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, and may also make headlines or influence trends during the upcoming week as well.
Although earnings numbers have been mixed thus far for the season, trading ended last week on a relative high note, and that trend could continue this week too, after Republicans indicated their willingness to extend the debt ceiling limit for as much as three months while a full deal gets sorted out. The debt ceiling had replaced the fiscal cliff as a political weight on the overall market action, but now looks to be a non-factor, at least for the short term, given last week's update. That frees up stocks to trade in-line with earnings' expectations and economic indicators, positioning this holiday-shortened week as one of the momentum-building weeks - especially if Apple (AAPL) can impress with its much-anticipated report on Wednesday.
This week the housing sector has a chance to steal the spotlight and potentially move the markets. On Tuesday existing home sales numbers are expected to roll in with a modest upside trend while the new home sales numbers on Friday are also expected to indicate a healthy recovery. Any better-than-expected surprises could not only affect housing stocks, but also potentially rally the broad markets.
World markets rallied on Monday for the most part, given the recent upbeat economic news and renewed signs of cooperation and progress in Washington. The rally hit Europe, in particular, where stocks pushed towards their two-year highs. Barring any overly-pessimistic news this week or a complete breakdown in earnings expectations, the rally seen into the close on Friday and in international markets on Monday has a good chance of carrying into the US market open on Tuesday.
Another earnings-heavy week is upon us, but - as always - there will be a fair share of individual stocks and stories to keep an eye on, too.
Here are just a few of them...
All Eyes On Apple
Although not expected to report until Wednesday, Apple can truly set the tone for the week with an upbeat earnings report. As previously discussed, AAPL shares have been highly volatile and on the dive for the better part of the last few months and closed Friday right at the five hundred dollar mark, an indication that investors are holding fast until Wednesday's earnings release before pushing shares either above or below that milestone mark. Apple usually beats its own earnings guidance, so to see such would not necessarily impress investors enough to spark a rally in itself, but a significant beat of the Street's expectations could lead to a quick rebound in share price - especially if iPhone 5 sales numbers fueled the fire. Many outlets and financial media organizations have questioned if the iPhone has reached market saturation and is on the downslope of its influence. Additionally, some have questioned whether the iPad mini would make that much of a difference in the overall earnings numbers, since it is essentially a re-wrapped edition of already-existing technology and would compete against Apple's own products.
This is the quarter where Apple can prove that the demand is still high for its products and that there are no signs of a reversal of consumer trend towards the competition. AT&T (T) and Verizon (VZ) have both indicated strength in iPhone sales during the previous quarter, with AT&T reporting a record number of units sold. Those are encouraging signs heading into Wednesday's date.
Friday's five hundred dollar close, as mentioned, looks to be an indication of consolidation and a 'wait and see' approach. If Apple impresses by a significant margin over expectations, then it's likely that a quick push higher will materialize. Any disappointments, or even an only modest 'beat,' could result in a continuation of the recent slide - until the company starts hinting at its next potential blockbuster, like the iTV.
McDonald's Looks To Rebound
McDonald's (MCD) surprised many with its report last quarter that missed analyst expectations and, with a disappointing Google (GOOG) report, sent the broad markets into a down spin. What hurt MCD most last quarter was a noted slowdown in US sales and slowing growth in China. Also, October's drop in same-store sales noted the first such drop for the company in nearly a decade and investors will be looking for proof that this was merely a glitch on the screen, and not a reversal of a long-established trend. Early indications are good, considering November's same-store sales rebound.
As the demonstrated leader of the fast food industry, a solid report could provide insight into the health of the economic recovery at home and abroad and therefore move the overall markets one way or another, as was demonstrated last quarter. UBS is taking a bullish stance in regards to MCD leading into its earnings reports, as the firm recently initiated coverage of the company with a 'Buy' rating and a price target of $100.
Until the company demonstrates that it is no longer a behemoth in the international food and beverage industry, it should still be considered on the dips for those filling up a long-term portfolio or an IRA. With the global economic recovery picking up steam, or at least stabilizing, MCD could regain some of the strength lost during last year's drop. One of the hotter earnings reports to watch this week, as McDonald's will lay the groundwork and potentially set expectations for the future reports of other players in the sector, such as Yum! Brands (YUM). YUM could be an intriguing pick in itself, given the drop off resulting from a chicken scare in China, for those believing slowing growth rates may not be as drastic this year as previously thought.
