause one flattish quarter of Epogen and Aranesp revenues. But that is already priced into the stock — in my opinion, it is overdiscounted. So, I want you to buy the AMGN January 2009 $70 LEAP call (VAMAN) up to $12.50 for my $25 target, which I expect us to see on or before expiration.

Biogen Idec (BIIB) reported March-quarter sales up 17.1% to $715.9 million, mostly driven by the strong performance of Avonex and royalties from Rituxan. But pro forma earnings per share grew only 7.3% to 59 cents due to heavy spending on R&D, up 30% year-over-year. Wall Street was looking for 61 cents, and the stock was hit for almost a dollar today. Management reiterated their forecast for fully diluted 2007 pro forma earnings in a range from $2.50 to $2.65, compared to the consensus for $2.56. Revenues should grow in the mid-’teens for the year.

Those of you who have been with me for a while know that I don’t mind R&D spending increases at a company like Biogen, which has a long history of productive R&D. If they see more opportunities to grow the company for us, bless ‘em. Some of the money went to start the Phase III clinical program for BG-12, their next multiple sclerosis drug. BG-12 is designed to extend Biogen’s strong position in the MS market.

This morning, the company presented data at an American Academy of Neurology meeting that showed that Tysabri has a sustained treatment effect on clinical relapses and the risk of disability progression in multiple sclerosis patients treated for up to three years. There have been no further reports of brain infection, and over 10,000 patients take Tysabri worldwide. Biogen booked $30 million in Tysabri sales in the quarter, and I am expecting rapid quarter-by-quarter growth now that a large number of doctors have been trained.

The stock didn’t move much on the news, and the options are still trading well under my buy limit. This is a great opportunity to buy the Biogen January 2008 $45 LEAP call (YZUAI) up to $12 for my $23 target as Tysabri sales accelerate.

Dendreon (DNDN) will hear from the FDA in about two weeks, on May 15, regarding Provenge approval. A couple of weeks ago, when the short interest was 23.1 million shares before the Advisory Committee recommended approval of Provenge, in response to a subscriber’s question I wrote: “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.”

Well, believe it. The April data are out and there now is a whopping 33.9 million short position in DNDN, or 41% of the outstanding shares. After getting killed by the Advisory Committee recommendation for approval, the shorts INCREASED their bet by about 10 million shares.

This is very unusual behavior. Shortsellers rarely throw more money at a losing position, especially when their fundamental expectations were wrong about an advisory committee turndown. Doubling down on a losing bet is typical odd-lotter behavior, not professional money managers. This could turn into one of the biggest bloodbaths for the shorts of all time. There certainly are some analysts who will be out of a job after the FDA approves the therapeutic vaccine. May 16 is going to be mighty exciting, and if DNDN opens high enough, we may be sellers. I will send you a Flash Alert on the 15th as soon as we get the news, with specific instructions on what to do with the stock. You don’t want to miss it, so be sure to check your email that day.

Saty asked two good questions. First: “Is it true that once Dendreon gets approval, they have an active securities application to file $146.8 million worth of shares? This will dilute the shares and the shorts will be able to buy them cheap.”

Dendreon does have what is called a shelf registration for $146.8 million in securities, which could be stock, convertible bonds or straight bonds. They have no obligation to issue them, and no current plans. They could issue them to a strategic partner that wanted to make an investment in DNDN stock as part of the relationship, which is very common. They also could sell some publicly, perhaps a convertible bond. But the important point is that if they get approval, the stock is going to soar before they decide to do anything. So, if the stock goes to $45, and they announce that they are selling three million shares in a public secondary offering, maybe it comes back to $40 to get the deal done. Then we would own a company with a billion-dollar drug and $150 million or so on the balance sheet to take it to market. That’s a pretty strong negotiating position while they are looking for a marketing partner.

Second: “I have not been able to buy DNDN below $15. Is there a good chance of the FDA asking for more info and delaying? In that case and if the shares drop, will it not be a great buy as it is still a great product and just taking more time to get approval?”

