Stocks head into this holiday-shortened week on a flat note after having traded mixed during most of last week. No news or key developments have been strong enough of late to launch another attack on the record highs set just prior to the global economic collapse in 2008 and many pundits and market analysts are starting to predict that a fairly significant pullback could be in store, even as the major markets hovered at or near their multi-year highs leading into this week's opening bell.
The earnings season also winds down this week, which means attention could quickly shift towards budget cuts and politics again, especially with a March 1st deadline still looming for politicians to finalize a full budget for the first time in years. Given recent indications that a breakdown in Washington's cooperative tone could be in the works, investors may be preparing for another period of volatility dominated by skittish investors. Such a scenario would likely provoke additional profit taking after January's rally and also help to support those recent theories that a pullback is in store.
Ongoing political negotiations are likely to bring analysis and discussion to the table relating to the potential impacts that any tax hikes and budget cuts could have on this still-sluggish economy - especially given the drop-off in fourth quarter GDP growth that was largely attributed to defense spending cuts.
Signs have also started to emerge that tax hikes already imposed in 2013 are starting to have a negative effect on consumer spending as reports circulated heavily over the weekend that Wal-Mart (WMT) executives were expressing grave concerns over slow sales numbers in February, thus far. WMT shares dropped quickly as those reports hit the wires on Friday, but somewhat recovered by the end of the day and closed down by just over two percent.
Any additional signs this week that indicate a slowdown in consumer spending or a stalling of the recovery could further dampen any hopes of a run towards those five year market highs. Also this week, investors will anticipate a Wednesday release of minutes from the latest Fed meeting. Investors shrugged off talk last month by the Fed of easing stimulus measures that have been in place since the depths of the recession, but such talk this month may not be as welcome, given the recently-spun negative environment.
There is good news, though, and it is that investors are still enthusiastic about the current earnings season which saw company after company beat street estimates, although such action was predicted as companies grew conservative in guidance.
Investors will look for validation this week as they gauge the market's ability to sustain its recent highs, but given the darkening political climate and the warnings from Wal-Mart, a pullback is likely to materialize before any significant run higher does. It's still wise, in my opinion, to bank some profits after the early-year run and keep a bit of spare cash on the sidelines in anticipation of any pullback.
While the broad-market action is sure to garner headlines throughout the week, here are a few individual stocks and stories to keep an eye on for the trading week of 19 February, 2013...
General Electric Gaining Steam With Solid Earnings And Spare Cash
General Electric (GE) has been redefining itself as a global juggernaut following the doldrums of the economic crisis. An enthusiastic earnings report earlier in the year demonstrated the strength of its rebound. GE also bumped its dividend rate for 2013, a move that took effect last month, and the company made news again last week by announcing the sale of its remaining stake in NBC Universal to Comcast Corporation (CMCSA) for $13.5 billion. According to recent reports, GE plans to buy back and then retire roughly five percent of its shares while again increasing its dividend rate later on in the year. The significant amount of cash being returned to shareholders led to a mid-week price spike of over three percent last week, a move that was for the most part sustained into Friday's close.
The sale of the remaining NBC Universal stake, which came a full year earlier than expected, follows in line with efforts to return GE to its industrial roots, as did the reduction of the company's financial arm over recent quarters. Also on tap could be a slew of takeovers and/or acquisitions in the industrial sector as other innovative technologies - such as 3D printing - form the foundation of the company's future.
Returning money to shareholders always makes investors happy and with the share buyback and increased dividend rate, it's clear why investors were buying the GE story last week. It's also a good reason why GE is worth a look as a potential pick for the long term or retirement portfolio, given the intended strategies announced by the company last week. The GE recovery story is in full effect and this will be a hot one to watch this week and beyond, given the hype and potential to reclaim its throne as the global industrial conglomerate. It also helps in the PR department that GE is bringing jobs back to American after having massively out-sourced years ago.
Wal-Mart Guidance Key In This Week's Retailer Reports
As mentioned in the open, Wal-Mart will be one to keep an eye on this week as investors look to gauge whether last week's earnings warnings for February are an anomaly or an indication of what can be expected for the duration of the ongoing quarter. Guidance to this effect will likely be issued during the company's earnings call, currently slated for Thursday. Any additional statements of concern from management could drive WMT shares lower, let alone the whole market if it looks like a slowdown in consumer spending will hurt overall economic growth and recovery. Any weakness in the WMT report or guidance could also hurt other low-priced retailers who may suffer the same fate as a result of slowing consumer spending. Guidance leading into this report has been slightly revised to the downside by the company since its last report in order to account for Hurricane Sandy.
