The S&P 500 ($SPX) and the broader Russell 3000 ($RUA) both gained 0.5% on Wednesday, August 3rd, 2011. Of the 4,600 stocks that were tracked, the top 25 losers that closed above $1 at market-close on August 3rd were analyzed to determine if they would continue going down, or if they would reverse their moves going forward. The following are the best buy and sell ideas based on that analysis:
Sell Examworks Group Inc. (NYSE:EXAM): EXAM is a provider of independent medical examinations for insurance carriers, law firms and third-party claim administrators. The independent medical exams help its clients get definitive and authoritative answers on the nature and permanence of medical conditions and injuries, and help determine their cause and appropriate treatment. It also provides peer and bill reviews, which includes a review of medical opinions by a medical panel without the need for a physical exam, and the review of medical bills to evaluate the medical care rendered and as to how it conforms to standards of practice. Furthermore, it also provides related services, including litigation support services, administrative support services, and medical record retrieval services. Its shares plunged 31.6% on Wednesday on the back of a not-so-stellar earnings report for the June 2011 quarter that it announced on Tuesday after market-close; they are 21.8% down YTD.
EXAM delivered what appears to be, at least on the surface, another stellar quarter, in which revenue shot up 203% year-over-year and 60% sequentially to $106.7 million, while also handily beating the analyst estimate of $102.2 million; the company reported a 1c loss for the quarter, flat year-over-year and also down sequentially from a 2c loss in the March 2011 quarter. It guided fiscal year revenue in-line at $405-$415 million versus the analyst estimate of $408.5 million.
EXAM is a rollup of smaller independent medical examiners, including its most recent MES and Premex acquisitions. The logic with rollups is to reduce costs through economies of scale while at the same time the acquiring company gets a more premium P/E due to its increasingly dominant position in the industry with each new acquisition. That seems to be the logic behind the high premium of 60 forward P/E awarded to EXAM prior to Wednesday’s fall. The realization of that vision of increasing economies of scale may be under question for the short-term, as in the June 2011 quarter report, the company announced that the cost of revenues went up year-over-year from 63% in the June 2010 quarter to 66% in the current June 2011 quarter.
That may explain the contraction in P/E multiple and the steep price drop on Wednesday. Even then, the company trades at an expensive forward 41 P/E. We believe that shares are likely to mount a short-term reactionary rally in the next few days in an attempt to correct the steep drop from seemingly good news. We would be sellers into such a rally.
Sell Ciber Inc. (NYSE:CBR): CBR is a global provider of information technology consulting, services, and outsourcing services to government agencies and businesses. Its services include providing a range of application portfolio management support services for J2EE and .NET service-oriented architectures and traditional client/server and mainframe development; portal development, wireless and mobility applications, and content delivery services; and enterprise and custom solutions related to enterprise resource planning and customer relationship management software products. Its shares took a 23.6% dive on Wednesday after the company missed the June quarter analyst estimates and suspended guidance; shares were down 47% intra-day shortly after the market-open at around 10 AM yesterday before recovering half of their losses towards the close.
The company reported $267.8 million in revenue and a penny loss in the June 2011 quarter, well short of the consensus analyst estimate of $282.5 million and 7c in earnings. The company pinned the blame for the miss on five North American contracts that would no longer carry the same profitability as when they were signed. However, most damaging was the company’s suspension of its forward guidance and its explanation in their own words as, “our North America business does not yet have the operational rigor required to drive predictable results.” The stock predictably had a knee-jerk sell reaction at the open based on those negative statements from the company.
At its closing price on Wednesday of $3.94, CBR trades at a current 28 P/E on a trailing-twelve-month basis. While shares appear cheap based on the steep fall yesterday, they still trade at a premium especially considering that revenue has almost flattened-out year-over-year and keeping in mind the operational risks related to its North American business. In the best case scenario, CBR shares are probably dead money until the company gets a grip on the problems with its North American business and begins having enough confidence in it to once again re-issue forward guidance. Until then, we would have a sell bias into any rally, including the current one.
Buy ION Geophysical Corp. (NYSE:IO): IO is a provider of seismic products and services to the oil and natural gas industry worldwide. It offers software, hardware and services that enable oil and gas exploration and production companies to reduce their development risk by providing higher resolution images of the subsurface. Its shares were down 29.5% on Wednesday on one-two punches that included their missing earnings and announcing a new CEO; shares are down 20.3% YTD.
