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.
With the election season now behind us and the prospects of a 'fiscal cliff' facing the US economy, concentration this week will be focused on whether or not last week's broad market drop will continue into an all-out market correction, as some have predicted. The markets started tanking on Wednesday -following the re-election of US President Barack Obama - but to be completely fair to the President, the pullback cannot solely be attributed to investor reaction to the election results - there were many other factors at play last week that likely led to the market drop.
Most significantly, evidence started rolling in from across the Atlantic at the mid-week mark indicating that the European economy may be in for another recession. That news - coupled with a general lack of confidence from US investors that the 'status-quo' American government would be able to come to an agreement and keep the fiscal cliff at bay - likely played as the lead culprits behind last week's bearish moves.
Additionally, Greece remained in the spotlight as government officials voted on new austerity measures in order to keep EU bailout money flowing. Without a new influx of cash, Greece could be looking at a state of bankruptcy as early as later this week. That, too, has the attention of global investors. Still worrisome is the fact that Greece may still have a long way to go in terms of austerity, especially with the economy predicted to shrink by another 4.5% in 2013.
Although Washington continues to look as gridlocked as ever, it's likely that the politicians see the need to come to a consensus regarding the cliff sooner, rather than later, since the very state of the US economy may hang in the balance. Pundits predict that the tax increases and spending cuts that would be invoked by the cliff would spiral the US into another recession, far from the desired outcome of any political party. Whether it's another postponement or an all-out agreement, it's probably safe to assume that something will get done.
While much of last week's drop could be attributed to international fiscal developments, as described above, there are also some direct bearish correlations to the election results. For instance, many investors predict that capital gains taxes will spike during the President's second term, compelling some of them to sell. That trend could continue into the new trading week and beyond.
Investors are also alarmed of the rapid sell-off of Apple (AAPL) shares, which dropped by another five percent-plus last week, and the ongoing earnings season continues to disappoint.
With all that said, there are encouraging bullish signs for investors to ponder this week. Consumer sentiment stands at a multi-year high and economic indicators were ticking upwards leading into last Tuesday's election. Any continued momentum on those fronts could support the markets enough to stay afloat until (if) the politicians in Washington put aside their egos and personalities and come to an agreement regarding the pending fiscal issues.
Undoubtedly, there's plenty to watch this week and it's probably a good idea to have some cash sitting on the sidelines just in case the markets continue to drop and some nice buying opportunities open up.
In the meantime, there's always a few stocks and stories to keep an eye on - here's just a few of them...
Earnings reports over the past week were essentially thrown to the back burner as hype surrounding the political elections and economic news from overseas dominated the headlines, but there were still a couple of key stories to note. AOL (AOL), for example, demonstrated that it may be in the midst of a turnaround as revenues from online advertising sales proved on the uptick while J.C. Penny (JCP), on the other hand, showed that the company is having a tough time re-inventing itself after the economic turmoil of the past few years killed the company's profit margins. Both are worthwhile stories to watch as potential rebound plays, but it's also worth noting that both are operating in very competitive sectors and still have a tough road ahead.
This week's earnings reports will be retailer-heavy. Although J.C. Penney's report has expectations tempered for the sector, some surprises may be in store, given the recent positive notes regarding consumer sentiment, as mentioned above. If consumers are, in fact, confident about throwing their dollars around, look no further than Wal-Mart (WMT), Dollar Tree (DLTR), Target (TGT), Saks (SKS) and others that are all set to report this week for positive trends leading into the holiday season. Enthusiastic results from some of those big boys may be enough to lift the holiday spirits of the markets, too, especially if there is progress on the political front in regards to sorting out the fiscal cliff.
Other earnings-related notes:
Amarin Corporation (AMRN): Amarin's report and conference call last week was not expected to be about the numbers, rather investors were looking to key in on any updates that could be had in relation to the Vascepa launch, still expected for 1Q 2013. Many investor concerns relating to the launch were addressed by company officials - although there is still no definitive word on a buyout, partnership or go-it-alone - and shares responded accordingly, jumping by nearly ten percent on Friday on volume slightly above average.
