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.
Another week of encouraging earnings reports, positive economic indicators and political tranquility in Washington has the bulls running hard heading into the new trading week and many are even suggesting this latest run could approach the record market highs achieved before the economic free fall of 2008-09. Continued earnings reports this week from companies that may exceed expectations could further fuel the rally that has seen the markets close higher each week in the new year and positive jobs numbers due Friday would only put an exclamation point on the run, should they, too, exceed expectations.
While those lofty hopes may in fact pan out to be true, it may also be time for investors to consider some profit taking, or at least expect that others may take advantage of the early-year run and turn some of those paper gains into actual. There's a lot more certainty in the market right now than we have seen in the recent past, especially with the politicians seemingly playing nice and the global recovery looking pretty healthy, but there are still enough concerns out there that should help balance the equation in favor of a 'proceed with caution' strategy. Although not much has been heard from Europe lately in terms of economic plight, the economies of Greece, Spain and Portugal remain on unstable ground and could again pop into the spotlight as soon as the media outlets get bored of wasting time on the fake girlfriends of football players. Reports have it that England, too, could be on the verge of another recession while overall growth in China and India has slowed enough to make economic headlines.
None of this will likely threaten the overall enthusiasm of the recovery, but it could lend to the belief that there are still plenty of bumps in the road and hurdles to cross before receiving the 'all clear' from the financial markets and those that move them. Additionally, it remains a trader's market, meaning investors will favor banking profits early with an eye towards buying back in on any dips. In short, investors will see the markets approaching their record highs and ask themselves if the economic climate supports that milestone for the time being; my guess is that sentiment is not yet sound enough to remain in record territory without another pullback materializing thanks to profit taking and investor caution. That said, it's a much more positive economic climate these days than we've seen for some time, so any pullback would become nothing more than a buying opportunity, barring the unforeseen news that could change everything.
It's another earnings-heavy week with the jobs numbers upon us, but - as always - there will also be a fair share of individual stocks and stories to keep an eye on...here are just a few of them...
Boeing In The Spotlight
The Boeing Company (BA) is again thrust into the spotlight this week with an earnings report due amid a flurry of bad press surrounding the battery troubles that led to the grounding of much of the worldwide 787 Dreamliner fleet. Last week's relatively solid uptick aside, Boeing shares have suffered somewhat from the Dreamliner woes and - at the least - have traded with increased volatility as investors digested what to make of the constant media barrage of negative Dreamliner reporting. While most earnings reports are assessed on numbers and guidance, the success or failure of Boeing this week will largely be gauged by the potential of a 'quick fix' to the 787 battery woes. Indications are that there may not be a quick solution to the highly-charged dilemma, so the potential is there to see the BA stock drop even further than it already has.
Many will stay away from Boeing stock as concerns mount that the battery issues will start slowing down production and delivery of the Dreamliners already purchased, especially in a bull market where there are plenty other large caps surging higher these days, but any pullback in the BA share price could turn into a solid mid to long term pickup. It's not unusual for new aircraft hitting the market to experience such growing pains and it's often 'business as usual' once a fix is found. Compare it to the many recalls of new cars, too, that hit the road with issues that are quickly forgotten once the recall is finished and the fixes implemented.
What hurts Boeing most, at least for the time being, is the negative press that has investors - and airborne consumers - nervous. Although every situation is unique in itself, history has demonstrated that these early hiccups are more often than not cured with a minor 'fix' and the same is likely to be the case for Boeing. There's little chance that a battery issue will forever ground Boeing's next generation aircraft with so much already invested and on which the near to mid term growth lies.
BA may be considered a nice longer-term pickup on any share price weakness that materializes from this week's report or continued discouraging media coverage. The real red flag that could derail any rebound potential would be anything structurally wrong with the plane, which doesn't seem to be the case. In the not-too-distant future, this story might all be looked back upon as much-ado-about-nothing.
Facebook Looks To Reaffirm Mobile Strength
Facebook (FB) shares have been high-flying this year, by the tune of over eighteen percent, and investors will look at this week's earnings point as key in determining the social media giant's infiltration of the mobile market. Last quarter's report was encouraging in that scope and this quarter's could set a trend. Investors will also look for comments from the company in regards to future monetization plans for the much-hyped 'Graph Search' that was announced a couple of weeks ago. Like the initial move to mobile, initial estimates of revenue potential from the unique search strategy are modest, but could quickly grow and become a core strength of the company's business plan later on down the road, once fully implemented.
The only concerns noted of late have related to a late-December drop-off in active Facebook users, but it's probably unfair to judge that time period as part of any trend, given that most utilize the last two weeks of the year as an opportune time to spend with friends and family in the actual world, not the virtual one. Of course in this day and age where people live and die by what's on the computer screen in front of them, who knows. For now, I'd consider those numbers as irrelevant, unless the trend continues into January and beyond.
At the end of the day, Facebook still looks to be trucking along on all cylinders, but it's still a risky sector out there, as MySpace memories remind us every day. Analysts are expecting fifteen cents a share - any disappointments from that mark or lowered guidance moving forward would lead to another drop below thirty.
