The DOW and S&P closed up by half a percentage point each on Tuesday while the Nasdaq traded flat as concerns of slowing U.S. growth during the fourth quarter of last year indicated a potential slowing growth rate for the first quarter of 2013, too. Reports also surfaced on Tuesday that consumer confidence dropped to its lowest level in over a year as consumers digested the fact that there's a little less spare cash available as the result of an increase in some tax rates this year. None of the above would justify any protracted broad market sell-off, in my opinion, but it emphasizes the fact that the consistent headlines of 'sunshine, rainbows and candy floss' that we've seen all year thus far are taking on a more cautionary and realistic tone, which will likely lead to some of the profit taking we discussed earlier in the week. That may lead to a near-term, but modest market decline.
On Wednesday attention will still be on the Fed meeting, which enters its second and final day. Early indications are that the key stimulus measures introduced after the crash of 2008 will remain intact for the foreseeable future, or at least until a target unemployment rate of 6.5% is achieved, but other reports have also hinted that a divide in Washington is growing over how necessary it is to keep those measures in place, given the thus-far successful recovery and relative strength of the economy.
The earnings season will continue trucking along on Wednesday, but other than what we've already mentioned, it's another day to keep an eye on some hot stocks and stories that could potentially move markets, individual sectors or personal portfolios.
Here are just a few of them for Wednesday, 30 January, 2013 ...
Amazon Jumps On Revenue Spike
Trading could be mixed for shares of Amazon.com (AMZN) on Wednesday - and for the duration of the week, for that matter - after the company's latest earnings report showed a miss on an earnings-per-share (EPS) basis, but also revealed a twenty two percent revenue spike and better-than-expected profit margins. Reception on the street was just as mixed as the report itself as shares initially dropped on the miss, but then closed extended-hours trading nine percent higher. The AMZN short-siders will emphasize that the company's stock is due for a pullback after a nice early-year run based on enthusiastic projections outweighing the company's performance, citing the significant earnings miss on an EPS basis, but the longs will counter with the still-growing revenue and note that investment in other key areas of potential growth, such as the Kindle, will better position Amazon to heavily compete in various arenas of the open market.
Although there may be some pullbacks as the non-believers run headlines arguing that the company may have reached - or is quickly approaching - its peak, there are still significant areas of growth for Amazon to entertain, such as the international market, which is not nearly tapped out. It's also encouraging for longs that the company continues to chip away at overall market share for holiday-season spending and will continue to take measures to increase the speed and efficiency of its deliveries. Headlines are mixed during the early-Wednesday hours regarding the earnings report, which can make for some choppy trading in the days ahead. Still a growing behemoth.
YUM! Brands Posturing Before Next Week's Report
Yum! Brands (YUM) is slated to report earnings next week and shares continue to trade lower based on the Chinese Chicken controversy that has plagued the company since this past December. YUM closed the day on Tuesday modestly lower after having traded higher at points throughout the day. Such volatile patterns are likely to continue over the near term as investors await a final resolution on the tainted chicken ordeal, but - more importantly - will be keying in heavily on next week's earnings report to gauge just how much this ordeal may have hurt sales in China, where the company draws a huge chunk of its growth and profits. Previously-lowered growth guidance from the company may mitigate and large-scale reaction to a potential slowdown, but enough concern exists that if it looks like these troubles will persist throughout the quarter, another downtick in share price is possible. It also doesn't help on the PR front when headlines circulate in regards to class action investor suits, which I believe are fruitless and just another example of the sharks looking for blood where there's none.
YUM's report beat estimates last quarter and any surprises this quarter would likely lead to a quick rebound in share price. Guidance will be key, though, as investors have already digested the chicken news and are ready to see how well-positioned the company is to put the issue to rest in the rear view mirror. Barring any significant course changes to growth projections, we're not likely to see much movement leading into or immediately following the announcement, but given that the chicken ordeal is probably closer to the end than it is to the beginning, YUM still could be trading at a decent level to those predicting an uptick when it's 'business as usual' again. Still worth keeping an eye on this story, and potentially accumulating for the long term portfolio.
Healthcare, Biotech, Pharmaceutical:
Keryx Looks Towards Approval Following Results Release
Shares of Keryx Biopharmaceuticals (KERX) have nearly tripled within days on humongous volume after a Monday announcement informed investors that Zerenex had proven successful in a Phase III trial for the treatment of hyperphosphatemia in patients with end-stage renal disease (ESRD) on dialysis. With results in the bag and the company alive again enough to receive quite the impressive price target boost from Oppenheimer, eyes will now look forward towards an FDA approval and an eventual commercial launch into the dialysis market. The first course of action in introducing the next phase of the company's development was set forth on Tuesday when the company announced that it would raise $55 million in a cash offering that would fund "pre-launch" activities relating to Zerenex. That likely entails boosting production, funding the FDA approval path and initiating contacts and pre-marketing efforts. It's also safe to assume that the company will likely be on the prowl for a potential commercial partner with whom to undertake the launch. It's been demonstrated time and again that small companies fare much better off when launching a product with the help of a big partner, rather than 'going it alone.'
See Dendreon (DNDN) and Provenge for proof positive.
For Keryx longs, the way the company went about the offering should be appreciated. Many companies conduct these things in advance of results just in case they don't turn out positive, which leads to much more dilution since the shares trade for much lower prices. In this case, maybe in a show of confidence that Zerenex was on the course for victory, management waited until the post-approval spike to raise the cash, allowing investors to bank hefty rewards beforehand. And hefty those rewards were.
