A week of rallying came to an end on Monday as international and domestic markets dropped in anticipation of earnings season and another round of intense negotiations in Washington, this time in regards to the debt ceiling that will soon need increasing. The DOW fell fifty points while the S&P dropped from its five-year highs in another demonstration of the day-to-day fickle and volatile mood on Wall Street. Given the political landscape what it is and an earnings season that is not expected to only minimally look better than the previous quarter, there's no reason to believe that this volatile market period will come to an end any time soon.
With that said, there's always a few stocks and stories to keep an eye on as the major news of the day dominates the headlines ... here are a few for Tuesday, 8 January, 2013...
Earnings Season Kicks Off With Alcoa
The earnings season kicks off in earnest on Tuesday afternoon with Alcoa (AA) set to report after the bell. By no means will one report set the tone for the season, but it's like the sound of the opening bell on Wall Street - the race is on. That said, the largest aluminum producer in the United States is expected to report solid earnings and provide some encouragement that the economic recovery is still gaining momentum into the New Year. Later this week look for Wells Fargo and Company (WFC) to report and set the pace for the banking sector. While the major reports trickle in early in the month, the season will pick up full steam later in the month and hit full throttle at the end of January and into February.
Overall, no one expects blockbuster numbers for the just-completed fourth quarter, but as we saw last quarter when Google (GOOG) missed, one surprise report can send the markets south in a hurry - while a few better-than-expected reports could accomplish the reverse. In these uncertain times it's best to prepare for any eventuality, in my opinion, which means not necessarily being 'all-in' when the reports hit and holding some spare cash on the sidelines to play any opportune dips.
Major Settlements Clear Path For Stable Future
International banks rallied on Monday following the easing of some of the rules on European banks by international banking regulators, and U.S. banks did the same at the day's open before modestly pulling back as the broad market generally dipped throughout the day. U.S. banks made their own news by announcing a broad-based settlement of $8.5 billion dollars that should put the mortgage mess of the past few years in the rear view mirrors for many of the big players in the sector, such as Bank of American (BAC), Citigroup (C) and JP Morgan (JPM). While the banking sector may be effected by a widespread market dip, if one materializes during the debt ceiling negotiations, and shares may temporarily dip as these large payouts are announced, the fact that this mess can soon be considered an item of the past lends more certainty for the future and investors will likely feel more comfortable coming back in with growing force. Many have predicted a year of growth for the banking sector as the economy recovers and these settlements that end a dark period for the global economy lend credence to that theory. Another potentially solid option for investing in the banking sector as a whole, and not just in the individual banks, could be an electronically traded fund (ETF), such as the SPDR Financial Select Sector (XLF). An ETF will group many of the big players into one investment play and generally trade with the sector as a whole.
Disney's Cutbacks Are A Sign Of The Times
Shares of the Walt Disney Company (DIS) trended lower on Monday by two percent as reports circulated that the company may be investigating cost-cutting options that could lead to fiscal cutbacks and personnel layoffs. Although shares of the media giant are trading for significantly higher than their 52-week lows, some investors will take any Disney cutbacks as a sign of the times that corporate America is not yet ready to put the money-saving measures of the past few years completely behind itself. Ideally, however, big business - and governments, too - should always be looking at means and methods for conserving costs and streamlining efficiency, even in the good times, and it sounds like Disney is doing just that. Looking for redundancies and trimming personnel and resources from non-profitable areas of a business should always be looked at as a positive move, making any pullback in the DIS share price resulting from such reports a potentially opportune time to accumulate for the future. Disney still owns some of the most world-wide recognizable names and brands - including the recently acquired Star Wars franchise - and the company has had no trouble demonstrating that it can create and maintain blockbuster products and services over the long haul. DIS is still one to keep on the radar as part of that long term and/or retirement portfolio, especially if cost-cutting measures and general market conditions lead to a downturn.
Healthcare, Biotech, Pharmaceutical: With multiple biotech and healthcare conferences taking place this week in San Francisco, most notably the JP Morgan Healthcare Conference, the sector enjoyed a solid day on Monday with many of the companies presenting - or due to present - seeing their share prices inch higher. Here's a few notable moves to monitor moving forward...
Nothing major or breaking came away from the Amarin Corporation (AMRN) presentation, one of the more anticipated of the conference due to the speculation surrounding the stock over the past few months, but investors gained some optimism about the pending commercial launch for Vascepa and shares traded higher on the day by over three percent. Although skepticism remains from one or two popular financial media outlets about the ability of Amarin to undertake this commercial launch without the help of a major partner or buyer, the JPM presentation made it clear that the robust sales force in place is very experienced, professional and has the means, contacts and resources to ensure the launch goes off without a hitch. As previously discussed, Amarin's price and volume action have recently indicated that some of the short interest - which had been rising over the past few months - may be starting to cover in order to turn paper gains into actual before the Vascepa launch. The move towards Vascepa's launch looks solid, but there are no further indications that a buyout offer is on the table and the New Chemical Entity (NCE) status is still undetermined, which leaves AMRN - as usual - as a hot and speculative story to watch. A quick start by Vascepa on the market could lead to a swift return to the double digits for AMRN, barring any speculation that takes it higher before the numbers start rolling in.
