At the conclusion of each week, VFC's Stock House examines some news items, stocks and stories that made headlines during the previous trading week, but may also make headlines or influence trends during the upcoming week as well.
A new quarter kicks off with a bang this week as new jobs and manufacturing data are slated for release while the US Federal Reserve Chairman Ben Bernanke will issue new comments relating to the economy on Monday. It's also expected that Spain will officially request a bailout this week and the first of three US Presidential debates will take place on Wednesday, positioning the coming week as one that could be filled with high trading volume, excitement and volatility. Trading patterns have remained relatively sideways over the past couple of weeks as the markets remain the range of their multi-year highs and any earnings or economic surprises could, in theory, spark a further move higher while any worse-than-expected numbers would likely provide the downward pressure that many media outlets were predicting would materialize over the past few weeks.
Earnings season will also be 'full steam ahead' this week, with investors noting the already-modest expectations, but also keeping a keen eye on any surprises that might justify another bullish move.
As always, the wild card is geo-politics. Aside from our own election season in the US, citizen protests have stormed through Europe all weekend, threatening to apply additional unwanted pressure to newly-elected governments in the region. Continued instability in the Middle East also threatens to play a role in the markets, but such threats have been held at bay since early this year, offering investors secure reason for optimism. It's always wise to entertain all sides of a story, however, and that includes exploring the possibilities of interference from these external factors. Internally, too, many in the media are wondering aloud whether the current economic climate can support the markets sustaining their recent highs - and it's a valid question. If the economic data is hardly improving, then it's hardly believable that there is more upside potential left than down, so this quarter may necessitate some extra investor alertness.
Barely a month now before the US elections will be done and over with, so at least all the related nonsense and fact-manipulating on TV and Facebook can be put to rest and the political hostility can die down, but in the meantime the NFL got their real refs back, so here's to at least having a couple of evenings during the week to escape the madness.
As the last quarter of 2012 gains momentum this week, there's sure to be a few hot stocks and stories to watch - here's just a few of them...
Research In Motion (RIMM): Shares of Research in Motion, the maker of BlackBerry smartphones, opened last week at $6.37 as investors and analysts continued to predict a pessimistic outlook for the one-time tech giant, but a surprisingly optimistic fiscal second quarter earnings report from the company sent shares flying higher on Friday, with RIMM once again surpassing the eight dollar mark before profit taking dropped the stock to a $7.50 close. Volume was over five times the daily average and many wondered if this was the turning point that the company has so desperately needed before falling hard from its perch as a dynamic leader in smartphone technology.
Most encouraging from the latest report was the quarter-over-quarter two percent growth in revenue (from $2.8 to $2.9 billion) and the corresponding growth in cash, cash equivalents and investments, which increased to $2.3 billion - from $2.2 billion - by the end of the quarter. The BlackBerry subscriber base was also up to eighty million globally. All things considered, this report could be a sign that the worst is behind RIM and the company could now be well positioned to capitalize on the launch of the BlackBerry 10 platform, scheduled for early 2013.
The news wasn't all sunshine, rainbows and candy-floss, though. Although revenue was up on a quarter-over-quarter basis it was still down by over thirty percent from the same quarter of the previous year. Additionally, the 130,000 BlackBerry PlayBook tablets sold could be viewed as a laugher next to the seventeen million iPads sold during Apple's (AAPL) most recently-completed quarter. Obviously, the company still has work to do before being considered a born-again player in the smartphone and tech market, but the proof may be in the pudding that the company has bottomed. If that's the case, then it's consequently time to start looking at the rebound potential of the stock.
A pattern is not made in one quarter, but it could identify the starting point of a turnaround. For a turnaround to occur, however, the BlackBerry 10 would need to storm the market with at least a modest frenzy, a thought that is quite questionable, considering the entrenched market share of the iPhone, and to a lesser extent of Google's (GOOG) Android. BlackBerry still has a nice international following, so a rejuvenated brand may attract the overseas consumers, but regaining the lost US subscriber base might be an uphill battle.
With RIMM rebounding last week, however, and with emerging signs of a bottom for the company's woes, this will be a hot one to watch again, especially if consumers become as over saturated with Apple products as we are with election-year politics.
Facebook Inc. (FB): Facebook shares took a beating during the late-summer months, dropping to lows of under eighteen dollars as the first major round of selling occurred following the expiration of a key lock-up period in mid-August. Even following the August expiration about 243 million additional shares will become available for trading over the next couple of months as more lock-up periods come to and end, but November 14th could be the D-Day as a whopping 1.2 billion shares are slated to enter the market on that day, according to a Reuters report from late August. The lock-up periods are a sort of 'controlled release' of shareholder shares that forbid shareholders participating the IPO from selling until a specified time. Given that the IPO was priced at $38 dollars and investors started fleeing at the first sign of trouble, the FB dip could have been much more protracted had the lock-ups not been in effect, but it's definately a concern now as the expirations have thus far led to additional share price drops.
