11:40pm (EST)

 

1.  Market Summary 

2.  Ampio Pharmaceuticals (AMPE) – A Sleeper Buy?   

3.  Our New Favorite Pie (Revisited)

4.  Earnings

5.  Weekly Wrap Portfolio Update 

6.  Week Ahead

 

(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section.  Please give us about an hour as the website is currently loading the charts)

 

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1.  Market Summary   

“Here at home the Federal Reserve did nothing and disappointed the suit-and-ties who were looking for a QE3 sugar fix.  We repeatedly said the Fed wouldn’t act but the zombies will be meeting again at the end of the month in Jackson Hole, Wyoming. 

There is a strong feeling that some type of stimulus package could come in September and if there is, Fed Chairman Ben Bernanke, could use the conference as his stage.  He did in 2010 when he announced a QE (quantitative easing) program which lead to a 10% September rally for the S&P.  The index closed at 1,049 on the last day of August 2010 and reached a peak of 1,157 before closing at 1,141 on September 30, 2010.    

Of course, the belief was the Fed would have acted this week if Nonfarm payrolls would have been a disaster but the bottom line is they won’t act until the fuse is about to blow.  This means the ball will be in Europe’s court until they drop it and the market will still be subject to headline risk.

The key to everything going smoothly for the bulls is Germany which has opposed much of the shenanigans from the weaker countries in the eurozone and seems to be getting tired of the bailouts.  Spain could ask for one this week.  If Germany goes along with the ECB’s “new plan” then we would expect the market to rally but again, this could take a few weeks.

Economic news will be light this week and 2Q earnings season is winding down.  Volume has been super low and August is typically a slow and weak month for Wall Street traders as they get the last of their summer fun in. 

The charts are showing mixed signals with the small-caps lacking while Tech and the big-caps are pushing possible new highs.  If we get a tenth-straight lower Monday, it would be good news for the bears. 

If Monday turns out to be bullish, along with the upcoming Friday, the market could test its highs for the year with a possible breakout on deck.  A lower Monday and a negative Friday could mean the indexes have topped and we stay in the trading range with pressure to the downside.  However, August election years are tricky as they can sometimes be VERY bullish so both scenarios are possible.”  (from 8/5/2012 Weekly Wrap/ Monday Morning Outlook)…

The bulls were finally able to snap the bears 9-straight Monday win streak and were able to push resistance throughout the week.  On Friday, the major indexes closed above another bullish level and could challenge their 52-week highs on continued momentum.  The bears were happy to hold the top of the current 3-month trading range but they are losing their bite as the S&P 500 closed higher for the fifth consecutive week.

The Dow added 43 points, or 0.3%, to finish at 13,208 on Friday.  The blue-chips held the 13,100 level and peaked at 13,215.97 on Tuesday while Friday’s 13,094 print was the low for the week.  The next wave of resistance is now at the May peak of 13,338 and we have said a close above 13,350 could signal a bullish breakout.  The bears will try to get a close below 13K, first, and then target a test back to 12,800.  The Dow came into the week at 13,096 and was up 112 points, or 0.9%, by Friday’s close.  For 2012, the blue-chips are showing a gain of 991 points, or 8.1%.

Here is last week’s chart of the Dow:

The S&P 500 gained 3 points, or 0.2%, to settle at 1,406.  The index held green all week and the low came on Monday’s open which was at 1,391.  The close above 1,400 on Tuesday was bullish after the intraday high of 1,407.  We have said a close above 1,400 could lead to a test to 1,425 and if cleared, it could be the start of a bullish trend through yearend.  The bears will try to get the action back below 1,400, quickly, and would like to push 1,390 to start the week.  From there a test back to 1,375 could be in order.  The S&P 500 was at 1,391 to start Monday’s open and popped 15 points, or 1.1%, for the week.  For the year, the index is higher by 149 points, or 11.8%.

Last week’s chart for the S&P 500:

The Nasdaq advanced 2 points, or 0.2%, to end at 3,020.  Tech opened the week at 2,978 and traded to a low of 2,974 on Monday’s start of trading and opened at 3,002 on Tuesday which held for the rest of the week.  The close above 3K was bullish and now puts 3,100-3,150 back on the map.  We would wait for a close above the latter to confirm a possible trend change.  The bears will try to crack 3,000 to start the week and could push 2,950 on any bad headline.  They would feel safer if Tech plunges 3% to 2,900 and the 50-day MA but that would be asking a lot given the tight range we just went through.  The Nasdaq started the week at 2,968 and was higher by 53 points, or 1.8%, by the weekend.  Year-to-date, the index is up 416 points, or 16%. 

Here is last week’s chart for Tech:

The Russell 2000 slipped a little over a point to close at 801.55.  The small-caps opened the week at 789.27 which was the low and closed above 800 on Tuesday.  We said last week the bulls had a good chance of clearing 800 which could lead to a possible run to  825.  Wait for a move above 810 to confirm.  The bears will look to trip the bulls back below 800 but they will need to push 790, quickly, if they are going to keep the action contained.  The Russell 2000 came into the week at 788 and was able to tack on 13 points, or 1.7%, for the 5 trading days.  For 2012, the index is higher by 61 points, or 8.2%.

Here is last week’s chart for the Russell 2000:

The S&P Volatility Index ($VIX, 14.74, down 0.54) dropped 3% on Friday following a $1 billion buy order at the close which gave the market a lift.  The talking heads were tripping over themselves to make this announcement by the bell and the close below 15 was bullish.  We said last week to watch the mid-July low of 15.45 which triggered on Tuesday and Wednesday’s close on the VIX was 15.32.  The next downside is now at 14.43 which is the VIX closing low from mid-March.  The intraday low was 13.66 and when the S&P reached its peak for the year.  The bears will try to push a pop back above 15 to start the week and a finish above 17.50 would signal a top could be in for the indexes.   

