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Host Hotels and Resorts is poised for a decent run upwards over the next few months I believe. Between the months of May and July, the stock dropped from a high of $18.76 all the way down to $11.14, a drop of 40.6%. Ouch! Ever since that low, the stock has risen back up to it’s current price of $14.27. This is a gain of 28.1%. I think that the stock is on it’s way back up to at least $18/share before the end of the year. This would give it a gain of 26.1% from today’s price.

I have come up with this price target purely by doing a quick technical analysis of the stock’s chart. Take a look at the chart below to see how it has fared over the past three months.

Based on my calculations, the slope of this positive sloping trendline is about +$1.76/month. Remember though that this is a fairly arbitrary line that was chosen based upon my opinion of the chart. I believe that this line does represent a fairly accurate view of how the stock has moved over the past few months. Even more encouraging is that it has continued to fare well, even as the market has been very shaky over the past few months.

Based on a slope of +$1.76/month, I believe that the stock should be well situated in the $18s by November.

One should take note though of a strong patch of resistance between $17.25 and $17.50. As you can see in the chart below, the stock struggled to make it through the elusive $17.50 mark as it traded in a narrow band between $16.00 and $17.50 for about four months between the beginning of January through the end of April.

You will notice at the end of May HST ended its’ short lived one-month above $17.50. As soon as it dropped below this mark, the stock tanked and dropped all the way down to $11.14/share in a little over a month.

I think that the stock will have an easy run up to the $17.50 range and then stagnate for a little while. I would either sell at this point or put a trailing stop loss order on the stock with a roughly $1.50 trail to lock in your profits.

If you get in before 9/30/2008, you will also be eligible for the $.20/share dividend. That puts the current yield at abot 5.6%. That beats any certificate or money market account these days

About a month ago, I wrote a post about the best dividend paying stocks in the market at the time. The date for that post was June 16th, 2008. Since then, it can be seen that all of these stocks performed poorly during a period where the DJIA only dropped 5.9%. While that is a fairly large drop, most of these high dividend paying stocks have fallen by much more over this time period.

Take a look at the spreadsheet below to see how these companies have fared over the last month. Use the -5.9% to benchmark against the market.

In this spreadsheet, you will notice that GLS (Genesis Lease Limited) has been the only one with a price increase during this period, but this is only due to a recent run up in price over the past few days. Otherwise, this stock has been in decline ever since its high of $28.35 in June of 2007. The only other company to beat the Dow was CMO (Capstead Mortgage Company).

One other interesting thing of note is that the dividend yield increased on all companies except for the ones that cut them completely. The reason for this is because of the decrease in price. As the price drops, the project dividend yield increases as the price drops. It is easy to see that the dividend has risen on the majority of these stocks, but at the cost of the stock price

I recently went to the Fidelity home page and was welcomed by the news that they had created a new mutual fund. The name of the fund is the Fidelity Emerging Europe, Middle East and Africa (EMEA) Fund. The fund focuses on “the region of emerging economies from Russia through Eastern Europe and the Middle East and the entire African continent.”

Countries in the EMEA region could be seen to be highly risky because of the possibility of instability within the region. A major reason though that this area could potentially become profitable is because the “region is rich with natural resources which are in high demand in fast expanding economies. The region benefits from strong oil reserves, industrial metals, and precious metals.”

Countries in this region could potentially stand to have the largest percentage gains in their respective economies in comparson to the rest of the world. Traditionally, the EMEA region has “had low correlation to US and Developed (Europe, Australia and Far East) markets, as well as low inter-market correlation.”

As of 5/30/08 the fund had a NAV of $10.10 with an expense ratio of 1.42%. The average expense ratio for emerging market funds is 1.77%. This fund has been open since 5/8/09. To invest in this fund through Fidelity, one needs an initial deposit of $2500 and maintain a minimum balance of $2000. To find out more about this fund, click here. You can also find a quote for this fund from any financial website by using the symbol FEMEX.