Sure, it could happen. Although, none of us will want to go through the three years it will take to complete the Phase III trial, analyze the data, submit it to the FDA and finish the approval process. I expect the stock to go back to $3 or $4 if the FDA issues a contingent approvable letter or turns Provenge down — that’s the risk. But I think the odds of approval are over 90% at this point, and due to the incredible level of short selling, it’s hard to say where the stock will stop to the upside.

If the shorts try to stage a bear raid before the 15th (see Rochester Medical below), buy DNDN on any dip under $15 for my $40 target.

eResearch (ERES) reported just after the close, and I’ll be on the conference call shortly. They did $21.1 million in sales in their March first quarter and five cents a share pro forma. The consensus was looking for $20.8 million and five cents. The company guided for $23 million to $25 million and six cents to seven cents pro forma in the current quarter, compared to Wall Street expectations for $24.1 million and six cents. Orders hit $29.7 million during the quarter, an excellent number far above current revenues, and the backlog now stands at $101.5 million, or about four quarters of business. For the full year, eResearch reiterated its guidance for revenues between $95 million and $103 million, and pro forma earnings of 29 cents to 34 cents. Wall Street is at $101 million in sales and 28 cents.

It looks like revenues finally are accelerating to match the incredible growth in backlog. I don’t expect any surprises on the conference call. ERES remains a Top Buy all the way up to $16 for my $30 target.

Geron (GERN) reported a March first-quarter loss of $2.5 million, the second abnormally small loss in a row. The company now spends about $13 million a quarter on R&D, and they were posting $9 million to $10 million quarterly losses until the December period, when they came in at negative $3.2 million. In the March quarter, the operating loss of $16.4 million was mostly offset by a non-cash recognition of the change in value of their warrants, as required by new accounting rules. The operating loss is more important, and I compare it to their $223 million in cash to monitor their liquidity. With enough cash to run over three years at the current loss rate, we should not be concerned.

Geron is spending money to advance both anti-cancer and anti-HIV telomerase candidates, and stem cell programs for spinal cord injury, and I think all three are going to be huge drivers for the stock. Buy GERN while it is under $9 and we will sell it when it hits $18 on excitement over news releases and clinical trial results.

Rochester Medical (ROCM) has been through the most bizarre five days of trading and reporting that I hope we ever see, with subscriber Steve and many others asking: “Why is ROCM dropping so fast?”

Last Friday, the stock suddenly plunged from $29.48 to $22.59 on no news, but heavy volume of 3.3 million shares — 3X to 4X normal volume — with most of the volume and the drop taking only several minutes. The stock ranked #6 on the Investor’s Business Daily Top 100, and I knew the momentum players and day traders were in it. So did the hedge funds. With earnings coming on Monday, the hedge funds were able to knock the stock down enough to set off some of the day trader’s stops, and that cascaded it down into another round of stops, and so on. It’s called a Bear Raid, and the hedge funds target IBD stocks that have lots of weak holders like momentum and day traders — especially when it is a Friday, with earnings coming the following week, and the stock has a relatively low short interest.

The weekend IBD Top 100 listed ROCM with the comment: “Continence product maker dives on Q2 EPS, after streak of accelerating growth.” Of course, the company had not reported their earnings at that point, so it looked like IBD was in cahoots with the hedge funds. They probably meant “dives on fears over Q2 EPS,” but even that looked suspicious because there were no fears over the earnings. No analysts publish on the company, and ROCM does not give specific guidance, so it would be hard for them to “miss.”

The stock rallied a bit on Monday before the earnings, gaining 86 cents to close at $23.45 on more heavy volume of 2.4 million shares. And then things got really weird. The earnings report was a little ahead of my expectations, and the company laid out a conservative roadmap for continued growth. The stock cratered on Tuesday, losing $5.01 on 3.7 million shares, closing at $18.44. Wednesday was little better, with ROCM down another $1.35 to $17.09 on 2.2 million shares. Today started the recovery, up $1.06 to $18.15.

