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.
An up day on Friday wasn't quite enough to eliminate another overall down week for the markets as flare-ups in the Middle East and concerns over the pending fiscal cliff in the United States continued to play on the minds of investors, but an unusually cooperative tone in Washington over the past few days could ease worries of a protracted market dip as the cliff negotiations play out. Some may take a "wait and see" approach, however, because it's truly been years since the words "cooperative" and "Washington" could be associated in the same sentence - and just because Republicans and Democrats are talking, it doesn't mean that a deal is going to get done before the 11th hour. After all, American politics are so divided and polarized right now that neither side wants to be viewed as cohorting with the enemy, and too much cooperation may kill the cable news channel ratings, so there's likely much more drama to come regarding these negotiations - whether invented by the media types or not - meaning there should still be plenty of market volatility until the day a deal is announced.
Fiscal cliff negotiations may not prove as rough as previously thought if the politicians are serious about compromise and results, but the Middle East stuff could start to have an effect. Increased tensions across the region could pull the US and other western nations into the mix while renewed instability is also likely to hit oil and gas prices, some of which has already been seen. That could hit investors and consumers in the wallet right around the prime shopping season, potentially killing the momentum that has been built over the month of November for consumer confidence and the retailers.
Some investors are also taking note of Europe's double-dip recession and entertaining the prospects that the US, too, is far from free of the double-dip risk, especially without a budget deal having been reached between the two sides in Washington.
Amid the volatility, there is reason for optimism, too.
The lower the market dips, the more those holding spare cash on the sidelines will be inclined to go long again, barring any continued bad news on the geo-political landscape, especially because fewer and fewer pundits believe that a fiscal deal will not be reached. Those playing the drop could play the markets as they play there favorite stock, by 'averaging down' and returning cash back into the market a little at a time, as the opportunities arise. Those that utilized such a strategy during the crash of '08 and '09 when the pundits had everyone afraid to buy made out like bandits during the recovery. Few believe such a drastic drop will materialize in this instance, but buying when others are selling could prove a nice move in the event of any recovery, modest or not.
We've got a Thanksgiving-shortened trading week in store, and although it's easy to concentrate on who's got the largest turkey and who's offering the best Black Friday deal, this week is intended to give thoughts and thanks to what we do have, with consideration to those that who may not have so much. A shout out goes out to those on Staten Island and other hard-hit areas of the eastern seaboard still reeling from the effects of Hurricane Sandy, and also to all of those in various geo-political regions around the globe that may be suffering at the hands of tyranny, starvation or war. There's a lot out there to think about.
In the meantime, there are always a few stocks and stories to keep an eye on, and some updates on those which we follow - here's just a few of them...
Newsmakers: Some big companies, such as Apple (AAPL), General Electric (GE) and Google (GOOG) made headlines last week - and could still this week - due to their respective share price declines during the latest market dip and for their potential to quickly rebound once the market turns around, while others were making the news for having to pay out huge sums of cash to settle ongoing drama. JP Morgan Chase (JPM) and Credit Suisse, for instance, agreed last week to pay a combined near-$500 million in fines to settle a case with the SEC over mortgage securities packaged and sold prior to the crash of 2008/09. The deal was announced without either firm admitting guilt, but JPM shares fell to below forty bucks again for the first time since mid-September, although that drop could more be attributed to the down market.
Also in the banking sector, Citigroup (C) agreed to pay $360 million to the brokerage estate of Lehman Brothers over a dispute relating to the Lehman bankruptcy in 2008. Citi also announced early this week that it plans to cut 300 sales and trading jobs over the course of the next year in an effort to streamline its banking operations.
Any resulting dips in these big players could attract new investor interest, but I'm still a fan of the Financial Sector SPDR ETF (XLF). Barring any 'no brainer' individual deals - like Citi was at a buck (pre-split) XLF generally trades in line with sector volatility and expectations and could be a decent alternative to the individual banking picks.
In another big payout announced last week, BP (BP) agreed to pay $4.5 billion in fines related to the Deepwater Horizon oil rig disaster of a few years ago. Shares of the oil and gas giant were largely unaffected by the amount the company will have to pay out, as it has five years to pay in full and BP made well over twenty billion in profits last year - so as rough as it is to mouth this line, $4.5 billion is relative chump change compared to the profits expected to roll in for the duration of the payback. While the settlement of this ongoing drama will also settle the minds of investors who were awaiting final word, some will still have concerns because other litigation is ongoing and could cost BP a few billion more before it's all said and done.
Those companies mentioned above were - and still could be - some of the biggest news makers for the month of November so far, Hostess Brands may take the cake. For anyone not be keeping store at home, Hostess is heading for bankruptcy after a deal with the unions fell through and the company can no longer be viable. As a result, panic quickly spread that a staple of just about every childhood - the Twinkie - is going to disappear, along with other Hostess brands like the Ho-Ho and Wonder Bread. In a demonstration of just how weak the overall media has become in America, the morning shows and the news outlets fueled the hysteria with headlines of how we've seen the last of the Twinkie. Nothing better to report, I guess. As a result, consumers were flocking to their local supermarkets to stock up on Hostess products with visions of grandeur about banking sales of $1000-plus for everyone's favorite diabetes-bomb.
