This week could be a pivotal one. Record market highs are well within sight and investors will look for evidence that last week's bullish momentum can continue into the new trading week, even as the effects of sequestration set in. Comments before Congress last week by Fed Chairman Ben Bernanke helped to reverse Monday's notable pullback and spark an overall move higher through the remainder of the week. All the while our politicians in Washington failed - yet again - to reach a budget deal that would stave off a harsh round of budget cuts that will end up slashing tens of billions of dollars from the federal budget over the coming quarters.
With the weekend under the belt and a few days for investors to digest the news and potential impacts of sequestration, we'll know fairly soon what the market makes of it all. Significant cuts in defense spending, as we've noted before, led to a retraction in GDP numbers for the fourth calendar quarter of 2012, although those numbers were recently revised higher to demonstrate stagnant growth.
The point was made, however, that the US economy is still hovering in a state that is heavily reliant on government spending - that's why at least some investors will consider the looming sequestration as dangerous for the short term, although many will also argue that drastic cuts are needed in federal spending for a healthy long term outlook. Many would expect that those cuts would come responsibly, though, and not at the behest of another fiscal deadline imposed by the bureaucrats in DC who time and again prove the futility of their attempts to get the job done.
The finger pointing is rampant in our great capital, but unfortunately no one has yet been brave enough to point a finger at his or her self to accept at least a portion of the blame for the continued inaction. Both sides, instead, retreat to the media looking to create a new battleground, one outside of the offices where the battles should be fought and the compromises made.
In the absence of leadership and action - and that's where we are right now - volatility in the market is likely to prevail over stability, making it a trader's game moving forward as the short term bulls and bears fight it out. A continued push towards the record highs could unfold this week, but general conditions do not point to a scenario where they would be sustained - if they are even met - unless some sort of a lasting budget deal can be reached. That looks a little far-fetched right now.
Amid the political chaos, there will still be some key indicators to watch. Friday's job numbers could add to the bullish sentiment that grew last week, but those numbers may still be overshadowed by debates over sequestration. For weeks leading into the 1 March deadline we heard about the devastating impacts on society that governmental furloughs and budget cuts would have on society, but to this point no specific or all-encompassing plans were released to the public of what this all means, so investors will be watching with a heavy eye this week for details. One things for certain, these budget talks are as much of a mess right now as the Mets' outfield situation.
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 4 March, 2013...
Disney's Agenda Includes Shareholder Meeting And 'Oz' Remake
As Disney (DIS) hovers just below its recently-set 52-week high, a couple of key events mark the upcoming week. On Wednesday the company will host its annual shareholders meeting, which takes place on the heels of a robust earnings report that included encouraging guidance moving forward and positioned the company to prove immune to sequestration and the volatility that could dominate trading as the markets react to a barrage of news regarding cutbacks. Issues of executive compensation are likely to come up at the meeting, too, but investors are also likely to hear additional details and plans relating to the high-profile acquisition of LucasFilm's 'Star Wars' franchise, from which a plethora of new movie ideas are being spawned. With a slew of new additions from Marvel Studios, too, Disney's movie business looks to continue moving strong while maintaining the enthusiasm around the company resulting from a flying-higher share price. Also this week on the movie front, Disney is planning to release a 'remake' of the timeless classic, 'The Wizard of Oz.' 'Oz the Great and Powerful' debuts on Friday and many view it as a gamble, but one that could pay off in a big way.
If the market fluctuates in a notable way with all the drama surrounding sequestration, opportunities and pullbacks may arise in stocks of all market types and categories. Investors looking for stable, long term holds for a retirement portfolio or other put-away plans, any dips in DIS could turn into a nice add. Still holding some of the most popular brands in TV, movies and theme parks, this behemoth looks to be entering another strong phase of growth.
Shareholders will be able to tune in to the annual meeting on Wednesday via webcast.
Amarin's Earnings Spark Share Price Dive
Amarin Corporation's (AMRN) issued its much-anticipated earnings report last week, followed by an earnings call that investors hoped would provide some insight or guidance into Vascepa sales expectations moving forward. The earnings portion of the Amarin report had little to do with Vascepa itself, as it was not yet commercialized during the last quarter, although one encouraging note was that the company had enough cash on hand to last "at least" the next twelve months, according to statements made by company officials during the call. That time period could allow sales to grow to the point where they could support continued operations on their own. In terms of guidance to that effect, however, the company did not offer any indications or numbers in relation to the ongoing Vascepa launch, with company CEO Joe Zakrzewski only noting that "we're pleased to-date with the progress that our sales representatives are making out in the field."