That said, Facebook surged again last week and closed at nearly twenty two bucks following a seven percent Friday rise. The enthusiasm was built on the increased use of the Facebook login on eCommerce sites and increased usership in China, according to Bloomberg reports last week. Additionally, word has it that Facebook is finally making a significant move into the mobile market while investors and analysts both liked the new gift-giving feature, possibly the root cause of Friday's rally. It also helps that CNBC has finally decided to 'Like' the FB stock. In another push to boost easy revenues, Facebook will also allow one to 'promote' his or her post in the news feeds, for a mere seven bucks per post.
It's possible that last week's price spike could be a head fake before the locked-up shares flood the market over the next couple of months, but the timing couldn't be more perfect for the company to announce a slew of good news and encouraging business plans in order to ward off another drastic drop. Another round of declining earnings growth, however - combined with a flood of November shares - could create the perfect bear-case scenario and return FB to the mid-teens, although such a drop may only be temporary, given the above-mentioned plans to boost revenue. It's also worth noting that these new implementations are instant-revenue drivers and could have a quick impact on growth, if successful.
With the renewed interest in the FB stock by media outlets, analysts and investors, and with new growth drivers taking effect, it may be time to take this one seriously again - although the November expiration will still keep some hesitant to jump back in just yet.
Industry, Clean Energy, Green Technology:
Capstone Turbine (CPST): Capstone Turbine shares closed last week at the dollar mark, right at the price around which the stock has been hovering for the better part of the summer. Historically, CPST has proven time and again to at least turn into a decent trade with purchases of at or below a buck, but as long as investors continue to wait impatiently for profitability to come, CPST may continue to be treated as more of a trade than as a long term hold - although there could be merit to both strategies.
Capstone Turbine is a leading producer of clean energy through its low-emission microturbine systems. Quarter-over-quarter the company has continued to secure new orders from new customers while also building a backlog of reorders, too, and that trend continued with the latest quarterly report, released in early August. Gross margins also improved, building on a trend that has gained momentum for the better part of two years, and the company maintained a balance sheet of over $45 million. These positive trends provided cause for Craig-Hallum to initiate coverage on the stock with a two dollar price target, a price not seen since President Obama gave the company a shout-out during a high-profile visit to Brazil early last year. Although the initiated coverage is an encouraging sign, there's still only a modest chance that CPST would be able to approach those heights over the short term, given the short interest that is still in excess of fifteen percent of the float.
The trends are right, however, and history is on the side of the traders who have previously purchased shares for a buck, so it's worth keeping this one on the radar still - especially given the continued trend towards green energy providers.
FuelCell Energy (FCEL): FuelCell Energy is another clean energy company that has fallen upon hard times - in terms of a share price drop - over the past couple of quarters and currently trades for below ninety cents, well below its 52-week high. FuelCell develops and produces fuel cells for commercial, industrial, government and utility customers and has multiple international deals in place that position the company to capitalize on the growing trend towards clean energy.
Like Capstone Turbine, however, concerns of profitability have weighed down the FCEL share price each time the stock has made a push higher. News of a large cash infusion from a South Korean partner allowed FCEL to run towards the two dollar mark earlier this year, but with profitability still not within reach, shares dropped hard following a stock offering and have yet to recover. The Korean partnership did provoke positive coverage from both Forbes and Bloomberg this spring, though, with Forbes arguing that the deal has allowed FuelCell to solidify its pipeline and production expectations with enough volume where the company could achieve profitability at a manufacturing volume of 80 megawatts annually, approximately 30% higher than the levels at the time. Bloomberg also piped in, citing the low prices of natural gas as a key factor in FuelCell's near term ability to reach profitability.
Although these predictions may be well within reach, the declining production and revenue growth noted in the latest quarterly report - released earlier this month - does not bode well for any short term enthusiasm of the trend.
Also this year FuelCell announced the acquisition of key assets by its German subsidiary and a European joint venture that will improve the company's ability to leverage its technology to fuel growth on the European continent. It was announced in the latest earnings report that the joint venture had landed its first order while the terms of the Korean deal are near finalization - both encouraging developments for FuelCell.
Also trending well is the declining short interest in the FCEL stock, leaving room to believe that any solid news releases from the company could spark a return to the dollar mark.
Beaten down and possibly forgotten by many, FCEL is still worth keeping an eye on.