Imagine, too...who ever thought we'd have to worry about Jimmy Two Fingers selling Twinkies on the street corner as a novelty item. Of course that would have new meaning in Washington state and Colorodo these days.
But really, does anyone actually believe that we've seen the last of the Twinkie? C'mon now.
That story easily takes the cake as the 'weakest news of the week', along with Mike Lupica 'shooting from the peanut gallery' with his jabs at General Petraeus from the front pages of the New York Daily News on Monday. Didn't that guy used to be a sports writer?
Wal-Mart Stores (WMT): Retailers gained momentum last week when Abercrombie & Fitch (ANF) and Home Depot (HD) 'beat the street' while others like Saks (SKS) and Michael Kors Holdings (KORS) were well in line with expectations, but Wal-Mart - generally regarded as a stalwart of the sector - could not join the party. Although sales and revenues were up for the most recently-completed quarter, profit margins were down since the company offered steep discounts throughout the quarter to attract shoppers. Additionally, the company guided lower for the current quarter, noting that the discounts would continue (and maybe even go lower) in order to keep store traffic flowing. Such actions will kill profit margins even more, but could retain the consumer traffic necessary to spark and eventual earnings rebound. While the likes of ANF were jumping by thirty percent, WMT shares dove by four percent on the revised guidance. There's little doubt that Wal-Mart could rebound, as the third quarter did mark a turnaround in a trend that saw revenue declining for nine consecutive quarters, but the company is also slated to deal with some legal and union drama, too, coming up, which may make some investors nervous.
Oncothyreon (ONTY): Oncothyreon posted its third quarters earnings report last week, but like most developmental companies in the health care sector with key trial catalysts pending, investors were more concerned with updates on pipeline development than they were with the actual earnings numbers - especially since such companies have no earnings to report, only losses.
As a side note, that is not to say that the numbers should not be looked at. Investors can use the numbers to gauge management's ability to control losses and spend money wisely as the pipeline develops. A bad management team can nullify a product with great potential simply by digging too big a financial hole from which to dig out of, or mismanaging assets enough to lose the company credibility in the eyes of investors and bigger players in the sector.
For investors of Oncothyreon, Stimuvax is key. The cancer immunotherapeutic treatment is being tested by Merck KGaA for the treatment of non-small cell lung cancer and results are expected to be released in the first quarter of next year, in line with the most recent expectations. Shares did take a sharp dive earlier this year, however, when the company initially re-set expectations for trial results to 1Q 2013 from 4Q this year, as many investors took that as a sign of uncertainty surrounding the effectiveness of Stimuvax. Those thoughts were expounded when an independent monitoring committee did not halt trials early based on positive results. Comments at the time from the CEO insisted that expectations of an early trial halt were unrealistic and that it should be viewed as a positive that the trials continued following the audit.
With first quarter well within sights, ONTY will start gaining more attention. Dendreon (DNDN) is a prime example of the moves a stock can make following positive results from a cancer immunotherapy trial, and that will entice a fair amount of speculative investors leading into this catalyst, but it's also worth noting that Dendreon's Provenge failed to catch on as quickly and monumentally as expected, so expectations may be tempered for immunotherapies this go-round.
Although the overall market slide played some role in the drop, ONTY's share price declined to the mid-$4 range last week following the earnings report.
Organovo Holdings (ONVO): Organovo also reported earnings last week and has been gaining attention in the 3D printing and regenerative medicine sectors, two potentially very lucrative sectors. The company's NovoGen MMX Bioprinter uses live human cell samples to generate 3D "bioprints" of human tissue. Once generated, these 3D prints can be used as disease models that enable therapeutic drug research, discovery and development and - further on down the road - could potentially be used in generating organs for patients awaiting transplants.
Still considered a developmental company, investors - as with Oncothyreon - were more concerned with company updates regarding its Bioprinter than with the earnings numbers themselves, although the company did post a one hundred percent increase in revenue this year over the same period of the year prior thanks to grant money and revenue generated from research agreements. Aside from the National Institutes of Health, Organovo also has deals with Pfizer (PFE) and United Therapeutics (UTHR) that have already generated over a million dollars in cash, in total, and both have the potential to turn into something more lucrative - with key focus on the Pfizer deal since it is scheduled to expire at the end of this year.
Also during the quarter, Organovo received two key patents and re-located to a new research facility in San Diego that tripled its laboratory space.
Zacks.com initiated coverage of the company earlier this year with a rating of 'Outperform' and a price target of $3.25, based on the progress made thus far and on the business plan moving forward. The price target materialized fairly quickly, with ONVO reaching nearly $3.40 at one point last month before retreating back towards two, while last week's quarterly report indicates that the company is positioning itself to more aggressively push its 3D bioprinting technology into the field of regenerative medicine.
Shares slipped further towards two as the week progressed.