Another key earnings report to watch this week will be that of Nordstrom, Inc. (JWN). Nordstrom is more of a high-end retailer, so - based on whatever guidance this company issues - investors will be able to key in on whether or not high end retailers are being hit by a slowdown in consumer spending, are the low-end retailers. Any weakness demonstrated by both would have more of an impact on the overall market trends than if it were just lower-end stores hurt, but a predicted trend in either sub-sector may spark fears - if only temporary - that the recovery is starting to stall.
Healthcare, Biotech, Pharmaceutical:
Amarin In Spotlight Again With NCE Decision
It may sound like a broken record for investors of Amarin Corporation (AMRN), but the company will again take center stage in the sector this week as it's anticipated that an FDA decision will become known on whether or not Vascepa, a treatment for high triglycerides, warrants a designation as a New Chemical Entity (NCE). Continuous delays in the NCE status have had AMRN shares trading in their current range for months, and it could even be speculated that the lack of a decision forced the company to take a 'go it alone' strategy in launching Vascepa, since partnership and buyout rumors circulated heavily in the months following approval. A positive NCE decision would likely renew buyout talks and help shares rebound to double digits, while a negative decision could send them back towards the 52-week lows, at least temporarily. Another delay may lead to a quick retreat in share price, but would likely be viewed as a relative non-factor at this point, since investors have become immune to inaction from the FDA, at least in this regard.
In the absence of NCE news, AMRN should maintain its current posture until it's known how the commercial launch is shaping up and how quickly it's projected that Vascepa will reach the potential blockbuster status that has previously been discussed.
Over the shorter term, of course, it's still about NCE and this could finally be the week where investors hear some news-- or not. Such is the saga of Amarin.
Regardless of NCE, Amarin continues to boost its patent portfolio for Vascepa and announced another patent award last week. AMRN investors have also been known to hold itchy trigger fingers when anticipating news, so expect a temporary blip on the radar screen in conjunction with any news that might hit the wires this week. A positive decision could also lead to a flurry of volume into AMRN trading, as well as spark another round of speculative talk from popular financial media outlets that often accompanies an increase of investor attention towards AMRN.
MRI Interventions Building On Growth
MRI Interventions (OTCQB:MRIC) is another one to keep an eye on during the upcoming trading week as comments from the company last week indicated that another year of demonstrated growth could be in store, following a year in 2012 that saw the company register significant growth in its revenue on 'disposable items' while also boosting the number of personnel in its sales force. In last week's update, it was announced that MRIC's MRI-enhancing ClearPoint system had been installed in twenty locations worldwide, including 18 in the United States and two in Europe. ClearPoint, as previously discussed, is an MRI-enhancing system that provides real-time imagery during complicated procedures on the brain. The technology takes advantage of the growing trends in the healthcare industry to find less-intrusive and less-expensive means to conduct complicated procedures in an effort to trim out-of-control healthcare costs.
In addition to the product expansion noted in last week's update, the sale of 200 "disposable units of its SmartFrame kits" were also noted for the year 2012, another milestone number to consider leading into the company's upcoming earnings report. These disposable items are key for MRIC, as they offer the company a continuous revenue stream while sales force looks to infiltrate the market with the ClearPoint units themselves. Depending on the nature of the procedure, as described in the above-linked report, ClearPoint will utilize one or two of the disposable items per procedure.
Another tidbit of encouraging news to bear in mind moving forward is that two of MRIC's newest customers, 'Johns Hopkins University' and the 'University of California, San Diego Health System,' lend prestigious credibility to the ClearPoint technology. Such names join Siemens AG (SI), Boston Scientific Corporation (BSX) and Brainlab as other prestigious partners and/or collaborators of the company and help to attract new interest to the technology and the company's stock.
As 2013 progresses, it could prove a pivotal year for this company, especially if the momentum built on the heels of last year's growth can continue over the coming quarters. The company conducted a stock offering last month, so financing should not be an immediate concern. Shares have found a trading range of roughly between $1.50 and $2 over recent months, providing investors the opportunity to bank some short term profits while also potentially holding onto a core group of long shares to see this story play out. One to keep an eye on.
TrovaGene Expects To Achieve Multiple Milestones Through 2013
TrovaGene Inc's (TROV) recent pullback may have marked an accumulation point, as described earlier this month, and the company will continue to be one to keep an eye on for the coming quarters with multiple product launches slated for 2013. TrovaGene has developed a pipeline of diagnostics that are able to detect certain cancer types through simple urine samples and in an updated announcement last week, the company indicated that validation of certain of these tests is progressing smoothly, with its commercial availability expected as soon as within the current quarter. Validation for the urine-based HPV carrier test, specifically, is expected to wrap-up soon, while other clinical trials continue at points around the globe.
