Volatility is back. After a few weeks of stability and a methodical uptrend in the markets, this week brought us, so far, back-to-back one hundred point moves in the DOW as investors contemplated the probability of the markets sustaining levels at or near the record highs set before the crash of 2008-09. Big media started paying attention to Europe again, an eventuality we've discussed for a couple of weeks now, and as a result some of this week's volatility has been due to reports of the still-lagging economic recovery over on that side of the Atlantic. Moving forward, such concerns are still likely to play a role in the overall market action and spark some continued volatility, but for the immediate future, investors look to want to shake off the European worries and trade on the momentum of this quarter's earnings reports, which have been solid all season long.
Still, as the influx of cash into the markets seen in early January subsides - and the cautionary tales from Europe continue - many will look to prepare their portfolios for the possibility that a pullback will take shape. The warning sign will be, in my opinion, when the media outlets start harping on European worries, which has already started to happen. Given the strength of the recovery thus far, few are predicting a protracted period of pullback, should one materialize, but the coming quarters will be key in convincing investors that economy can move forward at a decent rate of growth once it starts to wane off from the stimulus measures still in place. As noted at this week's open, a drop in defense spending last quarter caused a retraction in U.S. GDP growth - that's no indication that the economy is ready to thrive without stimulus just yet.
With record highs still in the spotlight, however, there's plenty to be enthusiastic about right now. Although some of the major all-encompassing funds and ETFs may suffer a bit during periods of pullback, there are always quite a few individual stocks and stories to keep an eye on.
Here are just a few of them for Wednesday, 6 February, 2013 ...
Disney Spells Growth As It Implements Star Wars Plan
Not looking to be outdone by this quarter's string of solid earnings reports from other high profile companies, The Walt Disney Co. (DIS) followed suit on Tuesday afternoon with its report that not only beat estimates on an earnings-per-share basis, but also guided higher over the course of the next few quarters on the basis of growing film and theme park revenue, for starters. Although DIS shares have already traded considerably higher since their mid-November lows, they jumped by over two percent during after-hours trading on Tuesday and could be positioned to continue moving higher over the coming quarters.
Aside from its already-established revenue stream from its numerous divisions, including ESPN, Disney Studios and the theme parks, Disney will look to make the most of its LucasFilm acquisition and start leveraging the brand across the many domains of its business - in similar fashion to how it's used the Marvel brand and portfolio of characters. While the next installment of the Star Wars franchise is slated for 2015, rumors of various spin-offs have also been making rounds - with Yoda, Jabba the Hutt and Boba Fett movies headlining the speculation. Considering such talk, Disney may have plans of releasing a couple of solo films a year, in addition to the main-stage "Episode" selections.
Disney has already been very successful in utilizing its Marvel cast of characters in this manner, and there's no reason to bet against the company in implementing this strategy towards the Star Wars franchise, either, although there are some concerns being voiced by the Star Wars die-hards that the brand will be diluted. Diluted or not, Disney will likely rake in billions more than the value of the LucasFilms deal with the Star Wars films alone, outside of cross-licensing revenue, and history shows that the Disney people will do it right. After all, every "Pirates of the Carribbean" movie is about the same and each one keeps making bank; so do all these Marvel movies.
Given the prospects for the future in a global economic environment that is becoming revitalized, there's little reason to doubt that the company's enthusiastic outlooks moving forward will come to fruition. Still one to consider for the more stable, long term or retirement portfolio, especially on the dips, should they materialize.
YUM Projects Growth Amid Earnings Dip
On the other side of the spectrum, Yum! Brands (YUM) had some gloom and doom to report for its most recently completed earnings quarter, with a six percent drop in China sales as a result of the much-discussed Chinese Chicken fiasco, but company officials did emphasize that the speed bump - although drastic - would only be temporary. The most worrisome aspect of the report related to the expected twenty five percent drop in China revenue predicted for the current quarter. Those pessimistic projections dropped YUM shares by three percent into Tuesday's close, but that was after they had set new 52-week lows earlier in the day.
