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.
After a week of celebrating family, friends, turkeys and stuffing, there'll be plenty to keep us occupied on the markets during the coming trading week.
A festive holiday mood, a cease fire in the Middle East and the perception of bipartisanship in Washington sent the markets well into the green last week, allowing for the DOW to reclaim the 13,000 throne for the first time since Election Day. Other indexes followed suit, too, as did many of the international markets, creating a level of enthusiasm leading into the new trading week. In all actuality, investors should not entirely expect the run to continue. Many key concerns - many of which have resulted in the market decline of the past few weeks - still exist, most notably the pending 'fiscal cliff' in the United States and the inability of European leaders to finalize a plan for the next round of bailout money for Greece.
Impressions of bipartisanship or not, Republicans and Democrats still look far from reaching a deal regarding the cliff and many doubt that a lame-duck congress will be able to come up with anything. That means an extension of the cliff deadline is possible - which could temporarily boost the markets - but investors will not likely rest easy until a deal is done and a budget is approved. The same can be said for Europe, too, where many countries of the European Union (EU) are resisting continued budget cuts as their citizens continue to protest against austerity. Leaders of the EU will again meet this week in another attempt to devise a new, longer term budget.
Greece is certain to be in the spotlight again, too. Last week the Euro Zone's (EZ) financial representatives and the International Monetary Fund (IMF) failed to agree on a plan to send the next round of bailout cash into Greece's cash coffers to help that company stave off bankruptcy. Barring a deal in the near future - like this week - things could again get pretty ugly for Greece, which will keep investors on their toes as the prospects of a Greek exit from the EZ are again entertained.
As if that's not enough to keep an eye on, this week will also be full of economic indicators that could confirm - or deny - that a US recovery is well under way. New home sales for October and October's pending home sales data are due out this week and will offer additional insight into the strength of the overall housing recovery, although those numbers may have been affected by the wrath of Hurricane Sandy.
Regardless, many are predicting continued strength.
November's consumer confidence assessment will also be out this week. That could serve again as a key catalyst as last month's note of rising confidence just before the election provided a jump-start for many retailer stocks ahead of their respective earnings reports and also potentially confirmed President Obama's positive outlook on economic trends for any voters who may have still been on the fence. With 'Black Friday (that started on Thursday)' and 'Cyber Monday' fresh in the minds of consumers, another positive note in consumer confidence could set the stage for a merry mood during the holiday season. It should be noted, however, that deep-discounting at many stores is expected to keep quarterly numbers modest, as retailers are looking - for now - just to keep the consumer traffic flowing.
There's a lot going on this week - and that always means volatility.
In the meantime, there are always a few stocks and stories to keep an eye on, and some updates on those which we already follow - here's just a few of them...
Newsmakers: Two high profile players in the tech industry attracted some headlines last week and will be notable stocks to watch during the coming week, too. Apple (AAPL) shares rebounded nicely, rising to as high as $572 on Friday after having touched as low as just over five hundred bucks during trading only a week prior. That marked a pretty swift turnaround for the tech giant, although none really questioned the stock's ability to rebound, even as the downward trend continued for a couple of weeks. It helps, too, that reports over the weekend indicated that the iPad was a Black Friday sales winner. Volume was also notably higher during the rebound.
Following a week in which shares of Research In Motion (RIMM) jumped by over twenty percent - including a thirteen percent spike on Friday on triple the normal volume - it's safe to say that the company is back in the good graces of investors with BlackBerry 10 devices nearing the launch phase. Friday's volume and trading interest was especially notable, considering the lack of overall volume during the shortened session, and could be attributed - at least in part - to a revised price target of $15 issued by National Bank analyst Kris Thompson. Thompson's previous target had been set at $12. Jefferies & Co. also raised its target on RIMM earlier in the week, indicating that the stock is back in the good graces of analysts, too, and not just investors.
Although the mood is merry and BlackBerry 10 may be preparing for a better-than-expected launch in early 2013, RIM is still not completely in the clear. Cost cutting measures implemented earlier this year may have streamlined losses, but the company's prospects for future growth are entirely riding on the BB10 launch right now. Encouragingly enough, analysts are starting to predict a better-than-expected launch - hence the raised price targets - which bodes well for the time being, especially as RIM has finally managed to halt the mass exodus of BlackBerry users to other smartphones - such as Apple's iPhone and Google's (GOOG) Android. A resurgence could be in store for the one-time dominant player in the smartphone market, but it's also reasonable to expect a pullback at some point on profit taking, given the very quick move higher. When assessing value, too, RIM's patent portfolio and the entire BlackBerry network should also be taken into consideration.
