Record high after record high is what we saw from the DOW last week and investors will look this week to see if the momentum can carry over after a strong jobs report on Friday dropped the US unemployment rate to 7.7%. 236,000 jobs were added in February, well above previous estimates, and many see this as a positive sign that the economy continues to gain strength and is well on the road to a full recovery. Since the markets generally look ahead by a couple of quarters, the record highs could be justified, but the question is whether or not they can be sustained over the short term without any volatility entering the picture.
That question holds extra weight right now as the true effects of sequestration, which are still set to come into play in April, are still unknown. A harsh round of budget cuts and pullbacks could knock down the merry market mood just a notch, as ancillary evidence still exists - jobs numbers aside - that the economy is not yet healthy enough to grow substantially - if at all - without the help of the Fed's stimulus measures that have been in place since the depths of the recession. Look to 2012's fourth calendar quarter as evidence of such, when a pullback in defense spending caused GDP to roll flat for the quarter, only after being revised higher.
Although Fed Chairman Ben Bernanke last week indicated that there were no immediate plans in place to lighten up on the stimulus measures that have been in place since the depths of the recession, Friday's enthusiastic jobs report has refueled talk from many analysts and pundits that it makes little sense to keep these measures in place while the economy looks to be gaining strength on its own accord, while February's jobs numbers speak for themselves. A reversal from the Fed that indicates stimulus might be lightened could temper the market's early-year rally.
This week will be a light earnings week, with only a few major holdovers left to report. Attention will be strictly paid to the debate that will likely rage over how much of an impact the pending sequestration will have on the new record highs.
It's been a definitive year of rebound thus far, and many would agree that - in retrospect - the markets are flowing on a stronger foundation now than they were when the old record highs were set just before the crash, but we've likely not yet approached the light at the end of the tunnel. Caution against going 'all in' at this point may still be advised, as any economic news that again creates uncertainty could quickly have an impact on the upwards momentum, as evidenced by the election news in Italy a few weeks ago that led to a DOW drop of more than two hundred points.
Enjoy the ride while it lasts. As always, there will be plenty of individual stocks and stories to keep an eye on while the major news plays out. Here are just a few of them for the week of 11 March, 2013...
March A Pivotal Month For BlackBerry With US Release On Tap
The next few weeks could prove pivotal for BlackBerry (BBRY) and its share price. The first wave of sales numbers associated with the international release of the BlackBerry 10 platform could become more transparent over the coming weeks, while the much-anticipated US launch may also provide a potential trading catalyst. Multiple reports regarding early sales numbers from overseas have been encouraging, but the numbers have not yet been definitive enough to keep a couple of analysts turning negative and issuing downgrades over the past few weeks. The most recently-revised analyst price targets have identified BBRY shares as heading lower towards the ten dollar mark, citing slow shipments and large inventories left over from initial orders, but it could still be a bit premature - being still only weeks-old - to call this launch a failure.
In fact, the first wave of the Z10 launch - which left out the American market - may have been more intended to create hype leading into the US launch, much as some major movies are being released on international markets these days to create buzz before the US open. With the US launch pending, the level of media attention received by the new products could significantly increase during the coming weeks, especially since consumers have had ample time to test drive the new devices. A notable boost in coverage and reviews could eventually lead to the frenzy that the company was trying to create with its overseas 'tease' launches, geared - of course - towards recapturing some of the lost market share stolen by Apple's (AAPL) iPhone and Google's (GOOG) Android over recent years.
The next installment of the BB10 platform will be forthcoming in May with the launch of the Q10, a throwback to the BlackBerry of past, that has a full 'QWERTY' keyboard - with real buttons - installed below a bigger and improved-resolution screen. It's likely that the Q10 could attract those customers looking to come back 'home' after playing around with the competition for a few years running, but BBRY still has its work cut out for it in pulling the lost customer base back in.
For one, it's hard to compete with the App stores available for the iPhone and Android. As described in a recent write-up by a popular business news outlet, most companies do not regard it as a profitable endeavor to create apps for any other platform than the big two listed above. That poses a problem in itself for those looking at BBRY stealing back market share as many consumers will take into account the loss of access to their favorite apps when considering which phone to purchase - Instagram, for instance. Through default, such apps not available on the BlackBerry are exclusive to the competitors, and that's no small point to miss.
BlackBerry, to combat that trend, may have to foot the bill itself to develop some of the more popular apps for the BB10 platform, as they have with Facebook, or come up with competing apps of their own. Neither scenario is out of the question, given the nature of the consumer who will jump to whatever's popular at the moment, and BlackBerry's cash on hand, which places its book value at significantly higher than the current market cap. If the hype surrounding the Z10 and Q10 can return some decent sales numbers, then the big players in the app industry may be inclined to return to BBRY on their own anyway.