Dendreon Provides Preliminary Fourth Quarter Numbers
Dendreon Corporation (DNDN) also presented at the JPM conference on Monday, but more notably the company issued a sneak peak of the fourth quarter Provenge numbers that indicated sales were five percent higher than what was registered during the previous quarter. While the five percent spike does not demonstrate the robust growth that investors may be looking for, the number beats most consensus that was out there as far as expectations go leading into the results and also reversed the trend set last quarter when sales actually declined on a quarter-over-quarter basis. Some investors may have wanted more of a surprise to the upside, however, as DNDN shares slid by nearly five percent for the day, after initially flying higher, but that could be attributed to the traders "selling the news" while others consolidated their positions.
Dendreon shares have also enjoyed a nice opening week to the new year by pushing as high as $6.24, so some profit taking is to be expected. Monday's earnings peak may have laid the groundwork for what is expected by some to be a rebound year for Dendreon.
Inovio Pharmaceuticals Jumps Nearly Twenty Percent
Over the course of the past couple of weeks, and then again during this week's 'Weekly Stock Watch,' we identified Inovio Pharmaceuticals (INO) as a story to watch, given the stock's recent price action, the company's pending developments and also because this year's flu season was receiving a large amount of media attention. That last item is very relevant and could have been a factor in INO's very significant price and volume spike on Monday.
Inovio has gained fanfare for the potential of its universal flu vaccine that is currently making its way through the clinical stages. Every few years or so (remember H1N1) a flu outbreak becomes large and widespread enough that any company developing a universal flu vaccine - or even one that treats the individual strand in question - gets thrust to into the spotlight. Since this year's outbreak has already spread to forty one states and is predicted to be one of the worst on record, it's likely that if vaccine-developing companies start gaining attention, Inovio will be right in the middle of the discussion and prime the company to attract new investor interest, given the early successes of its universal flu technology and the speculation that often follows these outbreaks.
Aside from those external factors that may have contributed to the huge volume rolling into Inovio trading on Monday, the company is also presenting at the Biotech Showcase this week in San Francisco. That could also have contributed to Monday's action, but not likely on the scale of quadruple-the-normal trading volume. Another bit of news announced early Monday, however, likely did contribute. An expanded collaborative effort with the PATH Malaria Vaccine Initiative (MVI) will utilize Inovio's proprietary electroporation vaccine-delivery technology and put the company on course to participate in the robust search for effective malaria vaccines. Electroporation, as previously discussed, uses small, targeted electrical pulses to inject therapeutic treatments directly into damaged or infected cells. This method allows for more precise delivery of a therapy - which increases effectiveness - without damaging surrounding tissue, as does other current standards of care. This collaborative effort between PATH MVI and Inovio expands on a previous agreement signed in 2010 and validates the potential of electroporation to become a big factor in the vaccine-delivery market.
Monday's price and volume action has already drawn attention to INO, judging by the second-tier headlines circulating since, and it's already been noted as a company to watch this year for its pending trial catalysts and deep pipeline, which includes nine programs in development, six of which are funding by third parties.
YUM! Brands Drops On Slowing China Growth
It's been a see-saw battle of late for the Yum! Brands (YUM) stock since last month's warning of slowing growth in China, and Tuesday morning brought more of the same as shares were dropping when the company noted that the slowing growth was more prevalent than previously expected. According to company officials, sales are expected to come in at six percent lower for the fourth quarter of last year, vice the four percent that had been mentioned previously. According to reports circulating on Monday and Tuesday morning, the slowing growth is due primarily to concerns first mentioned in December by Chinese regulatory officials of the quality of the poultry used by and sold at KFC restaurants in China. The Chinese governments had quickly reversed its concerns, but not before the damage was already done to KFC sales, judging by these latest comments. Volatility is nothing new to YUM trading as of late and this will be a story to keep watching. The YUM! brands are still some of the most recognizable on the world market and the stock could still be a nice long term and/or retirement portfolio play in the food and beverage sector, especially if the bad poultry press in China leads to a pullback in share price. Any significant regulatory ruling from Chinese authorities could prove a short term detriment to the YUM share price, since a significant amount of growth and revenue comes from that country, but comments made by officials shortly after the first concerns were made public looked to defuse the situation.
Roundup: Most world markets traded sideways or down on Tuesday and early indications are that the U.S. markets will open on a similar note. No significant data or numbers are slated for release from Washington, so barring any political talk surrounding the debt ceiling, attention will still be on the multiple health care conferences taking place in San Francisco and on the individual stocks and stories of investors' preference. Europe may again start pulling headlines and keeping investors on edge as reports circulated early Tuesday of a still-growing unemployment rate on the continent. Such information should come as no surprise, however, as many have expected as much with the implementation of austerity measures, but any more widespread economic drama not already solved with last year's bailouts could spark a new round of nervousness, but nothing more serious than worries about the Mets' bullpen this year.
Disclosure: I am long AMRN, DIS, INO, YUM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.