It wasn't a devastating day for the markets on Monday, but the drop was enough to reinforce investor concerns about the upcoming earnings reports and Friday's weak jobs numbers. Additional concerns were voiced by numerous media outlets that investors are also concerned about the overvaluation of stocks following last year's run, as the S&P's price-to-earnings ration is at its highest in seven years. Given that the markets closed near their lows on Monday, investors will anticpate another rough day on Tuesday, barring any unexpected jolt of good news.
Not even the healthcare sector - which is on showcase this week in San Francisco with the JPMorgan Healthcare Conference in full effect - was immune to the sell-off, as there was quite a bit of red mixed in with some green as the day progressed. I guess it doesn't help the sector any either when A-Rod isn't out there buying up all those experimental pipeline products.
Down market or up, there's always quite a few individual stocks and stories to talk about - here's just a few of them to keep an eye on Tuesday...
Biotech / Healthcare:
There Might Be Some Fight Left In Dendreon - Shares Spike Ten Percent On Strong Revenue
At one point in time, in early 2007 to be exact, Dendreon Corp (Nasdaq: DNDN) was the Intercept Pharmaceuticals (Nasdaq: IPCT) of its day, at least in terms of short-term share price percentage gains. DNDN traded for about as much as a Captain America comic book and then exploded from under four dollars to a high of twenty five bucks when an FDA advisory panel recommended approval for Provenge, an immunotherapeutic prostate cancer vaccine that many predicted would turn into a billion dollar blockbuster and usher in a new age of cancer treatment. After some drawn-out drama, Provenge was ultimately approved and shareholders experienced another meteoric rise in share price this one to about fifty bucks - and the sky was generally regarded as the limit. But Dendreon decided to go it alone for the commercial launch. Then some insurers had a hard time swallowing the high price of Provenge and then competition on the market came into play, too. Sales never ever gained the steam that the company, its shareholders and a patient-advocacy base predicted.
That's why DNDN's return to the three dollar mark on Monday rekindled some interest - there are signs that Provenge may have some fight left in it on the sales front.
According to a press release issued by Dendreon, fourth quarter Provenge sales came in at $74.8 million, two million above general analyst consensus. That's a good sign, since it's not too often that this company has produced good news over the past couple of years. Coupled with another round of cost-cutting measures, the addition of over thirty new accounts and the fact that this revenue number grew from $68 million during the previous quarter, the trends are all going in the right direction. Investors wanting to be in before any potential big moves materialize if these trends continue contributed to the ten percent price spike on Monday.
A speculative investment may be justified - again - with this company, but the most recent signs of a good fight don't necessarily mean that the war is won just yet. Although the revenue number looks great when compared quarter-over-quarter, it's still about 12% lower than the number from the same quarter of the previous year. That's why it will likely take at the very least another quarter or two of a growing trend at the rate we're seeing in the fourth quarter to convince investors who had long ago bailed out to jump back in with any conviction. In the meantime, the more speculative types may look to take a position around the three dollar mark with a bet that the trend continues - and possibly in anticipation of positive developments from Dendreon's clinical pipeline - while traders my also jump in to play the catalysts, such as Monday's earnings peek that provided a sixteen percent jump at one point.
Take the earnings news as a good sign, but it's still too early to go 'all in' on DNDN again. The current levels could make for a nice speculative buy - or for a short to mid term trade - if the trend continues, but we'll need to see how Provenge does in Europe and see more revenue growth in the US before calling it a turnaround investment.
Additional information may be provided on Wednesday when Dendreon is slated to present at JPM14.
Industry / Energy:
Capstone Turbine Holding Fast At A Buck Fifty
Capstone Turbine (Nasdaq: CPST) held the $1.50 mark on Monday and actually traded up a few pennies as another overseas order was announced for its green, low-emission microturbine units. These units, destined for a couple of food manufacturing plants, continue to demonstrate the diversity of the market for Capstone, which has already made great in-roads in the natural gas and oil field arena. Shopping malls, hospitals and business parks have also benefited from the technology. Events such as Hurricane Sandy also demonstrate the need for stand-alone power sources in a day and age when Mother Nature can cripple the grid.
Last week we discussed the potential of the Capstone techonology and the trading action of the CPST stock during an early-year price spike. I took a little bit of heat for sounding particularly bearish on the short term action and volatility of the stock, which I believe will retrace after spiking higher to open the new year. We'll make it clear that I'm long the technology, and have been for years. Capstone has been gaining momentum with its order base, profit margins and revenue stream and there has yet to be a reason not to believe that the trend will continue. As our nation's grids become older and more unreliable, the need for stand-alone energy sources will almost become a necessity, in my opinion, for corporations and government agencies wanting a backup plan in case Mother Nature shows up in force again or terrorists decide to play out a live-action take on 'Live Free Or Die Hard.'
Capstone is set in that regard.