It's yet to be seen whether BB10 is the revival that BlackBerry has long hoped for, but the coming weeks could be telling. The growing short interest of the stock - which sits at more than 20% of the float - indicates that the market is currently betting against a comeback, but it makes for an intriguing short squeeze play, should the right news, sales and developments hit all at once.
BBRY is one of the hotter stories to watch right now, as the retreating sales price may create an opportunity for those wanting in before the US launch, which is slated to begin as soon as the end of this week. Still a speculative recovery story, but also one that looks a lot better right now trading closer to ten bucks than it did trading closer to twenty not too long ago.
Food / Beverage:
McDonald's (MCD) shares jumped by nearly another two percent on Friday and remains one to keep an eye on for the long term and/or retirement portfolio as the company's share price treks towards the one hundred dollar mark. MCD is currently trading on the strength of February sales numbers that came in better than expected, but it's also highly relevant that UBS initiated coverage of the company with a "Buy" rating and a price target of $100 earlier in the year. That rating coincided with enthusiastic sales trends and is quickly turning into an accurate estimate by UBS.
As previously discussed, McDonald's perch on the fast food throne is based on the company's ability to remain one step ahead of the competitors when it comes to menu pricing and variety. Recent moves by the company to introduce new products while weeding out those that hurt margins more than help them, especially at a time when rising taxes and increased labor costs may be coming into play, is another demonstration of the company being quick to act.
In terms of the rising share price, however, there are some items to consider. While the company continues to demonstrate its dominance of the low-cost fast food sector, growth in the sector is still sluggish, even given the above-mentioned February sales report that beat expectations. The recent market rally to new record highs has helped to support a MCD move to a hundred, but if sequestration and other factors - such as rising taxes or gas prices - start to weight on the market as a whole, then MCD could slip a bit, too. With that in mind, it's not entirely out of the question that investors who accumulated heavily in the mid-eighty dollar range late last year would treat the current run as a trading opportunity and bank some profits as the opportunity presents itself.
Even in the long term and retirement portfolios made up mostly of stable, large-cap players, there's plenty of room to take profits at opportune points with the intention of jumping back in at lower prices, should they materialize.
As mentioned in the open, the market generally looks a couple of quarters ahead and that could be a major reason why the DOW is setting record highs and MCD is marching back towards a hundred bucks. With that in mind, it could be assumed that investors consider MCD a solid play moving forward in line with the overall recovery, even considering the currently sluggish growth in the sector.
If the green we've seen for the past couple of weeks continues into the new trading week, MCD could be a bet to see a hundred again. One to keep an eye on.
Healthcare, Biotech, Pharmaceutical:
MannKind Pushes Through Three With Numerous Milestones Pending
MannKind Corporation (MNKD), a still-speculative healthcare play that is more apt to trade on catalysts and milestone events than on broad market movement, took advantage of the green pouring from Wall Street last week and jumped over the three dollar mark again while setting a new 52-week high in the process. Volume rolled in at roughly five times the trading norm as partnership rumors made rounds while the potential impact of the company's inhaled insulin product, Afrezza, also grabbed headlines.
The push through three makes MNKD a winner for investors by returning more than a 50% gain since the post-financing lows of late last year. Given the potential for Afrezza to infiltrate the insulin delivery market, should it ultimately receive FDA approval, it's safe to assume that even higher could be reached as the latest round of trials evolve. Afrezza failed to receive approval a couple of years ago because the company used a different model of inhaler during the trials than what it intended to use during the commercial phase. With that detail sorted out for the current trial, investors are looking for a positive outcome this time, as is company founder and CEO Al Mann who has personally invested over a billion dollars into the product.
With trial results slated for release over the course of the coming quarters and an NDA filing also expected this year, MNKD has plenty on tap to keep investors interested. Financing is no longer a concern that will weigh down the stock this year as it did last year, so these upcoming milestone events have the potential to provide substantial price catalysts. Discussions of potential partnerships, as we saw last week, may only add fuel to the fire, but because many are still skeptical that Afrezza will reach open market, however, and also because similar high-profile products failed commercially in the past, any swift spikes are likely to be followed by some profit taking and consolidation, which could lead to volatility.
Not only does Afrezza have to prove it can make it through the FDA, but it also has to win over a skeptical crowd that feels it has seen this story before. Last week's move provides an indication that some believers may be jumping on board, while the pending milestones should keep it interesting for the coming months.