Throughout the time that I have run this blog I have periodically chosen a few stocks and funds that I thought looked like winners. Now I am going to take the time to look and see how they have done since I first suggested them.

On 1/24 I chose Under Armour. On a 1-5 scale I gave them a 3.8. When I first recommended them they were trading at $35.66/share. The stock is currently trading at $35.48. Since I have recommended this company it has returned -.504%. During that same time period, the Dow Jones Industrial Average had a return of -.430%, and the S&P 500 has returned -1.42%.

On 1/28 I chose Generex Biotechnology. On a 1-5 scale I rated them a 2.5, right in the middle. When I first recommended them they were trading at $1.31/share. Since then, the stock has returned -12.2%. During the same time period, the Dow Jones Industrial Average returned -.472% and the S&P 500 has returned -1.56%.

On 2/4 I chose American Medical Alert Corporation. On a 1-5 scale I rated them a 3. When I first recommended them they were trading at $6.50/share. Since then they have returned 8.00%. During the same period, the Dow Jones Industrial Average has returned -2.45% and the S&P 500 has returned -3.48%.

On 2/9 I recommended Fidelity New Markets Income Fund. On a 1-5 scale I rated them a 4.5. When I first recommended them they were trading at $14.49/share. Since then they have returned .759%. In the same time period, the Dow Jones Industrial Average has returned 1.18% and the S&P 500 has returned .116%.

On 2/20 I chose Target. On a 1-5 scale I rated them a 3.2. When I first recommended the company they were trading at $53.40/share. Since then they have returned -2.68%. In the same time period, the Dow Jones Industrial Average has returned -.819% and the S&P 500 has returned -1.99%.

Based on this information, we can see that my stock picks mirrored the overall market fairly well. My two exceptions were Generex and American Medical Alert. Generex is an expecially risky company, while American Medical Alert has had some good things go their way over the past few months. I will try and update the performance every once in a while. The most important thing that this update shows is the value of a balanced portfolio.

Stock Chart

This post is an addition to the my previous post on Generex Biotechnology on January 28th, 2008.

In the news today it was reported that major drug maker Pfizer “reported an increase of lung cancer among patients who used its discontinued inhaled insulin Exubera.” This news lowered the outlook of having an insulin treatment that could be administered via an inhaler. Other companies such as MannKind Corp and Nektar Therapeutics Inc were punished on the market today. MannKind dropped by about 60%, while Nektar fell by approximately 25%.

Generex is another such company who seeks to create an inhaled insulin product. Today their stock skyrocketed 12.15% on two and a half times the average volume. It added an additional 1.67% in after hours trading. The rise is partially due to the news that they released today in regards to the company commencing their screening process for potential testing candidates. Generex is currently in Phase III trials in North America. According to the press release, “the Phase III protocol includes a six-month trial, which is expected to enroll 750 patients with Type 1 diabetes mellitus.” The purpose of the testing is to “is to compare the efficacy of Generex Oral-lyn and the RapidMist diabetes management system with standard injectable insulin therapy.”

A second reason that GNBT rose so much today could be in response to the Pfizer news. Pfizer and Generex are in the process of creating somewhat similar products. One of the major differences between the two is that Generex’s product is designed to never enter the lungs. This feature should eliminate the possibility that a user would develop lung cancer. For Generex, this news means that they have a couple of competitors that are forced to pull their products from development. Fewer competitors means more market share when Generex can finally get through its’ trials.

Currently, “Generex Oral-lyn is approved in India and Ecuador. The company also is studying the product in the Ukraine.” Revenues of only $19,000 in Q2 ended January 31st, 2008 suggests that their product hasn’t exactly been flying off the shelves abroad. One positive is that the company has been steadily decreasing their losses over the past three quarters. In Q2 2008 they reported a net loss of $6.507M on their income statement.

In the short term I think that that stock price should increase a bit more over the next few days to a week in a half while investors have time to digest this information. In the more near future (1-2 months) I see the stock falling to its current resistance of $1.00/share in anticipation of more losses on the quarterly statement. Since Generex (GNBT) finances their operations through the sale of their own stock this will mean a dilution of shares for the shareholders, thus translating into a lower price per share.

