How quickly the tide can change. Barely a day after the markets rose in force on encouraging signs of cooperation in Washington and in the European Union regarding the 'fiscal cliff' and Greek bailout, respectively, the mood changed by Wednesday morning and investors are again skittish - at least according to some headlines - because of reinvigorated concerns over the same subject matter. While there are no indications that talks in the US over the fiscal cliff have been derailed, there may be something to the European concerns as ministers over there failed to come up with a united plan on Tuesday to continue the flow of bailout cash to Greece in order to keep that country from going bankrupt. If you want to talk about cliffs, Greece is teetering on the economic edge of one now, sparking fear among investors and economists alike as the euro hit multi-month lows Tuesday.
It also didn't help that France's credit rating also was cut.
The nervous mood could carry over into US trading leading into the Turkey Day holiday, if investors decide to pay more attention to events overseas than they do to those unfolding in the US, although Fed Chief Ben Bernanke issued words of caution of his own this week, highlighting the economic threats of not reaching a deal on the cliff.
Regardless of the movement, trading should remain light for the rest of the week. Many will hit the road on Wednesday to meet family and friends to enjoy some goose and turkey while others - those who have fallen for the commercialization hype - will head out for Black Friday shopping on...Thursday? Weak.
We can look towards next week for news as European financial leaders will meet again on Monday to pick up where they left off on the Greek bailout and it'll quickly become crunch time for the politicians in Washington to reach an agreement on either a deal or an extension for the fiscal cliff. My money is on extension, given the short time frame these guys have for negotiations and because the newly-elected congress will not yet be in place. We also need to consider that the government is even more slow and futile at getting things done around the holidays than it is normally, they need holiday routine and all, so those hoping for a quick deal may be sorely disappointed - at least for the time being.
On the good news side of the house, it's looking like the ongoing turmoil in the Middle East may be calming down, alleviating the potential of a drastic spike in oil and gas prices right around the holidays. That could leave consumers with some extra cash-in-hand around the holidays to boost retailer sales.
There's a lot going on these days, and a lot to pay attention to heading into next year, but in the meantime here's a few updates on some stocks and stories that we've been keeping an eye on...
Newsmakers: Headlines regarding Hostess Brands have been as up-and down as the markets have, with early-week indications hinting that judge-ordered mediation would keep the company from going under, but it only took a day for mediation to fail and put bankruptcy right back on the map. Over eighteen thousand jobs are at stake with this deal, but the truth is that the Twinkie, Ho-Ho and Wonder Bread will all most likely be salvaged - although maybe not as Hostess brands - and many of those job cuts may just be temporary. The amount of media attention this story has received is a near-travesty with all going on in the world right now, especially since thousands flocked to the supermarket over the past week to buy as many Twinkies as they could because the Today Show said that we would never see them again. And they say consumers aren't sheep.
The patent wars continue. It has become quite apparent over recent years that a company's true value is as much judged for its patent portfolio as it is for its products or services. Evidence as such was demonstrated by heated wars between Facebook (NASDAQ:FB) and Yahoo! (NASDAQ:YHOO), while Microsoft (NASDAQ:MSFT) and AOL (NYSE:AOL) struck a billion dollar patent deal in order to alleviate any future litigation. Owned patents are also a large part of the reason as to why Research In Motion (RIMM) wasn't written off by anyone as shares of that company collapsed and investors positioned for a potential rebound story. Additionally, Google's (NASDAQ:GOOG) purchase of Motorola earlier this year for over twelve billion dollars revolved a great deal around Motorola's portfolio of patents, and those patents are making news this week.
Litigation is wrapping up between Microsoft and Google over royalties potentially owed Google by Microsoft for a license to the patents owned by Google's Motorola Mobility unit. The two sides are literally billions of dollars apart and the outcome of this trial is relevant not just to Microsoft shareholders for the monetary value that the company may have to cough up, but also because it will be telling in regards to the value of any future deals that Google may negotiate over licenses to these patents.
In regards to the share price impact of this specific litigation, it should be a non-factor, given that a few million, or even a few billion is relative chump change to any of the companies in question. Microsoft should expect to walk around with a target on its chest, however, as it starts to make significant moves into markets dominated by other players, such as smart phones and tablets.
Best Buy (NYSE:BBY): Best Buy was a stock to watch this week on the earnings front because of the general positive earnings tone set by retailers earlier in the season, but also because any negative trends for the company itself would likely put this one on the danger list to become another Circuit City or Blockbuster. The danger zone it was as the company announced disappointing numbers again for the quarter and shares dropped by thirteen cents as a result. Trading volume came in at more than four times the daily norm. Because of heavy competition in the retail sector for Best Buy, and because the company has again failed to capitalize on sector trends, this could be a dangerous play for those counting on a rebound story. There's a distinct possibility that a savior could come in and stave off any further destruction, but there's just as much chance, in my opinion, that BBY will be hanging out in the single digits before long and may be hard-pressed to ever achieve the desired turnaround.