Healthcare, Biotech, Pharmaceutical:
Dendreon (DNDN): With a near-four percent share price rise on Friday and a key announcement of expanded coverage for the company's immontherapeutic prostate cancer treatment, Provenge, Dendreon may be looking to make a rebound. Shares crashed last summer when it became painfully apparent that the expensive treatment was not catching on as quickly as investors had hoped and have since remained at the five dollar mark or below, barring the occasional speculative move higher. The expanded Provenge coverage came from Aetna (AET) and provided a spark of hope for investors still looking for this one-time high-flyer to rebound. Aetna, the third-largest health insurer in the United States, had previously allowed coverage of Provenge under more stricter conditions than the revamped guidelines.
The expanded coverage definitely provides a boost for the fledgling stock, but the company is still far from 'in the clear'. Mass layoffs were announced last week as part of a continued effort to trim costs and evidence is still only luke-warm that Provenge sales are increasing with any force. The company has a pipeline deeper than just Provenge, but it is not close enough to market to consider it a saving grace just yet. Expansion into the European market has been touted as a logical next step but investors will likely need to be convinced of US success to jump all-in again.
Provenge is still the grand-daddy of cancer immunotherapy treatments, so the potential is always there that with more lenient insurance coverage guidelines and more acceptance in the market by medical professionals, then Provenge - and therefore DNDN - could rebound with vigor.
Friday's news and price spike is not enough to put this one over the top again, but it's still a story worth watching.
Inovio Pharmaceuticals (INO): Shares of Inovio Pharmaceuticals again slipped to below the sixty cent mark on Friday, but with nine programs in development - and three of those in Phase II - it could be worth keeping this company on the radar. Through its proprietary SynCon vaccine design process, Inovio has developed a full pipeline of synthetic vaccines that are designed to universally treat multiple and emerging strains of a virus - instead of just targeting a single strain for treatment, as is the case with today's vaccine development. For example, rather just focusing on fighting one strain of the influenza virus, Inovio has concentrated on developing a 'universal' flu shot. Interim results of early trials to this effect have been encouraging thus far, as data showed that the universal H1N1 influenza vaccine proved effective against some of the most prevalent strains of H1N1 from the past 100 years. Inovio has also reported positive results in a similar H5N1 trial - among others - which offers multiple early validations of the technology in the clinical environment. Although still early in development, a universal flu vaccine hits home to the average citizen - and investor - which could be a good reason why INO receives a nice price and volume spike anytime its universal flu vaccine reaches a definitive milestone.
Bear in mind that although three trials are in Phase II trials, that is still relatively early in the game when considering a move to market. Investments in Phase II companies are essentially long-term plays based on potential, aside from taking advantage of any speculative or catalyst-driven spikes may occur, and the inherent risk of the developmental-stage healthcare sector should be noted.
Inovio, which has also applied its technology to treating various cancer types, is developing a novel technology with enormous market potential, making it a stock worth keeping an eye on, recent slide to below sixty aside.
Synergy Pharmaceuticals (SGYP): Still a key stock to watch moving into the final quarter of the year based on a pending Plecanatide trial catalyst later this year that could spark a rally to better align the potential of Synergy's pipeline to that of Ironwood Pharmaceuticals' (IRWD), SGYP received another boost last week as Cantor Fitzgerald initiated coverage on the company with a rating of 'Buy.' Shares pushed towards the five dollar mark on the news, but closed the week modestly lower at $4.78. The Cantor analyst compared Plecanatide's market potential as somewhat less than that of Ironwood's Linzess, which is partnered with Forest Laboratories (FRX) and was approved by the FDA one month ago, but also noted that the company could become an immediate takeover candidate if the results from the Plecanatide trials look good later this year.
Linzess and Plecanatide share origins and operate with the same relative mechanism of action, although this fact will not become an issue as the two companies entered into a material definitive agreement a couple of weeks ago that stated Synergy would receive a license to Ironwood's method of use patents on Plecanatide for the treatment of chronic constipation. The agreement further stated that Ironwood would receive "a low single digit royalty on net sales and both parties agreed not to challenge each other's patents covering certain GC-C agonists." This licensing agreement helps to clear the path for Synergy to partner - or sell -Plecanatide, which has demonstrated a superior side effect profile to Linzess in trials, although the Cantor analyst notes that the treatment may not be as effective.
To make itself a more attractive target for both potential buyers, partners and investors, Synergy has also boosted its pipeline on numerous occasions over the past few months and now has a number of backup plans, should the Plecanatide trials not turn out as well as hoped. General consensus has it, however, that Plecanatide will prove effective enough to warrant approval consideration, based on previous results and the similarities to the already-approved Linzess.