Additionally, commercial availability of the KRAS oncogene mutation test is slated for the second quarter of 2013 while the hepatocellular carcinoma ((HCC)) diagnostic is slated for fourth quarter availability. Also of note, results from ongoing collaboration with the University of Texas MD Anderson Cancer Center to detect transrenal BRAF mutations in the urine of patients with advanced or metastatic cancers may result in the commercial availability of yet another product later this year. The MD Anderson collaboration is a specifically notable sign of validation, given that organization's reputation and status in regards to cancer treatment.
TrovaGene's growing pipeline of diagnostics and collaborative agreements has attracted the attention of analysts and investors alike over recent months and the above-mentioned commercial launches slated for this year provide enough potential catalysts to maintain the current level of interest. A relatively light-volumed run returned more than a triple in TROV during recent months, and shares have retreated to levels that are allowing investors to consolidate positions and/or take another look. Any volume boost resulting from these upcoming catalysts could reinvigorate another move higher.
With last week's updates, investors will now gauge the company's ability to deliver. The swift progress - both in pipeline development and company share price - of the past few quarters has attracted investor interest and the pending milestones have 2013 shaping up as a pivotal year for this company and its trek towards full commercialization. One to keep an eye on.
McDonald's Short Term Drop Could Spell Long Term Opportunity
A double dose of potentially negative news sent shares of McDonald's Corporation (MCD) on a modest spiral last week, but a quick rebound indicates investors may be taking the impact of that news with a grain of salt and identifying any retreat in the MCD share price as an opportune time to accumulate for the long term. The first bit of negative news to spark a reaction from MCD investors related to a proposed minimum wage increase by the President. Many of McDonald's' employees work for minimum wage and the increase in labor costs could significantly hurt the company's profit margins and/or lead to an increase in prices, which would push some business away. Possibly a more justified concern related to the minimum wage hikes would be if stores saved labor costs by not hiring new personnel - or even worse - firing employees currently on the books to even out the ledgers.
Investors should be somewhat concerned with a minimum wage spike for the aforementioned reasons, but it's also worth noting that McDonald's has survived and thrived with such hikes before - and probably will have to again someday, too. Some may also believe that an increase in MCD's food offerings could be viewed as potentially driving business to competitors, but bear in mind the labor costs of competitors would also spike and also follow suit with price hikes, so such concerns should be considered a non-factor.
Another factor that hurt the MCD share price last week - and could again this week - revolves around concerns that consumers are spending less at restaurants as a result of having less money in their pockets following some early-year tax increases. That would also fall in line with the Wal-Mart concerns discussed in the open that would indicate consumers are spending less these days. In the case of McDonald's, however, investors could probably temper their fears.
While overall restaurant spending may be on the dive, the very low-cost options at the Golden Arches are somewhat immune to the significant drop-off in consumer spending that would likely affect the higher-priced competitors. It's arguably cheaper to feed a family at McDonald's than it is to shop for and then cook a meal at home, so fast food patrons are probably the least likely to stop frequenting their favorite locations - even if modest price increases did follow a bump in minimum wage. Other, more expensive alternatives would likely feel the hit a bit more.
Regardless of how investors and analysts view the recent slump in global sales and last week's news items, the company is taking measures to stabilize its share price. McDonald's has announced that it will buy back ten percent of its shares, another positive consideration for investors moving forward.
Granted, the conditions may not be ripe for a MCD rally to take shape, but any weakness in the short term share price could continue to be worth a look with a longer term mindset.
Roundup: International stocks traded flat to higher on Monday as the U.S. markets celebrated Presidents day. Europe, in particular, will continue to steal headlines over the coming weeks after many of the eurozone's key economies continue to experience sluggish growth-- if any. If political pressures in the U.S. continue to creep up leading into any budget deal - and if it looks like U.S. consumers are continuously spending less - then the stage could be set for the overall market pullback that has been predicted by many since the January rally petered out over the past few weeks. This won't be the week for the Fed to talk about easing stimulus measures, so we'll probably hear more about the status-quo as the budget talks play out on the sidelines. For a distraction or two, investors can key in on Spring Training, where in the NL East only the Miami Marlins will make the Mets look the least bit relevant - unless Phillie's age acts up again. Should be another exciting week ahead.