Unions: Another hot story to watch these days is that of the unions taking a firm stance against big business. This theme came to light over the past couple of weeks when Hostess Brands announced that it would resort to bankruptcy over an impasse with its unions - leading many to start speculating on the future value of Twinkies on Ebay (EBAY) and Amazon (AMZN) - but it again made headlines when unionized Wal-Mart (WMT) employees took the opportunity to strike on the company's biggest day of the year, Black Friday. Even more drama could be in the works as The Boeing Company (BA) renegotiates its labor agreement with its own unions, negotiations that were rocky the last time around. As companies look to cut costs in a down economic environment, it's not unreasonable to expect that such issues could start gaining increased attention. Already unions are striking across Europe and California is near bankrupt itself because neither side is pushing reforms, so it's likely - in this economy - that we are at a crossroads where unions and big business will have to 'step across the isle', as they say, in order to come up a plan that works best for everyone. Right now, as in Washington over tax hikes and spending cuts, the battle lines are drawn and evidence of compromise is lacking. This could become problematic, as companies are looking for incentives to keep jobs and business within the United States. Too many uncompromising negotiations may offer them the incentive to take the jobs overseas, but that doesn't mean companies should look to take advantage of a temporary downshift in the economy...the word of the day is "compromise."
General Electric (GE) and Ford Motor Company (F) also made news last week with the announcement of a deal that GE will purchase 2,000 of Ford's C-MAX Energi plug-in hybrids for its commercial fleet. Once consummated, this deal will put the number such vehicles in the GE fleet at 5,000, with an ultimate goal of 25,000, or half its global fleet. As part of this collaboration, Ford also announced that it would "jointly market GE's alternative fuel infrastructure technology, including charging stations and natural gas fueling stations, to its commercial buyers." With mutual co-promotion of each other's technology, this deal should prove beneficial for both companies. It also marks the largest one to date for Ford's plug-in hybrids and is a testament to the commitment of both companies to usher in the next generation of alternative-energy vehicles. Until the electric vehicle market truly takes off, Ford should be considered as taking a fairly significant business risk, especially with additional models planned. With a price tag of roughly $30k to the consumer, electric vehicles have been thus far slow to take off in the market; Ford's strategy is to already be there - ready and waiting - when the market does take off. GE will be there, too, with its supporting technology. Shares of both companies traded relatively indifferent to the news.
Explosive Trace Detection (ETD) / Global Defense:
Implant Sciences (IMSC): Implant Sciences is going to be a hot one to watch this week. The company is still awaiting finalization of a key catalyst that could launch its technology to the forefront of the Homeland Defense and ETD markets, and it's quickly becoming crunch time as another key date is now in play. The first catalyst revolves around the approval of the company's QS-B220 explosives and narcotics trace detector by the Transportation Security Administration (TSA) for use in air cargo screening. Currently, the B-220 is undergoing validation by the Transportation Security Laboratory (TSL) and - according to comments made by company officials in a recent conference call - the first phases of validation were successful and information should soon be forthcoming as to the results of the final phase. Should the B-200 receive an ultimate TSA approval, it would open more avenues for potential deals in relation to air cargo screening, especially given 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. With December 3rd well in the headlights, and with the B-220 nearly ready capitalize, IMSC could draw some attention this week. Another benefit held by Implant is the fact that - following approval - the company could attract more US business since it is the only all-American company in the industry at a time when governmental attention is being drawn to supporting US companies. Implant shares have already been highly volatile this year and offered investors multiple trading opportunities, but it's possible that even more volatile moves could take shape leading into the final phases of the approval storyline.
Healthcare, Biotech, Pharmaceutical:
Synergy Pharmaceuticals (SGYP): Synergy, like Implant Sciences, is going to be a hot one to keep an eye on due to a pending catalyst that could launch the company into the big leagues of the GI market. During the first week of January it is expected results from the recently-completed Phase IIb/III Plecanatide trial in the treatment of chronic idiopathic constipation (CIC) will be released. With that milestone event just over a month away now, SGYP could continue to trade with the volatility noted over the past few weeks, offering investors the opportunity to either play the pre-catalyst trade or accumulate for the long run. SGYP traded for nearly five dollars a couple of months ago when Ironwood Pharmaceuticals (IRWD) received approval for Linzess, a product that uses the same mechanism-of-action as Plecanatide. Because of the similarities in the two products, investors took that as a vote of confidence regarding a potential Plecanatide approval. Due to a licensing agreement between Synergy and Ironwood, there are no concerns of any potential patent litigation between the two entities, so the coast is clear to bring Plecanatide to market, should it gain approval.
