Is Columbia Laboratories (Nasdaq: CBRX) about to make a big move?

• BUY CBRX near $4.60, sell after option expiration

• SELL to OPEN Feb. covered calls (COBBA.X) near $0.55

Columbia Laboratories develops, licenses, and sells women’s reproductive health pharmaceutical products. The company’s current products include a treatment for infertility and a treatment for secondary amenorrhea. These products use the company’s patented bioadhesive drug delivery technology.

Columbia Laboratories is not profitable. For the last four quarters revenues and losses have been roughly flat. The balance sheet is mediocre with $20 million in cash and $10 million in debt.

Ordinarily, Columbia would not look like a good investment. However, the Columbia Laboratories calls tell us a different story. The Feb. $5.00 calls (COBBA.X) and the March $5.00 calls (COBCA.X) have extraordinary Return on Investment (ROI) yields. Right now the Feb. $5.00 calls are trading at $0.55 with only 17 days left until expiration. With the stock (CBRX) trading at $4.60, selling the Feb. calls on CBRX will yield close to 12% in just 17 days.

Columbia is currently conducting a Phase III clinical study evaluating the potential use of a Prochieve 8% formula for the prevention of preterm birth in women who are predisposed to this problem. Prochieve in different concentrations is already approved for treatment of infertility and secondary amenorrhea. This Phase III study would expand the indication of Prochieve to the potentially more lucrative prevention of preterm birth.

The current Prochieve Phase III study started in April of 2004 and the primary outcome measure is frequency of delivery <= 32 weeks. On December 22^nd 2006, Columbia announced that the treatment phase of the study was complete and that they were looking forward to the birth of the last measured infants in January of 2007. The company went on to say that they look forward to reporting efficacy and preliminary safety data in mid-February 2007.

The investors who are willing to pay a high premium for Columbia Laboratories calls obviously think that the Prochieve Phase III results will be positive. The puts have been much less active than the calls, so it is likely that there are fewer people who are hedging or expecting negative results. At Wall Street Mayhem we have no idea if the Phase III results will be positive, but executing a covered call strategy on Columbia right now seems to have an excellent risk/reward ratio.

If Columbia Laboratories does not announce the phase III results before Feb. 16^th, then CBRX will probably not move down much from the current price because there will still be a high amount of anticipation about the upcoming results. With a flat stock price this buy/write trade will yield 12% in only 17 days. If the results do come out before Feb. 16^th then the stock could move either direction, but considering the profit gained by selling the calls, the covered call trade gives the investor 12% downside protection before the trade loses money.

This is still a high risk trade considering the uncertain pending news about the Phase III trial. However, at Wall Street Mayhem we think the covered call option is a better trade than simply buying the stock outright. With the covered calls, the trade could still yield a 20% gain in 17 days, if the stock rises and the call options are exercised at $5.00. Although downside risk is more than 20%, the combination of the high buying interest in calls, and the possibility that the announcement will not come until after the Feb. 16^th option expiration date, make Columbia Laboratories a good covered call trade.

Update on Companhia Vale do Rio Doce (NYSE: RIO)

• BUY to COVER RIO at or below $32.80

The RIO trade is taking longer to develop than we expected.  The Brazilian market has remained strong and the mini rotation into US tech that we thought would happen after the Sun Micro and Ebay earnings, has failed to materialize.  We don’t really see a strong short term catalyst in either direction for RIO so we are taking profits here.  This trade will still net a nice 2%, but we have to admit that this gain was probably due to the market tanking yesterday.  In short, our hypothesis on RIO did not pan out, but the trade was still profitable.

Time to short Companhia Vale do Rio Doce (NYSE: RIO)

• SHORT SELL RIO at or above $33.60

• BUY to COVER RIO at $32, stop loss cover at $35

On Monday Cramer mercilessly pumped RIO and the stock responded as it is currently up about 9% from the close on Monday. Although Cramer certainly increased interest in the stock, RIO stock was also bolstered by the announcement that they would increase dividend payments in 2007.

The dividend increase brings RIO’s 2007 yield close to 2%. Not a bad yield, but it is not exactly going to get high yield investors excited. Granted, the increased dividend yield is a sign of financial strength for RIO, but it doesn’t really change RIO’s prospects going forward.

Cramer also mentioned that RIO would benefit from Toyota’s continued move towards hybrid cars and the resulting increase in demand for copper. Even if Toyota does cause an increased demand for copper, RIO is not even close to a pure play in copper and an increase in copper prices would have little effect RIO’s revenues or profits. Southern Copper (a true copper pure play) recently announced that they expected 2007 copper prices to average $3 a pound. Although this price point represents a modest increase from current prices, it is actually lower than the $3.06 average in 2006.