In Q1 08 and Q2 08 net income rose by 6.4% and 9.9% respectively. While these gains seem promising, Q2 shows a different story over the past few years. Net losses increased 25.2% when comparing Q2 2007 to Q2 2008. If losses increase like that for Q3, which had the highest losses over the past four quarters, we should be expecting a net loss of about $9.662M. Given a projected stock price of $1/share, the company will need to issue 9.662M shares to pay off its debt. Currently, the company has 111.48M shares outstanding. At the $1/share mark, that would give Generex a $111.48M market capitalization. After the issuance of the new shares the company should have roughly 121.14M shares outstanding. If market capitalization is to be maintained, the price of the stock should fall to roughly $.92/share.

$.92/share is my price target for mid-July. FY 2008 ends July 31st, 2008. At this point, the stock price will be very dependent on what is released in the annual report. I think that these targets will hold barring any sort of groundbreaking news. If this company can someday make it through the Phase III trials it will be a major winner.

Update 8/27/2008:

I decided to check back to see how my prediction turned out. In my opinion I think I was just about spot on. I had predicted a price target of $.92/share by mid-July. On July 22nd and 23rd it closed at $.91/share. All the other days it was lower than that, but two of them were almost exactly what I had predicted. On April 9th when I made this prediction, the stock was trading at $1.20/share.  That is a prediction of a 24% decrease in price over a 3-month period. Looks like my bold prediction turned out right!

Over the past half year or so the Dow Jones Industrial average has been steadily falling. Typically when this happens most mutual funds tend to mirror this pattern. Investors who just like to stick their money in mutual funds instead hand picking stocks may be in for a bit of a fall as well. For those mutual fund only investors you may feel like you are stuck without many options to pull your portfolio out of this downward spiral. There are a few mutual fund options out there though.

One option that I have recently discovered are Bear Market funds. These funds specialize in shorting stocks that they feel are headed in a negative price direction. By shorting stocks, they are selling shares that they do not own in hopes of buying them back later at a lower price. Funds like these tend have a pattern that is inverse of the market as a whole.

My favorite pick out of these types of funds is the Prudent Bear (BEARX) fund. Of the 39 such funds that Fidelity offered, it was the only one that had a positive return over the last 10 years. That return was 3.62%. Not incredibly impressive, but considering that the market was working against it during the majority of that time period it isn’t anything to scoff about.

The official goal of this fund per the Fidelity website is: “The investment seeks capital appreciation. The fund seeks capital appreciation primarily through short sales of equity securities when overall market valuations are high and through long positions in equity securities when overall market valuations are low. It may hold more short equity positions than long equity positions when the dividend yield for the aggregate stock market is low relative to its historic range.”

Here are the vital return statistics:

As you can clearly see, when the market has been doing poorly, this fund has excelled. To further back up this claim, the beta of the fund as of 2/29/2008 was -.68.

The funds three largest holdings as of 12/31/2007 were: Cash offset for short futures, SPDRs, and Capstone Mining Corp. The fund’s top ten holding account for 38% of it’s total holdings.

Some negatives for the fund is that it has a decent amount of fees associated with it. Here is a rundown:

• Management Fee: 1.25%
• 12b-1 Fees: .25%
• Expense Ratio: 2.33%

These types of funds may not be the greatest long-term investment given the markets traditionally upward price movement. It can provide a nice hedge against pullbacks and mini-recessions like we may be currently be facing today. I would recommend this as a solid fund for the next six months to one year, but definitely not as a long-term investment.

Now that I have sold my stake in MakeMusic (MMUS), I am on the search for my next investment. After doing a few screens through Fidelity I came across a company that could be poised to make some nice gains. The company is Host Hotels and Resorts (HST). In the past year the stock has seen about a 35% drop in share price from around $26/share to its current rate of $16/share. Since the first of the year it has been trading in a solid consolidation pattern between $17.30 and $15.50/share. I think that if the price gains 5% above or below these two benchmarks then it has reached a breakout stage and will post large gains or losses.

