Stocks continued their recent slide on Wednesday as negotiations over the pending 'fiscal cliff' in the United States took center stage when US President Barack Obama indicated that he would be unwilling to waver when it came to imposing tax increases on the wealthiest Americans. Republicans in the House have also indicated that their position of no tax hikes without significant budget cuts is also unwavering, setting the tone for what could be a very tense and politically bloody period of discussions.
Tensions also flared in various flash points around the globe, which only added to the bearish investor mood and sparked a sell-off that intensified as the trading day progressed. Europe has been riddled with mass protests and strikes by citizens unhappy with the drastic measures of austerity having to be implemented due to sputtering economies over there and new violence in the Middle East also has investors nervous.
None of these issues look as if they will subside any time soon and a compromise over the pending fiscal cliff in the US also doesn't look like it'll materialize over the near term, so it's safe to assume that we could be in for a fickle and bearish market until investors see some resolution on the fiscal cliff, at which point a rebound rally could be in store.
There were some bright spots note as the market drops, though, and here's a few updates on some stocks and stories that we've been keeping an eye on...
Abercrombie & Fitch (ANF): Abercrombie shares jumped by well over thirty percent on Wednesday as the broad market dropped following an encouraging earnings report that beat the street's expectations with higher profit margins. The company also guided higher for the remainder of 2012 - and for 2013, too -underlining the positive trend in the retail sector that was noted with other earnings reports earlier in the week and reaffirmed the positive trends in consumer sentiment noted in the days before the presidential election. The positive quarter has ANF shares trading at levels not seen since the pre-summer months and offers another hint of validation that the US economy is methodically becoming stronger since it's proof that consumers are willing to spend. With the overall bearish investor sentiment, however, it could be wise to expect some profit taking into moves such as this one, especially with some investors becoming increasingly concerned with the prospects of capital gains tax heights being implemented next year.
Cisco Systems (CSCO): Cisco was another earnings winner on Wednesday as shares jumped on heavy volume after the company reported on Tuesday evening some nice increases in profits and revenues for the most recently-completed quarter. The company also provided more upbeat guidance than expected moving forward, compelling at least one analyst to upgrade its opinion on the stock. Cisco's report provided a modest boost for others in the tech sector, too, and joined in what could be viewed as one of the better weeks of the current earnings quarter, after a slew of disappointments dominated the early-season headlines.
MRI Interventions (MRIC): Lately MRI Interventions has attracted increased investor interest due to the company's efforts to increase its sales force and more heavily market the ClearPoint and ClearTrace MRI-enhancing systems that provide medical professionals with real-time imagery during complicated procedures on the brain and heart, respectively. A Monday announcement sparked a twenty percent price gain this week already, but it was the company's Wednesday earnings report that again sparked another price move, this one a bit more modest, and confirmed the positive trends registered by MRIC already this year. Revenue from the "disposable items" related to ClearPoint procedures increased by 40% on a quarter-over-quarter basis, an encouraging note, given that investors have keyed in on the company's ability to bank continuing revenue from units sold, aside from just the unit itself. Sales of such items were up 265% over the nine month period this year when compared to the same period of last year.
As the sales force continues to expand, investors will be watching for the continued growth demonstrated by this latest report to help offset - or at least lessen - any concerns of future financing that could be dilutive to investors. Currently, MRIC is set with enough cash to last well into 2013, according to the terms of the latest stock offering, and recent events have continued to attract new investor interest.
Synergy Pharmaceuticals (SGYP): Investors have monitored shares of Synergy Pharmaceuticals over the past few weeks as they plunged back towards the three dollar mark following months of hovering near five. Considering the upcoming trial catalysts, however, it was also noted during the slide that SGYP could turn into a pretty quick rebound play. Following an earnings report that was more about providing an update for Plecanatide than it was about the numbers, shares spiked by twenty percent during Wednesday's trading session and indicated positive investor sentiment leading into the expected late-year 2012/early-year 2013 catalysts. Plecanatide is the company's flagship product and Phase IIb/III results are expected to be released in early January - according to comments contained within this week's quarterly report - for its treatment of chronic idiopathic constipation. Previous expectations had those results out by the end of December, but you know how it goes during the holiday season.
The company also noted that it is preparing to commence another Plecanatide trial for the treatment of irritable bowel syndrome with constipation, offering an additional market for Synergy to penetrate as it ramps up its efforts to become a major player in the GI field.
As a result of the updates contained in this week's report, Canaccord reiterated its 'Buy' rating on Synergy shares and maintained a price target of $7. Additionally, a recently-announced merger with Callisto Pharmaceuticals (CLSP) was intended to help attract institutional interest and this week's volume boost may be an indication that the plan is starting to bear fruits.
