At the conclusion of each week, VFC's Stock House examines some news items, stocks and stories that made headlines during the previous trading week, but may also make headlines or influence trends during the upcoming week as well.
Weeks of speculation regarding an earnings season market meltdown started to play out to form last week, as each of the first four trading days resulted in significant drops before a luke-warm Friday halted the skid and prevented an all-out panic. September's multi-year highs could soon be forgotten moving into the new trading week, as investors remain unconvinced that there are enough earnings surprises in store to support a continued move higher, or even to fend off a further drop. Some companies are out there 'beating the street,' per say, and guiding higher - Sirius XM Radio Inc. (SIRI) upped its subscriber forecast for the year last week, for example - while both JPMorgan Chase (JPM) and Wells Fargo (WFC) beat profit expectations this past Friday. Stark warnings from both Alcoa (AA) and Chevron (CVX), however, significantly impacted mid-week trading, and even while the somewhat encouraging aspects of the JPM and WFC impressed on one account, slowing revenue numbers from the two banking giants concerned investors enough to leave shares of each company trading in the red for the day.
Market direction this week is likely to be influenced heavily by the earnings reports of some more banking giants, and then by the earnings reports of a few other major player players in various sectors. Given the downturn last week, we could see more of the same this week, but it's just as likely that bouts of volatility will be ever more present as we see the good, the bad and the ugly roll in from the earnings season. There still exists the threat of major news from Europe putting a damper on an already bearish mood, as governments across the pond still figure out how to cut costs while trying to spark growth along continent.
It's too bad the European Union's Nobel Peace Prize doesn't spit out golden bricks.
Also beware of worsening geopolitical situations overseas. The Syrian/Turkish border region is quickly becoming a major flash point, while Libya is again in the news, adding to geopolitical instability that can, if it becomes a bigger deal, play havoc on the economic markets. And then there's always the rapidly-altering mood from Washington, where opinions on the strength of the country's economic condition vary daily depending on which news network you're watching or which politician is talking. Expect that action to carry on until the elections are over, at which point we may actually see an approved federal budget.
Other news items to note this week will be September's retail sales on Monday and Friday's existing home sales. Both are decent measures of consumer spending and overall confidence.
It'll be an earnings-heavy week, with national politics and international news bytes mixed in, but there's still a few distinct stocks and stories to keep an eye on. Here are just a few of them...
Banking: Following the Friday reports from JPM and WFC, this week we'll hear from Bank of America Corp (BAC), Citigroup Inc (C), Goldman Sachs Group Inc (GS) and Morgan Stanley (MS). That's a powerhouse offering of big banks, and any disappointing trends could spark a broad market sell-off, especially if evidence lingers that the economic recovery is not, in fact, as remarkable as some are making it out to be. On the other hand, some reports have it that these big boys could surprise. Should that be the case, then the sector as a whole - if not the whole market - could see a resulting boost, although investors would find it hard to ignore negative outlooks elsewhere. That means, as has been the case for a few years now, that some volatile trading opportunities could open up.
Tech/Internet: Microsoft (MSFT) and Google (GOOG) are both slated to report this week, as is IBM (IBM). Google may hold the strength of the trio, as JPM just slapped an $850 per share valuation on the stock and other analysts have also renewed their positive outlooks on the company. Microsoft's report, on the other hand, will concentrate more on future potential than on earnings of the past quarter. The Windows 8 road show and mass advertising campaign is in full effect while the XBox music service will be offered as ideal evidence pointing to future earnings success. IBM has guided lower moving forward as competition from a booming smartphone and tablet market quickly eats away at the market share of PCs.
General Electric (GE): General Electric will be a stock to watch this coming Friday as the company is slated to report earnings. The company modestly beat The Street last quarter, and numerous analysts have either raised their ratings and price targets on the stock or reaffirmed existing opinions, according to information contained on the Jags Report website. GE is an American behemoth that spans multiple sectors, when all of its business interests are considered, and encouraging indicators from this company are often used to gauge the strength of the US markets as well as providing hints at the near-term ability of US companies to register overseas growth, too. Numerous agreements and product or service orders have been registered for the company both domestically and overseas, providing a solid foundation for the encouraging outlooks of numerous analysts. A hot earnings story to watch this week.