Hewlett-Packard (NYSE:HPQ): HP was another earnings news maker this week, announcing a near-nine billion dollar write-down in relation to an accounting scandal at its British software unit Autonomy. Like Best Buy, HP could find itself and its share price in the hurt locker in the eyes of investors. The Autonomy unit was identified by some as the key to transforming HP into more of a software and services-driven company than PCs and hardware, but the huge write-down could kill those hopes and follows another multi-billion dollar write-down announced last quarter. The old adage goes that there is a lot of money that can be made by buying when others are selling - case in point the market drop of 2008-09 - but if others are selling for obvious reasons, like bad business practices and massive losses, and not just on emotion, then there may be reason to stay away. HP's best days could be in the rear view mirror. Shares dropped by nearly twelve percent on Tuesday following the report.
Healthcare, Biotech, Pharmaceutical:
Amarin Corporation (NASDAQ:AMRN): Heavily-watched Amarin shares traded relatively sideways this week as investors continued to await information from the company on the way-ahead plan following another FDA delay in issuing a decision on Vascepa's New Chemical Entity (NCE) status. Some are still banking on the fact that the company will entertain any potential buyout deals that are on the table now, although others believe that it's time for Amarin officials to announce their intent to go-it-alone if any actual deal revolves around the NCE status. Although the NCE status still remains unclear, Amarin again bolstered its patent protection with a Tuesday announcement that the US Patent and Trademark Office had issued yet another patent covering Vascepa on the open market.
While NCE status receives the majority of investor attention these days, arguments have been made previously that Amarin is building enough of a patent portfolio to ward off any legal challenges anyway, whether Vascepa receives NCE or not.
The announcement of yet another patent issuance could support those claims. As mentioned over the weekend, though, the company will soon need to decide whether or not it will out-wait the FDA because Vascepa's launch is expected to take place in January. For that to occur, a sales force needs to be sealed soon, or a partner needs to jump on board. Tuesday's patent announcement likely won't change anything, but any news relating to Amarin right now will spark discussion and debate over what's next.
Sunshine Heart (NASDAQ:SSH): Like Amarin, Sunshine Heart is another high-profile company to watch during the fourth quarter. Having already marked significant milestones this year - including the European approval of C-Pulse, the IDE approval by the FDA for C-Pulse in the US and the positive trends noted in the results of the already-completed feasibility trial - the company also announced this week that the FDA has granted the 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.
As previously discussed, C-Pulse is an implantable device considered much less invasive than other implantable devices on the market - from Heartware International (NASDAQ:HTWR) and Thoratec (NASDAQ:THOR), for example - given that the C-Pulse is implanted outside of a patient's bloodstream. Additionally, Sunshine has relatively no competition for its device, given its target patient set of Class III patients. Shares of this confirmation of trial approval sent Sunshine shares up by seventeen cents during the pre-market hours on Tuesday, before settling down along with the market as a whole as the day progressed.
Along with updates regarding this pivotal trial, investors will also be keying into future updates regarding the European launch of C-Pulse. As mentioned above, the product received CE Mark approval over there earlier this year and Sunshine is planning a methodical launch, which could start registering sales as soon as this quarter. The company used its third quarter report to recap the milestones met during the previous quarter and emphasize its business plans for the future, including the launch of the US trial and the commercial launch of C-Pulse in Europe. With prospects of the company starting to realize revenue in Europe as early as this quarter - as mentioned above - and with the expectations of the US trial launch, multiple analysts have reiterated their positive outlooks on the company following the report. Northland Capital Markets, for example, maintained its 'outperform' rating on SSH shares with an enthusiastic price target of $20. Summer Street and Canaccord also reiterated their buy ratings on the stock, sticking with price targets of $26 and $12.50, respectively.
Sunshine also conducted a stock offering during the third quarter, positioning itself with funding expected to last through the mid-way point of the US trial. A large - and still unnamed - strategic investor came on board with three million dollars during the offering and appointed a member to the board, hinting that potential partners or buyers of the Sunshine technology could already be waiting in the wings, pending additional trial results.
Roundup: It should be an easy-going week from here on out. Trading volume will likely be light and attention will be paid more towards friends, family and the holidays than towards the markets, but that doesn't mean that the trading opportunities won't open up in the meantime. Next week it'll kick off again with eyes on the Greek bailout as the European fiscal authorities will meet again and try to get on the same page while politicians in the US attempt to do the same regarding the much-hyped fiscal cliff.
Investors will also look for the positive trends in consumer confidence and the retail sector (aside from BBY and a few others) to turn into dollar signs during the shopping season and the fourth quarter, while others will continue to take a 'wait and see' approach to the markets as the December tax-loss-selling season is now within sight.
All that will seem trivial to some, though, as many are still without homes or power following the wrath of Hurricane Sandy and many more around the world are facing crises that are too often given little thought when our attention is paid internally and to the markets. At this time of year, let's give thoughts to all those that need them.
Happy Trading, and Happy Turkey Day!