So, let’s look at the quarter. Sales hit $8.347 million, up 71% from $4.874 million last year. A good bit of that was due to an acquisition in the U.K., and internal growth was about 13%. Sequentially, ROCM went from $5.4 million in the June 2006 third quarter to $6.8 million in September, $7.5 million in December, and now $8.3 million. That’s a sequential growth rate averaging almost 16% per quarter. But say revenue growth averages only 12% per quarter going forward — that’s still 40% a year.

ROCM reported eight cents a share compared to a loss of two cents last year. The eight cents included a charge of about 29 cents a share for a stock option expense, which I and most other analysts would exclude to get pro forma earnings. But it also included a 28-cent-per-share gain from the settlement of a distribution contract, and about 11 cents in Sarbanes-Oxley expenses that will diminish this quarter and then go away. They mentioned another $300,000, or about 17 cents a share, increased investment in marketing, but I don’t see that as nonrecurring. In fact, they will probably increase marketing spending to take advantage of their new distribution channel to hospitals.

So the real bottom line for pro forma earnings was about 20 cents a share this quarter, after a 12-cent net adjustment. In the June quarter, the adjustment will be around 33 cents a share, and in the September fourth quarter, about 30 cents.

I said in my original write-up on ROCM that I thought they could do around 50 cents this year. That’s probably a little high on a GAAP (Generally Accepted Accounting Principles) basis and way low on a pro forma basis. The reason it is a little high on GAAP is that management laid out a longer sales cycle than I expected. Even though Foley catheters are well-known to hospitals, the company is expecting the sales cycle at most hospitals to include getting a committee to agree to a trial, then a three- to six-month trial, and only then will adoption of ROCM catheters and large orders follow. ROCM will slowly build its sales and marketing staff expenses, while orders will be delayed about 90 days longer than my original model. I still think the company will exit the calendar year — their December first quarter — at a $1.20 to $1.40 run rate on GAAP earnings. Due to the recent drop in the stock and the great buying opportunity that it is presenting, I’m making ROCM a Top Buy at current levels, and keeping the buy limit at $23 and the target price at $40.

ViroPharma (VPHM) beat the consensus for the March quarter, announcing yesterday before the opening bell. The company did $49 million in Vancocin sales, up 67% from last year on a 13% increase in prescriptions, because there were no problems with changing wholesaler inventories this year. They hit 31 cents a share compared to 12 cents last year. Wall Street was looking for $46.8 million and 26 cents. Management did a great job of holding costs down, as total expenses rose only 1% thanks to their switch to a new manufacturer for Vancocin. For the year, management predicted $195 million to $205 million in Vancocin sales, with a gross profit margin over 90%, while the consensus revenue estimate was at $204.4 million.

On the conference call, management said in the current June quarter that they will start the second Phase III study of maribavir in solid organ transplant patients and finish enrollment in one arm of the Phase II study of HCV-796 for hepatitis C. They’ll present four-week data on hepatitis C in the September quarter and 12-week data in the December quarter. They’ve also decided to commercialize maribavir in Europe themselves, rather than with a strategic partner.

They wouldn’t say anything directly about the FDA generics issue, but they are sponsoring a study to show that Vancocin does not fit the FDA guidelines for the kinds of generic biologics that could be approved without human clinical trials. It’s an interesting approach, and they have already buried the agency in scientific and legal arguments on this issue. As I’ve said all along, they expected generic Vancocin competition in 2009 anyway, and I doubt the FDA will accelerate that timetable.

VPHM’s convertible bond offering added $219 million to cash, which now stands at $481 million. They are actively looking for acquisitions or in-licensing opportunities to replace Vancocin by 2009.

Wall Street liked the numbers, and VPHM gained $1.23 yesterday before giving back 21 cents today. Buy VPHM on any market-related dip under $13 for my $28 target.

Content on Demand

Harmonic (HLIT) reported earlier, and I already covered the numbers in last week’s issue. But Richard and others asked: “Could you talk more about HLIT and its miss? It seems an overreaction unless they don’t like the revenue for the next two quarters.”