Last week’s chart of the VIX:

For kicks and giggles:

We are neither bullish nor bearish at this point as we have said the market could test the top of its trading range after the S&P cleared 1,375 at the beginning of the month.  Although we haven’t purchased call options for the Daily, the 3-month trading range has been good for our Weekly Wrap as we could be closing up to 3 trades this week.  Trading ranges causes option premiums to evaporate which allows us to write more options to lower our cost in the stocks we have in the Weekly portfolio.  Also, some of our “diamonds in the rough” are going to be huge triple-digit winners down the road so we aren’t worried about trading ranges or an up or down market. 

This doesn’t mean we won’t be purchasing call options for the Daily if there is a breakout and a new trend change as we have a number of trades on our Watch List to play a test to the 52-week highs.  We may also release 2 or 3 trades on Monday’s open just to play for the week.

However, we want to stress we can play it cool while we wait for a breakout or a breakdown.  We mentioned last week there will be plenty of time to by calls and participate in a blue-sky breakout but we just don’t feel safe in doing so until that happens.

The charts are still showing mixed signals with the Dow and Russell 2000 pinned under their middle uptrend channels while the S&P 500 and the Nasdaq are showing some strength.  The VIX appears to be headed lower but volatility is at historic levels that often signal a reversal. 

Earnings are starting to wind down with nearly 450 of the 500 S&P companies having confessed.  The numbers are showing nearly 70% of them have beat earnings but we are more interested in how many companies missed on revenue and lowered guidance.      

The tight trading range is normal during the summer doldrums and the test at this next level of resistance has come on very low volume.  There were no convictions on any of the pops higher throughout the week as you can also see in the charts.  Wall Street is bracing for the Fed and Europe (and now China) to do something by the end of the month. 

While this week is options expiration, which usually brings added volatility, it wouldn’t surprise us if the market stayed range bound near the top for another week or two and pushed new highs.  Economic news this week has the potential to move the market 2%-3% which would get the indexes near their peaks for the year or back to near-term support which we have outlined.

We mentioned last week that we aren’t missing anything if this rally is sustainable because there could be another 5%-10% move if the 2012 highs are cleared.  On the flip side, the downside offers much more profit potential as you can see from the breakdown in May to June on the charts.  The Nasdaq hit an intraday high of 3,085 on May 1 and was at a low of 2,726 by June 4.  This was a 12% drop in a month.

Again, we are neutral on the market because trying to trade the market at these crucial levels is hard, very hard.   We have outlined targets which will define the next trend. 

We were bullish to start the year as you can see the rally from late December to the beginning of April on the charts.  Many of the talking heads and market pros were bearish because the “Christmas” rally never came but we started to load up on call options.  The suit-and-ties called for a market pullback all January long and into February which is when we hit a mini trading range.  In April, we went bearish when all of the knuckleheads said the market would rally and by the end of the month, we started banking profits for our May put options. 

The pros were still bullish for May as they said there wouldn’t be a “sell in May and go away” downturn.  There was and we continued to lock-in profits with put options.  The dip in June is when we opened our last “batch” of trades for another possible leg lower but support held when the market was on the verge of collapsing.  We are still trying to get through these trades but some of them may not recover.  We have closed 7-out-of-our last 8 option trades as winners but we could get caught with the remaining August puts as we will run out of time by Friday’s close.   

The bounce back to the top of the trading range that has ensued over the past few months has produced mixed results but we try to trade through trading ranges with the expectations of hitting on half of our trades.  For the year, we are at 112-31 for ALL of our trades which is a 78% win rate so we can be patient.    

Trading at these key levels of support and resistance is one of the hardest tasks as an option trader and as aggressive as we can be, we have cut back on our trading.  We don’t mind trading through them if they are short in nature but this one has dragged on for 3 months and could go on for the rest of the month. 

We have learned over the years to scale back when we encounter them but the good news is that we have plenty of room to add new trades on a breakout or breakdown.  And our Weekly Wrap always keeps us “in the market” as we manage our positions daily on monthly when we sell options.

 Again, we can be bullish if we need to be but we are still expecting a trading range that could produce a test to the 2012 highs or a slight pullback to support which was prior resistance – until the Fed or Europe makes a move.

As we head to press, futures are showing a slightly lower open for Monday.  Dow futures are down 30 points to 13,142 while the S&P 500 futures are lower by 4 points to 1,398.  The Nasdaq 100 futures are off a six-pack to 2,715.      

 

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Key of Technicals Used In Following Articles

2.  Ampio Pharmaceuticals (AMPE) – A Sleeper Buy?

Drug companies get a lot of focus because Big Pharma is losing a number of drugs to expiring patent protection.  They will likely buyout smaller drug makers to find the next blockbuster drug or to at least make up the loss.  Ampio Pharmaceuticals (AMPE, $2.84, down $0.04) is an unknown company with a seemingly promising pipeline.   

Finding new medical uses for previously approved drugs accelerates development and improves success rates.  It reduces the risk of failure due to the drugs having already completed extensive safety records.  Clinical trials can often begin sooner.  In the U.S., approval is usually done by a New Drug Application, whereas in the EU it is under the “hybrid abridged” procedure.

On the NMEs, the company believes that drugs derived from naturally-occurring human proteins and peptides may have a higher chance of success in development.

The table below shows its four drugs in its pipeline.

Zertane

Phase III trials

Treats male sexual dysfunction for premature ejaculation

Optina

Phase II trials

Treats diabetic retinopathy, diabetic macular edema, and hereditary angioedema

Ampion

Phase II trials

Treats chronic inflammatory and autoimmune diseases

Vasaloc

Phase I trials

Treats diabetic nephropathy

Zertane, Optina, and Vasaloc are all previously approved drugs.  Both Zertane and Optina are oral drugs, meaning they are taken through the mouth.  Ampion is a non-steroidal (not a steroid) biologic, aspartyl-alanyl diketopiperazine (DA-DKP), a naturally occurring cyclized N-terminal fragment of human serum albumin (HSA).

