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.
It's all about the fiscal cliff. While some of the ongoing market uncertainty came off the table last week as European leaders were finally able to come up with a deal that would free up the next round of bailout money for cash-strapped Greece, but negotiations in the United States between Republicans and Democrats took center stage with the fiscal cliff looming. Talks initially looked quite promising in the immediate days following last month's election, but the two sides look to have dug in their heels in an effort to protect their respective bargaining chips. That means the markets are most likely going to be edgy as negotiations intensify.
The rapidly-issued news headlines have thus far detailed every trivial (or not so trivial) update regarding these political negotiations and stocks traded in kind, moving up and down on a whim, as demonstrated by Friday's volatile intra-day moves as multiple updates were offered from both sides in Washington. In the end, though, the markets managed to hold their gains from the previous week and the DOW closed again at the north side of the 13,000 mark.
We should expect more of the same from stocks for the coming days - great volatility and the appearance of some nice trading opportunities - barring any quick political compromise this week that would result in the announcement of a new deal.
Historically speaking, December is usually a pretty good one for the markets as a whole, aside from some late-month dips that generally revolve around investors selling certain positions for tax purposes, but this year could buck that trend as concerns over the consequences of politicians not making a deal will keep the more nervous investors out of the game, while others wait on the sidelines for an opportune time to pounce.
On the bright side, there will be a slew of economic indicators and data to digest this week that could provide some distraction from all the political futility. Friday's jobs report may be the culmination of the expected data and may also validate the encouraging trends noted over the past few months. Manufacturing data will also be presented earlier in the week while General Motors (GM) and Ford Motor Company (F) are also slated to release auto sales numbers. It should be noted that Hurricane Sandy may have impacted the overall auto sales numbers, but at the same time once the insurance checks start rolling in, the market for new cars should get hot in many of the hurricane-hit areas.
While continued positive trends from any of this data could spark a temporary rally or reinvigorate a positive mood in the markets, any hopes of sustained upwards momentum relies on a cliff deal. All the encouraging economic reports in the world could prove trivial next to the impact that the tax hikes and budget cuts would potentially have on the economy come next month.
As previously discussed, it's my opinion that a deal - or at least an extension - is likely to be reached before January deadline comes to fruition, but the fact that the politicians have upped the tough talk last week will worry the more skittish investors. Although it's an unlikely scenario, there's still the chance that the two sides will play this one out to the last bitter moment - and maybe not even strike a deal - and then look to blame each other when calamity strikes. Because the politicians know that the future credibility of their respective parties could be at stake with this one, I'd count on a deal getting done.
While the drama plays out in Washington and - over the news wires this week - there are sure to be 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...
Food/Beverage: Yum! Brands Dips Ten Percent
Yum! Brands (YUM) helped kick off the food and beverage earnings season on a positive note in early October with an earnings report that beat expectations on margins, although revenue came in a bit below the expected mark. That was enough to send shares flying by ten percent at the time as investors were also encouraged that YUM, while improving margins, did not take as much as a hit as expected from the slowdown in China, while other companies did. The enthusiasm waned last week, however, when the company issued guidance for the remainder of this year and full-year 2013 in preparation for its upcoming shareholders meeting and it was revealed that a four percent growth slowdown is expected from sales in China. The revised guidance sent YUM shares swirling ten percent on Friday, giving back the gains achieved after the last quarterly report was released in October.
Although the October report hinted that Yum may have been immune to the overall economic slowdown in China, that's certainly not the case now. It's not likely that YUM shareholders sold as a result of a complete loss in faith in the company, rather there may have been a fair share of profit-taking going on since shares had previously spiked by ten percent, as noted above.
While still predicting a slowdown in overall growth for the time being, Yum officials remain positive on the company's growth potential in China as another 700 stores are slated to open next year. Additionally, Yum still predicts that overall growth in 2013 will again surpass the ten percent mark, regardless of the slowdown.
Investors this week will be looking to see if Friday's high-volumed sell-off is done, or if there is still more to come. With the overall uncertainty in the market right now resulting from the fiscal cliff negotiations, investors may be more apt to play it safe and bank quick profits than during normal market conditions (if there is such a thing as "normal" market conditions). That means that selling could, at times, start to look unjustifiably protracted - which also often times leads to some straight-up panic selling - and that may be the case with Yum.
The selling may not be finished, but the lower this one goes from this point, the more attractive a buy it may look like again. While some analysts have downgraded their view on the stock, others have not and this could all be a case of consolidation and the re-positioning of holdings with the market uncertainty being what it's been.
Also note that McDonald's (MCD), too, has suffered from the same slowing growth rates and could also hold the potential to rebound.
Both will be hot ones to watch this week; more so YUM, given Friday's sharp drop.