Here’s my broader view on the company, and why I think the overreaction in the market is an opportunity for us. The new CEO came in during the fourth quarter of 2005. Very quickly, he reorganized marketing and internal operations, and reduced headcount. He then redirected R&D spending to freshen the product line, returning it to be the technology leader, and he also did a major acquisition — all in his first year as CEO. As a result, we’ve seen increasing sales, flat operating expenses, three straight profitable quarters and a company on the offensive in the digital video industry. It was obvious on the conference call that he was upset with himself for not anticipating the product mix shift that cut his gross margins for the quarter, and because the order book has a more normal mix, he was able to say that margins will be back up in the June quarter.

Wall Street is looking for 38 cents a share this year and 51 cents a share in 2008. The company should do 51 cents a share this year, and that tells me HLIT’s time has finally come. I’m making HLIT a Top Buy under my recently increased $10 buy limit, while keeping the $16 target for this year.

Silicon Image (SIMG) reported today, after the market close, and I am about to get on the conference call. They did $69.1 million in sales in their March first quarter, up 17% from last year, and seven cents a share pro forma. The consensus was looking for $69 million and five cents. The company guided for $75 million to $79 million in sales in the current quarter, compared to Wall Street expectations for $79 million and eight cents. They said over 500 entities have now adopted HDMI, including 140 in China, compared to 388 this time last year. At the end of the quarter, they had $224 million in cash or $2.50 per share. If anything dramatic happens on the conference call, I will send you a Flash Alert. I don’t expect anything, and SIMG remains a Top Buy up to $13 for my $20 target.

New Energy Technology MegaShift

Connacher Oil & Gas (T.CLL) raised its estimate for developing their first commercial well, Pod One, on its Alberta tar sands property to $290 million from $256 million. This is still a lot lower than their competitors and is due mostly to the higher price of steel and bad weather interfering with their plans to stay on schedule during the winter. It won’t make any significant difference to our investment, though.

The company also said that there is a transient 7.5% decline in their crude oil and gas production that will not have a material impact on the March-quarter results. The good news was that they are well above expectations on the Montana refinery thanks to the widening spread between product prices and crude costs. Last summer, when gasoline went over $3 a gallon, there was about a $1.37 per gallon spread between crude and finished products. That fell (if you are a Republican) or was managed down (if you are a Democrat) to 85 cents just before the election. Since the election, though, it has steadily climbed back to $1.22.

In other news, Connacher cancelled its $50 million proposed stock offering due to market conditions. They can easily get the capital elsewhere, and wait for energy stocks to be back in favor before raising the money at higher levels, with less dilution. The stock is flirting with $4 and T.CLL remains a buy up to $4.50 for my $7 first target.

Gasco Energy (GSX) reported first-quarter earnings this morning. They did $6.4 million in sales in their March first quarter, down from $7.3 million last year due to lower interest income. They broke even both this year and last year, just above the consensus for a one-cent-per-share loss. Oil and gas prices realized were still lower than the prior year, and this will continue for another quarter.

Including the recent 10 million share offering, Gasco has a comfortable $25.7 million on the balance sheet. On the conference call, they said: “We have entered a period of commodity price uncertainty for a lot of these producers. We even believe that producers may not be able to sell all of their production regardless of price.” Therefore, they have entered a forward sale contract that gives them the opportunity to hedge through March 2008.

I think this is a mistake, because one of the big surprises for the rest of this year should be the steadily rising price of oil and natural gas, as rapid growth in China, a more normal hurricane season and geopolitical instability upset the relative calm of the last year. I would rather GSX be completely unhedged in that type of environment. I understand that they are tired of the price volatility jerking them around — just this year to date, Rocky Mountain natural gas has ranged from $2.05 and $7.11 per million BTUs. But I think they are partially locking in at what will turn out to be a lower price than they could have gotten if they ran unhedged.

While I don’t like management’s decision to be hedged for about a year, I don’t think its a bad enough one to sell the stock. The company is doing very well operationally with three rigs drilling, one of which is completing wells in 20 days. GSX remains a Top Buy up to $4.50 for my $9 target.

Ocean Power Technologies (OPTT – new symbol) was the subject of a Flash Alert yesterday. The commentary I have seen on this stock so far is way off base. I would summarize it as: “Ocean Power Technologies just did its IPO and the stock fell, showing it is too early to participate, especially since they need government subsidies to compete with oil.”