To the defense of the company and to temper the expectations of those investors who view the market as a scheme to bank a quick buck, the month or so that Vascepa has been on the market is not nearly enough to judge whether a launch has been successful or not - especially when, in the case of Amarin, full approval will not be considered until the FDA's decision on the Anchor indication. That said, it's also not too far-fetched for investors to expect at least some form of guidance in the form of sales and prescriptions. Many companies at least release prescription growth, because early-on that is the best indicator - not sales - to just how popular a drug is becoming, since revenue numbers can be skewed by early promotions, rebates and coupon offerings. The fact that Amarin released little of either will enable the bears to fuel their case a little bit more.
Moving forward, there may not be enough on the horizon to halt a continued downward trend in share price, barring an announcement regarding Vascepa's New Chemical Entity (NCE) status that could renew some buyout talk. Although shorts will downplay the prospects of a buyout and longs may be losing hope, the fact is that not too long ago Amarin was one of the more talked about potential buyout stories - with Teva Pharmaceuticals (TEV) and AstraZeneca (AZN) often being named in such talk - until continued NCE delays put a damper on the hype. In this volatile market, and especially in this volatile sector, such talk could be renewed in an instant and return quick results to patient investors.
We've used this example before, but Human Genome Sciences was another once-hot-runner that was beaten down when the buyout hype faded, but after setting lows and diminishing the hopes of long-time investors, GlaxoSmithKline (GSK) finally came through with the long-rumored buyout deal investors were waiting for. The deal, of course, was for a far lower valuation than investors had initially speculated, but it still came in for double the price where shares were trading, making a winner out of those who either bought into the drop or played the 'average down' game.
It's important to continue to entertain both sides of the story, and while the AMRN share price dips in the absence of encouraging sales numbers, the prospects for an eventual rebound are real. Catalysts to watch for start with NCE, next quarter's sales numbers - the company won't be able to hide at the point - and for an eventual Anchor approval. Although the potential still remains for a quick turnaround on the right news, as described above, AMRN may be more of a mid term play these days - one that could pay off with a little patience. Until that time, Amarin's stock symbol will continue to be bombarded with headlines containing a pun on the words "fishy" or "fishier," just as New York sports writers take liberties with puns on David Wright's name on an all-too-common basis.
Explosive Trace Detection (ETD) / Global Defense:
Implant's Credit Extension Marks Potential Pivot Point
With the announcement last weak of Implant Sciences' (IMSC) deal to extend the terms of a debt agreement with its primary creditor - DMRJ Group - for a full year, investors and company officials can concentrate fully on the building of sales, revenue and - with a recent TSA approval in the bag - the path towards becoming a dominant player in the ETD and homeland defense markets. Implant had last year already extended this agreement through the current month. In retrospect, this move looked to be a temporary fix in order to allow for the TSA approval to come to fruition, but the year-long extension allows ample time for the business to grow and the for the company to gain the means and resources to pay the portion of its debt that has not been converted into the convertible notes outlined in the press releases associated with the said credit agreements.
In noting the recent IMSC share price dip, short term credit concerns and uncertainty may have prevailed and curtailed enough investor interest to cause the drop. The relatively light volume, however, also indicates that many investors continue to hold to see this story - which is still in its early chapters - play out.
As noted last month when Implant released its most recent earnings report, an uptrend in revenue has already emphasized the potential of the company's Quantum Sniffer ETD technology to infiltrate numerous global defense-related markets, including the air cargo screening market for which the QS-B220 was recently approved. The TSA approval, in its own right, lays the foundation for more significant and relevant deals to materialize over the coming months and quarters.
There will be concerns that sequestration could hamper the short term consummation of any government-related deals, but it's unlikely that Congress - or anyone else in Washington - would pull money from terrorism-related defenses when it's all said and done. It could take time to weed out some of the pork from budget allocations, though, which may delay the process somewhat. When considering the sequestration cutbacks, we should bear in mind that it looks like the Department of Defense will be hit the hardest - not homeland security - so the threat of an impact to Implant may be minimal, unless the guys or gals looking to finalize such deals on the government end find themselves furloughed along the way.
In the meantime, Implant has also demonstrated the ability to grow its business in other high-threat markets, which provides enough growth potential outside of the domestic circuit to keep investors interested.
Some are concerned that no major deals relating to the TSA approval have yet to be announced, but Implant routinely announces deals after they are finalized, shipped and the money banked, so that's a point to consider. Also consider that the high profile failures of companies receiving government bail out money through the recovery periods have led to a higher level of scrutiny of companies doing business with federal agencies, which includes concerns about the credit worthiness and viability of such companies. The newest agreement with DMRJ, however, takes any short term speculative nature out of the equation for Implant Sciences, and that fact alone can seal the deal.
As the only US company ready to hit the homeland defense market with a non-radioactive ETD device, and with a credit line now extended long enough to allow for significant growth, IMSC remains a company to watch in a hot - and still growing - sector. This most recent DMRJ deal emphasizes the cooperative working relationship that these two entities have forged over the years and allows for concentration to be paid on growing sales.