Where we have to be a bit realistic, however, is that overall profitability is still not an expected near term material event. The company is getting closer, yes, but the end-goal still cannot be seen with the high beams on. That does not mean that CPST is not a decent long term play, as investors could be very heftily rewarded if/when profitability arises, but it does mean that it should still be considered a speculative play in a relatively speculative sector that experiences price swings similar to those in the biotech / healthcare sector.
As such, building a strategy similar to that one would apply towards a developing biotech may be recommended in order to ensure some profits are realized as the full story plays out - which includes holding onto a base of long shares, should one desire, while utilizing another handful of trading shares to take advantage of any speculative runs that may materialize. Remember, that's just one guy's opinion, each and every investor is responsible for building his or her own investment strategy based on material events, cash position and tolerance for risk, among other things.
It has been my experience, however, that the 'buy and hold' game with CPST is best complemented with a handful of trading shares in order to turn some paper profits into an actual cash position, rather than watch a successful investment drift back down to the break even point in hopes that another price run will materialize at some point.
There will be a time when we can safely believe that a CPST price run can be sustained, but that time is not now because profitability is still not a factor anytime soon. I'd like to be wrong, as I'm a CPST fan and always in favor a good long story, but right now we should expect more of the same from this one.
Internet / Technology:
M-&-A Monday Applies To The Tech Sector
M-&-A Monday didn't just apply to the healthcare sector this week, where a few deals were announced throughout the day, as Google (Nasdaq: GOOG) stole the show and took another step towards world dominance by announcing a $3.2 billion deal to buy Nest Labs Inc. Nest makes smart thermostat and smoke alarms, which - much like Google's Internet technology - register the patterns of its users and essentially starts doing the thinking for the user based on those patterns. This is likely Google's first step into creating the 'smart house' that we saw give Billy Crystal some heart palpitations in 'Parental Guidance.'
According to information released on Monday, the deal is subject to regulatory approval and - if consummated - Nest will continue on as a stand-alone company under Google's stewardship for the time being. Make no mistake, though, this another huge signal that this company is ready to move into every aspect of your life. The Nest technology not only tracks the computer based actions of its users, but it also tracks the movements of the home-dweller. Coupling this technology with Google will likely lead to some privacy concerns, as alluded to by a Forbes article published on Tuesday morning.
People are afraid of the NSA? Imagine having the data on you that Facebook, Google, Instagram and Amazon do. Those guys know more about you than you do, and before long your house is going to as well. At least the ladies will be happy, though, no more of that toilet seat being left up and staying up. We're about to enter into a new age of regulatory decision-making, in my opinion. The way in which Internet companies track and share data has always skirted the regulatory line. As technology begins to cross new boundaries, so will the regulation.
For Google, this will be a matrimony to watch. If consumers and regulators take well to the company's move into the 'smart house' market, and if the Nest technology continues to thrive, then the most interesting moves that Google makes have yet to come.
Charter Bids For Time Warner Cable
In other big M&A news that will carry on over into Tuesday's trading day was the news that Time Warner Cable (TWC) had rejected a buyout deal by Charter Communications (CHTR). The deal, which would have been worth over thirty seven billion dollars, was turned away immediately by TWC as a "low-ball offer" and - posturing or not - this story could get spicy very quickly. Charter, of course is backed by John Malone, who heads Liberty Media (LMCA). Liberty has been making news in its own right with a buyout offer of SiriusXM (SIRI) - a deal that is also widely considered as a low-ball offer. It was speculated last week that Liberty was looking for the robust SIRI cash flow to assist in completing the TWC acquisition. As it stands, Liberty is already the majority holder of SiriusXM.
A combined Charter/TWC company would become the third largest in the US, help lower overall costs and further consolidate the cable market in the US. Shares of TWC have already been on the rise since last year due to industry M&A speculation and it's likely that shares will rise further yet, should it become seen as the target of a bidding war and as a result of speculation that the offer is going jump. It should be assumed that the offer will get higher, as negotiations rarely end on a 'take it or leave it' - especially since TWC never asked for a bid. Charter shares have also been on the rise leading into this announcement in a sign that investors agree that a merger deal would be good for both companies.
Expect this deal to go through at a higher price and also expect to see attention shift back to the SIRI deal once the initial distraction is over. It's likely that SIRI cash flow is a key factor to Malone right now and he may be willing to go higher on the full SIRI takeover, too, possibly to a bit over the four dollar mark, which would make the now-unsatisfied SIRI shareholders a little more satisfied.
Roundup: International markets traded relatively flat on Tuesday, even with signs of positive economic trends emerging in Europe. All eyes are on the US earnings season which, as discussed yesterday, is expected to disappoint. Tuesday will kick off the season for the big banks, many of which report this weak, and headlines have been tempered during the early hours of what to expect. The M&A stories will be worth watching on Tuesday - should the market dip or not - as will the continuation of the JPM healthcare conference in San Francisco. If Monday's pullback continues, let's keep a look out for some stocks and stories that may become oversold.
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