The phrase of the day now moves to "market potential." Reception among analysts and pundits has thus far been mixed as to just how much potential the product has in its niche market. Competition may be stiff, but as we've outlined in previous reports, there may be plenty of space for Zerenex to steal quick market share, especially given the very positive secondary endpoints met in the recently-completed trial; maybe even enough to justify a further price increase in-line with Oppenheimer's newly minted eleven dollar price target.
It's not unusual for shorts to jump in after such quick catalyst spikes in this sector, so expect some volatility and profit-taking moving forward as the day, swing, momentum and catalyst traders bank profits and move on, but those liking the chances of Zerenex stealing market share once launched may find such times as ample for re-loading. Also expect to see short-sided arguments coming forth about the lack of a robust market for the product that will hurt future revenue and share price potential, but as noted in the above-linked write-ups, a pretty good case could also be made that Zerenex will hold its own.
Looking at the Keryx story from another angle, this stock is a prime example of why ya gotta love this sector if you can stomach it. From roughly a dollar years ago, KERX quadrupled, if not more, before sinking back towards a buck on the failed Perifisone trial early last year. Then, after months of volatility, shares closed the day Tuesday at over eight bucks. A demonstration of how trading the spikes and dips can return short term gains while a core position held for the long term can too pay off. They don't all work out like this, but how's that for a roller coaster ride?
AEterna Zentaris Surges On Volume Spike
Shares of AEterna Zentaris (AEZS) are also on the move leading into Wednesday's trading, although to a much lesser degree than KERX. Shares closed the day on Tuesday up by nearly eighteen percent on volume more than five times the daily norm, although no news was released in conjunction with the spike. As outlined on Tuesday, though, numerous catalysts are due over the short term that could be attracting investor interest in a big way, judging by the boost in volume. It's also possible that AEZS could be experiencing a bit of brotherly love from the KERX price spike.
The two companies were partnered on Perifisone until Keryx handed its rights back over to AEterna following the above-mentioned trial failure of early last year, but investors enjoying the KERX spike may, too, have AEZS on the mind as a decent speculative play that can still pan out, Perifisone partnership or not. As noted earlier this week, interim results from the ongoing Perifisone in multiple myeloma trial are slated to be analyzed by an independent committee within the current quarter. That could be attracting some leftover KERX interest, as could the rest of the pipeline.
AEterna is also fresh off a cash-raising event, so dilution is not a concern over the short term and investors will be keeping a keen eye on this story heading into Wednesday's trading after this week's early move. The lack of a major news release over the coming days may be an indication that the recent spike was, in fact, a speculative move that could have been associated with KERX interest.
That said, this quarter's pending catalysts and overall developing pipeline are enough to attract speculative interest in itself. Another one to keep an eye on this week as the day, swing and momentum traders will be looking for another one that's ripe for the pickings.
Explosive Trace Detection (ETD) / Global Defense:
Implant Dip May Spell Opportunity
Shares of Implant Sciences (OTCQB:IMSC) have been on the drop this week, with some volatile moves higher intermixed with the downward trading, but the drop could have created another opportunity for those who played the post-approval spike to re-load at lower levels and position for the long term growth potential of the company's Quantum Sniffer (QS) technology. Now free to market the QS-B220 explosive and narcotics trace detector as a TSA-approved product, Implant announced this week that it will present at "Air Cargo 2013, a leading tradeshow and conference for the domestic U.S. air cargo industry." With the B220 approved for the specific air cargo market, this could be a significant opportunity for the company to showcase its technology.
As previously addressed, the air cargo screening and explosive trace detection markets have quickly turned into multi-billion dollar industries with the threat of terrorism and explosive-based attacks growing rapidly on a global scale and Implant could be primely positioned as a sector up-and-comer to take well advantage of the boom. The Air Cargo 2013 showcase could be stage that sets the company on course. IMSC could still be considered a ground floor opportunity, for those with eyes on future growth.
The volatility recently demonstrated can be considered the norm for catalyst trading on the OTC markets, but as revenue streamlines, more stability should enter the trading picture. For now, expect the wild action to continue, but also note the current market cap may hardly justify the forward-looking potential of the Sniffer technology to enter the air cargo screening market. While the quick move lower this week may have some investors nervous, there's a case to also be made that such price action in speculative OTC stocks is often used to take out "stops" and "limit orders" in an attempt for others to accumulate shares before key news is expected for release. It's not wise, in my opinion, to base trades solely on that speculative theory, but it's another factor worth noting, especially given that one strong, domestic order resulting from the TSA approval could quickly turn some non-believers into instant believers and potentially lead to a rally that would test the current 52-week highs.
Bear in mind, though, that IMSC still remains a speculative growth play and is carrying just under thirty million dollars of debt, with some due at the end of this quarter, so the coast is by no means clear; but the growth potential certainly receives a boost with the B220 approval. Those with eyes towards the future may find the current dip as an opportune accumulation point.
Roundup: World markets were solidly in the green during Wednesday's trading, leaving investors with high hopes for the U.S. session, too. The euro was also reaching multi-year highs during the day, not necessarily a good thing for exports or for those looking to exchange dollars for euros in order to bank a cheap vacation to the Med or a cheaper glass of "Manzanilla La Gitana," but a sign of currency strength at a time when the likes of Spain are still making headlines for recessionary economies. U.S. markets could continue to test the record highs over the remainder of the week, but there's still enough hesitance to jump all in just yet to keep some money on the sidelines in anticipation of a pullback.