Premature ejaculation (PE) occurs when a man has an orgasm sooner during intercourse than he or his partner wishes.  There is no way to prevent this disorder, however treatments include relaxation, antidepressants such as Prozac and other selective serotonin reuptake inhibitors (SSRIs), and anesthetic cream.  The following drugs are already on the market.  Dapoxetine is a short-acting SSRI and is the only drug with regulatory approval in Europe for premature ejaculation.  It is waiting for FDA approval.  Tramadol is an FDA approved atypical oral analgesic for mild pain and works somewhat like an antidepressant.  It has few side effects, low abuse potential, and increases intravaginal ejaculatory latency time (IELT) 4-20 fold in greater than 90% of men.  Clomipramine is sometimes prescribed to treat PE.  One side effect of the drug can help delay ejaculatory response.

The main ingredient of Zertane is tramadol.  In June of 2011, the company completed a phase III trial in Europe with Zertane as a fast dissolving oral tablet, showing a statistically significant improvement in IELT and female partner satisfaction.  On July 2, 2012, the company said it plans to develop a version that will treat both impotence and premature ejaculation.  Indian drugmaker Syngene will manufacture the combination drug, so Ampio and its partner Daewoong can conduct late-stage clinical trials.  No drug has yet been approved in the U.S. for the treatment of premature ejaculation.  The FDA does not recognize premature ejaculation as a medical condition, so the company can only seek approval of Zertane in markets outside of the US.

Diabetic retinopathy is damage to the eye’s retina that occurs with leakage of fluids in the eye caused by long-term diabetes.  There is no effective daily drug treatment for diabetic retinopathy other than general measures such as controlling blood sugar, hypertension, and blood lipids.  Diabetic macular edema (DME) is swelling of the eye caused by leaking macular capillaries and is the most common cause of visual loss in diabetic retinopathy.  Hereditary angioedema is a rare but serious genetic problem where the immune system causes swelling, particularly of the face and airways, and abdominal cramping.

Optina is a reformulation of danazol, a derivative of the synthetic steroid ethisterone, a modified testosterone, that has been used for the treatment of endometriosis in women for nearly 40 years.  Endometriosis is the abnormal growth of cells outside of the uterus, which increases the risk of epithelial ovarian cancer.  It also causes pain, infertility, and heavy or irregular bleeding.  Safety and side effects are well known and documented at dosages of 400 to 800 milligrams.  Danazol’s use has been largely discontinued due to side effects of benign liver adenomas and cancer of the ovaries.  The company is applying for smaller dosages of approximately 20 milligrams.  It was found that at lower dosage it inhibits fluid leakage from the vessels into the tissues.  It is possible that smaller doses will have less side effects.

Laser therapy and Lucentis® are the major currently known potential competitors to Optina.  Laser therapy is the standard of care and slows the progress of the disease but does not stop the eventual blindness.  It also causes damage to the retina.  Lucentis® was recently approved in Europe for the treatment of DME.  It is an effective therapy that requires injection directly into the eye several times a year.

Vasaloc is also a repositioned compound based on a low-dose formulation of the danazol.  Diabetic nephropathy is a disease of capillaries in the kidney.  Main treatments are ACE inhibitor drugs and angiotensin receptor blockers (ARBs), both treatments for hypertension.  ACE inhibitors hinder a blood pressure-regulating enzyme, thereby decreasing the tension of blood vessels and blood volume, and thus lowering blood pressure.  Since lower dosage of danazol inhibits fluid leakage from the vessels into the tissues, it may be able to also lower blood pressure.

Ampion was synthesized from the molecule comprising two amino acids that have been shown to naturally inhibit the body’s inflammatory processes.  Dr. Bar-Or, Chief Scientific Officer and Director, found these two amino acids when analyzing the blood and the cerebrospinal fluid of patients who experienced brain swelling from severe head trauma.  The non-steroidal has been safely administered to patients for over 50 years.  And as being a biologic, it has few side effects.  Thus, approval of the drug may not be far.

One case that shows the efficiency of Ampion was Norm Johnson of Australia, who had extreme knee pain.  Within one hour after receiving a single injection from a clinical trial, he could walk pain free.  Although this seems a little too good to be true, it is good noting. 

The figure below shows Ampion’s market potential as predicted by the company.  As shown, there can be many applications of the drug.

 

The company is also developing a handheld oxidation-reduction potential diagnostic device for use at home or in healthcare facilities that will measure the oxidants/ antioxidant balances in human blood and plasma.  The ORP measurement has the potential to indicate if a patient is ill enough to warrant further costly and extensive testing or to be sent home due to healthy readings.

For the 1st and 2nd quarters, licensing revenue was $12,500, up from zero a year ago.  Expenses were $3.009 million and $2.279 million, respectively.  Expenses a year ago were $2.237 million and $1.577 million, respectively.  Revenue rose from a year ago but is far below expenses.  And expenses fell in the 2nd quarter from the 1st quarter but rose from a year ago.

Current assets have climbed from $4.7 million in the 1st quarter of 2011 to $11.4 million by the end of that year.  Since then, they have fallen to $7.1 million.  Current assets consist of cash and cash equivalents, prepaid expenses, and related party receivable.  Current liabilities have fallen from $2.0 million in the 1st quarter of 2011 to $0.9 million is the 1st quarter of 2012.  In the past quarter, they rose to $1.1 million.  If current fall of current assets continues and current rise of current liabilities continue, the company has 3.9 quarters to burn cash.

On the positive side, it has no debt.  Price/book is not too high.  Current ratio says that it has 6.49 times more current assets than current liability, far higher than 2 recommended by accounting standards to signal sufficient financial strength within a company.  Institutional ownership is rather low but not uncommon in developmental stage companies with no profits or analyst coverage.  And the fact that institutions are buying, although in small amounts, is a positive sign.  Price appreciation usually follows institutional buying.  And it is nice to see that insiders have a large stake in the company.  Insiders have been buying shares, but the last recorded purchase was on January 17th.  Stock was $3.81 back then, higher than its current price.  Lastly, it is also very positive that many short sellers are covering.

Certainly, there are still enough question marks about the company, and investing in biotech is always risky.  However, if proven, Ampio Pharmaceuticals could have a promising pipeline.  At this point, it may be best to trade it.