As mentioned before, though, any weakness created as a result of this earnings report and concerns over the tainted meat may provide investors with an eye towards the future an opportune time to load up on shares for the long term or retirement portfolio. The "tainted chicken" ordeal is likely close to an end and YUM - as stated in its conference call - recognizes that only time will quell consumer concerns. A new advertising campaign slated for the Chinese New Year may help to lure consumers back, especially if reports of the tainted chicken in the media are nothing but a distant memory.
Food recalls and tainted meat stories pop up every now and then - reports in the U.K. have it that Tesco beef was found to have horse meat in it - and these instances often spark temporary sell-offs, but also provide the more hardened investors the opportunities to take advantage of any share price weakness and accumulate a few shares with eyes towards the recovery. Consumers are proven to have pretty short memories and a few quarters down the road the current YUM share price could end up looking like quite a bargain.
Company officials also commented in the call that the stock may again be considered a "growth stock" moving forward, but some analysts question that theory as the YUM brands are already heavily-saturated globally. That will be a story to watch over the coming quarters, but some share price appreciation should be expected after this latest pullback, given that the meat troubles are only temporary and the company will improve its policies and procedures to ensure such scenarios don't again effect revenue its largest growth market. Some additional volatility and new lows could follow over the short term, but a quick reversal in guidance could also reverse that share price trend in a hurry.
Implant's Post-Earnings Drop Sets Accumulation Point
Implant Sciences (IMSC.PK) reported earnings last week, too, and the share price has since dropped down just as quickly as it ran up leading into the report date. Given the prospects for growth and still considering the recent TSA approval for the Quantum Sniffer B-220 explosive and narcotics trace detector (ETD), the recent pullback may again be providing investors - who have eyes towards allowing this story to play out - an opportunity to jump in on what may be considered a ground floor opportunity in the booming ETD industry. In regards to the earnings report, Implant recorded a revenue increase of over five hundred percent ($6.9 million vs. $1.1 million), when compared to the same quarter of the previous year, while net losses were also higher ($3.7 million vs. $3.3 million). The rise in losses were attributable to some stock-based compensation, according to comments contained within the earnings press release, and due to a spike in operating costs, which comes naturally with a spike in orders and sales.
Also key, and again according to the earnings press release, Implant used at least a portion of the five million dollars-plus generated from a major sale in India to paying down some of the DMRJ debt. The more skeptical investors always point to this debt as a major detractor to the company's overall potential, being that DMRJ is Implant's primary debtor, but history has demonstrated that the two entities work well together and there is little reason to believe that the relationship would change now, after the company has just achieved its primary goals of the past couple of years.
Margins were also notably higher, another good sign moving forward, and the stated revenue versus losses for the last quarter also indicate that a few big orders can quickly put this company in the column of "significantly cash flow positive." It's also important to consider that it costs money to make money - that means expenses should be expected to increase along with the revenue; that shouldn't come as a surprise. As longs as margins are solid and investors feel that the company is responsibly paying down it's debt, it should be smooth sailing ahead, assuming orders relating to the TSA approval start rolling in.
There still may be a core group of investors sitting on the sidelines until they see proof that the TSA approval is going to translate into significant orders in the air cargo arena, hence the pullback following the earnings report, but the numbers indicate that this company may be in the early stages of very notable growth and these pullbacks, in my opinion, provide nice accumulation points for those with the belief that the Sniffer technology is positioned to play a key role in the ETD market moving forward. Sometimes it takes a little longer for stocks trading on the OTC markets to gain the sustained interest and volume necessary to spark a major rally, but that also provides patient investors looking below the radar to jump in before the story is known. Still worth watching this one, as the earnings report spells growth.
Also on Tuesday Implant announced a deal with an Asian postal service for Sniffer use in explosives and narcotics detection, another demonstration of the various applications of the technology.