The key takeaway from the conference call is that nothing has really changed from previous expectations - it's a 'hurry up and wait' game for investors. Vascepa's New Chemical Entity (NCE) status is still an issue for Amarin and potential buyers/partners, as discussed in the call, although company officials feel confident that the amount of patent protection awarded Vascepa can stave off any legal challenges, with or without NCE. Officials also noted that a Vascepa sales force will be in place later this month, should no buyout or partnership materialize sooner, to ensure a smooth commercial launch next year in the event the company needs to follow its go-it-alone plan of action. Discussions, however, with big pharma are still ongoing and being finalized, according to the report.
Also of significance from the report is that a final NCE decision looks to be imminent, according to ongoing correspondence with the FDA.
It's crunch time now for Amarin following last week's call. If Friday's spike is any indication, investors voted with a boost of confidence in regards to the company's plan of execution.
Still a hot one to watch. Look for final resolution on the buyout story - one way or another - after the NCE status is known.
Spectrum Pharmaceuticals (SPPI): As noted last week, Spectrum was another hot earnings story to watch. Shares had been on the decline as many investors and popular financial media outlets continued to predict growing competition for FUSILEV from generic providers such as Teva (TEV) and Sagent Pharmaceuticals (SGNT). SPPI shares flew last week, though, following an earnings report that beat analyst estimates and offered more encouraging revised guidance for the full year 2012. Revenue of $69 million came in ahead of analyst expectations of $65 million, a 35% increase over the same quarter of the previous year, and full year guidance was revised to indicate expectations of the company "exceeding" the $300 million mark, where before expectations were floated as coming in at "around" that mark. Spectrum also received a boost from its newest product, FOLOTYN, recently-added to the portfolio through an acquisition of Allos Therapeutics (ALTH), and the company also cited resulting savings from synergies from the deal that help reduce expenditures. All in all, it was a decent report from the company for the latest quarter and investors immediately responded with the price push back towards twelve.
On the other hand, concerns will still be aired regarding the threat of increased generic competition. Product sales were up significantly when compared to the same quarter of the previous year, but not so much on a quarter-over-quarter basis. These arguments may help to enable a still-high short interest (sixty percent of the float) to weigh heavily on the stock and potentially limit the upside for the time being, especially if the overall market is depressed.
In favor of the long case for Spectrum, however, FUSILEV continues to penetrate the market while fending off generic concerns and the company still has a deep pipeline that supports a solid foundation for future growth. Sales forecasts are growing and the company trades with a relatively modest market cap in relation to those forecasts. The previously-announced "strategic" reshaping of the US-based sales force should also help with consolidation and cost savings, building a strong bullish outlook moving forward.
Assuming continued penetration into the market by Spectrum's main drugs, SPPI could be viewed as a nice 'buy the dips' play right now, but investors should also keep the high short interest in mind - especially while the overall market is preaching a bearish tone.
Capstone Turbine (CPST): Shares of Capstone enjoyed a high-volumed push to over the dollar mark early last week leading into the company's Thursday afternoon earnings report, but they quickly fell below a buck again as the broad market dropped and revenue numbers for the quarter came in below expectations. Encouraging signs were prevalent, however, as the company recorded the fifth straight quarter of expanding margins and, as noted by the Capstone President and Chief Executive Officer in a conference call, record backlog was achieved for the third consecutive quarter while revenue has increased four quarters in a row.
Capstone also has a strong cash balance of over $45 million on the books to go along with the increasing sales and backlog numbers, but the key remains to convince investors that profitability is well within reach. Some investors remain unconvinced, as evidenced by the stock's fall from over two dollars early last year to under a buck.
Playing on a shift towards greener energy and the low price of natural gas, Capstone's low-emission microturbines should continue to penetrate the energy market. That could lead to a continuation of the current sales and backlog trends and keep investors highly interested, but as long as the markets are sputtering, it could, too, be a bumpy ride for CPST.
Historically speaking, however, purchases of this stock in the dollar range have been handsomely rewarded with speculative spikes to the $1.50-$2 range. Worth keeping an eye on.
Sunshine Heart (SSH): Sunshine Heart also reported earnings last week, but like Amarin, investors were more interested in updates and pending milestones than they were with the numbers. Earlier this year, Sunshine achieved a notable benchmark when its C-Pulse Heart Assist system was approved in Europe for the treatment of Class III heart failure. C-Pulse is an implantable device considered much less invasive than other implantable devices on the market - from Heartware International (HTWR) and Thoratec (THOR), for example - given that the C-Pulse is implanted outside of a patient's bloodstream. Additionally, Sunshine has relatively no competition for its device, given its target patient set of Class III patients.