One thing that I really like about the company is that their profit margin has continued to expand each year since FY 2003.

Even as the company has continued to grow sales, they have also increased their efficiency. This is always a good sign that things are going well for a company. Another good sign for a company is the payment of dividends. Currently the company boasts a $.20/share quarterly dividend. At current prices, and assuming that the dividend will remain at $.20/share the company will be paying a 4.86% dividend. Try finding a CD that will pay you that much these days! A final positive indicator for the stock is that it’s P/E is only at 16.3 right now. In comparison, it’s TTM 5-year P/E average is right around 40. Given historical P/E levels, this stock should really be trading in the high 30s and low 40s.Another convincing factor is that 3 accurate analysts rate HST as a buy, one as an outperform, and one as a neutral. Analysts can’t necessarily predict the future, but given the fact that none rate it as a sell makes me feel even more confident in the company.

Also, compared to other companies in its industry, it is doing much better. Its net margin is 13.4% compared to the industry average of only 3.8%. Return on equity is sitting at 13.1% compared to 7.1% in its industry. Finally, it has a debt to capital ratio of 51% compared to the industry average of 62.9%. In this statistic more is not better.

With all the fundamentals going right for this company, I feel comfortable making this stock a buy. This morning I placed a $.50 stop loss on the security. If it hit’s $16 I may play the $16-17 game for as long as I can and hopefully rack up a few profits while I’m at it. One thing that troubles me is that since the US economy is starting to head in the wrong direction, it might mean that people will be taking fewer vacations, and therefore using hotels much less.

Overview: Target (TGT) is a large nationwide discount retailer. As of the end of the third quarter 2007 they had 1,591 stores nation wide. Of these stores, 210 were Super Targets. Since third quarter 2006, the company has built 97 new stores, an increase of 6.5%. Target has also had an increase of 34 Super Targets since Q3 of 2006. This is an increase of 19.3%. The Target corporation sells just about any type of household product imaginable from clothing to food to electronics. They have also supplemented their income with a strong credit card program. The company’s main competitor is Wal-Mart (WMT).

Review:

The Good: Target is a large well known company that is not going anywhere. They have a strong balance sheet and provide quality products to consumers. Target is a brand that consumers have come to know and trust for their everyday shopping needs.

Although Target competes with Wal-Mart, there are many people who despise Wal-Mart and have no problem paying a tiny bit more at a company that they feel has a better image. Many people feel that Wal-Mart exploits their workers and have other questionable business practices. Target makes a natural option for those who are opposed to shopping at Wal-Mart.

Their credit card program has been growing. Target currently offers a Target card through Visa. In comparing the 9 months ended for 2006 with 2007, the credit card contribution to earnings before taxes grew from $374 million to $463 million, a 23.8% gain. The company’s earnings before taxes as a whole for 9 months ended 2007 was $2,959 million. This means their credit card operations attribute to 15.6% of their total earnings. In contrast, credit card contributions to earnings before taxes were only 13.9% of total earnings. A strong credit card program like this means that they don’t need to rely solely on selling a ton of thinly margined items to turn a profit.

Within the company’s credit card business they have been highly effective in receiving their payments. As of Q3 2007, only 3.8% of accounts were over 60 days past due, and only 2.6% were over 90 days past due.

The company has had a share repurchase program in place since 2004. This is good for shareholders, because when the company retires shares of stock, they own a larger portion of the company. This will also help to boost earnings per share. In 2004 they initially declared they were going to repurchase $3 billion worth of shares. This number has grown to $8 billion in stock. To date they have repurchased $90.7 million shares of their stock for a total of $4.646 billion. This leaves about $3.3 billion left in repurchases.

Target pays a decent dividend which is currently yielding 1.05%. The past three quarters they have paid out $.14 per share.