Explosive Trace Detection (ETD) / Global Defense: Implant Sciences Banks Largest Order In Company History
Last week we noted that Implant Sciences (IMSC) was making significant strides in global sales, even as investors awaited final word from the Transportation Security Administration (TSA) on validation and approval of the company's Quantum Sniffer (QS)-B220 explosives and narcotics trace detector in use for air cargo screening. That trend was exemplified again on Thursday as Implant announced shipment of the largest order in the company's history - a deal for six million dollars worth of QS-H150 handheld explosives trace detectors and associated support destined for India's Ministry of Defence. This deal comes on the heels of numerous other orders to high-threat regions announced over the past few months and could be a key reason why one Implant employee noted that the production line was "bursting at the seems" during a media broadcast aired this summer.
Shares spiked to over the $1.30 mark when the news was announced on Thursday, but closed Friday down by over eight percent on volume nearly double the norm. Investors should note, however, that there is a group of shorts in this stock that has been looking to keep the share price down and those guys won't like news of a six million dollar order.
Monday marks a key date, too, if not for the company, at least for the sector into which it intends to move. According to previously released information by the TSA, come December 3rd all air cargo inbound to the US on passenger airliners will be expected to be screened for explosive traces. The QS-B220 could be positioned to play a large role in making that happen, should it pass the testing and validation phases with the TSA. With enthusiasm risen as a result of the India order, investors will now anxiously await any potential TSA news.
As noted in previous discussions, Implant's QS technology has significant advantages over its competitors, most notably that it does not use radioactive particles to do its job. Implant's Sniffers also offer a much quicker 'clear down' period for rapid use, meaning a QS only needs seconds to reset itself for another test while the same action for competing technology takes minutes.
For a company such as Implant that is still in the earlier stages of growth, an approval by the TSA would be noted as significant a milestone as a drug approval for a developing biotech or small pharma. On the other hand, Implant has proven to hold significant growth potential on the international front, too, as most recently demonstrated by last week's India deal.
The pieces may be falling in place for Implant. A deal with the company's primary creditor was realized a couple of months ago to stave off any immediate financing concerns and key sales milestones are being achieved as the date with the TSA looms.
Investors will be looking this week to see if the company can deliver back-to-back bang-bang news.
Healthcare, Biotech, Pharmaceutical: Synergy Pharma's Climb Continues
Synergy Pharmaceuticals (SGYP) has been on a tear since hitting lows of near the three dollar mark just weeks ago. That rise continued on Friday as SGYP jumped another eight percent on volume of roughly ten times the daily norm. The nearly four million shares traded was the highest one-day spike since the summer months and will cause this stock to appear on many-a-radar screen this week. No news was released in conjunction with Friday's price and volume spike, but the company's President and CEO, Gary S. Jacob, Ph.D, presented at the 24th Annual Piper Jaffray Healthcare Conference in New York City this past Tuesday. Encouraging statements from management leading into a major catalyst event could always help form the 'perfect storm' for a pre-milestone price run, and that may be what we are seeing here.
As those who have followed the Synergy story well know, results from the recently-completed Plecanatide Phase IIb/III trial in the treatment of chronic idiopathic constipation (CIC) are slated for release come the first week of January. Results are generally expected to roll in positive, given the product's shared mechanism-of-action with the recently-approved Linzess, which was developed by Ironwood Pharmaceuticals (IRWD) and partnered with Forest Laboratories (FRX). Of note, Synergy has already registered a licensing deal with Ironwood regarding the Linzess mechanism-of-action in return for payment of modest royalties, should Plecanatide make it to market.
Plecanatide is also being investigated for use in treating constipation-predominant irritable bowel syndrome (IBS-C) and the total market targeted by the product could be measures in the billions, leaving plenty of room for both Linzess and Plecanatide to capitalize.
There's always the threat that stocks experiencing such a quick runup could retrace as the day, swing and momentum traders move on with large profits, but the scope of Synergy's upcoming catalyst should not be taken lightly. If investors are convinced by the upcoming results release that Plecanatide is the real deal, then SGYP could have little trouble achieving the lofty price targets cited by analysts in recent months. Expectations also have it that Synergy will look for a partner, should the results be positive.
Friday's price and volume move registers SGYP as a hot one to watch this week, especially considering the catalysts pending.
SGYP warrants (SGYPW) also jumped by four percent on Friday.
Amarin Continues To Move After Initiated Coverage By Citi
Shares of Amarin Corporation (AMRN) started to rebound early last week after Citigroup (C) initiated coverage of the company with a twenty dollar price target to support a rating of 'Buy.' The move higher continued into the closing bell on Friday where a late-day spike left AMRN up by another three and a half percent leading into the first week of December trading. A recent update by the company indicated that it would hold off hiring a sales force for Vascepa until the first half of this month. Previous expectations had it that - should the company decide to go-it-alone in commercializing its flagship product - late November would have been the cut-off to get a sales force in place.
