Finding Opportunities Among Tuesday's Big News Movers

by: GuruFundPicks

Investor and trader attention is often focused on the top news stories of the day, and their impact on stock prices, as they analyze whether to sell their holdings based on the news, to add to it, or to initiate a new long/ short position in the company's stock or derivatives (option positions). Below we analyze Tuesday's top news movers, looking for buy and sell opportunities:

Columbia Laboratories (CBRX), Watson Pharmaceuticals (WPI) and KV Pharmaceutical (KV.A): CBRX develops women's healthcare and endocrinology products using its proprietary bio-adhesive drug delivery technology. It offers bio-adhesive vaginal gel products that provide solutions for infertility, pregnancy support, and other women's medical indications. The stock plunged Tuesday, cut by more than half, after the FDA said in a briefing document ahead of its meeting this Friday that CBRX's progesterone gel drug for reducing the risk of pre-term birth in women with short uterine cervical length failed to show statistically significant efficacy.

Shares of its partner WPI, a developer of generic and branded drugs, also experienced a 7% loss on the news, while shares of rival generic and branded drug manufacturer KVA that makes a similar drug called Makena surged more than 30% intra-day before settling down for a gain of 6% by the end of the trading day.

The results caught the street by surprise as the consensus was that the vaginal progesterone gel would be approved based on results CBRX and WPI announced from a phase 3 trial earlier in December 2010 from the PREGNANT study that indicated a 45% reduction in the rate of preterm birth before 33 weeks gestation, the primary endpoint of the study, compared to placebo gel. Analysts had estimated that the drug, if approved, would generate $250 million in peak sales for WPI, with CBRX getting manufacturing revenue and a tiered royalty rate of between 10% and 20% of product revenues.

While the impact is minimal for WPI that just last quarter generated over $1.08 billion in revenues, nevertheless it is still a significant setback given that WPI was using this drug as a way to expand outside its core generics expertise into higher-margin branded drugs. The drug is scheduled for an FDA Advisory Committee meeting this Friday, and then has a PDUFA date of February 26th for a decision on their NDA. An outright rejection is probably unlikely given that the company has shown some efficacy, although not statistically significant; it is more likely that the FDA may request additional clinical trials.

Kinross Gold Corp. (NYSE:KGC): KGC is engaged in mining and processing gold, silver, and copper in the U.S., Brazil, Ecuador, Chile and Russia. The stock plunged almost 19% on Tuesday after the company earlier on Monday after the market-close provided its preliminary operating results for FY 2011 and its outlook for 2012. The company projected in-line production and cost of sales for 2011; however, looking forward, it projected that the construction of its Tasiast mine in Africa will be delayed by up to an additional six to nine months, and that year-over year production will be up only modestly while the production cost of sales per gold equivalent ounce will jump from $600 to $670-715 due to higher labor costs and an expected decline in grades at some mines.

KGC trades at a discount 8-9 forward P/E compared to the 11.2 average for the gold mining group, based on current analyst estimates; however, those estimates are sure to come down in the light of Monday's news, and the stock in that case could be more fairly valued at these levels. We would avoid this stock for now, and instead look for cheaper plays in the group, such as Gold Fields Ltd. (NYSE:GFI) that is trading at a lower 7 P/E and is expected to grow earnings rapidly from 55c in 2010 to $2.27 in 2012.

Ku6 Media Co. Ltd. (NASDAQ:KUTV): KUTV is a Chinese online video company that operates, an online video portal that provides news, reports and other interactive entertainment programs for its users, and it also offers a video platform for watching and sharing user-generated content. The stock catapulted up 139% to $3.30 on Tuesday after announcing that it had entered into a definitive agreement with YouTube, a subsidiary of internet search engine giant Google Inc. (NASDAQ:GOOG) that would allow Ku6's international users to view original videos from China through a new channel operated by YouTube.

While financial details of the agreement were not released, nevertheless, distribution of the Chinese original videos via YouTube that in 2010 generated more than three billion views a day (or at the rate of a trillion views a year) should be a tremendous positive for KUTV; in comparison, performance advertising at KUTV generated $3.0 million in revenue in Q3 of 2011.

Research in Motion Ltd. (RIMM): RIMM is a Canadian manufacturer of Blackberry handheld devices for the mobile communications market. The stock was up 8.6% on increased takeover speculation that has lifted the stock ever since rumors emerged on Thursday of last week that the company had hired Goldman Sachs (NYSE:GS) to explore strategic options. The latest name being circulated was Samsung, that it and maybe even other Asian smartphone makers may be interested in acquiring RIMM to better compete against the Android.

The company, no stranger to takeover rumors, has in the past been talked about with Microsoft Corp. (NASDAQ:MSFT) and Inc. (NASDAQ:AMZN) as possible suitors, among others. RIMM trades at a cheap current P/E of below 4 and at almost 20% below book value. We have written about RIMM before, and continue to believe that there is a strong likelihood that it will ultimately get bought out at a good premium to current prices.

Other top movers yesterday included Canadian mining company North American Palladium (NYSEMKT:PAL) that saw its shares fall 15.7% on announcing 2012 guidance on production, capital expenditures and exploration budgets that projected modest growth, and it also announced a C$50 million restructuring charge in connection with discontinuing production at its Sleeping Giant mine; leading Finnish manufacturer of mobile phones and telecom infrastructure products Nokia Corp. (NYSE:NOK) that saw shares surge by 7.5% after a Deloitte study indicated that 2012 will see strong growth in "dumb" smartphones, that is smartphones whose features will not be at par with the leading devices powered by Apple's (NASDAQ:AAPL) iOS and Google's Android platforms, and that this will be a boon to the likes of NOK that will see a boost in the average selling price of its devices; solar energy products company Energy Conversion Device (NASDAQ:ENER), that saw its shares continue to rise another 40%+, for a four-fold-plus rise in the last four trading days, after the company announced on Friday after market-close that it had made its previously deferred semi-annual interest payment on its 3% convertible notes due in 2013; and finally Biosante Pharmaceuticals (BPAX) was up 22.3% to 66c on no recent company-specific news.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and The information and data is believed to be accurate, but no guarantees or representations are made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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