Earnings picks up in earnest on Wednesday as hit the heart of the trading week and there could be plenty of catalysts still to come from the banks, US economic data and from Chinese data later in the week. Here are a few stocks and stories to keep an eye on for Wednesday, 16 January, 2013...
Market Says Facebook News Not Worth The Hype
In what may be considered a scenario where investors played the 'sell the news' game, Facebook (FB) shares retreated by nearly three percent on well more than double the normal trading average after the company announced at its much-anticipated media event that it would implement a 'Graph Search' to lead the way into the next stages of growth. As FB shares rolled through the thirty dollar mark with ease leading into this event, investors speculated on the possibilities of a Facebook phone entering the market. Initial indications following the announcement, however, are that investors are either outright unimpressed with the Graph Search announcement or are prepared to take a 'wait-and-see' approach to its impact on future earnings. A three percent drop does not indicate overall disappointment in the new search strategy, especially not after FB shares have risen swiftly from the twenty dollar mark without much of a pullback period on profit-taking, so investors may digest the news over the coming trading days, assess what it all means, and then trade accordingly.
Although the Graph Search does not go head-to-head with Google's (GOOG) search engine strategy, it does give Facebook a foothold in the market and will likely chip away at GOOG's market share in search, especially since users will not have to leave the Facebook site to find answers or recommendations from those most relevant to them - friends and family. Underlining that strategy is maybe the most important implication from this whole deal - that users will remain on the Facebook site longer to potentially click on ads; which means they won't be on Google, and that's good for business. It's likely investors recognize those aspects and why Tuesday's drop was barely negligible in the grand scheme of things, and more an indication of the simple 'sell the news' investing strategy.
The Graph Search is not the earth-shattering news that investors expected and was probably not worth such a hyped-up press event, but it should pay off well for Facebook over the long term - as long as users remain interested and loyal to the core business - which is social networking.
Boeing Dips On Continued Dreamliner Woes
Shares of The Boeing Company (BA), which had recovered slightly from a dip created by mechanical worries of the 787 Dreamliner earlier in the month, are dropping again during the pre-market hours on Wednesday as it was announced that two of Japan's main airlines, Japan Airlines (JAL) and All Nippon Airways (ANA), had grounded their respective Dreamliner fleets after an emergency landing earlier in the day sparked growing concerns of the safety of the aircraft. The slew of troubles has grown into a trend that has the headlines rolling and investors nervous about the future of the next-generation aircraft that was expected to fuel the next growth phase of the company. As argued previously, however, investigations are likely to narrow down any 'weak link' in the parts process fairly quickly - as it looks like there are issues specifically related to the aircraft battery - and a remedy is likely to be introduced just as quickly, barring any major structural flaws, which doesn't look to be the case. Assuming the faulty parts are fixed in quick time, any dips created by the much-hyped Dreamliner news should be looked back upon as solid accumulation points. Additionally, any fixes in the operational fleet will also be made to those aircraft still in production, alleviating future problems. Still a story to watch, as Boeing is going to be in prime focus until these problems are solved.
The Heart Of The Earnings Week Begins
Wednesday marks the start of the 'heart' of the earnings week as Goldman Sachs (GS) and JP Morgan (JPM) are both slated to report. As mentioned above, the retail sales numbers for December looked encouraging, but not encouraging enough to move the markets one way or another. The big banks may be able to incite some movement, based on the strength of their respective reports. Although Wells Fargo and Company (WFC) impressed last week in terms of profits, investors were not so impressed with a slowdown in mortgages dished out. Those investors will be looking for insight into that trend as other big banks report for the duration of the week, beginning on Wednesday. Indicators are that the economic recovery is still healthy, making any dip in the banking sector a potential buy.
Ironwood Pharmaceuticals (IRWD) and Forest Laboratories (FRX) reported earnings in-line with expectations on Tuesday following the launch of Ironwood's Linzess for the treatment of chronic constipation during the fourth quarter of last year. Forest, as expected, took a hit related to the recent expiration of key patents and pushed money towards the launches of new products looking replace some of its now-off-patent pipeline, while Ironwood reported twenty million dollars of Linzess sales in an abbreviated first quarter on the market. The two will split revenue for the product, but neither is likely - even with an IRWD analyst upgrade on Tuesday - to see its trading patterns effected until/if sales pick up significantly over the coming months and indicate a hot launch. Linzess is expected to launch in Europe early this year under the name 'Constella.'
Healthcare, Biotech, Pharmaceutical:
Organovo's Price Run Regains Momentum On Tuesday
Organovo Holdings (ONVO.PK) regained its upward momentum on Tuesday with a seven percent spike after having retreated somewhat over the past week when the day, momentum and swing traders banked profits and moved on. Organovo's spike has not just resulted solely from the advancement of its own technology, which could help shape the future of 'bioprinting' in relation to medical research, discovery and treatment, but the move was also traded in-line with the trading of the 3D-printing sector as a whole. 2012 has proven to be a pivotal year for the technology and ONVO's move follows those of other leading companies in the sector, such as 3D Systems Corp (DDD) and Stratasys (SSYS), who were consistently setting new 52-week highs as the year progressed. ONVO's arrival to the sector-wide trend hit the market with just as much strength, as the stock has returned nearly a double in just a couple of months, and could be considered a major player now with the support of some high-profile collaborative efforts based on the advancement of the company's NovoGen MMX Bioprinter, which uses live human cell samples to generate 3D "bioprints" of human tissue. Once the tissue is generated, these 3D prints can be used as disease model that enable therapeutic drug discovery and development and later on down the road could potentially be used to generate - or 'print' - organs for patients awaiting transplants. Tuesday indicated that ONVO's run may not be done, so it remains a hot story to watch - and the technology could be one to keep an eye on for years to come.
Roundup: Global markets were down on Wednesday and futures indicated that the same could be in store for US markets, at least at the onset. Apple (AAPL) continues to drag down the tech sector while a slowdown in European care sales added to renewed worries concerning the health of any economic recovery across the pond. It also didn't help that the World Bank revised its economic forecasts to the downside while Japan's markets dropped more pronounced than most others. Rather than following the trend, however, the US markets tend to set the tone, so any encouraging earnings notes that fuel the already-encouraging economic data releases in America could quickly turn the markets green. On the other hand, any bickering in Washington that hints at a deadlock over the debt ceiling would fuel a downturn, as noted by the Fitch credit warning, but any significant downturn these days should be viewed as a solid 'play the dips' opportunity. As all the big news plays out, there are still plenty of individual stories to keep us interested.
Disclosure: No positions.
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