Wrong, wrong and wrong.

Ocean Power did its IPO on the London AIM market three years ago. The U.S. offering on April 25 was a secondary offering. You can call it a “U.S. IPO” if you don’t want to think globally, but the market had already established a valuation for the company, and it didn’t drop 37% in one day due to any fundamental change in the outlook.

As for the “government subsidies,” the cost of generating electricity from oil at $45 a barrel is about four cents a KwH. The cost of generating electricity from wavepower is 3.8 cents to four cents a KwH. The only other “alternative” energy technology that can generate electricity at four cents a KwH is onshore wind power, which is why utilities are willing to invest in wind farms. Guess what technology they are now starting to invest in, via pilot projects?

The Marine and Hydrokinetic Renewable Energy Promotion Act of 2007, a bill introduced last week in the House, would provide $50 million in Federal funds for tidal and wavepower R&D starting in 2008, as well as tax and investment credits. Also last week, the proposed wave farm in Cornwall, England, was granted $142 million in funding to provide free energy to 7,500 homes. Ocean Power Technologies is one of the three companies chosen to participate. Although it will only meet 3% of Cornwall’s electricity needs, this small demonstration project will make Cornwall a world leader in marine energy production, and focus attention on OPTT.

As Edward Gibbon said: “The wind and the waves are always on the side of the ablest navigators.” Navigating your way through the nonsense surrounding alternative energy technologies isn’t easy, especially with the hype around solar (25 cents a KwH), but I expect it to be very lucrative. Buy OPTT up to $20 for a quick move back to the mid-$20s, and a $40 target in a year.

Rentech (RTK) drew two questions from Robert: “Top management pays themselves a substantial amount and there are quite a few people for a start-up. Is this of concern? Second, you say they can convert coal to gasoline for $35 a barrel. Does this include the cost of the coal? What is the source of costs?”

Rentech does have a big executive group, but they are playing for big stakes and are in several simultaneous projects, plus they have a close relationship with the Department of Defense that needs to be managed. I agree that it doesn’t look like the average start-up, but I think that’s a reflection of the business.

I think the coal to gasoline conversion should be thought of as a $35 to $45 a barrel process, depending on the size of the plant and the pricing for some of the byproducts. That does include the cost of the coal. These are company numbers, and there are some pretty good comparisons from competitors like Sasol.

A biofuels bill now in the Senate mandates that the U.S. use 36 billion gallons of renewable fuel by 2022, up from 8.5 billion gallons in 2008. We burn about 140 billion gallons of gasoline a year. Coal fuels have so far been left out of the bill, which should get to the Senate floor in the next few weeks. Both Democrat and Republican staffers say a Republican-sponsored amendment including coal-to-liquids is likely. RTK remains a Top Buy up to $5 for my $11 target.

Royal Dutch Shell (RDS.A) reported earnings before the opening this morning. They did $73.5 billion in sales in their March first quarter, down 3.3% from last year. But unlike many energy companies that have posted disappointing earnings due to lower crude prices, Royal Dutch was able to leverage their businesses that use oil as a feedstock, like chemicals and retail gas stations, to post a 5.7% increase in earnings and beat the consensus for the fifth straight quarter. Shell is going to raise its dividend 14% to 36 cents a share. Pretty agile for a $300 billion revenue company.

Wall Street liked the numbers and the stock was up 1% today, or 76 cents. It is closing in on my target price, so I am moving RDS.A to a hold for the $75 target.

New Economy MegaShift

Omniture (OMTR) reported March first-quarter results on Tuesday. They did $29.2 million in sales, up 77% from last year and up 24% from the December quarter — their best sequential revenue growth in three years. They did two cents a share pro forma, while the consensus was for breakeven.

During the quarter, they added over 250 new customers plus another 200 through acquisitions, bringing the total to over 2,200. The company captured data from nearly 500 billion Internet transactions.

For the June quarter, the company guided for $32 million to $33 million in pro forma sales and zero to one cent per share, compared to Wall Street expectations for $32.4 million and one cent. For the year, they guided for $138 million to $140 million in pro forma sales and six cents to eight cents per share. Wall Street expected $138.1 million and eight cents. With results and guidance pretty much on target, the stock traded up a little, down a little, and is close to flat. OMTR remains a buy on a market-related dip under $15 for my $22 target.