The company used its third quarter report to recap the milestones met during the previous three months, including the European approval, the IDE approval by the FDA that clears the way for the initiation of a US trial during the current quarter and the positive trends noted in the results of the already-completed feasibility trial. Sunshine also reiterated its planned milestones for the fourth quarter, including the launch of the US trial and the commercial launch of C-Pulse in Europe. With prospects of the company starting to realize revenue in Europe as early as this quarter, and with the meeting of expected milestones on time, multiple analysts have reiterated their positive outlooks on the company following the report.
Northland Capital Markets, for example, maintained its 'outperform' rating on SSH shares with an enthusiastic price target of $20. Summer Street and Canaccord also reiterated their buy ratings on the stock, sticking with price targets of $26 and $12.50, respectively.
Sunshine also conducted a stock offering during the third quarter, positioning itself with funding expected to last through the mid-way point of the US trial. A large - and still unnamed - strategic investor came on board with three million dollars during the offering and appointed a member to the board, hinting that potential partners or buyers of the Sunshine technology could already be waiting in the wings, pending additional trial results.
This could conceivably be the last quarter of zero revenue for Sunshine, given the imminent European launch. A quick rampup in sales should not be expected, however, given the terminology used by the company as a 'controlled release'; that generally means that a company will look to conserve resources while growing a product's awareness through a more 'grass roots' effort.
Also of note, Sunshine will present at numerous high-profile investor conferences this month, including the Lazard Capital and Credite Suisse Healthcare Conferences.
Explosive Trace Detection (ETD) / Global Defense:
Implant Sciences (IMSC): The Implant Sciences story will be heavily watched this week following a highly volatile move last week ignited by a bearish Seeking Alpha report that was widely-viewed as sparking a large-volumed, mid-week selloff of IMSC shares. The quick drop culminated in a low of seventy five cents, but an impromptu conference call set up by management on the heels of the bear raid provided enough momentum that shares closed the week in the range where they had been trading before the SA article was published. The basis of the bearish report was again financials - a theme that has been often discussed time and again as investors await a final approval determination by the TSA for the QS-B220 explosives and narcotics trace detector. The DMRJ Group LLC currently holds over $20 million in Implant debt and concerns are often aired by short-minded investors that Implant will be unable to meet its debt obligations. Some of those concerns were alleviated months ago when DMRJ agreed to extend the terms of the most pressing agreement until the end of March, 2013, providing a full two quarters of development and progress for Implant before having to worry about debt coming due, but the concerns will persist - nonetheless - until the company can consistently demonstrate signs of sustained life.
The most pressing milestone that could go a long way towards solidifying the long case for Implant Sciences is the validation by the Transportation Security Laboratory's of the B220, which is being positioned for potential use in air cargo screening. Pending validation, which is still expected to come soon, according to comments made by company officials in last week's call, Implant will look to capitalize on the key December 3rd deadline imposed by the TSA stating that all inbound-US air cargo on passenger airliners will be screened for explosive traces. Management continues to remain confident that related contracts will be forthcoming, assuming approval.
Another Seeking Alpha article released last week in the midst of the share price rebound addressed some key points that the bears often miss - notably that Implant stands to not only gain market share in the US due to the potential of its solid, radioactive-free technology, but also because it is the only US manufacturer of explosive and narcotics detection technology. Those things matter heavily right now as the current political climate screams for manufacturing and jobs in the US.
Bearish arguments will persist until Implant is on solid financial footing - as it is with all still-growing, developmental companies - but the pending potential milestones should still keep investors interested. While on first glance it look like only the shorts won last week with that high-volumed drop, any longs whose confidence in the potential of this company did not waver during the chaos and took advantage of that drop may have made out with swift thirty percent gains of their own.
TSA news could be imminent in regards to the B220, making Implant Sciences about as hot a story as ever for those who follow the stock.