Facebook (FB): It's been widely assumed that shares of Facebook would be positioned to plunge - as they have in the past - when key lock-up periods related to the early-year IPO expire, but FB bucked that trend on Wednesday and jumped by a full twelve percent as about 800 million more shares became available for trading. Some investors are viewing Wednesday's price spike as evidence that those investors holding the newly-available shares are hanging onto those shares and not selling. Such moves will spark confidence with existing investors and could also potentially attract some of those would-be investors who were sitting on the sidelines taking a 'wait and see' approach - hence the twelve percent move to the upside.
In truth, however, one trading day may not be enough to judge the true intent of those holding the expiring shares. While Facebook reinvigorated investor enthusiasm following its most recent earnings report that demonstrated growth in the global market, the overall bearish sentiment of the broad market cannot be ignored, no matter how much of a decent by FB may look to some. Additionally, there are still concerns by many - as mentioned above - that capital gains taxes are slated for an increase next year- and that is a fact that also cannot be ignored right now. In short, the headlines out there yesterday and today are giddy with enthusiasm that those holding the newly-available shares are not selling, but the real truth may be that they're not selling yet.
Small investors may just be getting a story right now painted just as the big boys want them to see it. One day does not set a trend, so I'd continue to look at this one with a skeptical eye, especially in this market.
Starbucks (SBUX): Starbucks is flying high right now. An encouraging earnings report earlier this month halted what was a modest share price slide and the company's move into the single serving market looks to be gaining momentum. Then, on Wednesday, the company announced plans to acquire Teavana Holdings (TEA) and expand into the tea market, too. Shares of TEA jumped by over fifty percent on the news to fall more in line with the valuation of the deal, which was announced as being valued at $620 million. Starbucks shares, on the other hand, dipped about three percentage points, although few view this as a bad move for the company.
Given Starbucks' success in growing its coffee brand over the years, investors are equally optimistic that it could grow the tea brand, as well. Using the same growth strategy, CEO Howard Schultz noted that it will utilize Teavana's existing locations to open 'tea bars', as it has with coffee, while also opening new sit-down stores both in the US and abroad.
This deal has been received well by the markets, and rightfully so. Starbucks is simply expanding its brand and its reach, similar to what Walt Disney Co. (DIS) was doing when it purchased Marvel and Star Wars in the entertainment sector.
Healthcare, Biotech, Pharmaceutical:
Lpath, Inc. (LPTN): Lpath is already a recognized leader in the field of lipid-based therapeutics and its ImmuneY2 technology is being developed to target various ailments, including Wed AMD and cancer. The company also landed an early partnership for its technology with Pfizer (PFE), positioning itself well ahead of the game, when compared to other developing companies at similar stages of development. It's been an up-and-down year in 2012, however, as it began with a temporary trial halt related to issues with the company's finish/fill contractor and were not related to the safety and efficacy of its own product, iSONEP, in the ongoing PEDigree and Nexus trials.
Since that time, Lpath has found a work-around and resumed the Nexus trial, but - according to the most recent quarterly report - has "deprioritized" the PEDigree trial due to ongoing negotiations with Pfizer in relation to the costs of continuing both trials. Due to the trial halt earlier in the year, and subsequent re-starting of of the Nexus trial, associated costs have risen enough to where the partners are collaborating to offset those increased costs. That collaboration, as noted, has led to the continuation of the larger trial.
Investors should not be too concerned regarding the re-start of only one trial, as the move was made in conjunction with Pfizer - whose early interest in the technology validates its potential and could also hint at continued partnerships or buyout offers. Pfizer also holds a 'first right of refusal' for a partnership regarding Lpath's ASONEP line, too.
Additionally, in a move to bolster its attractiveness in the eyes of more serious investors, Lpath last month conducted a reverse stock split in conjunction with a move to the Nasdaq. In general, reverse stock splits are hardly kind to companies forced to undertake them, but since LPTN was dealing from a position of strength, shares have hardly suffered.
Roundup: News circulated on early Thursday that the Euro Zone is slipping back into recession, a development that could kill any encouraging hopes of a broad market rebound for the time being. Although the bearish market is likely to remain bearish for the foreseeable future, opportunities to find bargains and overly-depressed stocks will emerge, making it a key ideal to maintain some spare cash on the sidelines. Also because of the bearish sentiment and growing volatility surrounding fiscal cliff negotiations, quick price spikes may more often than not be followed by even quicker retreats. It's always a good idea, in my opinion, to bank some profits with trading shares into any run, even while holding onto a core group of shares to play for the long term, and such a strategy may be even more important in today's environment.
It's easy to become discouraged when the markets head south, but for those with the time and patience, the deals and steals could abound - keep an eye out for them.
Disclosure: Long SGYP.
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