Other key earnings reports to watch this week that could potentially move the markets and/or provide insight into the health of a specific or the overall market recovery are Ford Motor Company (F), Caterpillar, Inc. (CAT), Amazon (AMZN) and Yahoo! (YHOO). Ford has rallied significantly over the past few months on the strength of the auto recovery and could run even further if the positive trend in auto sales continues. Management is confident enough in a positive outcome that it recently doubled its dividend rate. Ford has weathered the economic storm with might and is still one to consider for the long term for those wanting to dabble in the auto sector.
Caterpillar has continuously provided insight into the strength of the industrial sector and will likely do the same this week. Amazon continues to prove to be quite the growing juggernaut while Yahoo looks to prove its turnaround is still in full effect.
Of the above-mentioned high profile reports, none will likely move the markets one way or another on their own, but a couple of 'beats' would only add to the already-enthusiastic earnings season and pump stocks a little higher.
Healthcare, Biotech, Pharmaceutical:
Amarin's Vascepa Launch Has Investors Looking Forward
There's still no word from the FDA on the New Chemical Entity (NCE) status for Vascepa and none of the previous buyout speculation surrounding the company has yet to come to fruition, but one thing is now for certain in regards to Amarin Corporation (AMRN) that makes the stock a potential growth story moving forward - the much-anticipated Vascepa launch is underway and the product can now start banking revenues on the open market. Although shares did not respond in a big way to the news, the on-time launch is huge for the company, as it puts detractors who indicated a delay would materialize back in their place and allows the speculation to somewhat subside as the product and its sales force do the talking from here on out. Management has looked to temper investor expectations for the initial stages of the launch, but most still believe Vascapa has the potential to eventually become a billion-dollar blockbuster, as previously predicted by many.
With that in mind, AMRN may start to look like an attractive growth story to those who have not shied away after the drop to under ten bucks. Barring any news relating to NCE or a potential buyout, shares are likely to continue trading in their recent range, at least until the first round of sales numbers and/or guidance hits the wires. An update could come beforehand, but Amarin's earnings call scheduled for the end of February may be our first insight into how well the initial phase of the launch is proceeding.
Expectations should be tame at this point, but any surprises would likely lead to a quick rise in the share price. Still, NCE is the wildcard that could be the trigger that any potential buyer or partner is waiting for before accurately valuing a deal and making a move. A nice one to watch again with the launch underway, and could be a nice 'buy the dips' growth play. Some would already consider us in 'But the dips' territory.
AEterna Could Move On Results Release
AEterna Zentaris (AEZS) is one to watch again with an interim milestone due within the current quarter in regards to an ongoing Phase III trial for Perifosine in the treatment of multiple myeloma (MM). The milestone entails an interim trial review from an independent Data Safety Monitoring Board, which - upon completion of the review - will then make a recommendation on whether or not the trial should continue. Such events often provide investors with a clear sign of validation, or not, of the effectiveness of the trial. It should also be noted, however, that these reviews may be more keen on safety and not necessarily efficacy. For instance, Oncothyreon's (ONTY) Stimuvax trials were recommended to move forward last spring, too, by an independent board, but the trial ended up not meeting its endpoints. So while a recommendation for continuation is a positive event, it's not a definitive sign of success.
That said, it's not unusual to see shares of a company expecting interim or actual trial results to run leading into the catalyst event - as demonstrated by the twenty percent-plus run by Keryx Biopharmaceuticals (KERX) this month - and its possible that AEZS could follow suit. AEterna's sixty five million dollar market cap indicates only modest expectations by investors at this point, but that could change quickly if anticipation builds to the likelihood of an imminent results release and catalyst traders also jump on board. Already, popular investing sites have started tipping AEZS as stock to watch based on the pending catalyst and pipeline potential and new interest could be drawn in as a result.
Considering that the AEterna pipeline only starts with Perfisone - and by no means finishes with it - this could be one to keep an eye on for longer term potential, regardless of the outcome of the upcoming trial results. AEZS-130, for example, is being prepared for an NDA filing with the FDA during the current quarter as a diagnostic test for Adult Growth Hormone Deficiency. AEterna maintains world-wide rights to the product, which has also received an orphan drug designation from the FDA. This milestone event could also provide a modest catalyst to the share price over the short term.
Another anti-cancer compound, AEZS-108, is slated to return interim Phase II results in the treatment of endometrial cancer this quarter, another event that could provide a share price catalyst. This product has already proven successful in multiple Phase II trials and is also being prepared for a near-term launch of a Phase III trial in the endometrial cancer indication.
The current market cap does not give much enthusiasm to the MM indication, in my opinion, meaning that any positive results could lead to a swift move higher. More accurately, the cap is valued for the still-developmental stage of the rest of the pipeline, keeping AEZS on the radar as a decent speculative play moving forward with the potential to return volatile gains as the catalysts unfold.
Right now, attention is on the MM trial results. Shares could be positioned for a pre-results run, but investors should keep in mind that such runs are speculative and do not indicate success or failure, so it may be a wise move to bank some profits with trading shares while potentially holding onto a core group of long shares to play future catalysts, if investors choose to follow the story. Numerous analysts have also jumped on board recently and either initiated or upgraded coverage of the company, another potentially strong sign moving forward. Nice one to watch, with multiple milestone events pending within the quarter.
