Following the Trend

01/26/2007 12:00 am EST


Michael Murphy

Former Editor, New World Investor

Trend-watcher Michael Murphy is a pioneer in discovering undercovered, undervalued companies with cutting-edge products. In his latest issue, he highlights several rapidly-growing industries, recommending a promising stock in each. Here are two of his picks...

"The FDA approved only 18 new drugs in 2006, at the low end of the range for the last 10 years. This isn't completely the FDA's fault, because the big pharmaceutical companies aren't bringing many new drugs forward--their pipelines are empty. Therefore, biotech companies should benefit this year, because they have lots of new products coming along. The FDA will have time to deal with them expeditiously and (one hopes) fairly, and some big pharmas may decide it's time to make more biotech acquisitions to restock the research cupboard.

"Which brings us to. Dendreon (DNDN NASDAQ GM) took a nice hop when it announced that the FDA would complete its Fast Track review by May 15. We already knew the FDA would do this, on top of letting DNDN file a "rolling" BLA (Biologics Licensing Application) all during 2006.

"So while no one should have been surprised, the jump in the stock tells me there are plenty of investors ready to jump on a biotech stock that seems to be making progress. The stock should rise towards the $7.50 level between now and May 15 and then roughly double over a few months following FDA approval. Remember that Dendreon could sign a partnership deal at any time if they make it conditional on approval. That would get the stock close to double digits. DNDN remains a top buy up to $7 for my $14 target.

"Alvarion (ALVR NASDAQ GM) and a Taiwan company are going to develop mass-market consumer electronics devices based on mobile WiMAX. While this is complimentary to Alvarion's WiMAX backbone equipment, there's no way ALVR can enter the consumer market with these products. So, I expect the company to license intellectual property and reference designs to others, with Accton Technology, their Taiwanese partner, one of the first to actually produce handsets and other devices.

"ALVR said that market research predicts the worldwide WiMAX backbone and customer equipment market will hit $3.7 billion in 2012, up from $490 million last year. Taiwan's government has an initiative to blanket the island with fixed and mobile WiMAX, which gives Accton an incentive to make the handsets and Alvarion an incentive to find a partner who might facilitate future sales of backbone equipment into that market. 2007 is the real rear of WiMAX, and ALVR remains a top buy all the way up to $9 for my $18 target."

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