WiMAX MegaShift

Alvarion (ALVR) reported March-quarter sales of $52.1 million, up 19% from last year as WiMAX begins its takeoff. They had 10 customers who bought more than $1 million each. BreezeMAX generated $33 million of the revenues, from 20 customers. The company made two cents a share pro forma, much better than the six-cent loss in last year’s March quarter. Analysts were looking for $51.1 million and a two-cent profit.

ALVR had a $4 million positive cash flow in the quarter, and now has about $120 million on the balance sheet to execute their marketing plans. They had more than 150 commercial deployments at the end of the quarter, plus about 220 active trials, many of them with operators interested in deploying mobile WiMAX. The company demonstrated mobile TV over WiMAX and, together with Intel, did the first live demousing Intel’s new WiMAX chip for the Centrino processor, which is destined for laptops this fall.

The company said that June-quarter revenues would range from $53 million to $57 million, above the Wall Street consensus for $52.8 million. Alvarion expects to report pro forma earnings of breakeven to three cents a share, compared to the consensus for two cents.

The stock hit a new 52-week high early this morning, but then fell back to close down 18 cents on the day. WiMAX is still the biggest deal in wireless this year, and Alvarion is the biggest independent in WiMAX. ALVR is a Top Buy up to $9 for my $18 target.

Ocean Power Technologies (OPTT – note the new U.S. symbol; still OPT on the London AIM market) reverse split their stock 1-for-10 on April 23 and did an initial public offering (IPO) in the U.S. that closed on April 25. In London, stocks typically trade or go public around $1, while in the U.S. the “serious money” price is $10, and low prices like London’s often put investors off.

Reverse splits are normally bad news for stockholders, because they are done by financially weak companies. Investors, who have held the low-price stock, see the higher numbers and often sell, not even realizing that they have fewer shares. I’ve almost never seen a reverse split that increased the company’s market capitalization after 90 days or so. But I thought there was a good chance that this one might not have an impact, because it was being done for cultural rather than financial reasons. Wrong.

After the reverse split, the stock closed at $23.45 on the London exchange. The company then did the U.S. initial public offering, pricing five million new shares at $20, the bottom of the projected $20 to $22 range. All the shares were sold by the company; there were no selling shareholders. There were 5.2 million shares outstanding before this offering, so they virtually doubled their capitalization and raised $90.1 million net of expenses.

The stock immediately broke from its offering price and plunged as low as $14.37 this morning (equivalent to $1.44 on the old stock). The plunge occurred because this was a badly botched offering by UBS Investment Bank, Banc of America Securities, Bear Stearns and First Albany. They clearly did not explain the company’s position well enough to provide support for the stock, and then went ahead with a $20 offering without having a solid enough book for the deal to support OPTT in the aftermarket.

But this offering does not affect the underlying value of OPTT, which gets to keep the $20 a share, or the company’s very bright future. I’ll have more about this situation in tomorrow’s Radar Report, including some news from a recent Congressional hearing on tidal power.

In the March 15 Radar Report, I raised my buy limit on the pre-split stock from $1.50 to $2, which is equivalent to $20 on the post-split stock. The market was saying Ocean Power was worth $125 million before this offering. If I simply add the $90.1 million in cash, and divide by the new number of shares outstanding, it should be worth $21.09 after the offering, as nothing else changed.

Take advantage of the market’s confusion and buy OPTT up to $20 for my $40 target. This one should bounce back quickly to the mid $20s — don’t let it get away. I’ll be quoting OPTT on the New World Investor portfolio page on the website. If you own the London shares, don’t worry — they will trade in lockstep. If you own the Pink Sheets shares, they should convert automatically to OPTT. If that doesn’t happen, contact your broker. You do not have to surrender certificates if by some chance you took delivery of the stock when you bought it. The stock is now dually-listed, so you should be able to sell stock bought in London and held in your account in the U.S., and vice-versa.