General Electric Moving Higher Following Earnings Release
Shares of General Electric (GE) will be worth watching this week, following last week's earnings report that beat expectations. GE had traded relatively flat in a period of consolidation that took place since an announcement last month that the company would boost its dividend rate by twelve percent while also boosting its share buyback program by ten billion dollars, but volume of more than double the norm accompanied last week's earnings report and sparked a three percent price spike on Friday. Although evidence has indicated a revival at GE Capital, the company's financial arm which is actually being downsized, investors were encouraged by the strength demonstrated by the industrial arm of the company too, which has greatly benefited from growth in emerging markets and expanding profit margins. With revenue and profits growing as management gives a little more back to the shareholders, 2013 could be shaping up to be a solid year for GE, especially when being considered as a potential long term/retirement portfolio play. Some analysts have tried to temper expectations about the potential upside of the GE stock, as noted in the above-linked AP report, but there appears to be little downside moving forward. In having its hands in numerous sectors critical to gauging the global economy, GE's positive report also indicates health in the overall economic recovery. A nice and secure 'buy the dips' play, at this point.
Other hot earnings stories to watch: Like last week, when a slew of big banking reports had investors itchy with anticipation for the revelation of potentially market-moving trends, this week too could provide just as much drama, information and indications into the scale of the recovery. Aside from Apple and McDonald's, as mentioned above, other key reports will come from Google, Microsoft (MSFT), IBM (IBM), Verizon and Starbucks (SBUX). Of note, Google managed to drag the entire market last quarter when its earnings disappointed, while Starbucks soared on its vigorous move into the single-serve coffee sector. A rebound by GOOG could do wonders to reinforce the positive overall uptrend in the markets this year, while strong SBUX results are always indicative of enthusiastic consumer confidence, given that five dollar cups of warm milk (posing as "cappuccino grandes") are usually the first non-necessity items to go when consumers hit hard times.
Intel Corporation (INTC) beat earnings last week, but expectations were so low that it didn't matter and shares dropped six percent on Friday. That set up Advanced Micro Devices (AMD) for a drop, too, as AMD is set to report this week and has already tumbled lower by ten percent leading into the report. In the unlikely event that AMD impresses, a quick rebound could be in store, but investors are not buying that possibility, judging by Friday's drop.
A slew of airline reports are also due this week, but those are generally regarded as only relative to the sector and not to the overall markets.
Explosive Trace Detection (ETD) / Global Defense:
Implant Bound For Growth, Price Volatility Moving Forward
Implant Sciences (OTC:IMSC) received news last week that its Quantum Sniffer (QS)-B220 explosive trace detector was approved by the Transportation Security Administration (TSA) for use in air cargo screening. Volume quickly flowed in at more than ten times the norm and the share price spike upwards of 23% before slipping late last week after the day, swing and momentum traders likely banked quick profits and moved on. Given the implications of the TSA news, which should be considered a blockbuster milestone for this company, IMSC is going to be a hot one to watch this week and moving forward over the next couple of quarters.
Investors will be keying in on new orders resulting from this announcement, as the numerous advantages that the Quantum Sniffer technology has over the competition already on the market open the door for a quick infiltration of the global explosive and narcotics trace detection market, let alone here in the United States. With the US Dept of Homeland Defense and other government agencies around the globe who also follow TSA qualification guidelines now free to purchase the Sniffer technology, new orders may start flowing in with more significant size and scope. An order announced last week for ten additional units to be sent to nuclear power plants in Japan may be unrelated to the TSA announcement, but since it is a follow-on to earlier orders, it should be indicative of product performance and customer satisfaction - both necessary foundations to build on with a new approval now in place.
Following the initial spike, there could be a period of consolidation taking place moving forward as some take short-term profits while others buy in and hold for future developments, since the company's potential in a multi-billion dollar market is significant. It's also worth noting that IMSC still trades on the pinks, although management hinted during last week's conference call that move to the Nasdaq would be ideal in the future. Expect volatility while the stock still trades on the pinks, as many more stable and long-term minded investors won't touch such stocks, but that could provide investors willing to jump in here the opportunity to buy in at levels still generally considered as the 'ground floor' of future growth potential. One significant government contract could change everything, however, and attract quite the share of investor interest who may then absorb the full scope and potential of the company and its radioactive-free ETD process.
Investors will also keep an eye on the debt. DMRJ Group LLC, the company's primary debtor, late last year extended much of the debt coming due until the end of March of this year. Possibilities are that some of that debt can again be extended, as IMSC is sitting on much more solid ground now with the TSA approval, while some gets paid down as the company's cash flow increases. Given the cooperative relationship between DMRJ and Implant in the past, there is little reason to believe that an amicable relationship will not remain moving forward in regards to debt repayment.
Another item worth watching this week will be the trading volume. As expected after such significant news, volume jumped on the announcement, then tailed off over the next couple of trading days. Another sustained volume boost would be indicative of widespread new investor interest, although - as mentioned above - volatility should still be expected. There were many non-believers that IMSC would ultimately achieve the TSA certification, since it was a relatively long process, but with the future a lot more certain now, the consolidation of new positions will likely add to that volatility over the short term.
Over the longer term, however, Implant could make quick progress in eating away at the global market share for ETD, and any announcement of the first significant order relating to the approval could also excite new investors. A hot one to watch this week.