IO reported that in the June 2011 quarter, the company reported $88.5 million in revenue and 2c in earnings, widely missing two-analyst average estimates of $115.3 million and 4c; but revenues were up 17% year-over-year and earnings were up from 1c in the prior June quarter. The company attributed the miss to, “a slower pace of government permitting and delays in lease sales that have caused the slow-down in the Gulf to last much longer than expected,” and maintained a strong outlook for the second half of 2011 with momentum building in exploration spending for 2012.
With the drop yesterday, IO shares now trade at a forward 11 P/E, at the bottom of its historic range, while earnings are projected to increase at a 97% compounded growth rate from 16c in 2010 to 38c in 2011 to 62c in 2012. We would view the current fall as an opportunity to accumulate shares in this growth company based on its cheap valuation, the company’s promising forward outlook, and also the bullish outlook for oil prices and seismic industry in general tied to a recovery in the global economy. Overall, analysts are bullish on the company and have a mean target of $13, almost twice of yesterday’s closing price of $6.76; and of the four analysts that currently cover the company, two rate it at buy/strong buy and two rate it at hold.
Buy Bruker Corp. (NASDAQ:BRKR): BRKR develops life sciences and materials research systems based on x-ray, mass spectrometry, and spectroscopy technologies. It operates in two segments, the life science and analytical systems segment, and the international advanced superconductor segment. Its shares fell 8.6% on Wednesday on a mixed June quarter report, and they are down 10.4% YTD.
The company reported that for the June 2011 quarter, revenue came in at $401.2 versus the $383.1 million estimate, up 33% year-over-year and 12% sequentially and an acceleration over the 14% and 29% year-over-year growth in the prior two quarters; earnings came in a penny short at 20c versus the 21c estimate. Furthermore, they projected FY 2011 at $1.60-$1.62 billion and 90c-93c versus estimates of $1.60 billion and 92c.
At its closing $14.87 price yesterday, BRKR trades at 13-14 forward P/E, about mid-range based on its historic P/E range, while revenue growth is accelerating and earnings are projected to increase at 22% compounded growth rate from 73c in 2010 to $1.08 in 2012. Furthermore, gross margins are rising, increasing 230 basis points year-over-year in the June quarter, so that if the company is able to contain its expense growth as it plans to do going forward, then there may be even more upside to the earnings’ estimates. We would be buyers here on the dip, but with the shares currently in a free fall, we would start small and buy in stages to take advantage of any further weakness in price.
Sell Agfeed Industries Inc. (OTC:FEED): FEED is engaged in the animal nutrition and commercial hog production business primarily in China. The stock fell another 9.7% Wednesday after a 32.7% plunge on Tuesday, and it is down 58.8% YTD, after the company announced disappointing preliminary results for the June quarter. We issued a sell on FEED in our daily coverage of Tuesday’s biggest losers; the stock has fallen another 9.7% since we issued that sell.
Somaxon Pharmaceuticals (NASDAQ:SOMX): SOMX develops prescription pharmaceuticals for the treatment of neurological, psychiatric and rheumatologic disorders. Its lead product candidate, Silenor®, is in Phase III clinical trials for the treatment of insomnia. SOMX shares were down 11.3% on Wednesday after announcing an agreement with Citadel Securities LLC to sell up to $30 million worth of common stock from time-to-time, which is very dilutive based on its $70 million market-cap prior to the news. The company indicated that the funds will be used to satisfy working capital needs in the commercial activities relating to Silenor®. Furthermore, they announced their June quarter report at $6.2 million in revenue and 33c or $15 million in losses.
Nupathe Inc. (PATH): PATH develops therapeutics for diseases of the central nervous system including neurological and psychiatric disorders. The company's lead product candidate Zelrix is a trans-dermal patch for the treatment of migraine that actively delivers sumatriptan through the skin in a controlled manner using its proprietary SmartRelief technology. Besides Zelrix, PATH is also developing NP201 for the continuous symptomatic treatment of Parkinson's disease, and NP202 for the long-term treatment of schizophrenia and bipolar disorder. PATH shares were down 24.5% on Wednesday after announcing an agreement with Aspire Capital Fund, LLC, to sell up to $30 million of stock over the next 24 months, which is very dilutive given its $120 million market-cap prior to the news. The funds will be used to strengthen their balance sheet as they continue to prepare for the expected launch of Zelrix in first half of 2012.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.