Healthcare, Biotech, Pharmaceutical:
FluoroPharma (FPMI), a company developing a pipeline positron emission tomography (PET) imaging agents for the efficient detection and assessment of various forms of coronary artery disease (CAD) and certain types of cancer, is one to keep an eye on during the coming week and for the duration of 2013 as numerous potential catalysts are coming due. The first such catalyst was touched on last week when the company announced initial positive feedback from a recently-launched Phase II trial testing one of its most-advanced product candidates, CardioPET, as an imaging agent for CAD. The images released in association to the ongoing trial look to confirm the earlier successes of a Phase I trial and could be enough to garner increased investor interest as full results from the trial are expected for later this year. In a sign of increasing investor interest, two-day volume was at its highest point of the year following Thursday's announcement, although it is till not quite to the point that would indicate widespread investor interest.
FluoroPharma is developing another Phase II product candidate that could provide potential price catalysts as trials evolve. BFPET, like CardioPET, has already successfully returned positive Phase I results and initial images from the ongoing Phase II test - which is measuring its effectiveness as a blood flow imaging agent for the detection of ischemic and infarcted tissue within the myocardium in chronic CAD patients - have also proven positive.
These results have attracted the interest of Zacks, which issued a rating of 'outperform' on the company with a price target of more than double where shares currently trade. Given the fact that FPMI's imaging agents are entering a market that is valued at more than ten billion dollars, according to statements contained within a recent company presentation, the continued success of BFPET, CardioPET and other pre-clinical products may start to attract additional analyst coverage, if not attention from bigger players in the sector - a stark possibility since early indications state that FluoroPharma's technology provides superior results to the current diagnostic standards for the targeted indications.
While these early indications are encouraging, the products are still just in the early stages of Phase II testing, so there is a long ways to go before any of these pipeline products could reach market. Along the way with such companies, there are risks of trial failures and dilutive cash-raising events. Generally, when investors look at companies at this level of development they are doing so with the intent of potentially building a core position of shares that are slowly accumulated on the dips to hold through the long term, while simultaneously building a position of trading shares with which to play the potential price catalysts along the way.
In today's volatile market environment, however, more investors tend to play the short term trades rather than fully hold for the long term, so bear that in mind when assessing whether or not a stock that is still speculative in nature can sustain spikes attained after milestone news events are released. With last weeks initial results garnering a boost in trading volume and attracting a Zack's report, FPMI may be one for the watch list moving forward.
Buyout Talk Fuels Keryx Run
Keryx BioPharmaceuticals (KERX) on Friday offered investors a demonstration of just how quickly buyout rumors, no matter how obscure they may be, could fuel a share price run. KERX closed twelve percent higher - after having traded even higher throughout the day - on rumors that GlaxoSmithKline was entering the picture as a potential suitor for Kerxy and its recently-approved kidney failure drug, Zerenex. Given the renewed buyout speculation and the luster with which shares closed last week - volume rolled in at nearly double the daily norm - this will be a hot story to watch during the coming days. That said, and as demonstrated by Amarin over the course of months, it's not too often that buyouts occur immediately following the disseminating of a new rumor, so volatility to the up and downside should be more expected than a straight move higher.
As previously discussed, Zerenex is not expected to turn into a blockbuster, due to the overall size of the targeted market, but could provide a decent revenue stream for an acquiring company looking to fill product portfolios that have been depleted by the rash of drugs coming off patent over the past few years. Zerenex was approved for end-stage renal disease and may also hold a superior safety profile to the current standard of care on the market, which at this time is Sanofi's Renagel, the recognized leader in the field. Renagel, however, comes with some associated side effects that, comparatively speaking, have not been seen in Zerenex treatment.
These side effects include nausea, vomiting, and other intestinal maladies, which could be enough - when combined with other factors yet to be discussed - to spur Doctors and patients to give Zerenex a go. Another check in the "plus" box for Zerenex is that it is phosphate binder that is iron based, which therefore may enable patients to retain iron more efficiently than the competition currently on the market. This could play be key, as many patients on dialysis in end stage renal disease are anemic and are stuck on IV treatment - along with everything else - in order to maintain iron levels.
It's possible that Zerenex could alleviate the need for the IV and end up being considered 'one stop shopping'; a package deal that could provide enough of a pricing and logistical boost to make it the preferable treatment of choice. The same cannot be said, at least for the time being, for the competition, generic or not.
Given those advantages, it may be concluded that Zerenex is positioned to not only heavily compete with the competition currently on the market, but it might also have enough behind it to potentially become the market leader. That could be enough to attract the interest of a large player, such as GSK, and Friday's rumor and price run are a testament to that fact. Again, it's rare that rumors turn into deals right away, more often than not they are planted by one organization or another to create interest and frenzy, but this will be a key story to watch in the sector moving forward.