Cramer’s focus on RIO on Monday led to a large amount of US money going into the stock. Due to the performance of foreign and emerging markets over the last 3 years, many American investors are still looking for the next big foreign stock. Therefore, Cramer’s profile of RIO had a larger than normal effect on RIO’s stock this week than it normally would for a $73 billion company. Actually, after the Cramer hype RIO is now an $80 billion company. Wall Street Mayhem believes that RIO’s increased dividend announcement should have had a modest effect on the stock, but the $7 billion increase in market cap was more due to the Cramer effect than the dividend increase.

After Ebay’s excellent quarterly results yesterday and Sun Micro’s results the day before, Wall Street Mayhem believes that there will be a small rotation back into US technology stocks for investors that are overweight in foreign companies. RIO should see some selling as investors get back into some long forgotten US technology names like Sun Micro and Ebay. RIO is a solid company with good long term prospects, but for the short term, Wall Street Mayhem believes RIO will correct and the shares will drop back under $32.

Will the PrimeWest Energy Trust energize your portfolio? (NYSE: PWI)

• BUY PWI under $18.80

• SELL PWI at $30 or when PWI’s estimated reserve life declines 10% or more

The PrimeWest Energy Trust is a Canadian oil and gas trust which is actively managed to generate monthly cash distributions for unit holders. The Trust’s operations are focused in western Canada, Montana, North Dakota, and Wyoming. The trust produces approximately 68% natural gas and 32% crude oil.

Through the distribution of monthly dividends, PrimeWest has a yield of about 13.5%. PWI’s stock is trading near a 52-week low and is over 45% below its 52-week high of $32.90. Wall Street Mayhem believes that PWI has a compelling valuation at this level and that PWI’s share price should move up while investors also capitalize on the hefty dividend.

Although all oil and gas trusts have performed poorly as the price of oil and natural gas has declined, Canadian oil and gas trusts have been decimated in the last five months. In October of 2006, the Canadian Minister of Finance announced a proposal that will increase taxes on Canadian oil and gas trusts. Starting in 2011, Canadian oil and gas trusts will be taxed at the same rate as regular Canadian corporations. These taxes will significantly decrease the amount of profit that will be distributed to unit holders of Canadian trusts. However, this proposal was unpopular with conservative Canadian politicians and the deadline is still four years away. It is possible that the political landscape in Canada could change significantly in four years which could serve to reduce or eliminate the newly proposed taxes for oil and gas trusts.

Assuming that the new taxes actually go into effect in 2011, PrimeWest still has a compelling valuation under $19. For the past five months PrimeWest and other Canadian trusts have declined much faster than the underlying energy prices which drive their profits. PrimeWest is down about 35% since September of 2006. During that same time frame the price of crude oil dropped from about $65 a barrel, to the current price of about $52 a barrel (25% decrease) and natural gas prices were roughly flat.

PrimeWest has an excellent track record of boosting revenues, reducing costs, and increasing reserves. For the past five years average daily production of natural gas has grown every year. The natural gas production increases are impressive, but more importantly natural gas reserves have grown in each of the last five years as well. The estimated reserve life for PWI has grown from 10 years in 2001, to a current estimate of over 13 years. Since PrimeWest is actively drilling and expanding their proven reserves, they are in essence a similar investment to an integrated oil company, but PWI pays a much higher dividend.

It is impressive that PrimeWest is able to increase production, increase reserves, and still pay a consistent dividend over 10%. Although most of the Canadian oil and gas trusts appear to be good values at this point, PrimeWest is the highest quality investment in this sector due to their track record and the growing life expectancy of their reserves.

PrimeWest is great addition to any long term portfolio because it gives protection against a jump in energy prices. If energy prices decline, then investors have what amounts to a 13% per year cushion against a potential decline in the share price of PWI. If energy prices spike again, PWI shares should soar. Although energy prices have moderated in recent months, demand for oil and natural gas continues to grow.

In September of 2006 China’s oil imports were 24% higher than they were in September of 2005. China’s economy is showing no signs of slowing down and China’s demand for oil will continue to grow for the foreseeable future. Therefore, Wall Street Mayhem believes that every long term portfolio should have at least some exposure to energy related investments.

The combination of the decline in oil prices and the proposed change in Canadian tax laws have made Candian oil and gas trusts an unpopular investment right now, but Wall Street Mayhem believes that these two factors have combined to create an excellent buying opportunity for the long term investor.