The hiring delay should not spark alarm for the average investor, in my opinion, as it is likely related to the fact that the FDA has yet to determine whether or not Vascepa will warrant status as a New Chemical Entity (NCE). Additionally, it could be taken as a sign of confidence from the company that it still believes a partnership or buyout deal could be realized over the short term, hence the wait to hire. At the very least, Amarin looks to believe that once (if) it does pull the trigger on hiring, the force can be quickly geared up to effect the early-first quarter launch that has been advertised.
Many investors believe in the 'Merger Monday' theory, which is why Amarin may like to spike into the close on Fridays. Amarin is often mentioned as a buyout candidate, with Teva Pharmaceuticals (TEV) and AstraZeneca (AZN) being named as the most recent suitors. With that in mind, it's possible that shares could dip again this week if a deal is not announced early, but there is some momentum behind the recent Citi rating and investors are starting to feel it's crunch time in relation to this story coming together one way or another and may not want to sit this one out on the sidelines.
Regardless of the Citi rating and price target, as enthusiastic as they may be, it's still likely that AMRN will dip if the company ultimately decides to market Amarin on its own.
Pfizer Option Could Send Lpath Shares Higher
When trading in the small pharma/developing biotech sector, the name of the game is opportunity. Although the 'buy and hold' mentality is all but a strategy of the past for many investors who have opted to play the wild swings of current-day trading to bank quicker profits, there is still something to be said for following a story, sticking with it and averaging down while waiting for major catalysts to play out. Take Jazz Pharmaceuticals (JAZZ) or Pharmacyclics (PCYC), for example - the buy and hold game played well there for investors who bought-in when those companies were trading relatively below the radar. Those keeping an eye on Lpath, Inc. (LPTN) may have noticed that shares have slipped to the six dollar mark, even dipping below that point at times, since it filed its latest quarterly report a couple of weeks ago. That may have presented investors interested in accumulation into a developing technology the opportunity to take to take advantage of the dip as some major catalysts could come to fruition in 2013, most notably relating to trial progress and a partnership with Pfizer (PFE).
Lpath has become a recognized leader in the field of lipid-based therapeutics. Through its proprietary ImmuneY2 platform, the company has developed two primary product candidates, iSONEP and ASONEP, which target the multi-billion dollar markets of Wet AMD and cancer, respectively. Noting that potential, Pfizer jumped on board early with a deal for iSONEP that netted fourteen million dollars for the company at the time. Pfizer also retains a 'first right of refusal' for ASONEP, too. This partnership could soon come into play again as iSONEP trials advance and Pfizer decides whether or not it wants to "exercise its option for exclusive worldwide rights" to the product, as outlined in the latest 10-Q. Such a catalyst, should it come to frution, would add immediate value to the LPTN share price since, as Lpath would be subject to receive an 'option fee' and hold the potential to receive multiple milestone payments along the path of development, should iSONEP success continue through late stage trials. If the product made market, then Lpath would be entitled to double-digit royalty rates on sales.
With that much at stake, such an arrangement would be key to elevating Lpath to the next level, hwich is why investors have a keen eye on the recently-restarted iSONEP trials and Pfizer's continued involvement with the company. Since it's likely that Pfizer would will wait until completion of the Phase II trial to make a decision on exercising its option, or at least wait for interim data, that catalyst is again in play since the trials have kicked off again.
In the meantime, Lpath has enough cash on hand to last through the end of next year, according to the quarterly report, as the result of some grant money and a couple of cash-raising offerings earlier this year. While the possibility does exist that another round of financing will be necessary again before the current cash pot is expended, it also allows for plenty of time to renew or reinvigorate the Pfizer partnership.
It's a waiting game for the time being, but such periods where the news flow is slow often provide accumulation points for investors looking to play future catalysts.
Organovo Holdings (ONVO): In similar fashion to Lpath above, Organovo may be another one trading below the radar that could start looking like a nice accumulation opportunity as a key catalyst involving Pfizer could unfold over the near term. Organovo, as previously discussed, has developed a 3D printer - the NovoGen MMX Bioprinter - that, in conjunction with regenerative medicine expertise, can generate 'bioprints' of human tissue. In looking at the short to mid term, these prints can can be used as disease models to enable more effective therapeutic drug discovery and development, but over the long term the company is looking to apply this technology to generate replacement organs. Given the scope and potential of such a forward-looking technology, Organovo has already landed two major partnerships - one with Pfizer and another with United Therapeutics (UTHR). These deals have already generated over a million dollars for the company's coffers, but the Pfizer relationship is worth watching over the short term as the current agreement is set to expire at the end of this year. That provides a short term catalyst for ONVO shares while the long term potential continues to unfold.