The stock has slid from a recent high of $67.57 on October 5th, 2007 to its’ current price of $53.40. This is likely due largely in part to the fact that the economy didn’t have the strongest holiday quarter and investors have factored that into the stock’s price. Wal-Mart recently reported better than expected sales data which helped to push Target’s price up $1.18/share today. This good news from Wal-Mart comes at a convenient time for Target. Their Fiscal year for 2007 ends February 3rd, 2008. This means that that company should be releasing their annual report somewhat soon. Over the past few months the company has reaffirmed to investors that they should be meeting analyst expectations.

The Bad: The economy will play a large part in how Target performs over the long haul. They appear to have weathered the economic downturn fairly well, holding their stock price within the $60 - $65 range in 9 of the last 12 months, although the stock definitely took a turn for the worse when a lot of the negative economic news was starting to come out.

Although their credit card business has provided them with a boost in income, their net write offs as a percentage of average receivables increased from 4.8% for the 9 months ended 2006 to 5.7% for the 9 months ended 2007. The total net write-offs for each period increased from $215 million to $296 million, an increase of 37.8%.

A continued decline in the economy could create potential problems for their credit card program. If more and more people cannot repay their debts, then the company may have to write off even more bad accounts.

Rising costs of producing goods may cause the company to decrease margins in order to stay competitive with other companies, or increase prices to a point that consumers no longer want to buy their goods, or buy in less quantities.

Opinion: The main hindrances to Target’s growth are its’ increase in write-offs through its credit card program, and the fact that the economy has been going down the drain lately. They can’t really do a whole lot to turn the economy around, but they can affect bad debts and write-offs to a degree. If the economy is bad, they should make qualifying for their card a bit more difficult. If people with low credit scores typically have iffy payment history in a good economy, imagine what they will be like during the not so good times. If they are going to give credit to a barely qualified applicant, they should give a very low initial limit to therefore reduce the amount that these risky borrowers can default.

With Wal-Mart’s recent earnings surprise, it is possible that Target could follow suit, although they have been stating all along that they should be meeting and not exceeding analyst expectations. Either way this is good though considering the state of the economy. Now might be a good time for the company to reduce their rapid expansion. The economy is probably not ready for additional Target stores.

Rating:

Market Sector: The retail sector has been fairly weak as of late. I don’t really foresee that changing any time soon. Wal-Mart reported an earnings surprise, so that gives me a bit more confidence for this sector, but I am still a bit sketchy about how it will fare in the slower upcoming months.

Potential: This company is not going to be your four-bagger stock. Their price has tailed off over the past few months, but it could be due for a resurgence if good news is reported. Based on past trading history, it appears that it has hit a bottom of $50/share. Their lowest close was $48.08 on 1/4/2008. During that period, it spent a total of six trading days closing below $50. It closed below $50 three additional times, with the last being on 1/17/2008 at $49.94. Since its’ low on 1/4/08, the stock has gained 11%. $55 would be the next hurdle for it to get over, which I don’t really see happening in the near future, but this discounted price could be an excellent time to get in on this solid company. A return to $60 would be a nice 11% gain in addition to the dividends received.

Risk: There is a high risk that the economy could continue to fall and the company may not continue to grow as fast as investor expectations. This could lead to a sell-off and a reduction in price. It is fairly likely that this could happen over the course of the next few months. This could create excellent buying opportunities for this company at a discounted price. At a P/E of 15.64, which is slightly lower than Wal-Marts, I feel that anything below $50 is a great bargain.

Conclusion: 3.2 Target is a solid and sound company with a loyal customer base. The company has continued to expand operations, as well as participate in a large stock repurchase program. They also have a decent dividend to boot. The only thing keeping me from giving this company a higher rating right now is the fact that the economy is in such a worrisome condition. Poor economy = reduced consumer spending = reduced earnings for Target = depreciation in stock price. The short term outlook for this company might not be blue skies and rainbows, but over the long term an investor should benefit nicely with this stock in their portfolio.