Update on Advanced Micro Devices (NYSE: AMD)

• SELL AMD

Advanced Micro Devices hit our stop loss price of $17.50 this morning so we sold our shares and exited the trade. Although AMD appears to have limited additional downside at this point, it is important to strictly adhere to stop loss criteria in order to limit the effect of bad trades on overall portfolio performance.

For a complete overview of the performance of the Wall Street Mayhem picks please visit the performance tab on the Wall Street Mayhem home page.

Update on Electro Optical Engineering (Nasdaq: EXFO)

Electro Optical Engineering is already up over 18% from our buy alert price issued on Jan. 10. EXFO is up about 12% today largely due to the raised guidance from JDS Uniphase. Other fiber optic related stocks are performing well today, but EXFO is stronger than the rest of the sector because of the reason why JDS Uniphase is raising guidance. JDSU’s raised guidance appears to be directly related to improved revenue for test and measurement equipment. JDSU said, “Strong revenue growth in Communications Test and Measurement more than offset a small sequential revenue decline in the Optical Communications segment”.

EXFO is a pure play in optical test and measurement equipment, while the rest of the sector still has to compete in the ultra competitive optical components market. It is starting to become clear that test and measurement equipment is the best way to play the massive fiber to the home build out underway by Verizon and other telecoms.

Although it is tempting to lock in an 18% profit in just over a week on EXFO, Wall Street Mayhem is holding strong on EXFO. At this point all signs point to continued revenue and profit growth at EXFO. Therefore, Wall Street Mayhem is sticking with our original $7.50 price target on EXFO and it now looks like EXFO might reach this target faster than we initially anticipated.

Is it time to build a position in Hurco Companies, Inc. (Nasdaq: HURC)?

• BUY HURC under $31.50

• SELL HURC at $50, set stop loss at $25

Hurco designs and produces software and computerized machining tools designed to increase efficiencies in the metalworking industry. Many investors might think the metalworking industry is rather boring as it is not typically a high growth industry, but considering the rapid expansion of the Asian economies in recent years, Wall Street Mayhem believes that the growth story for Hurco is still in its early stages.

In 2006 Hurco opened a new component manufacturing facility in Ningbo, China. Ningbo is located in the Ningbo Economic and Technical Development Zone (NETD), in order to help develop Ningbo, the Chinese government has decreased taxes and expedited customs clearance for the NETD area. However, the strategic placement of the Ningbo manufacturing facility goes beyond simple cost reduction for Hurco. During the next year Hurco plans to expand the Ningbo facility to include sub-assembly and final assembly operations. After completing the facility expansion, Hurco plans to “build machines that are specifically designed for the complexities of the Chinese market”.

Hurco has a P/E of 13 and a forward P/E of about 9.5. These P/E ratios are low considering that Hurco continues to exhibit strong growth in Europe and it has yet to experience the full impact of the cost reductions due to the opening of the Ningbo facility. Hurco is expected to grow by about 22% in 2007, but Wall Street Mayhem believes that these estimates are conservative. Hurco has consistently executed their growth strategy by growing revenues and profits for the last three years.

Despite this growth, shares of Hurco declined slightly in 2006 largely due to a decrease in the growth rates for both revenues and profits in the April and July quarters of 2006. In the most recent quarter revenue growth was back on track growing about 25% compared to the same quarter in 2005, but profits dropped. However, profits only dropped because in 2005 Hurco did not incur income taxes while in 2006 Hurco was fully taxed. For the full year of 2006 Hurco had an operating profit that was 15.2% of sales compared to an operating profit of 13.1% of sales for 2005.

At Wall Street Mayhem we believe that profit growth will resume in 2007. Growth rates for 2007 will be comparable to the fully taxed growth rates of 2006 unlike the 2006/2005 comparisons. Additionally, in 2007 Hurco will start to fully realize the increased efficiencies of the Ningbo plant and the company should begin to capitalize on the rapid growth of the Chinese manufacturing industry. With a current P/E of 13, Hurco is already value priced compared to competitors and Hurco has a higher anticipated growth rate than the industry average. European demand for Hurco’s products remains strong and should continue to grow in 2007, but the real opportunity for Hurco’s long term growth lies in the Asian markets.

With a market capitalization of about $200 million, Wall Street Mayhem believes that with a return to profit growth, Hurco’s shares have a lot of room to run. Consistent growth in European markets combined with a growing need for sophisticated computerized machine tools in rapidly growing Asian markets, should fuel growth at Hurco for many years to come.

Will Advanced Micro Devices (NYSE: AMD) benefit from the launch of Windows Vista?