SanuWave Health Preparing New Trial
In keeping with the theme of diabetic treatment and the billions that the sub-sector rakes in annually, SanuWave Health (SNWV) is another 'Phase III company' in the developing a treatment for diabetic-related indications that will be worth keeping an eye on during the coming weeks as a new trial is slated for initiation. Through the development of its Pulsed Acoustic Cellular Expression (PACE) technology, SanuWave has developed multiple shockwave therapies for the treatment of chronic wounds. The most advanced of these therapies, dermaPACE in the treatment of diabetic foot ulcers, was already brought through Phase III trials once, but - although demonstrating significant potential and success - the trial failed to meet its endpoint due to certain trial limitations that have been modified, in conjunction with the FDA, during preparations for the upcoming trial.
As described on the company's website, the new trial - slated to begin recruiting patients within the coming quarter - will more vigorously monitor patient progress and better ensure consistent treatment, a variable missed during the last trial. It's also been agreed-upon with the FDA that some data from the previous trial can be used to support the data from the upcoming trial, too, which could help to streamline results and expedite the expected time allotted for the current trial. As recently outlined by another Seeking Alpha contributor, the current trial design could also cut back on costs over the short term.
In terms of financing, SanuWave last week also announced the appointment of a new CEO in conjunction with a bridge financing deal that put two million dollars towards the coming trial. The new CEO, Joseph Chiarelli, is an industry veteran with a history of developing emerging companies while the two million dollars is more than the intended value of the cash raise, according to the above-linked PR. While that fact indicates interest in the reinvigorated trials, it should always be expected that cash-raising events could come at any point during the course of development for emerging companies. Given the recent churn of events, other investment information outlets - such as Zack's - have started covering these developments.
With new trials slated to begin over the coming quarter, this could be a potential turnaround story to watch. Volume has picked up a bit lately as time draws nearer to the expected launch and speculative investors looking for 'volume before price' may be attracted to such a move, while the current market cap also indicates that this company may either be forgotten about or not found yet. Standard risks of investing in the speculative health care sector apply and investors may still be wise to utilize a group of trading shares to play into any potential price spikes, while potentially holding a core group of shares for the long term, to see the story out.
NCE On Tap Again For Amarin
Is it ever a 'Weekly Stock Watch' in this sector without interest in Amarin Corporation (AMRN)? Once again AMRN will be a stock to watch because investors anticipate that the FDA's Orange Book will be updated within the week. This is a hot item to watch because it could (or not) reveal Vascepa's designation as a New Chemical Entity (NCE). As previously discussed, the holdup in the NCE status could have also held up any potential partnership or buyout deals that were being discussed before the company decided to launch on its own because a true valuation of the product's potential may not have been easy to ascertain, given the uncertainty regarding protection.
In regards to protection, however, Amarin announced another patent covering ANCHOR last week, and it's been argued by company officials during conference calls before that the patent protection renders NCE relatively irrelevant, anyway. Judging by the lack of any partnership deals materializing when they were most expected, others may not agree, but it's certainly a significant piece of the puzzle to continue to monitor.
AMRN quickly rebounded from the lows hit after the most recent earnings report and closed the week closer to nine dollars than eight - still right within the trading range established since the beginning of the year. NCE is still one of the hotter potential catalysts to watch and this could finally be the week where the FDA decision is revealed. A positive outcome could push shares higher towards ten again, as it could renew the recently-depressed buyout rumors, while another delay would likely be disregarded as a non-factor again, since most investors are now immune to this event.
On another note, the recent discussions surrounding Amarin has emphasized how much of a big player in the investing community Seeking Alpha has become in a just a few short years. Many popular financial media outlets are spending more and more time commenting on the opinions and analysis of SA authors, and less on their own analysis and coverage of particular stories. Score that a big win for the Seeking Alpha team and its contributors.
As usual, AMRN is a hot one to watch this week for the possible NCE revelations.
Roundup: International stocks carried the momentum of last-week's record setting pace early on Monday, but settled down later in the day and traded mixed during the afternoon hours. As discussed earlier in the month, US markets generally set the trading tone, not follow it - aside from instances where significant overseas news hits the wires - so investors on this side of the pond will be watching as to whether the momentum built on last week's jobs report can carry into Monday's open. Early indications point to a lower open, possibly an indication that worries over sequestration - that have been thrust aside for weeks - may start to have an impact. Rumblings from Washington, however, are starting to indicate that politicians on both sides of the fence are wondering how much political capital they want to spend in standing firm and continuing to do nothing - especially since the doomsday scenario come 1 March has not played out, as many predicted it would. That said, it could again come down to crunch time as March progresses and politicians negotiate yet another deal to delay yet another deadline. It's like 'Deja Vu' all over again, as the great Yankee once said. Plenty to keep on tap for the week.
Disclosure: Long AMRN, MCD, SNWV.
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