Volume Indicates Interest In AntriaBio
Trading volume has been on the uptick for AntriaBio, Inc. (ANTB) and this could be a story to watch entering the new week, as often time investors look for indications of a 'volume preceding' price scenario. The boost in volume could be indicative that investors are taking notice of the potential of the company's once-weekly basal insulin injection, AB101, to eventually infiltrate the diabetic treatment market which - at least in terms of basal insulin delivery - is currently dominated by Sanofi-Aventis' Lantus and Novo Nordisk's (NVO) Levenir - each of which includes an at least once-daily injection, and both of which combine to bring in over eight billions dollars annually.
Numerous catalysts are planned for the duration of 2013 for investors to keep an eye on. According to a presentation posted to the AntriaBio website, pre-clinical animal studies have already been completed for AB101 and the intention is to have the first wave of human data available by the end of the year. AntriaBio plans to initiate the human trials in Russia first, where the costs of conducting such trials are significantly lower and where patient recruitment is known to be up to ten times higher than in the US and Europe.
The company does plan, however, to move forward with the FDA IND process while development in Russia continues, and having the early human data available from its Russian trials could help to expedite the initial IND process in the United States. Once the early data is established, AntriaBio will look to land regional and/or multi-national partners to advance the product towards the commercial stages.
While the potential of a once-weekly basal insulin injection is obvious, the standard concerns of investing in or trading developmental stage companies of the sector still exist. These concerns include, but are not limited to, the potential for dilutive financing to take place at various points through in the developmental process and the prospects that a pipeline product may fail altogether through the course of trials. With that said, it's often a wise move in this sector to build a cadre of both trading and long shares, should one want to take advantage of price and milestone catalysts along the way while also potentially holding a core group of shares for the long term to see a story through. This strategy can often put an investor on 'house money' well before it's all said and done.
In the case of AntriaBio, this story is relatively just beginning, so there's still a long way to go, but recent trading volume could be an indication that investors are starting to pay attention. Worth watching.
McDonald's May Be Immune To Market Pullback
Like Disney, mentioned above under 'Newsmakers,' McDonald's (MCD) has found its share price on the move higher over the past weeks and is one to keep an eye on as a potential stable addition to the long term or retirement portfolio if a broad pullback should materialize. Given the company's low-cost food options, it's likely that MCD could withstand a large-scale pullback, too, since its restaurants are some of the cheaper options out there and people are always going to eat. Some causes for concern that have been addressed of late, however, revolve around a potential hike in the minimum wage that could eat into MCD's profits and margins as labor costs would undoubtedly increase. As previously discussed, such a move may not effect the bottom line too drastically as companies often reduce or streamline their work force to keep margins consistent, or just pass the labor increase onto consumers. The latter option has the potential to hurt business in the sense that customers could shy away from higher prices, but that's when the company would then streamline its product offerings and keep the money-makers in place.
A few moves announced last week could be a sign that the company is doing just that. In addition to dropping chicken fingers and a less-popular salad from the menu, McDonald's is considering dropping its Angus burger, too, and is experimenting with new offerings that could both attract business away from competitors and streamline margins and costs. While there is nothing significant to note about a business implementing a plan of profit-protecting and innovation to stay ahead of the game, it is important to emphasize that this has been a consistent strength demonstrated by McDonald's over the years that has enabled to maintain its position as the most recognizable global fast food brand.
With new 52-week highs well within reach after a recent analyst upgrade, MCD remains one to keep an eye on for the long term portfolio as the company again positions itself to remain a step or two ahead of its competitors.
Roundup: Most international markets traded in the red during the day Monday, but last week proved that US markets don't always follow suit with their international counterparts. Early signs are, however, that this time they will. European concerns have surfaced again during Monday's early hours, another indication that the bears may be ready to roll in. Aside from the events overseas, the primary focus this week will be the effects of sequestration and how they could potentially impact the market and the already-sluggish economic recovery. Few would disagree that Washington has long-needed to implement cuts, so over the long run sequestration is probably a good thing - especially if it forces federal agencies to exercise fiscal prudence in carrying out its day-to-day operations. The irresponsible nature in which these cuts are being implemented, however, could threaten the markets over the short term, and it doesn't help that the New York Times issued an early-hours report stating that sequestration could cost roughly 700,000 US jobs. The tone of the headlines may be evidence we're in for a manic Monday. As always, any market pullback just creates opportunities for those paying attention and looking to play the dips on some of those 'watch list' stocks. This could be a week where some of those opportunities materialize.
Disclosure: Long AMRN, ANTB, IMSC, FPMI, MCD, DIS.
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