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3.  Pizza Inn (PZZI) – Our New Favorite Pie (Revisted)

 

Special Alert!!!  This was our original write-up from mid-February for Pizza Inn and we will have additional comments in the Trade Update below.  We had a lot of signups over the weekend (Thank You!) and this is one of our favorite stocks to own for the next 2-3 years.  If you ever wanted to own a possible high-growth stock at dirt-cheap prices, here is your diamond in the rough.  Pizza Inn closed at $3.10 on Friday after trading to a high of $3.49 intraday.

From February 12, 2012 Weekly Wrap:

Pizza stocks like Domino’s Pizza (DPZ, $32.46, down $0.76), Papa John’s (PZZA, $38.69, down $0.40), and Pizza Hut, a division of Yum Brands (YUM, $64.74, down $0.17) are all at 52-week highs but we may have found a diamond in the rough with Pizza Inn (PZZI, $4.87, up $0.16).

Despite having no analysts’ coverage, shares have been surging over the past year.  The 24% drop after its 2nd quarter earnings report last week has, however, brought the stock back closer to its long-term average price of $4.

The $39 million company based in Colony, Texas is known for its thin crust, specialty pizzas, pizza buffet, and friendly service.  It offers dine-in, carryout, catering, and delivery services.  Delivery/carryout restaurants are located in shopping centers or near retail stores.  Its express restaurants are located in convenience stores, food courts, college campuses, airport terminals, athletic facilities, and other commercial facilities.  It also operates Pie Five Pizza restaurants which also operates in athletic stadiums and educational and hospital facilities.

The company’s menu includes specialty pizzas like Ham Cheddar Bacon, Bacon Cheeseburger, Taco Pizza, Everything Monster, Chicken Fajita, and Buffalo Chicken.  They also prepare Max pizzas, which are loaded with maximum toppings for added flavor, including Pepperoni Max, Veggie Max, and Meaty Max.  Although the Bacon Cheeseburger is also sold by Domino’s Pizza (DPZ), a competitor, the preparation, style, and combination is unique to the chain.  Everything Monster pizza is also not sold by any other chain.  And their signature Original Thin Crust makes the Taco Pizza different from competitors.

Their buffet allows one to try each pizza, plus if they do not have your favorite pizza on the buffet, they will make it for you.  There is also a salad bar.  Customers can choose between Original thin crust, New York pan crust, stuffed crust, and Italian crust.  And for something other than pizza, they have appetizers of chicken wings and breadsticks as well as ham and cheese Stromboli, pasta, and meatball, Chicken Fajita, and cold cut sandwiches.

But the main attraction might be their signature desserts.  The chain prides on having the world’s first and only “Pizzert” dessert pizza, which can be topped with chocolate chips, Bavarian Crème, or real fruit.  Their Cinnamon Stromboli™ is also a hit.

Having been started in Dallas, Texas across from the Southern Methodist University campus, the company operated 141 buffet restaurants, 32 delivery/carryout restaurants, 45 Express restaurants, 1 Pie Five restaurant, and 79 international restaurants as of June 26, 2011.  As of the same period a year ago, they operated 151, 35, 49, 0, and 77 respective restaurants.  Thus, total restaurants fell from 312 to 298 during that period.  Despite the fall in restaurants, it has a presence in almost every state in the southeast, as shown in red.

In their 2nd quarter earnings release after the bell on Wednesday, February 8th, the number of restaurants changed to 136, 30, 47, 4, and 82 respectively.  Thus, the total number of restaurants is about the same while international operations are increasing.  This may not sound good on the surface, but the increasing international presence may boost sales.  In the 2nd quarter, they expanded into China.

To help boost the number of franchises, the company started offering partners no royalty fees for a limited time.  After that, royalty fees range from 2% – 4%.  That compares to 7% for a Domino’s franchise.

Revenue is divided into three components: food and supply sales to franchises, franchise royalties and fees, and company-owned restaurant sales.  All numbers in the figure below are in thousands.

For the quarter ending December 25th, year-over-year revenue was nearly flat at $10.3 million as a $350,000 decrease in food and supply sales was offset by a small increase in franchise revenue and a 32.2% increase in company-owned restaurant sales.  The 4.1% decrease in food and supply sales was due primarily to a decrease in the number of restaurants open in the current period.  Restaurant sales show that Pizza Inn sales decreased by $40,000, or 4%, while the opening of Pie Five restaurants brought in $346,000 in sales.

Net income fell from $379,000 to $56,000 primarily due to $200,000 of pre-opening costs of the Pie Five locations.  EBITDA decreased from about $728,000 to $318,000.  Domestic buffet restaurants’ same store sales increased 0.4% while total domestic same store sales declined 0.2%. Revenue from international franchising increased 26.4% to $0.3 million. The company opened three additional Pie Five restaurants out of seven restaurants opened in the quarter.

The quarter-over-quarter revenue and expense graph hints a possible warning sign as revenue and expenses appear to be merging, meaning margins (the difference between revenues and expenses) and thus earnings will be squeezed.  Hopefully, revenue will continue its uptrend after the current pullback and margins will return to their two year average.  Note that the margin has stayed about the same from 3/09 to 9/11.  Plus the 2nd quarter saw a sudden decline in revenue in the year-over-year graph which is not present in the other quarters.

Another warning sign is that food and supply sales are decreasing faster than restaurant sales are increasing.  The year over year graph again showed a troubling decline in revenue of food supply sales.  However, since the decline was present in 2010-2011, the decline may just be a seasonal factor, and sales may be better in the 3rd quarter.

Earnings and cash flow also seem to be at a trough and is ready to head higher next quarter.  Plus, stockholders equity has impressively been increasing linearly ever since 6/09.  Current assets also are on an uptrend and have been surging in the year-over-year graphs so the company has managed to grow value for shareholders.

Further, the hype around the stock is the potential of their Pie Five Pizza restaurants, which has grown to five locations in seven months.  This new pizza dining experience gives customers the option of any sauce and topping combination or one of 12 specialty pies on the menu, assembled in front of them on a 9-inch Crispy Thin or Classic Pan crust, baked and ready to eat in less than five minutes.  Current locations are in North Dallas and other locations in Texas.  Pie Five is on track to have eight locations open by June of this year for the chain’s first anniversary.  And at over $300,000 in sales, it is off to a good start.

