Buy Galena Biopharma Inc. (OTC:RXII): RXII is a late-stage biotech that announced on Monday that it will be separating into two publicly traded companies, Galena Biopharma that will focus on targeted cancer therapies and RXi Pharmaceuticals that will focus on RNAi-based therapeutics. Its shares have been volatile recently, falling 34% on Monday after the split was announced, and then rebounding back to the prior week close by the end of the day yesterday.
RXII trades at a market-cap of only $41 million at yesterday’s close, and has $17.9 million in cash and cash equivalents and almost no debt. Its lead candidate NeuVax for breast cancer patients will enter phase 3 trials in 2012, and its FBP vaccine will enter phase one trials soon. We believe that RXII trades at a discount at a cash-adjusted market-cap of $23 million, given that it has one late-stage phase 3 candidate in the pipeline targeting breast cancer. Most biotech companies at this stage typically trade at least at $50 million and as high as $500 million. We believe RXII is a good speculative buy here, and given the recent steep rise in the last four days, we would recommend buying it in stages and on dips back toward 80cents.
Buy Siga Technologies Inc. (SIGA)
: SIGA develops treatments for infectious diseases and biological warfare agents such as small-pox and hemorrhagic fevers. Its shares traded up 7.8% yesterday on no company-specific news.
The stock took a severe beating last week, falling almost 50% at its nadir, after a judge unexpectedly ruled against SIGA in a dispute with PharmAthene (PIP) over a failed merger and subsequent disputed licensing agreement for ST-246. The Court ruled that once SIGA earns $40 million in net profits or margin from net sales of ST-246, PIP shall be entitled to 50% of all net profits on top of that for the next ten years. SIGA has indicated that it will appeal the ruling, and there is a good chance that it could win given the outrageousness of the ruling. More importantly, though, we believe that the significant retreat from the unfavorable ruling gives long-term investors a nice entry point to buy into the stock. The $433 million BARDA contract it was awarded earlier this year should start kicking in soon, and there is also the possibility that it could win similar orders from other countries seeking to boost their own bio-defense capabilities.
It is also noteworthy that PIP saw a quick 50% two-day pop on the court ruling, but its shares now trade significantly below the price it traded at before the court ruling. This could be interpreted to mean that the market also views that the court ruling has the potential of being reversed.
Sell Sirius XM Radio Inc. (SIRI): SIRI provides more than 135 digital-quality satellite radio channels to more than 20 million subscribers in the U.S. and Canada. The stock fell 9.9% yesterday on no company-specific news. We first analyzed SIRI in mid-July when the stock was trading in the $2.20s, and indicated the price was too rich at over 55 times then-current earnings and a forward P/E of 27, given the modest revenue and earnings growth projected for 2011 and 2012. Furthermore, SIRI faces stiff competition from the likes of Pandora Media (P), and has a high debt load that may limit its options going forward. Since our coverage then, the stock has dropped into the $1.40s as of yesterday’s closing. We continue to believe that the stock will trade flat to down in the interim based on current fundamentals.
ING Group Nv Adr (ING)
: ING is a Dutch financial services company that provides banking, investment, life insurance and retirement services worldwide to over 50 million private, corporate and institutional clients in 65 countries. Its shares rose 6.9% yesterday, and they have been up 25.3% in the last four days, raising the market-cap of this giant Dutch company by $6 billion.
The company has figured in the news-flow frequently in recent days due to the proposed $9 billion takeover of ING’s online banking unit by Capital One Financial Corp. (COF
), which is currently facing tough public scrutiny. The concern is that the proposed takeover, that would create the 7th largest U.S. bank by assets, would create another financial institution that would become too big to be allowed to fail. Furthermore, there is also concern that the acquisition will enable COF to supercharge its credit card portfolio, and that like the toxic sub-prime mortgage crisis in 2008-09, the COF credit-card business could become the next subprime lending crisis in the U.S.
ING is in the middle of a divesting strategy, as besides the online banking unit it is also in the process of preparing two of its insurance business for IPOs in the near future. Its shares even after the recent sharp rally trade at a cheap 3.6 forward price-to-earnings (P/E) ratio and at 0.53 times book value. The ongoing public hearings on the COF deal are critical to ING valuation as if the deal does not go through, then there are almost no strategic buyers left for its online banking unit, and ING could then be forced to unload the unit to Private Equity firms at a discount to the current deal with COF.
Genworth Financial Inc. (GNW)
: GNW is a leading U.S.-based international insurance company offering life and long-term care insurance, annuities, asset management services and mortgage insurance worldwide. Its shares gained 7.9% yesterday as part of a broad rally in the property and casualty insurance group due to the recently announced acquisition of Harleysville Group Inc. (HGIC
) shares at an 86% premium by Nationwide Mutual. HGIC offers commercial and personal property and casual insurance coverage, and its take-out raised valuations throughout the group.
Sell Advanced Micro Devices (AMD): AMD is the second largest producer of microprocessors, GPUs and chipsets in the world, behind market leader Intel Corp. (INTC). It provides microprocessors for server platforms, including multi-core processors; it also provides embedded processor products for vendors in industrial controls, digital signage, point of sale, medical imaging, set-top box and casino gaming machines, as well as enterprise class telecommunications, networking, security, storage systems and thin-clients, or computers; and it provides integrated graphics processor chipsets and discrete chipsets for desktop and notebook PCs, professional workstations, and servers. The stock was down 5.4% yesterday after it lowered September quarter guidance. We recommended a sell on AMD in our coverage on July 25th
, when the stock traded in the $7.80s. We stand by that assessment, especially in light of this week’s news. While the stock is no longer as good a short as it was near $8, we believe that there are better opportunities elsewhere.
Other movers from yesterday’s market action included:
Netflix Inc. (NFLX), a provider of online movie rental subscription services via Netflix.com and a DVD rental business. Its shares dropped 11.0% yesterday amid concerns that subscriber growth was decelerating.
Satcon Technology Corp. (SATC), a manufacturer of utility-grade inverters and micro-grid systems used in fuel cell and photo-voltaic power plants. Its shares fell 16.5% in yesterday’s trading on no company-specific news.
Davita Inc. (DVA), a provider of dialysis services to patients with end-stage renal disease. Its shares fell 10.5% yesterday after they were downgraded by an analyst at Citigroup (C) from buy to hold due to concerns about valuation.
Nanosphere Inc. (NSPH), a developer of an advanced molecular diagnostic platform to enable low-cost and highly sensitive genomic and protein testing. Its shares fell 10.8% yesterday on no company-specific news.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.