• BUY AMD at or under $18.20

• SELL AMD at $19 or on the Jan 30 launch date of Windows Vista, set stop loss at $17.50

The launch of Windows Vista is approaching and although the product has received mixed reviews, Vista will have a major impact on computer sales going forward. Although there is often a delay before most businesses and consumers upgrade operating systems, the Vista launch will provide additional exposure for computer hardware related stocks and the promise of increased future sales should have a positive effect on this sector.

Advanced Micro Devices recently issued a profit warning citing lower prices for microprocessors. The announcement gave AMD shares a 10% haircut closing at $18.26 on Friday. The decrease in microprocessor prices is largely due to an on going price war with rival Intel. At Wall Street Mayhem we believe that this negative announcement by Advanced Micro Devices has temporarily overshadowed the impending launch of Windows Vista, but the positive news about Vista will come back into prominence as the consumer launch of Vista approaches.

Vista will drive computer sales as many older computers will not be able to efficiently run Vista. Microsoft has included a new 3-D interface with Vista called Aero. In order to run Aero PCs will need a graphics processor that can handle DirectX 9, 512 MB of RAM, and 15GB of free hard drive space. Although Microsoft has listed these specs as the “minimum” required to run Vista with Aero, if past experience with Microsoft “minimum” standards can be used as a benchmark then the practical minimum specs will be closer to 1 GB of RAM and 20-30 GB of free hard drive space.

Although many industry analysts have been quick to point out the flaws in Vista, Microsoft’s operating system dominance is not going away anytime soon. Businesses will continue to use the tried and true Microsoft Office for the foreseeable future and although Apple’s OS X is a highly acclaimed operating system, few businesses are seriously considering switching to Mac’s. Linux continues to slowly gain market share, but until a true competitor to Microsoft Office is available (we do not think Open Office is a true competitor) on Linux platforms, Microsoft will continue to dominate.

Most older computers will not be able to handle Windows Vista. Advanced Micro Devices will benefit from consumers and businesses buying new computers and upgrading older computers with new graphics cards. Advanced Micro Device’s recent acquisition of ATI will pay off as AMD now stands to gain from upgrades and new computer sales related to the Vista launch.

Wall Street Mayhem also believes that many consumers and businesses have held back on new computer purchases due to high energy prices and the impending release of Vista. Since energy prices have moved lower and the Vista release is imminent, analysts will begin to see the value in beaten down microprocessor stocks such as AMD.

Although the real increase in sales for AMD will be months and years after the Vista consumer launch, the launch is a good exit point for AMD shares. The combination of the Intel/AMD price war and the mixed reviews that Vista has received has so far dampened the effect of the upcoming Vista launch on microprocessor and computer stocks. AMD has been hit harder than the rest of the group because of the recent warning, yet they will benefit more than the rest of the group from the Vista launch because they make money from new computer sales and graphics processor upgrades. Additionally, the bad news for AMD is already out, it is unlikely that AMD will have another major negative event before the January 30^th launch of Vista. Therefore, Wall Street Mayhem believes that AMD is the best way to profit from the Vista launch.

Update on Thermage Inc. (Nasdaq: THRM)

This morning Thermage opened up on high volume and passed our target price so we sold our position in Thermage and exited the trade. Thermage received a positive mention in the Business Week Inside Wall Street column last week. Although the article was published on on-line last Thursday, the print edition was read by subscribers this weekend. As Wall Street Mayhem predicted, Thermage shares received a small pop at the open due to the influence of the Business Week article. Timing was tricky on this trade as Thermage opened up on high volume, but then immediately came back down.

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Will Thermage Inc. (Nasdaq: THRM) experience the Business Week effect?

• BUY THRM at or under $8.15

• SELL THRM at or the near the market open on Tuesday (looking for about $8.45)

Thermage was profiled in the BusinessWeek Inside Wall Street column yesterday. As usual for small cap thinly traded stocks that are profiled in Inside Wall Street, Thermage opened up at $8.30 this morning. Thermage proceeded to sell off from the open and it currently sits at $8.15. Although $8.15 represents close to a 4% gain for Thermage since the Business Week article appeared online, Wall Street Mayhem believes this is a good entry point for Thermage shares for a weekend hold.

At Wall Street Mayhem we believe that the effect the BusinessWeek Inside Wall Street articles can have on a stock are often more pronounced on Monday (Tuesday for this trade), after the print version of BusinessWeek has been circulated, than it is on Friday after the online version becomes available. Certain stocks with small floats and low average trading volumes tend to have a strong open on Monday after readers see the articles in Inside Wall Street over the weekend. Wall Street Mayhem believes that Thermage is one of these stocks and that Thermage will open higher on Tuesday (the market is closed on Monday). For previous BusinessWeek trades at Wall Street Mayhem see the previous trade recommendations for SNDA and AEZ.