Sirius Still Growing, But Earnings Mixed
SiriusXM Radio (SIRI) was another high profile company that reported Tuesday and issued guidance for future quarters. Although total subscribers and revenue still grew at a significant clip during 2012, the company slightly missed fourth quarter expectations on an EPS basis. Shares traded modestly lower during the day as a result, but spiked into the close. Of note, the company provided investors with a look into the future that would help fend off competition from the likes of Pandora and other similar services and devices. The MySXM feature, for instance, will allow listeners to better personalize their SiriusXM experience. Detractors may note that this simple feature alone will not draw users away from other services, but when combined with the unique content and entertainment channels provided by Sirius, such features may be viewed as just icing on the cake. Sirius is also expected to continue growing its subscriber base as a result of the auto industry rebound.
SIRI shares traded un-moved with this report, but there are usually periods of consolidation following this company's reports. It's a positive note that the stock was able to breach and then sustain its $3-plus share prices of late and with Liberty Media (LMCA) having taken majority control of the company, investor sentiment remains high - if only because it looks like Liberty's John Malone is making major moves in the media market that could drag SIRI right into the international mix. Reports circulating Wednesday morning indicated that Malone was making a move on the Virgin Media, a large pay-TV provider in the UK. It has been speculated before that Liberty may look to move Sirius XM more heavily into the international market to spur future growth, and this could be the 'foot in the door' that brings the SatRad company into Europe, and potentially beyond.
SiriusXM likely still has a significant amount of growth left in it, especially if it can tap the international market. With John Malone looking to position his companies into a global media juggernaut, Sirius XM only stands to benefit. Another story to keep an eye on.
Healthcare, Biotech, Pharmaceutical:
Sunshine Moving Higher
It could be worth keeping an eye on Sunshine Heart (SSH) again. Shares have moved significantly higher over the past few weeks since the announcement of a rolling stock purchase agreement last month and closed the day Tuesday up by another seven percent on volume double the daily norm. The move has attracted the attention of some popular financial media outlets, which could help to draw in new investor interest and propel shares further.
Although no news has been released in conjunction with the price increase, investors following the company may have felt more compelled to buy when the terms regarding the stock placement became known. It's no secret that stock offerings and dilutive cash raising events are the norm when developing new drugs and medical devices, so when investors believe such an instance may be imminent, then shares have a tendency to dip.
That said, once the deal a deal is announced and some of the uncertainty is removed from the equation, then investors tend to jump back in or accumulate new positions. That could be what has occurred with SSH over the past couple of weeks, given that the terms of the placement are not heavily detrimental to the company or its investors, although it is possible that there may be some news or updates pending regarding the progression of the C-Pulse Heart Assist System, too. C-Pulse is an implantable medical device intended to treat patients of Class III and ambulatory Class IV heart failure and received a CE Mark approval in Europe last year. A pivotal US trial is still underway and the device stands to potentially become a first-in-class treatment for heart failure since it can be considered minimally invasive, being that it is implanted outside of the bloodstream. Other heart-related devices on the market, made by Heartware International (HTWR) and Thoratec (THOR), for example, are implanted into the bloodstream and considered more invasive than C-Pulse.
Trial updates in the U.S. and post-approval news from Europe both have the potential to move this stock. Given that it looks like this latest stock placement deal should carry the company to a point that is at least within sight of the U.S. trial finish line, investors may look to position themselves now, well before results start rolling in. Positive results could send shares significantly higher, given that the Class III heart failure market could be measured in the billions of dollars. Worth watching, given the recent price movement and pending developments. A notable volume boost would help support another sustained price run; volatility should be expected until trial results - whether interim or actual - start rolling in.
Roundup: Most international markets were trading flat to higher during Wednesday's trading, setting the tone for a similar open in the U.S., barring any major political or financial news that would sway that outlook in the early hours. Budget talks are taking center stage in Washington, which means politics may again lead to bouts of volatility if Republicans and Democrats look to be drawing lines in the sand again, but the cooperative tone since early this year looks to have soothed investor nerves for the time being. While some attention will be paid to any potential moves towards the record market highs of a half decade ago, the remainder of the week may more have investors glued to their individual picks, rather than the market as a whole.