The last catalyst that could cause the stock to head higher is the naming of Jerome L. Trojan as chief financial officer on January 6th.  Though Mr. Trojan has no restaurant experience, he was CFO at several successful companies.  Most impressive was his position as Vice President of Finance and CFO for Palm Beach Tan, which operates and franchises more than 250 locations across the United States.  We feel that his hiring will help the company expand.

Insiders have been purchasing the stock like mad.  The last noted insider purchase was by the previous CFO on December 27th of last year.  The purchase price was $5.35 per share.  This means that the previous CFO thinks it is worth more than $5.35.

        PZZI    DPZ     PZZA    Industry
Market Cap ($million)   39.01   1890    942.83  478.11
Price/Sales     0.87    1.19    0.79    0.99
Price/Book      6.09    —      4.66
Trailing PE             25.36   20.43   18.49   21.10
Forward PE      —      17.08   16.46
        PEG             —      1.90    1.50    1.30
Revenue Growth (%)      4.80    8.30    11.90   8.90
Gross Margin (%)        13.71   28.32   30.40   33.47
Operating Margin (%)    6.18    15.37   7.23    7.68
Profit Margin (%)       3.54    6.05    4.88    —
        Current Ratio           1.95    1.69    0.90    —
Cash Flow/Revenue       0.032   0.080   0.093   —
Market Cap/Revenue      0.896   1.160   0.786   1.153
Market Cap/Cash 44.839  58.915  39.799  —
Debt/Revenue    0.017   0.890   0.042   —
EV/Revenue      0.81    2.03    0.81    —
EV/EBITDA       11.81   11.73   8.10    —
Return on Assets (%)    17.03   36.26   13.81   —
Return on Equity (%)    29.86   —      28.28   —
Short Interest (%)      7.36    6.52    3.01    —
Change Short (%)        -0.93   -0.99   -0.37   —
Source:  Numbers calculated from Yahoo Finance  

Its only two public competitors are Domino’s Pizza (DPZ) and Papa John’s (PZZA).  Other top competitors are privately held CiCi’s Pizza, Chucky Cheese, Sbarro, Little Ceasar’s, and Pizza Hut, a division of Yum Brands (YUM). On a list of top 20 pizza chains based on number of locations, Pizza Hut, DPZ, PZZA, and Little Ceasar’s were 1,2,3,4 respectively.  PZZI, labeled in the chart as part of the restaurant industry, was near the bottom.  The number of positives (green) is about the same as the number of negatives (red) when compared to its top publicly-traded competitors and the industry.  Pizza Inn’s cash flow/revenue means that it makes only 3.2 cents of cash flow for every $1 of revenue it takes in, the lowest listed in the table.  The current ratio (current assets/current liabilities) is at 1.95, the highest in the group.  Thus, the company has better liquidity than DPZ and PZZA.  The company also has the lowest debt/revenue ratio and has slightly more revenue than its market cap.  The return on equity is higher than that of DPZ, PZZA, and the industry.  Despite its high short interest, investors appear to be covering their short positions.  The high short interest could also be positive for the shares by forcing more investors to cover if the stock goes higher.

The short-term graph shows bullish technicals with both the RSI and W%R near oversold territory.  Further, the RSI has never been this low level in the last five months.  The MFI and Stochastic %K are about at the midpoint between overbought and oversold.  There is a good chance that the price will reach either the 1st support line or 1st resistance line in the near future.  The most likely assent it will take is shown as a purple line in the chart.

Although 2nd quarter earnings seemed to disappoint investors, if one digs deeper, it doesn’t look that bad.  The 24% drop the day after their earnings release seemed a bit excessive and sellers are not considering the big picture.  Shares do not list options so if we do add the stock to our portfolio, we will have to wait.

The 52-week high is $7.07 which could be challenged down the road if the company is careful with its expansion.

 

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4.  Earnings 

The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter.  If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week (Quotes are from 8/10/12 close)

By Catherine Tierney

Monday

Adams Resources & Energy (AE, $36.57, down $0.65), Aegean Marine Petroleum Network (ANW, $6.15, up $0.17), Ambient (AMBT, $5.41, down $0.25), American Midstream (AMID, $20.85, down $0.03), BCB (BCBP, $10.25, down $0.23), Biglari (BH, $388.20, down $8.96), Canterbury Park (CPHC, $9.75, down $0.55), ChinaCache (CCIH, $5.10, up $0.06), CIFC (DFR, $7.41, down $0.06), Connecticut Water (CTWS, $31.32, up $0.52), Cross Timbers (CRT, $38.84, up $0.96), CTI Industries (CTIB, $5.40, Flat), Daily Journal (DJCO, $95.00, down $2.30), First Advantage (FABK, $13.26, Flat), First Clover Leaf Financial (FCLF, $6.12, up $0.06), Flexsteel (FLXS, $23.12, up $0.15), Fortegra (FRF, $7.90, down $0.03), Groupon (GRPN, $6.65, down $0.28), Gyrodyne (GYRO, $112.65, up $0.54), Handy & Harman (HNH, $14.06, up $0.30), Hawthorn Bancshares (HWBK, $9.00, Flat), HMG/Courtland (HMG, $6.10, Flat), Hugoton Royalty Trust (HGT, $7.78, up $0.37), ImmuCell (ICCC, $5.40, Flat), InterOil (IOC, $91.19, down $0.05), Jacksonville (JXSB, $16.00, Flat), James Hardie (JHX, $44.07, up $0.10), Kentucky First Federal (KFFB, $7.74, Flat), Lancaster Colony (LANC, $69.77, down $0.33), LiveDeal (LIVE, $7.46, down $0.18), Midstates Petroleum (MPO, $7.99, down $0.01), P&F Industries (PFIN, $6.00, up $0.32), Pacific Mercantile (PMBC, $6.73, down $0.14), PDI (PDII, $7.45, up $0.45), Permian Basin Royalty Trust (PBT, $18.40, up $0.03), Post Holdings (POST, $31.76, up $0.21), Quest Software (QSFT, $27.96, Flat), RCM (RCMT, $5.64, up $0.05), Rouse Properties (RSE, $13.69, down $0.16), Saba Software (SABA, $8.31, up $0.61), SP Bancorp (SPBC, $13.25, Flat), Stratus (STRS, $9.41, up $0.73), Sysco (SYY, $28.69, down $0.20), Transcept (TSPT, $5.75, up $0.09), Whiting USA (WHX, $10.56, up $0.26), WuXi PharmaTech (WX, $14.66, down $0.08)