Healthcare, Biotech, Pharmaceutical:
Synergy Pharmaceuticals (SGYP): Synergy Pharmaceuticals was another company whose share price came crashing down last week as the broad markets dropped. Having traded for close to five bucks just a month ago, SGYP shares closed last week at $3.22 after announcing that the company would push the release of its quarterly report due to difficulties relating to Hurricane Sandy in New York. As noted last week, however, any slide in SGYP right now may be viewed as an opportunity for those looking to play the very significant late-year catalyst of trial results. Synergy is still on track to release Phase IIb/III Plecanatide trial in the treatment of chronic idiopathic constipation (CIC) by the end of September and shares could be positioning for a pre-release runup into those results. Synergy shares initially ran to the five dollar range after Ironwood Pharmaceuticals (IRWD) received approval for Linzess in September. Linzess uses the same mechanism-of-action as Plecanatide and its approval provided validation to the Plecanatide trials in the eyes of investors.
It's also worth noting that part of the reason for Synergy conducting the merger with Callisto Pharmaceuticals (CLSP) was to attract institutional interest, given that Callisto held a forty-percent position in SGYP previous to the deal. The merger eliminates that roadblock to attracting new interest and it is possible that new interest is looking to now get in before the pending catalysts. If that's the case, then such parties would be more enticed to buy at these lower levels. Volume behind Synergy's drop was not alarmingly high, indicating that a broad sell-off is not quite in effect.
Many companies in the sector often enjoy runups before the release of pivotal trial results and SGYP could still be in the game for such a move, as evidenced last week by Canaccord's initiation of coverage with a 'Buy' rating and a price target of seven bucks. Plecanatide results can now be measured in weeks, not months, positioning the company to receive plenty of investor attention for the remainder of the year.
It's also possible that the SGYP dip could be related to the overall market retreat. As is generally the case during market corrections and periods of bearish sentiment, speculative money could be the first to get pulled onto the sidelines. Such was the case during the drop of 2008-09 when highly speculative shares of Titan Pharmaceuticals (TTNP) and SiriusXM (SIRI), for example, traded for a mere penny and nickel, respectively, and it's likely that many other similar opportunities will play out in the speculative sector during the current retreat.
While there are definitely no sure things in the markets, especially during bearish periods, investors are often able to find reduced layers of overall risk with regards to their speculative picks, if only because prices become more depressed than usual as there is less speculative money going around. In the case of Synergy, the overall potential of the story has not changed, only the share price, so those looking at the speculative potential of Plecanatide and the rest of the pipeline may find themselves with a relative bargain over the next few weeks.
Technology, Products, Services:
Sirius XM Radio Inc. (SIRI): Although SIRI was still a highly speculative player during the market crash in early 2009 when bankruptcy loomed and shares traded for a nickel, as mentioned above, the tide has turned these days and the stock is fresh off a run that sputtered just below the three dollar mark. No longer considered speculative, SiriusXM has become a major player in the radio entertainment industry with a lineup of unique content and personalities that keeps listeners and investors fully engaged. The share price run was also supported by Liberty Media's (LMCA) methodically increasing position in the company that will imminently turn into de facto control of the company, pending FCC approval.
Like the speculative players, however, SIRI has also retreated in price. Even the big boys are vulnerable when the market turns bearish. The case can be made, however, that the overall story has not changed and that any current retreat in price could be viewed by enthusiastic longs as another opportune time to buy. Driving SIRI's run over the past few months was the rebounding auto industry. Since much of SIRI's business comes from 'on the road' consumers, any growth in car sales inherently increases SIRI's exposure, especially since current deals place SatRad services in roughly three-quarters of new cars hitting the roads. If consumer sentiment is growing, as indicated by financial reports leading into last week's election, and the auto industry is still seeing a boost, then the long case for SIRI can still be made and the recent slide may attract new interest as current longs still accumulate.
The bears will continue to plead their case, too. A slew of insider sales last week may indicate that even the insiders may not see much more of an upside in this depressed market, which is concentrated more on the pending fiscal cliff than the overall state of the economy. There may be something to that argument, although any sales by CEO Karmazin at this time should be considered a non-factor since he's on his way out anyway.
Given the attention garnered SIRI over the past months with its invigorated runup, the insider sales and dramatic market downturn, this will continue to be a story to watch. As Liberty positions for control of the company and Mel Karmazin exits stage left, there may be some volatility in store - and that often means trading opportunities.