Healthcare, Biotech, Pharmaceutical:
Amarin Volatile Ahead Of Vascepa Launch
Amarin Corporation (AMRN) is again a stock to watch to this week, after last week saw a ten percent price spike on Thursday followed by an eight percent drop on Friday. No significant news released to justify either move, but volume was well more than double the norm into the spike and a bit less than double the norm with the dip. The volatile trading action is nothing new to the AMRN stock and more of the same should be expected leading into the Vascepa launch.
Also playing a part in the story moving forward is the still-undetermined FDA ruling on whether or not the triglyceride-lowering product should be considered a New Chemical Entity (NCE). Speculation into the outcome likely played a role into last week's action as many investors feel that NCE is the final piece to any puzzle in regards to Amarin securing a buyout deal, or a Vascepa partnership. It's probably too late to worry about a partner coming on board with the 'go-it-alone' strategy well in place, so if anything does materialize, then buyout it is, in my opinion. I'm also of the belief that the company will ultimately receive NCE for Vascepa, given that it's hard to believe that the FDA would not have given a negative opinion already if it intended to do so.
More relevant to the immediate share price, however, is the pending launch. Ultimately, it is expected that Vascepa will become a billion-dollar blockbuster, but a slower-than-expected launch would give the short-sided argument some steam, at least for the short term (pardon the pun), which may open up another buying or accumulation opportunity for those still playing the long-term potential. With the launch expected to take place within the next ten days or so, it's hard to ignore AMRN right now.
Full steam ahead.
Inovio A Volume Play With New Analyst Coverage
Inovio Pharmaceuticals (INO) has already moved significantly higher this year and the company could be thrust into the spotlight again this week with a volume boost and analyst upgrade further supporting the recent run. It was announced on Thursday afternoon that Piper Jaffray initiated coverage of the INO stock with an "overweight" rating and a price target of a buck. In supporting the enthusiastic rating, Piper noted the positive expectations of multiple result catalysts slated for this year.
Given the noted boost in volume and the continued exposure that the company could receive for its developmental flu vaccine as a near-epidemic sweeps America, INO could be a hot one to watch this week. The strong volume towards the end of the week last week - two days of triple the daily norm - indicates that a volatile move could be in the works for the short term, and as soon as this week.
Inovio's pipeline, including the universal flu vaccine, is based on its proprietary SynCon technology. SynCon is a platform from which the company has developed numerous synthetic vaccines intended to treat numerous infectious diseases and cancer types and Inovio has already successfully attracted a few collaborative efforts, as six of these programs in development are funded by third parties. Three are in the Phase II stages of development. Inovio also utilizes a novel method of delivery, called electroporation, to directly target damaged or infected cells without causing harm to surrounding tissue. Early successes of the company's developmental products and technologies have been encouraging and support a deep pipeline of potential.
As the catalysts noted by Piper begin to play out through the coming quarters, investors will be able to more accurately gauge the company's potential in eventually reaching numerous multi-billion dollar markets, but concerns of completely funding the pipeline through Phase II and III trials will temper some of the short-term investor expectations. That said, the most significant gains can be had to patient investors who play the early catalysts and price swings in these developmental companies, while potentially holding onto a core group of shares for the future.
Last week's analyst initiation and volume boost has INO well on the radar again this week.
Research In Motion (RIMM) shares have proven very resilient, flying even higher last week with the launch of the BlackBerry 10 pending while company officials also spoke of potentially licensing its software to partners. Such talk - and of course the launch - will keep RIMM in the radar this week as investors look to continue jockeying for position in the future. There is reason to believe that share could push again towards twenty with all the hype surrounding the company-saving BB10 platform and the enthusiastic statements by the CEO, but there is likely to be some profit-taking coming into play soon as many investors will - rightfully so, in my opinion - take a 'wait and see' approach to the BB10 launch. Although a hot item for the future, BlackBerry has been crushed over the years in market share by still-increasing competition and hype alone cannot regain any lost glory - the true test will be in the numbers. RIM is targeting the business sector, and if it regains share in that arena, then a vigorous move into the consumer circuit would be expected, but this company still has a lot to prove. The most significant gains to be had with RIMM have likely already been had, but it's still a hot story to watch moving forward, especially this week.
Roundup: Some international markets hit new 20-month highs on Tuesday leading into the open of a shortened trading week in the United States, while others traded flat in anticipation of what earnings will bring. The mood is encouraging these days, though, especially with another bout of cooperation in Washington taking shape, and a few positive earnings reports may be enough to spark a rally that lasts a little more than just a couple of days. On the other hand, a couple of high-profile misses could lead to a slight correction, as Google and McDonald's demonstrated last quarter, but expectations are tempered and realistic, so huge volatility should not be expected this week, barring any major geopolitical or economic surprises. During the early-goings of 2013, it looks like investors are satisfied with the pace and health of the global economic recovery, and that mood should carry into this week's session.