 

Tuesday

3SBio (SSRX, $11.35, up $0.10), Alpha & Omega Semiconductor (AOSL, $8.47, up $0.35), Ares Commercial Real Estate (ACRE, $16.76, up $0.08), Asure (ASUR, $7.02, up $0.21), AutoNavi (AMAP, $12.61, up $0.14), Birner Dental (BDMS, $16.50, Flat), Bob Evans Farms (BOBE, $39.29, down $0.09), Charm (CHRM, $5.97, up $0.82), China TransInfo (CTFO, $5.55, down $0.01), Country Style Cooking Restaurant (CCSC, $6.20, Flat), Crown Crafts (CRWS, $5.50, down $0.05), Cyanotech (CYAN, $6.15, down $0.06), Derma Sciences (DSCI, $9.56, down $0.15), Dick’s Sporting (DKS, $50.84, down $0.37), Estee Lauder (EL, $55.26, up $0.89), Fidelity (FSBI, $21.10, up $0.02), Flowers (FLO, $21.08, down $0.22), Gas Natural (EGAS, $10.00, down $0.05), The Home Depot (HD, $53.15, up $0.36), HudBay Minerals (HBM, $8.87, down $0.01), Jack Henry & Associates (JKHY, $35.57, down $0.10), JDS Uniphase (JDSU, $10.77, up $0.18), Jinpan (JST, $6.34, up $0.26), KiOR (KIOR, $7.50, up $0.07), Kongzhong (KONG, $7.72, up $0.13), Lifeway Foods (LWAY, $10.18, down $0.02), Matador Resources (MTDR, $10.25, up $0.12), MFC (MIL, $7.26, down $0.05), Michael Kors (KORS, $43.00, up $0.16), Myriad Genetics (MYGN, $25.20, up $0.20), Nationstar Mortgage (NSM, $25.10, up $0.13), Nymox Pharmaceutical (NYMX, $6.13, up $0.10), Parametric Sound (PAMT, $10.85, down $0.15), Pernix Therapeutics (PTX, $7.25, up $0.06), Photronics (PLAB, $5.78, Flat), Photronics (PLAB, $5.78, Flat), Piedmont Natural (PNY, $31.49, down $0.05), Renewable Energy (REGI, $5.11, Flat), Saks (SKS, $11.01, up $0.16), SL (SLI, $14.20, up $0.03), Spark Networks (LOV, $5.91, down $0.07), Valspar (VAL, $52.00, up $2.25), The TJX Companies (TJX, $45.00, down $0.10), Towers Watson & Co. (TW, $58.14, up $0.72), Valhi (VHI, $12.21, up $0.69), Velti (VELT, $7.15, up $0.54)

 

Wednesday

Abercrombie & Fitch (ANF, $32.20, up $1.28), Adecoagro (AGRO, $10.72, Flat), AFC (AFCE, $23.11, up $0.66), Agilent (A, $40.80, up $0.14), Applied Materials (AMAT, $11.89, down $0.03), Ark Restaurants (ARKR, $15.20, up $0.39), CACI (CACI, $56.27, up $0.69), Cisco Systems (CSCO, $17.70, up $0.54), Citi Trends (CTRN, $14.76, down $0.57), Citizens Community (CZWI, $6.09, up $0.16), Continental Materials (CUO, $13.98, Flat), Daxor (DXR, $9.00, up $0.01), Deere (DE, $78.68, down $0.49), Flanigan’s Enterprises (BDL, $8.10, up $0.40), Gaming (GPIC, $6.01, up $0.07), Glen Burnie (GLBZ, $11.49, Flat), Hallwood (HWG, $10.25, Flat), Hollysys Automation (HOLI, $8.19, down $0.24), Hot Topic (HOTT, $9.97, up $0.21), Knightsbridge Tankers (VLCCF, $8.54, up $0.06), Laporte (LPSB, $9.75, up $0.25), Limited (LTD, $49.55, down $0.07), MIPS (MIPS, $6.59, up $0.34), NetApp (NTAP, $32.13, down $0.85), NetEase (NTES, $54.18, down $0.60), PetSmart (PETM, $68.16, up $0.14), San Juan Basin Royalty Trust (SJT, $15.05, up $0.67), SINA (SINA, $52.51, up $2.89), Staples (SPLS, $13.31, down $0.02), Syneron Medical (ELOS, $10.00, up $0.01), Target (TGT, $62.69, down $0.25), VanceInfo (VIT, $9.94, up $0.52), VimpelCom (VIP, $9.22, up $0.09), Westway (WWAY, $6.11, down $0.02), Wolverine (WBKC, $17.24, up $0.24)

 

Thursday

21Vianet (VNET, $10.57, up $0.04), Aeroflex (ARX, $5.97, down $0.03), Aeropostale (ARO, $13.22, up $0.01), America’s Car-Mart (CRMT, $46.94, up $0.13), Avago (AVGO, $37.32, down $0.16), Bon-Ton (BONT, $7.32, up $0.46), Brocade Communications (BRCD, $5.38, up $0.04), Cato (CATO, $30.04, up $0.01), Children (PLCE, $50.81, down $0.72), Dollar Tree (DLTR, $51.66, down $1.29), E-Commerce China Dangdang (DANG, $5.52, up $0.09), E-House (EJ, $5.48, up $0.07), G&K (GKSR, $31.59, down $0.11), GameStop (GME, $16.83, up $0.10), Gap (GPS, $34.42, down $0.22), LSI (LYTS, $6.86, up $0.09), Marvell (MRVL, $11.94, up $0.14), Perrigo (PRGO, $115.11, down $0.31), Perry Ellis (PERY, $19.51, up $0.18), Ross (ROST, $67.79, down $0.50), ScanSource (SCSC, $30.75, up $0.22), Sears (SHLD, $50.27, down $1.71), SouFun (SFUN, $13.13, down $0.08), Stage (SSI, $19.96, up $0.03), Stein Mart (SMRT, $7.91, down $0.11), Buckle (BKE, $38.85, down $0.33), Wal-Mart (WMT, $73.85, down $0.46)

