Technology seemed to drag the market down yesterday and we are a bit worried about the rally in general market terms. We think that these worries shall be alleviated in coming days, weeks and months as central banks coordinate to attempt to get the train moving again and that will take lots of easing and stimulus moving forward. We would not be surprised to see China enact further stimulus before year-end and most certainly not within the next 12 months. With that said, we are extremely bullish on commodities right now, even as our desire to own other sectors wanes at this moment.
We have economic news out today, and it is as follows (data set - consensus):
Trade Balance - -$44.0B
Looking at Asian markets we see markets are lower:
All Ordinaries - down 0.22%
Shanghai Composite - down 0.67%
Nikkei 225 - down 0.70%
NZSE 50 - up 0.48%
Seoul Composite - down 0.24%
In Europe markets are lower:
CAC 40 - down 0.48%
DAX - down 0.15%
FTSE 100 - down 0.31%
OSE - down 0.40%
Monster Worldwide (MWW) saw shares continue their melt-up yesterday as shares rose $0.75 (10.14%) to close at $8.15/share. There are a lot of rumors floating around, however we find most of them to make little sense from a strategic point-of-view. The stock is bound to have its up days as they search for a buyer, but it must be noted that they have been searching for a purchaser for some time now to little avail. This is another situation where we think it is silly to buy on the assumption that the company is able to find a suitor, and one willing to pay significantly higher than the current market price to gain control of the business. It seems obvious that whomever were to buy this would simply be bidding against themselves.
Mellanox (MLNX) shares closed at $101.65/share after falling $9.20 (8.30%) on volume of 6.3 million shares. Some attributed the fall to a carry through on the downgrade from Friday, however we think it was attributable to the announcement that the company's Chief Financial Officer will retire in November. This is a quick turn of events as it was just Thursday when the company hit a new 52-week high and in two trading sessions we have backed off of that level smartly. The company is one stock which we have liked for a while, but not purchased as of yet. Should the shares have a further pullback we would seriously look at initiating a position.
It is our habit to be conservative when looking at biotech stocks as they are notoriously volatile and many more have failing drugs than successful ones. The rewards of being correct are great, but so too are the risks associated with investing your capital in the sector. Today we are going to point out two companies which yesterday announced disappointing news and saw their shares get obliterated. This will just highlight the downside of what happens when drugs do not pan out.
Zalicus (ZLCS) saw shares fall $0.60 (43.17%) to close at $0.79/share on volume of 19.2 million shares after the company announced that it will end development of a rheumatoid arthritis drug named Synavive. Following the news the stock was downgraded and although the company has other drugs in the pipeline, this is a major setback which will take some time to bounce back from - if they can.
Also of significance yesterday was Geron (GERN) which closed at $1.28/share after falling $1.62 (55.86%) on volume of 19.5 million shares after the company's cancer drug imetelstat suffered MAJOR setbacks. Worse yet, the company has doubts about the drug moving forward after this disappointment but will still finish the work which is in progress. It is never a good situation when results come back from one area which are less than desirable and the company announces their concerns about the future results from tests which are ongoing. It does not happen often, but when it does we pay attention.
These two examples are why we always find ourselves on the conservative side when looking at biotechs.
One of the strongest banking stocks yesterday was our own Regions Financial (RF) which we have been bullish on for some time now. Shares rose $0.05 (0.68%) to close at $7.42/share, however the stock did hit a new 52-week high of $7.58/share early in the morning as Goldman Sachs added the shares to the 'Conviction List' and had an individual analyst reiterate their current 'buy' on the stock. Based on their price target, there is plenty of upside left for investors not yet involved in the shares so this morning we want to recommend adding on the half position sold earlier back on during a pullback. The last part of that is important and the key to the buy recommendation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.