MRI Interventions (MRIC): MRIC is another one to keep an eye on as the market drops and some of the more speculative plays retreat more substantially than the market as a whole. As discussed during previous weeks, this company has been able to note impressive revenue gains in relation to the 'disposable items' associated with its ClearPoint procedures. ClearPoint - with due respect to ClearTrace, too - are MRI-enhancing systems that provide medical professionals with real-time imagery during complicated procedures on the brain and heart, respectively. The company banks revenue on sales of ClearPoint itself, but can continue generating revenue from a sold system through those disposable items. The case can be made that MRI Interventions is still in the earlier stages of growth as it is only just now preparing to significantly boost its sales force. It is also noteworthy that the company has already attracted the interest of some big players, such as Siemens AG (SI), Boston Scientific Corporation (BSX) and Brainlab, hinting that larger partnerships or an all-out buyout could materialize once the technology is deemed more accepted and mature.
Attention on the MRIC technology and speculation mentioned above led to a triple in share price during the summer months, although the current market swoon may again have shares trading for a more attractive speculative price. Shares have dropped roughly twenty five percent in just a few weeks time, although nothing has changed in regards to the potential of the company. The drop is likely just the result of speculative money leaving the markets, as discussed above.
With the long term potential still standing, MRIC will be one to keep an eye on as the market dips.
Facebook (FB): Following a spike into the mid-twenties after an encouraging earnings report last month, Facebook shares dropped to below the twenty dollar again mark last Friday. A late-day swoon had FB ticking down all afternoon and, again, much of that activity could be attributed to the overall bearish market sentiment driving the market action for the better part of all last week. That said, the bearish sentiment is only exacerbated in regards to Facebook trading by the selling resulting from another round of lock-up expirations that dumped another 200 million-plus shares onto the trading markets. Many investors with hesitant interest in taking a position in this company may be waiting to see the full impact of the lock-up expirations before jumping in, especially since the broad market dip has the potential to push prices lower than they otherwise would have been. With hundreds of millions more shares still set to potentially hit market as the result of expiring lockups before year's end, FB will be one to watch. Bearish forces could combine to give those hesitant investors the relative bargain that they've been waiting for.
Oncothyreon (ONTY): Oncothyreon, too, has not been spared by the broad market sell-off. Having dipped below five dollars already, last week's earnings announcement did little to keep the share price from falling further. Any protracted dip in the ONTY share price, however, could provide an intriguing opportunity for investors looking to play the key trial catalysts slated for the first quarter of next year. The potential of ONTY's non-small cell lung cancer immunotherapeutic treatment, Stimuvax, had shares trading for as high as ten bucks within the past couple of years, although shares slipped earlier this year when an independent monitoring committee recommended keeping the trials going. Some investors hoped that positive results would have been overwhelming enough at that point to halt trials and move on to the approval stage. Company officials indicated that the fact that the committee recommended keeping the trials going should be viewed as a positive event and it's now nearing crunch time for the final analysis. Often times in the health care sector companies experience price runs leading into trial release dates, making any continued dip in ONTY a potential buying opportunity, albeit still speculative.
Roundup: Attention is all on the pending fiscal cliff and the European bailout of Greece and other weakening economies. As of Monday morning it looked like the Greeks voted enough austerity through to warrant another round of bailout money and stave off bankruptcy or a potential return to the drachma for the time being, but worries about other economies in Europe - like France - re-entering the recessionary phase will still damper investor enthusiasm. Meanwhile, in Washington, nothing has changed in terms of the political make-up of the government, so the same entities that have not been able to come up with a budget for years are going to be tasked again with making something happen. It is evidenced by the market sell-off last week that investors are skeptical that a deal can be reached. Being a 'glass half full' kinda guy, I would count on the powers-that-be finally coming up with a plan that shows compromise by both sides; if not, then it could get ugly, both politically and economically.
Earnings season is still chugging along and the retail-heavy week ahead may not give us any indication about the overall health of the economy, but any bullish trends would validate the latest consumer confidence numbers and potentially spark a little more enthusiasm about the recovery. European financial leaders will be meeting on Monday, too, and investors in the US will be paying attention.
With the potential for the bearish market to drop even further, many will be banking profits where they can in exchange for having some spare cash on the sidelines in anticipation of a new bottom, while others will look simply to take advantage of any individual bargains that may open up as the result of blind selling. The shorts tend to take control in such scenarios, too, which could lead to more protracted individual price drops than would normally be expected. While the shorts will make money in those instances, opportunities can also open up for longs who have done their homework and believe in the future of a particular stock.
Exciting times ahead.
Disclosure: Long AMRN, IMSC, TTNP, SSH, SGYP, CPST.
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