 

Friday

ANN (ANN, $28.07, down $0.05), ChipMOS (IMOS, $12.37, up $0.61), Foot Locker (FL, $34.54, down $0.08), Hibbett Sports (HIBB, $61.39, down $1.52), J. M. Smucker (SJM, $76.83, Flat), Kansas City Life (KCLI, $36.29, down $0.11), Kirkland’s (KIRK, $10.49, down $0.07), Oplink (OPLK, $13.84, up $0.18)

 

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5.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 8/10/12)

 

Closed Trades for 2012 (22-0, overall):  ARNA +117%, SZYM +11%, BAC +26%, EFTC +8%, SZYM +55%, VVUS +38%, CALL +19%, BAC +20%, SYMC +16%, DAR +20%,TIVO +5%, MGM +22%, ZNGA+13%, SGMS +6%, VVUS +17%, F +8%, AA +7%, CLNE +27%, DNDN +18%, MGM +19%, ACAS +3%, P +9%.

 

Solazyme (SZYM, $11.84, down $0.36)

September 12.50 calls (SZYM120922C00012500, $0.45, down $0.25)

Original Entry Price:  $12.35 (8/9/12)

Lowered Price from Selling Options:  $11.55

Exit Target:  $15+

Return:  3%

Stop Target:  $15

Action:  Solazyme reported better-than-expected revenue numbers but a wider loss for its quarterly earnings last week.  The company has numerous partnerships and revenues were up strongly which is what we really wanted to see.

There is risk down to $11 over the near-term, possibly $10.50.  We don’t mind any short-term weakness as long as we can continue to write call options.  Resistance is at $12.50 going forward.

We recommended buying the stock at $12.35 on 8/9/2012 and for every 100 shares to sell the September 12.50 calls for 80 cents.  This lowered the cost basis to $21.75.

If we are called away in mid-September at $12.50 the trade will make 8%.

 

Vivus (VVUS, $21.60, down $0.06)

August 24 calls (VVUS120818C00024000, $0.05, down $0.05) 

Original Entry Price:  $22.70 (7/27/12)

Lowered Price from Selling Options:  $21.75

Exit Target:  $30+

Return:  -1%

Stop Target:  $15

Action:  Vivus traded up to $23.52 on Tuesday and resistance is at $24 and the 100-day MA.  A move below $20 would be bearish.  

We recommended buying the stock at $22.70 on 7/27/2012 and for every 100 shares to sell the August 24 calls for 95 cents.  This lowered the cost basis to $21.75.

If we are called away in mid-August at $24 the trade will make 10%.

 

Antares Pharma (ATRS, $3.67, down $0.40)

August 5 calls (ATRS120818C00005000, $0.05, flat) 

Original Entry Price:  $4.94 (7/13/12)

Lowered Price from Selling Options:  $4.24

Exit Target:  $8+

Return:  -13%

Stop Target:  None

Action:  Shares tested near-term support at $4.50 to start the week and fell 13% after the company announced earnings to close at $4.06 on Wednesday.  Friday’s 10% drop put shares right at their 100-day MA.  There is further risk to $3 and the 200-day MA while $4 represents near-term resistance.

We recommended buying the stock at $4.94 on 7/13/2012 and for every 100 shares to sell the August 5 calls for 70 cents.  This lowered the cost basis to $4.24.

If we are called away in mid-August at $5 the trade will make 18%.

 

Antares Pharma (ATRS, $$3.67, down $0.40)

February (2013) 7.50 calls (ATRS130216C0007500, $0.20, down $0.05)

Original Entry Price:  $0.80 (7/13/12)

Exit Target:  $1.60

Return:  -75%

Stop Target:  None

Action:  Continue to hold.

 

Bank of America (BAC, $7.74, up $0.02)

August 9 calls (BAC120818C00009000, $0.01, flat)

Original Entry Price:  $8.93 (4/17/12)

Lowered Price from Selling Options and Dividends:  $8.24  

Exit Target:  $15+

Return:  -6%

Stop Target:  None

Action:  Shares were up 3% for the week and reached a high of $7.76 on Friday which is right at resistance.  A move above $8 and the 100-day MA would be bullish.  Support has been strong at $7.  This is our third covered call on BofA and the first two returned us 20% and 26%.  We don’t think the momentum is there to carry shares past $9 this week but if it does we will be called away this Friday.  If not, we will look to write another call option on the following Monday.  

We recommended buying the stock at $8.93 on 4/17/2012 and for every 100 shares to sell the May 9 calls for 45 cents.  This lowered the cost basis to $8.48.

On 5/30/12 the company paid a 1 cent quarterly dividend which lowered our cost basis to $8.47.

On 6/19/12 we sold the August 9 calls for 23 cents to lower our cost basis to $8.24.  If shares are called away in mid-August at $9 the trade will make 9%.

 

Scientific Games (SGMS, $7.06, up $0.30)   

Original Entry Price:  $11.10 (3/20/12)

Lowered Price from Selling Options:  Waiting for shares to reach $10-$11

Exit Target:  $15+

Return:  -36%

Stop Target:  None

Action:  Scientific Games announced earnings after the close on Monday and missed expectations for the third-straight quarter.  The company reported a loss of $12.6 million, or 14 cents a share, on revenue of $229 million.  Wall Street was looking for a profit of 12 cents a share on revenue of $228 million.  Soft sales of lottery tickets in Italy and China were blamed for the miss.

We still like this stock for the long run but we are not ready to add to the position.  We may at some point to lower our cost basis but let’s see how the next quarter or two goes first.  The low on Tuesday was $5.53 so there is risk down to $5.  A move back above $8 would be bullish.