Other earnings stories to watch during the coming week will be Lowe's Companies (LOW) - especially following Home Depot's enthusiastic report last week; Best Buy (BBY), to see if it, too, can take advantage of a rebound in consumer confidence; and Chipotle (CMG), to see if this one will follow the trend of McDonald's (MCD) sub par earnings report earlier in the quarter or Yum Brands (YUM) enthusiastic report. Investors will be eyeballing CMG to gauge whether or not it's a safe buy-in, but many consider BBY as having hung on by a thread for too long, so disappointing numbers could lead to a significant drop.
Implant Sciences (IMSC): All attention these days for Implant Sciences revolves around the advancement of the company's Quantum Sniffer (QS) explosives trace detection (ETD) technology through the TSA certification process while also boosting international sales in high-threat areas. A couple of new international deals were announced last week, underlining the potential for future growth with or without the TSA qualification, and highlighting the versatility of the QS technology as threats of terror increase around the globe, while progress was made on the earnings front, too. In last week's quarterly earnings report, revenue for the reported quarter was 37% higher than the same quarter of the previous year.
The most pressing milestone that could go a long way towards solidifying the long case for Implant Sciences, however, would be 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 over the past couple of weeks, 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.
Being in the "ramp up" stage of development and growth, investors will be keeping a keen eye on future earnings numbers, especially if the TSA certification comes through in the short term.
Healthcare, Biotech, Pharmaceutical:
Amarin Corporation (AMRN): Amarin shares were all over the place last week. Following an overseas rumor last month identifying AstraZeneca (AZN) as a potential buyer of Amarin, reports surfaced last week, too, that that Teva Pharmaceuticals (TEV) is interested. Shares spiked roughly a buck on that news before they retreated later in the week as another FDA delay regarding Vascepa's New Chemical Entity (NCE) kept some investors edgy. While the NCE status is not a show-stopper for a commercial launch, nor a show-stopper for a potential partnership or acquisition deal, it holds enough weight over Vascepa's future to put everything on hold until an outcome is known. With that said, it's crunch time for Amarin to decide whether to take any deal that may be on the table now from a potential buyer, launch the product on its own or continue to wait on the FDA. The company has previously noted that Vascepa would be launched in the first quarter of 2013, so any more waiting may either postpone that date or cause enough concern for investors that some may begin to sell - for those that haven't already - so waiting may not be the best option. With holiday season upon us, government agencies are primed to become even more ineffective and unproductive than they already are, so really who knows when a decision will be forthcoming on the NCE.
In the end, whether Amarin decides to start hiring a sales force now or not, it's likely - in my opinion - that the eventual outcome will be a buyout. I'm not keen on making price projections or best guesses because the markets are so fluid and move just as much on hype and manipulation as they do on actualities, but I'll venture to say that a deal in the range of $22 is a reasonable estimate for valuation per share, with recent market action, previous expectations and the overall potential of Vascepa forming the basis of that opinion. Give a few bucks should an NCE decision finally be forthcoming and take a few as worst-case.
Expect a dip, however, if the company goes it alone in the meantime.
Synergy Pharmaceuticals (SGYP): Synergy Pharmaceuticals has made quite a bit of noise lately with a swift drop from near the five dollar mark to just over three, but as mentioned during the dive, those depressed prices may attract some significant buyers with the pending Plecanatide trial catalyst due during the first week of January. Some reasoning behind that thought process revolved around the recent announcement of a merger with Callisto Pharmaceuticals (CLSP), given that Callisto held a forty-percent position in SGYP previous to the deal and the merger would eliminate that roadblock to attracting new interest.
Synergy did end up attracting a pretty significant buy during that drop, notably from an insider as Chairman Gabriele Cerrone jumped in at right around the $3.60 mark. The buy took place right in the middle of SGYP's rapid recover, as shares moved from a low of $3.05 to a high of $4.40 in just four trading days.
It's also worth noting that volume for the upswing was higher than that of the downturn, indicating buyers took advantage of the drop.
Canaccord also initiated coverage with a 'Buy' rating and a price target of seven bucks earlier in the month, a move that also may have boosted investor confidence. Plecanatide results can now be measured in weeks, not just month, so SGYP could receive its fair share of attention through the holiday season.
Roundup: If the positive mood surrounding fiscal cliff negotiations continues in Washington, then it could be a solid week heading into the holiday season. It also wouldn't hurt if the retailers continue a positive trend and post surprisingly-good Black Friday and Cyber Monday sales numbers, but at the same time America needs to get a hold of itself because the holidays have become so commercialized that the spirit of the season is at threat of becoming completely lost. Turkey day should be about family, friends and thanks, but it's becoming more about rushing through the food to go stand in line for a good deal - that probably isn't that good a deal anyway. Christmas trees up in early November? C'mon now. We're getting a bit ridiculous. If only those in the trouble spots around the globe had just the 'horrors' of long lines at Toys R Us to worry about.
Also look this week towards Europe as Greece receiving its next round of bailout cash is imperative to its survival while other leaders standing strong on austerity measures - and not caving into the tens of thousands of protesters on the continent - will ease investor concerns about the future viability of the euro. Barring any worsening geo-political scenarios in the Middle East, most attention will be paid to US economic negotiations, and those look pretty good right now.
Happy Trading and Happy Thanksgiving!!! Remember what's important.
Disclosure: Long AMRN, IMSC, SGYP.
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