Beyond the results catalyst, investors will look to capitalize on any potential partnership deals, too. Ironwood has already partnered Linzess with Forest Laboratories, Inc. (FRX) and its stock is trading for a market cap of well north than a billion bucks. Given that the IRWD valuation is based on splitting revenues with Forest, it's safe to speculate that Synergy's cap would be due for a dramatic increase, should the company produce positive results and ultimately gain approval for Plecanatide. Such events could put the future share price in the range predicted some analysts over the past couple of months and noted here in recent weeks.
Expect volatility leading into next month's catalyst.
Sunshine Heart (SSH): Speaking of volatility, it's also worth paying attention to Sunshine Heart these days. Last week the company announced that the FDA had granted the company unconditional approval to commence the planned pivotal trial in the United States for C-Pulse in the treatment of Class III and ambulatory Class IV heart failure. Shares swiftly spiked by nearly twenty percent on high volume when that news was announced, but then closed the week at $6.24, marking another potential buying opportunity for those looking to either play another trade or accumulate for the long term. The quick moves also provide investors a look into the volatile - but potentially lucrative - nature of the developing biotech/pharma/medical device sector.
Moving forward investors can look for updates regarding the official trial start as well as the potential announcement of the first commercial sales in Europe. As discussed before, Sunshine is conducting a methodical roll-out in Europe following a regulatory approval earlier in the year and revenue is expected to start flowing in before long, although investors should modestly temper their initial expectations.
Many predict that the company will eventually be purchased by a larger player in the industry, pending further trial and commercial success. Evidence to that effect may have been provided in a third quarter stock offering, where a large - and still unnamed - strategic investor participated in the offering with a sum of three million dollars and then appointed a member to Sunshine's board. Such actions hint at partnership/buyout interest. Due the aforementioned offering, Sunshine should be set with enough cash to last through the mid-way point of the upcoming US trial.
Food and Beverage:
McDonald's (MCD): McDonald's shares took advantage of the broad market rebound last week and traded higher from their 52-week lows, set after announcing an unimpressive round of earnings for the previous quarter. Earlier in the year shares were trading at one hundred bucks-plus, but started slumping when investors started questioning whether or not the company had reached its peak in terms of prospects for growth. Last week's modest rebound, however, has again drawn interest to the stock as a potential short to mid term rebound play, if not a solid long term hold. The case for MCD is that the brand is in itself the recognized leader of its industry - both at home and abroad - and is continuously pushing into emerging markets even as the economy hampers sales in the US. The case against is, again, that some feel the company is reaching the point of market saturation and the best days of growth are in the rear view mirror, especially as competing companies methodically gain market share. This will be a story to watch this week, because of the modest rebound posted last week, but also into the new year as the company has realized disappointing earnings numbers for two quarters in a row. The next report is also not expected to impress, as sales have been hampered by the Hurricane Sandy impact - but investors will be expecting that, so it shouldn't come as surprise. Should the market falter as a whole leading into the tax-loss selling season, MCD, too, could suffer even more, but the fact is that this could provide an ample buying opportunity looking towards the future. After all, McDonald's is still considered to be the best there is at what it does - and it has generally managed to stay one step ahead of the competition. Could be a nice buying opp again.
Roundup: There's plenty of action to watch this week. European markets opened the week slightly down as negotiations over Greece took center stage while - in the US - reports have it that Black Friday online sales topped a billion dollars for the first time. Focus on Europe should remain, as some speculate as to whether or not the UK is on its way out of the EU while others believe that the French economy is in for a drastic downfall. Both possibilities could play a role in trading. Additionally, budget talks in Washington could also be positioning the markets for a wild ride during the remaining days of November, if not well into the new year. Add to the mix that some tax-loss selling will likely begin over the course of the next few weeks and investors could potentially find themselves with some ample trading and buying opportunities coming up - that means it could be a good time to have some spare cash on hand. Definitely an exciting week ahead - but any week will be that starts with the Big Blue making a sideshow of the (weak) Pack attack.
Disclosure: Long SGYP, MCD, SSH, IMSC, GE.
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