It's also worth noting that Zacks.com initiated coverage of the company with a rating of 'Outperform' and a price target of $3.25 earlier in the year, based on the technology and the company's ability to land high-profile partners. A developing story involving next-generation technology that may be riding under the radar right now.
Internet / Technology: Facebook Pushes Thirty Bucks
Just five weeks ago Facebook (FB) shares traded for under twenty bucks and a bearish mood surrounded the stock as investors fretted over the pending expiration of IPO share lock-ups that would flood the market with nearly a billion more shares over the ensuing months. One of the largest lock-up expirations took place a few weeks ago and - regardless of the aforementioned concerns - investors holding the newly-available shares chose not sell, a move that sparked a rally in share price as other investors took that as a strong vote of confidence. Shares continued to rally last week and FB closed Friday at twenty eight bucks following another two percent run and volume has picked up significantly. Now is where investors will look to determine whether this run is for real or whether those holing all those expiring shares will sell into this latest spike.
The Facebook bulls will note the encouraging earnings report issued earlier in the quarter as a reason to stick around. Key indicators from that report revolved around the growing success in the mobile market, a target set deemed a vital part of the company's future growth strategy. Shares began to rally on that news, too, and were only emoldened when holders of the unlocked shares did not sell.
The bears will note that those holding the recently-unlocked shares may not have been tempted to sell at twenty, but may be more inclined to do so while shares are pushing thirty. Additionally, with no real earnings catalysts expected over the coming weeks, FB shares face the threat of trading down with the broad markets, should a December swoon materialize during fiscal cliff negotiations.
With that being said, this may be an opportunity for FB shareholders that jumped in at or below the twenty dollar mark to bank at least some profit while maintaining a core position of long shares with an eye towards the future. The market doesn't like uncertainty, and although little of it may have to do directly with Facebook, there is enough uncertainty out there right now to where banking quick profits at opportune times should be a part of everyone's playbook until the fiscal cliff negotiations reach a culmination point and the economic recovery is in full effect.
Additionally, there are still lock-up periods set to expire that could, too, weigh down the share price in the near future. Long term, Facebook should fare well in the eyes of investors, as long as that mobile growth trend continues.
Industry, Clean Energy, Green Technology:
Capstone Turbine (CPST): Capstone Turbine remains trading at levels closer to its 52-week low than high, but recent exposure - combined with growing margins and continued commercial success - could quickly return this company to the spotlight. Capstone officials noted that after Hurricane Sandy rolled through, customers utilizing the company's low-emission microturbine units to generate power were not susceptible to the power outages that were highly-publicized for the days and weeks following the storm's wrath. While Capstone has made most of its money lately in supplying its units to oil and gas fields around the globe, the company has also infiltrated the commercial markets with units located in hospitals, corporate buildings and other commercial developments, too. The fact that these units remained operating while much of the northeastern power grid was out of commission is a solid advertising platform in itself. It also highlights the nation's aging infrastructure and begs to question as to whether or not technology such as Capstone's could become a core piece of building for the future. The company also received attention overseas last week as the US Embassy in Argentina hosted dozens of Argentinian oil and gas executives to highlight the usefulness of Capstone's microturbines.
The problem, thus far, for this company has been reaching profitability. Investors look to the encouraging trends posted in recent earnings reports as positive indications that profitability is within reach, but some still predict that it will be years before the company gets there - although fairly significant improvement in overall margins should also be noted.
Another round of increased exposure, however, could start to push the company faster towards that goal. Each time a catastrophe such as Sandy hits, businesses and homeowners alike feel less and less inclined to rely on an aging infrastructure that is working on technology decades old. When those issues come to light, companies like Capstone could capitalize.
In keeping with the theme of potential good 'buy and hold' stories, CPST may fit the bill in the green energy sector, while bearing in mind that profitability has not yet been achieved. Looking at it from another angle, though, CPST has also provided nice trading opportunities for shares picked up at around a buck.
Roundup: Early indications are that investors will play the markets with optimistic caution as European shares opened higher on Monday and the Euro hit multi-week highs. US market futures looked to follow suit. The enthusiasm was sparked by news of reinvigorated growth in China, which could bode well for companies such as Yum! Brands (as mentioned above), although the upbeat mood was still tempered by cliff negotiations in the United States. Those talks were off to an early start this week as US Treasury Secretary Timothy Geithner on Sunday predicted that Republicans would eventually give in and allow the tax hikes against which they've furiously fought, but the Speaker of the House of Representatives, John Boehner, issued a rebuttal to those comments indicating that the two sides may still be far apart - or at least playing like they are in public light. At the end of the day we know there must be compromise to get a deal done, so some tax hikes and spending cuts should be considered all but an eventuality - the question is just how much and when. Until we know that...Happy Trading!!!
Disclosure: Long AMRN, CPST, IMSC, MCD, YUM, SGYP, SGYPW.
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