AEterna Zentaris (AEZS): AEterna shares had quite the volatile week last week, dropping rather significantly on news that the FDA would not allow a rolling review of their NDA for AEZS-130, a diagnostic test for adult growth hormone deficiency. AEZS rebounded swiftly on Friday, however, registering a fourteen percent increase as investors digested the news and likely realized that the FDA decision was a relatively minor factor in the grand scheme of pipeline progression. The ruling does not effect the timing for AEterna's planned AEZS-130 filing, which is still slated for early 2013. It also should not effect the company's chances of receiving a priority review for the product, according to statement made by President and CEO, Dr. Juergen Engel. Before the share price dip following the news AEZS had caught fire when Roth Capital initiated coverage on the company with a rating of 'Buy' and a price target of $1.75. The enthusiastic Roth rating was based mainly on a developing pipeline that is entering the late stages and includes the Phase III Perifisone for multiple myeloma, the aforementioned AEZS-130, and AEZS-108, which has already proven successful in multiple Phase II trials and is being prepared for a Phase III trial in the treatment of endometrial cancer.
With the noted volatility in the AEZS share price over the past week, and with the Roth rating still fresh in the minds of investors, this company is still one to watch.
Oncothyreon Inc. (ONTY): Oncothyreon shares moved lower last week, but with key late stage results for the ongoing Phase III Stimuvax trials in the treatment of non-small cell lung cancer, this will be one to watch for the coming months. Results from the Stimuvax trial are slated to start rolling out in early 2013 and - as evidenced by Dendreon (DNDN) in its hey-day - shares of companies in the cancer immunotherapy sector reporting positive Phase III results could spike by monumental margins. Those bullish on the prospects of Stimuvax will keep that in mind, while the bears will note the unimpressive success rate in trials proving the effectiveness of immunotherapeutic cancer treatments.
ONTY's trip south last week may, however, have had more to do with traders responding to quick profits than to anything going on with the company. There has been no public leak of information regarding the trial and Stimuvax results are still expected early next year. As noted above, positive results could have very significant implications on the ONTY share price, so it is likely that investors and traders alike will take up their respective positions accordingly, which could add to the volatility over the coming months. With many predicting an overall market dip either before or just after the November elections, chances are investors are pulling profits from the market in order to leave some cash on the sidelines. The ONTY dip could have resulted from that phenomena, and not anything related to Stimuvax.
Possibly one of the hotter stories to watch moving into 2013, and for the months prior.
OncoSec Medical Incorporated (ONCS): Trading volume for OncoSec Medical tailed off late last week, although the company has continued to make steady progress in the advancement of its non-surgical pipeline of cancer-fighting technology. Using electroporation technology, which uses electrical pulses to more accurately and efficiently deliver anti-cancer treatments into cancerous cells without damaging surrounding tissue, the company has devised the OncoSec Medical System (OMS). From that platform ONCS has created two technological pipeline paths, ImmunoPulse and NeoPulse. ImmunoPulse uses the electroporation process to spark a patient's immune system to target cancerous cells itself while NeoPulse uses the OMS technology to destroy cancer cells using less harmful doses of bleomycin, a highly effective but also highly toxic anti-cancer drug.
Both platforms have demonstrated early trial success, although results released earlier this year from a Phase III trial testing OMS in the treatment of head and neck cancer demonstrated only equal efficacy with surgery - although quality-of-life for the patients was notably better when compared with patients receiving surgery. It's likely that many investors - who were looking for superior efficacy compared to surgery - were underwhelmed with those results and bailed out on their investment. Before the results release, ONCS shares were trading for roughly triple the current prices and have only modestly recovered, thus far.
Still highly risky, OncoSec could be trading in a relatively 'under the radar' period right now, as evidenced by last week's trailing volume.
Worth keeping an eye on.
Roundup: Eyes will be on earnings, financial data, politics and developments in the Middle East/North Africa region where events continue to unfold at a pace that is becoming increasingly hard to ignore. Europe will again be in the spotlight, as events in Spain could dictate the immediate health of the global recovery just as the Catalan separatist movement gains steam. Volatility has been predicted by many over the past month or so, as September is known to be an historically bad one for the markets, but the multi-year highs stood firm, almost daring a bit of data to challenge their strength. As in investing in individual stocks, it's a wise move, in my opinion, to entertain all possibilities and it's still tough to believe that the market is not holding onto more downside potential than upside right now. After all, we all know how sluggish the recovery has been - and still is. That doesn't mean, however, that we can't have some fun of our own looking for the steals and deals of the market as the MLB post season kicks off and the French paparazzi follow Kate Middleton around with those long range lenses trying to make the cash in their own kinda creepy way.
Disclosure: Long SGYP, FCEL, CPST.
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