Private Placement Provides Funds For ClearPoint Commercialization
MRI Interventions (MRIC.OB): 2013 is projected to become a year of significant growth for MRIC as the company ramps up its sales efforts for the full commercial launch of its ClearPoint MRI-enhancing system that provides real-time imagery during complicated procedures on the brain. The revenue growth realized during the last quarter report is projected to continue through the most-recently completed quarter and into the new year as MRI has already boosted its sales force with growth in mind. Of note in relation to the commercial buildup, the company announced last week an $11 million private placement with new and existing investors that will raise cash in order to fund the ClearPoint build-out.
While stock placements are not always kind to investors hanging on through the catalyst periods as a company develops, they are often a necessary burden to bring a novel technology to market. Additionally, they emphasize the strategy of playing the spikes and dips along the way with some trading shares, while also potentially holding a core group of shares over the long term for those wanting to ride the story out. In the case of MRIC, recent history has proven that the current share price levels have returned decent - although temporary - gains and could do so again with growth expected to pick up steam over the coming quarters with a larger sales team.
Also of note, MRIC does not just receive revenues on units sold, but also banks revenue on the disposable items associated with each ClearPoint procedure. That's like a stock with a dividend - it keeps returning money. The company has also secured partnerships with Siemens AG (SI), Boston Scientific Corporation (BSX) and Brainlab. Another one to watch this week, given last week's news and the potential for growth to be realized moving forward.
Explosive Trace Detection (ETD) / Global Defense:
Volume Is Key As Implant Positions For Growth
Implant Sciences (IMSC.PK) shares spiked when the company announced earlier in January that it had secured a key Transportation Security Administration ((TSA)) approval for the company's Quantum Sniffer (QS)-B220 explosive trace detector for use in air cargo screening. Since that time, however, shares have retreated back to near previously-traded levels as the day, swing, momentum and catalyst traders banked profits and moved on looking for the next quick money-maker. Moving forward, volume will be key as the company opens this new phase of development. The slowing of trading volume since the milestone approval event indicates that widespread interest has not yet hit this stock, probably partly because it trades on the OTC markets; many investors tend to shy away from taking long term positions in stocks on the OTC, but that often provides an opportunity for those willing to jump into build a nice foundation of shares before full transition into relevance takes place. The current volume is also indicative, however, that long-sided investors are standing firm and counting on the company's growth potential to return significant gains further on down the road. A sustained volume boost will be necessary, in my opinion, in order for IMSC to hold any achieved gains, but it's also likely that slow accumulation will take place during the 'dip' periods of this stock's volatile trading pattern. Any signs of quick buying or increased investor interest would likely boost the stock too fast for those looking to accumulate lower.
On the news front, Implant also announced last week the hiring of a sales manger for Russia, where it is expected that the transportation security market will grow to $1.6 billion. The move indicates that Implant is willing to continue growing its sales team in order to take advantage of markets in addition to the domestic and already-established international markets discussed previously.
This could be a ground-floor opportunity to enter into the next generation of the global defense and ETD market, especially since volume indicates IMSC may still be flying below the radar. A few sizable sales resulting from the TSA approval would likely attract enough interest to see the stock sustain any gains. One to watch during the coming quarters as revenue looks to be growing significantly, according to recent numbers presented in conference calls and company presentations.
Chinese Chicken Woes Continue To Hurt Yum!
Yum! Brands (YUM) cannot seem to shake these Chinese Chicken troubles. Amid reinvigorated reports last week that chicken used by KFC in China contained higher-than-normal levels of certain antivirals and steroids used to stimulate growth, YUM shares dropped by nearly another three percent and are likely to look shaky this week, too, as China is YUM's biggest market. This story has already opened up some modest trading opportunities along the way for investors of YUM, with a ten percent drop already noted at one point before an ensuing rebound, but those with eyes towards the long term may enjoy the continued opportunity to 'buy the dips' as the story plays out. Whatever chicken troubles plague YUM for now, there's little doubt a solution will be worked as the company will not allow these troubles to derail its biggest market. Over the short term, earnings can be hurt, but no one generally invests in the large caps for short term trades. As long as YUM is still holding some of the most well-known food brands throughout the world, it's still worth considering as a 'buy the dips' play - it's not like people will ever get tired of eating. More bad press could be on the way - opening even more of a potential buying opportunity - as numerous weekend press releases hit the wires from law firms looking for a class action suit against the company.
Roundup: Investors this week will be noting how strong the markets look as they move higher towards the record highs of a half-decade ago, and then looking to justify that strength against the overall economic recovery. With hindsight being 20/20, it's probable that the markets are stronger now than they were back then, given the lack of transparency into the issues that caused a crash shortly after those highs were hit. But with growth still stalling or slowing in some of the larger economies of the world, investors may decide now is not the time to try and set new highs. I'm still a fan of holding some cash on the sidelines in the event of a pullback, which may mean selling of those profitable returns of early-2013, but the bulls could decide to run another week, given the lack of negative news hitting the headlines these days.