Just when it seemed things couldn’t get more bizarre, the election uncertainty meter went off the scales after a wild debate, adding a further dose of the indescribable to the unfolding story. Perhaps less mainstream headline-grabbing than the election is the stifling uncertainty about Germany’s Deutsche Bank, its alleged liquidity problems and its ongoing fight with the U.S. Department of Justice regarding its still unresolved subprime mortgage issues. It’s clear that these are but a few of the important current concerns for investors. Yet, after all is said and done, it’s all about the value of our portfolios. As a result, I am still focused on individual positions in the portfolio and their contribution to the entire portfolio’s performance. This week I am going out on a limb and hoping for a pleasant surprise by reviewing the recent action in Opko Health as well as in Texas Instruments, two interesting stocks with a lot at stake over the next couple of weeks.

Going Out on a Growth Hormone Limb with Opko Health

I am going to go out on a limb and recommend adding to positions in Opko Health based on its recent weakness. I recently increased the buy limit on Opko Health (NYSE: OPK), a rapidly growing diversified pharmaceuticals and laboratory testing company, based on the company’s stout management, product portfolio, and aggressive insider buying by its savvy CEO, Dr. Philip Frost. The stock rallied nicely until it ran into the Medicare Buzz Saw on October 7, as a key Medicare billing processor contractor, Palmetto, ruled against paying for Opko’s 4K prostate cancer test, which was one of the company’s most likely growth accelerators for the near future.  Once Medicare decides against coverage of a medical test or procedure, it is likely that other insurers, private and public, will follow suit.  I think this sort of thing is going to be more frequent, as Medicare’s goal is to function in a similar way to an HMO by 2018.

So why am I adding to the position in Opko? It’s pretty simple; either the CEO is crazy, or he knows something that the rest of us don’t.  My bet is that he is putting his money where his growth hormone replacement is. Opko has two ongoing trials of its once-per-week growth hormone replacement (hGH-CTP). One late stage trial with adult subjects is reportedly going well and should be finished by late 2016. The other involves children and is in the early stages. Reports on both have been positive, and if Opko gets FDA approval, especially for both indications, it could set a new trend due to the once-per-week dosing, as opposed to Pfizer’s current once per day replacement Genotropin, which is the current market leader.

But don’t shed any tears for Pfizer or Opko, as they are in this together. Pfizer, in a rare smart move, licensed Opko’s hGH-GTP in 2014, paying Opko $275 million while getting a share of any future profits from sales of the new hormone replacement. Opko wins twice, as it will receive a share of Pfizer’s current product sales if the FDA approves its once-per-week replacement for children. I’ll be watching for Dr. Frost’s next move on Opko shares. If I’m right, he will be using this dip to add to his position as he did on the day before the news hit the stock. 

This is a risky bet nonetheless because Medicare and private insurers are playing hardball these days, and FDA approval does not mean that anyone will be willing to pay high prices for drugs anymore. Still, if the market is tight enough and the drug works it should add to the growth (Ouch!) of Opko’s top and bottom line.  I own shares in Opko.

Buy Opko Health up to $12.

Will Texas Instruments Price in a Pleasant Surprise?

A tight trading range is usually a sign that a stock is getting ready for a big move. And if Texas Instruments follows its recent historical tendencies, we could see the big move start in the next few days to weeks, as investors begin to factor in the potential for better than expected earnings.

I recently described Texas Instruments (NSDQ: TXN), a leading designer and manufacturer of analog and digital semiconductors with a broad ranging catalog of products,  as a “Texas-sized opportunity” based on the company’s methodical business model and its long term growth prospects. Since then the stock has been trading in a tight band with an upward bias, as investors await its October 26 earnings release. Last quarter, TXN beat earnings expectations by $0.03 cents and shares rallied. Guidance was cautiously positive, and there are rising expectations for a good quarter and perhaps even a dividend increase as the company’s focus is the management of its free cash flow (the remaining amount of cash after capital investment) and returning money to investors. Expectations are broad for this quarter with the range extending from $0.85 to as high as $0.93 cents per share for earnings and revenues ranging from $3.48 to $3.53 billion compared to last year’s $3.43 billion, both of which are above last year’s quarter for comparison.

Odds of a dividend increase are also fairly good, given that TXN has raised its dividend during its October quarter earnings announcement every year since 2012. Over the last four years, the stock has gained an average of 5.87% after the October earnings announcement and subsequent dividend increase, with the time frame being roughly measured starting from the third week in October until the last trading day of the year. The one exception to the price gain was in 2015 when the stock lost 1.9% over the fourth quarter as the S&P 500 ran into some turbulence in the last week of December when China unexpectedly devalued its currency for a second time in six months. When you consider that the general trend in semiconductor stocks has been one of the market’s better stories of late, the odds of a positive surprise seem to be in favor of TXN.  I own shares and options in TXN.

Buy Texas Instruments January 170 Call Option (TXN_012017C70), up to $4.

Buy Texas Instruments (Nasdaq: TXN) up to $75.