Overview: American Medical Alert Corp. (AMAC) was formed in 1981. They provide healthcare communication and monitoring services. The company’s main market is naturally the healthcare community. Up until 2000 AMAC’s business relied mainly on the sale of emergency monitoring devices. Since 2000 they have expanded their company to provide complementary call centers and monitoring services for their customers. People with medical issues enjoy the peace of mind of knowing that if they run into trouble they will have a friendly and knowledgeable representative to talk to with just the push of a button. As of the end of Fiscal Year 2006, the company has built or acquired 9 call centers around the country. These call centers are located to serve the Southern New England, Mid-Atlantic and Midwestern states. Currently the call centers and the personal emergency response systems made up the majority of the income fore AMAC.

The company has recognized a new emerging technology that they are highly invested in. This new technology is called telehealth. Essentially, telehealth is a remote monitoring system that patients can use to help doctors diagnose their illnesses without having to physically visit the doctor. According to American Medical Alert Corp’s website, “This vital information is automatically transmitted via standard telephone line to a secure, Internet-based, HIPAA-compliant software platform, the AMAC iCare Desktop™. Authorized healthcare professionals can access, view and interpret patient results and take proactive measures to promote early intervention and positive reinforcement.” The company believes that the aging baby boomer demographic will be more open to accessing healthcare services from home. The company estimates that chronic diseases will affect over 5.6 million Americans over the age of 65.

Beyond the emergency monitoring systems and the call centers, the company also has a product that will remind its users to take their medications. This can be especially useful for those patients with Alzheimer’s disease. According to the company, “10% of all admissions to hospital and 23% of all admissions to nursing homes can be traced to medication mismanagement.”

Review:

The Good: This is a Medical Alert company that has been around since 1981, so they are not some new and unreliable company that was recently created to cash in on the aging baby boomer population. This company has an established and trusting client base, with a positive reputation around the healthcare community.

The products and services that they offer rely on older people who are generally more prone to accidents. Playing into AMAC’s favor is the fact that they baby boomer population is reaching the age where it will be important for them to have the products and services that AMAC offers. An additional plus is that life expectancy in the United States continues to increase. This means that they will be able to provide their products to each individual customer longer on average than they did ten years ago. This should help to increase customer retention. If a customer is happy with the products and services that American Medical Alert Corp. offers, the only reason they will cancel is if they die. For the fiscal year 2006, 96% of the company’s revenues were generated through monthly recurring revenues (subscriptions). Obviously a longer life span is something viewed in a very positive light by AMAC.

As of February 2007, the company entered into an agreement with Wallgreens to be the provider of emergency response systems (EMR) for the store. These EMRs would be produced by AMAC, but branded under the Walgreens name. This would allow for the company to get more product sales under a more well known and nationally recognized name.

The subscription portion of their business, which provides 96% of the company’s revenues has been becoming more efficient over the years. Their gross margin in this segment has increased from 49% in 2004 to 52.5% in 2006. This number is especially impressive due to the fact that they have been opening new call centers over the past few years. It would seem as though the costs to train all the new employees would bring down this figure. It seems as though AMAC has become experts in opening new call centers.

The Bad: The company has been experiencing many technical difficulties with its’ telehealth products like the Health Buddy and the PERS Buddy. Although the company has been taking steps to fix these issues, this could deter some users from renewing their subscriptions, as well as create negative word of mouth advertising about the company.

The company generates 13% of total revenues through the government’s Medicaid programs. If eligibility and reimbursement restrictions were to change, it could adversely affect AMAC’s overall revenue. It is possible that changes in the Medicaid program could be advantageous to the company as well.

If you are hoping to obtain dividends from this stock, they do not plan on paying out dividends at any point in the near future. Depending on your outlook for this stock, this could be seen as positive since they will be reinvesting their profits into the expansion of the company.

The company’s revenues are heavily leveraged with their subscription services. 96% of the company’s revenues come from this portion of their business. If a few healthcare providers decide to switch away from them this could negatively impact all facets of the company’s operations.

As of September 2007, AMAC had $588,361 in inventories, but had only sold $339,778 in product. It seems like AMAC is producing far too much inventory. It doesn’t make sense to hold more in inventories than you can sell in three quarters. Changes in technology could make this inventory instantly obsolete. These inventories would be pretty much worthless to AMAC.