We recommended buying the stock at $11.10 on 3/20/2012.

 

OCZ Technology Group (OCZ, $5.18, down $0.29)

August 10 calls (OCZ120818C00010000, $0.05, flat)

Original Entry Price:  $9.60 (2/7/12)

Lowered Price from Selling Options:  $8.95

Exit Target:  $11

Return:  -42%

Stop Target:  None

Action:  The buyout rumors have faded for now and there is risk down to $4.50.  Short-term resistance is at $5.50 and a move back above $5.75 would be bullish.   

We recommended buying the stock at $9.60 on 2/7/12.

On 7/30/2102 we recommended selling the August 10 calls for 65 cents which lowered the cost basis to $8.95.

If we are called away in mid-August at $10 the trade will make 12%.

 

MGM Resorts (MGM, $9.67, up $0.05)

Original Entry Price:  $13.77 (2/2/12)

Lowered Price from Selling Options:  $12.67

Exit Target:  $15

Return:  -24%

Stop Target:  None

Action:  Shares closed above $10 on Tuesday after the company beat Wall Street’s earnings estimates.  Although the company lost 12 cents a share, the suit-and-ties were looking for red ink of 15 cents.  Macau helped offset some of the weakness in Vegas and this was a good sign as other casinos have struggled in China.  The pop above $10 was bullish and we would like to see a run past $10.50 over the near-term which would indicate a possible trend change.  If cleared, we will then look to write another call option to lower our cost basis, or we just hold shares as we feel we are close to the zombies approving an online poker bill.

We recommended buying the stock at $13.77 on 2/2/2012 and for every 100 shares to sell the March 15 calls for 45 cents.  This lowered the cost basis to $13.32.

On 3/20/12 we recommended selling the April 14 calls for $0.65 which lowered the cost basis to $12.67.

 

Pizza Inn (PZZI, $3.10, up $0.12),

Original Entry Price:  $4.50 (2/22/12)

Lowered Price from Selling Options:  No options listed (yet)

Exit Target:  $9

Return:  -31%

Stop Target:  None

Action:  For those of you just joining us, we are excited to bring back coverage of this stock as shares surged to a high of $3.49 on Friday.  The company recently won the prestigious 2012 Hot Concepts award from the Nation’s Restaurant News and the buzz is growing.  Insiders are buying shares at these low levels like mad.  So should you.  

Alcoa (AA, $8.98, up $0.12)

August 9 calls (AA120818C00009000, $0.10, up $0.03)

Original Entry Price:  $9.65 (1/12/12)

Lowered Price from Selling Options and Dividends:  $8.73

Exit Target:  $11

Return:  3%

Stop Target:  None

Action:  Shares made a run at $9 on Friday and closed at their session high.  If cleared, we could be called away by Friday if this level holds.  The next wave of resistance is at $9.40 and the 200-day MA while support has moved up to $8.20.

We recommended buying the stock at $9.65 on 1/12/12.

On 1/23/12 we recommended selling the March 11 calls for $0.25 which lowered the cost basis to $9.40.

On 2/1/12 the company paid a 3 cent dividend which lowered our cost basis to $9.37.

On 3/20/12 we recommended selling the April 11 calls for $0.20 which lowered the cost basis to $9.17.

On 5/10/12 the company paid a 3 cent quarterly dividend which lowered our cost basis to $9.14.

On 6/19/12 we sold the August 9 calls for 38 cents to lower our cost basis to $8.76.  If shares are called away in mid-August at $9 the trade will make 3%.

On 8/1/12 the company paid a 3 cent dividend which lowered our cost basis to $8.73.

If we are called away in mid-August at $9 the trade will make 3%.

 

Newpark Resources (NR, $7.04, up $0.03)

Original Entry Price:  $9.45 (7/27/11)

Lowered Price from Selling Options:  $7.85

Exit Target:  $11

Return:  -10%

Stop Target:  None

Action:  Shares closed above $7 on Friday and the next area of resistance is at $7.50 and the 200-day MA.  Short-term support has moved up to $6.75.  We would like to wait for a move above $8 before selling another call option.

We recommended buying the stock at $9.45 on 7/27/2011 and for every 100 shares to sell the August 10 calls for 50 cents.  This lowered the cost basis to $8.95.

On 9/15/2011 we recommended selling the December 10 calls for $0.85 which lowered the cost basis to $8.10.

On 1/25/2012 we recommended selling the March 12.50 calls for $0.25 which lowered the cost basis to $7.85.

 

Trades on HOLD:  DryShips (DRYS, $2.37, down $0.01), AKS Steel Holding (AKS, $5.94, up $0.04), Rare Element Resources (REE, $4.09, up $0.02), Rambus (RMBS, $4.73, flat), Patriot Coal (PCXCQ, $0.19, down $0.01), Bebe Stores (BEBE, $6.25, up $0.09).  We still like all of these trades at current levels (except for Patriot Coal) but please realize you may have to hold these stocks for 12-24 months.

 

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6.  Week Ahead

There are no economic reports scheduled for Monday but the week will be busy.

On Tuesday, Retail Sales are due out at 8:30am (EST) along with the latest Producer Price Index (PPI) numbers.  Both carry significant weight and could help or hinder futures.  At 10am, Business Inventories for June will be released.

Wednesday’s action begins at 7am with the MBA Mortgage Index followed by the latest Consumer Price Index (CPI) and Empire State numbers at 8:30am.  Net Long-Term TIC Flows are out at 9 sharp with Industrial Production and Capacity Utilization figures 15 minutes later.  The NAHB Housing Market Index is due out at 10am and at 10:30am, the weekly Crude Inventories report will be announced.

Thursday’s action includes another round of Initial and Continuing Claims at 8:30am with Housing Starts and Building Permits also due out.  The Philly Fed numbers will be released at 10am and it will be a market moving event.

Friday’s is relatively quiet to end the week but the reports could be market moving.  Michigan Sentiment is on deck at 9:55am (EST).  Leading Indicators will hit the Street at 10am.