Opinion: American Medical Alert Corp. has a fairly solid business model. They are in the business of making sure the elderly can maintain the independent lifestyle that they are used to, while having the safeguard of having someone in the medical field be only the push of a button away. Although this is nice business model it is not unique only to them. There are many other companies out there that provide the same services. Judging by the consistent increase in revenues by the company, they have managed to stand apart from the competition. With the aging population, they should have customers for life once they decide to join their service.

I would like to see the company create more revenues from places other than just their subscription service. Their partnership with Walgreens should help to grow their subscriber base. It should also increase their product revenues as well. Having their product backed by a national brand like Walgreens should add some credibility to the company and should make it accessible to more people.

Rating:

Market Sector: Once again, with the increase in age of the baby boomers, the company should be able to take advantage of a long term subscriber base. This market will be growing, and naturally we should expect to see a lot of new entrants into this market hoping to make and easy buck off this emerging market.

Potential: AMAC has a decent amount of potential. For them to truly expand, they need to expand their operations across the country. Rather than pay out dividends, it seems like the company has been investing their profits back into themselves by buying up additional call centers to better help their growing subscriber base. Since AMAC has teamed up with Wallgreens, now would be a good time to begin to expand nationwide now that the product has become available to more and more people.

Risk: AMAC actually has a decent amount of risk associated with it. They have invested a lot of money into the call centers, but ever changing technology could have an negative impact on the call center environment. A large amount of the debt on the company’s financials is related to the expenditures on additional call centers. If call center technology becomes obsolete, AMAC could be paying off defunct call center related debts for quite some time.

Conclusion: 3. The company has consistently improved revenues quarter after quarter. If it can correctly position itself over the next 5-10 years for the retirement of the baby boomers, they should be able to easily cash in on the situation. I don’t see the stock making a large price jump any time in the near future, but rather see it steadily increasing over the coming years. I see this stock as more of a buy and hold for the long term. This stock should be a steady performer over the coming years and a nice addition to a portfolio.

Note: As of 2/4/2008 I do not have any financial investment in this company. For a current listing of the stocks and options that I own, click here.

Overview: Generex Biotechnology (GNBT) is a pharmaceutical company based out of Toronto, Canada. This biotech upstart is in the process of creating a glucose spray/inhaler for those with diabetes. Presently, people with diabetes have to inject themselves with insulin daily in order to keep their body functioning properly. They are currently in the process of beginning Phase III trials for the FDA. Their product has already been approved for use in Ecuador. According to Generex, they can potentially use the inhalation delivery method to disburse monoclonal antibodies, human growth hormone, fertility hormone, estrogen, heparin, and a number of vaccines. The company has decided that it would be more cost effective if they focused on the insulin product until they develop a steady and reliable revenue stream.

Review:

The Good: This company has a very novel idea that could potentially change the lives of people with diabetes. Currently, diabetics have to inject themselves with insulin to keep their bodies healthy. Injecting oneself with needles on a daily basis would not be a very enjoyable experience. With the creation of this product a diabetic can get their daily dose of insulin by using a delivery method similar to what people with asthma use. The delivery method that is used is called Rapid Mist. With the Rapid Mist system, the patient sprays the formulation into their mouths. “Absorption of the pharmaceutical agent occurs in the buccal cavity, principally through the inner cheek walls.” The flagship product for the Rapid Mist delivery system is Generex Oral-lyn. According to the company, “Generex Oral-lyn™ is a liquid formulation of regular human insulin that is delivered to the buccal mucosa by way of the RapidMist™ device,where absorption is limited to the mouth with no entry into the lungs. The rich vascularity of the buccal mucosa allows for much faster absorption of insulin and a shorter total duration of activity which makes Generex Oral-lyn™ an ideal prandial insulin as it can be conveniently administered immediately prior to meals with little prospect of hypoglycemia.”

Generex believes that the injection method is not highly accepted by a large amount of patients. Because of this, they feel that patients may not be as likely to comply with the prescribed treatment plan. This could lead to more medical complications and increase costs over the long run as well. The elderly may also have problems injecting themselves properly as they age. Having an inhaler devise like Rapid Mist would likely eliminate many of the above mentioned problems.

Another plus for Generex is that there is unfortunately no cure for diabetes. People with diabetes will remain dependent on insulin products for their entire lives. If Generex can bring this product to market they will have customers for life. If their condition is not treated with daily insulin, “diabetes can lead to blindness, nerve disease, amputations, heart disease and stroke.”

According to the World Health Organization, there are over 180 million people with diabetes world wide. There are approximately 18 million people with diabetes in North America. This gives any company dealing with diabetes medicine a very large and permanent subscriber base.

Institutional investment is currently at 2%. An increase in institutional investment could cause dramatic increases in the company’s stock price. Also, because this figure is so low, and institutional sell off would not likely affect the stock price by much. As of 11/26/2007, Ghi, Inc was the largest institutional investor, holding 1.91 million shares of the company.

The Bad: The company is still a ways away from being able to market this product in the United States. They are just entering the Phase III trials that are vital to the future of this company. If they cannot make it through these trials, then the company will most likely cease to exist. If they can manage to make it through the Phase III trials though, one could profit handsomely.

Generex is burning money like it grows on trees. According to their 2007 annual report, they spent $11.983 million on Research and Development and an additional $12.317 million on General and Administrative expenses. Combine this with $.182 million in revenues and you have an operating loss of $24.994 million. Since 11/2/1995 when the company began operations, they have a total operating loss of $162.466 million.

The company has financed almost all of their operations through the sale of stock. At their current cash burn rates, they will continue to have to issue more and more shares to keep themselves afloat. The issuance of more shares will dilute the share value. At the current stock price of $1.31 per share, the company will have to issue 5,553,073 additional shares to satisfy their current liabilities.

The largest negative facing this company is that they may not be approved by the FDA. If this happens the company will be worthless to investors.

Opinion: I think that Generex is a very speculative company that has a great product. If approved it could change the lives of millions of people around the world. Bringing a pharmaceutical product to market is a very costly venture, and it could be a long time before Generex Biotechnology sees a profit. I see a lot of potential in this company and if they make the right moves they can become very profitable.

I like the fact that Generex is seeking approval in companies outside of the United States as well. Having a product for sale in Ecuador shows that their product has been accepted and leads me to believe that their product can be accepted elsewhere as well. Even if they don’t get approved in the United States they could still have potential access to over 90% of the world’s diabetics. One drawback of this is that people in other countries may not have the funds to purchase Generex’s product.

Rating:

Market Sector: The Biotechnology sector is generally very speculative and volatile. This stock is not exception. This company has little revenue to speak of, so literally all price movements are a reflection of current speculation on the viability of this company. There are many Biotech companies out there, and it is possible that one invents a product superior to what Generex is attempting to produce.

Potential: Generex has an awesome potential. If they can get their product to the market I would imagine that many diabetics would want to switch to it to avoid having to inject themselves. There is really an unlimited potential for this company. At $1.31 it is priced very low which would allow an investor to make significant returns quite easily.

Risk: This is a very risky company and the price definitely reflects that. If you believe in the product that Generex Biotechnology (GNBT) is selling, now would be the time to get in on the stock before a press release pushes the price higher. Alternatively, there is a high potential that the Phase III trials could fail and the product will never reach the market. If you have a little extra cash sitting around, this company could make for an entertaining speculation.

Conclusion: 2.5 Generex Biotechnology (GNBT) is a very promising company with a unique product. I can’t quite rate them a hold (3) because they have been experiencing a steady decline for the past month and a half. On 12/14/2007 the stock closed at $1.90. It has dropped over 31% since. It could have a ways to go until it hits a bottom. I would keep my eye on this stock over the next year or so. If things go right for Generex it could see a nice price appreciation.

Note: As of 1/28/2008 I do not have any sort of financial investment in this company. For a current look at the stocks and options I own, .