Capstone Turbine (CPST): Capstone shares continue to trade at the dollar mark, as investors maintain a 'wait and see' approach to the company's short to mid term prospects of reaching profitability. The orders and re-orders continue to roll in, as evidenced by two last week, one of which included the purchase of 39 diesel-fueled microturbines destined to provide power to a Mexican government facility. Shares responded modestly to the news of the new orders, after having previously slipped to below the dollar mark, but a move based on conviction has not materialized since last year's push to two bucks. Capstone's green energy potential is worth monitoring, as global energy trends towards cleaner power sources, but until profitability is reached, investors may have their doubts. Historically speaking, purchases of CPST for a dollar have often been rewarded with eventual runs to $1.50 or higher, making it an intriguing trade as well as a long term hold. Anytime the clean energy sector receives some attention, CPST tends to benefit.
Healthcare, Biotech, Pharmaceutical:
Dendreon (DNDN): Dendreon spiked earlier this month following a key announcement of expanded coverage for the company's immontherapeutic prostate cancer treatment, Provenge, but a report last week that questioned the interpretation of the data leading to Provenge's historic approval years ago had shares again beaten down to near their pre-approval prices. Since hitting post-approval highs of well over forty dollars, DNDN closed last week at a mere tenth of those prices and the Reuters "exclusive," which cites that the benefits of Provenge may have been artificially inflated as the result of how the data was eventually analyzed, has hammered the stock just in the midst of a modest recovery to over five bucks. The Reuters report may not provide any new insights for some who have long-followed the stock, but it will no doubt shake a few more of the 'long and steadies' that may still be remaining, from the tree.
On the other hand, at just above the four dollar mark, others may see the drastic dip as a decent buying opportunity - even if for just a potential rebound trade. The expanded coverage announced earlier this month could provide the needed confidence that some needed to believe that sales could gain steam, while others may certainly consider this latest report as another 'well-timed' hack job on Dendreon that may be largely irrelevant to the matters at hand - after all, Provenge is an FDA approved treatment and has been for over two years now. Given that CNBC, too, at one point issued and then retracted a negative story about Provenge shortly after its approval, the 'hack job' theorists may have a leg to stand on, although to be fair, CNBC's report that looked highly misleading at the time turned out to be correct, over the long run.
Dendreon is again a hot one to watch, given these recent developments. Shares are beaten down to levels that many thought unimaginable until last summer's crash, but may also be nearing a bottom for those counting on either a potential Provenge sales rebound or on the potential Dendreon as a buyout play. It should at least be recognized that the Dendreon pipeline and technology could now be had for a mere fraction of its previous valuation, an idea that may sit well with a potential acquirer. Although the future of immunotherapeutic treatments is shifting to technologies involving cheaper and more convenient logistical considerations, including 'off the shelf' treatments, Provenge is still recognized as the grand-daddy of cancer immunotherapies, is already approved, and my eventually pick up some steam on the market as the sales and marketing force regains its footing.
Such speculation could surround DNDN trading over the coming week.
AEterna Zentaris (AEZS): Living up to the funding concerns of some investors following the quick implementation of a reverse split [RS] earlier this month, AEterna shares were hit hard last week following the annoucement of a stock offering that will raise over fifteen million for the company. According the terms of the deal, the company will issue:
6.6 million units, with each unit consisting of one common share and 0.45 of a warrant to purchase one common share, at a purchase price of US$2.50 per unit. Each warrant will be exercisable for a period of five years following the issuance thereof at an exercise price of US$3.45 per share.
Shares had already dropped heavily immediately following the six-for-one RS and the offering hammered them even more.
On the positive note, however, investors that are looking at the company's deep and developing pipeline - which provided the basis for two encouraging analyst reports over the past month - may now consider AEZS as a 'bad news is out of the way' play. Prior to the initiation of the RS, concerns lingered about the company's ability to maintain its Nasdaq listing with a sub-$1 share price, and the short to mid term funding concerns are also alleviated by last week's offering. Those events now position the company and its investors to concentrate on the near term catalysts that could assist in a share price recovery.
AEZS-130, for example, is being prepared for an NDA filing with the FDA early next year as a diagnostic test for Adult Growth Hormone Deficiency and AEZS-108, an anti-cancer agent that has already proven successful in multiple Phase II trials, is being prepared for a near-term launch of a Phase III endometrial cancer trial. Additionally, interim data from an ongoing Perifisone in the treatment of multiple myeloma should be soon forthcoming. Any positive results there could reinvigorate investor enthusiasm for the product, following the early-year failure of the metastatic colorectal cancer trial that was conducted in conjunction with Keryx Biopharmaceuticals (KERX), with whom AEterna shares rights at the time.
AEterna is far from being considered a non-speculative play, but considering that much of the bad news possibilities that surround these developmental companies is in the rear view mirror, at least for the time being, and also considering the positive analyst reports, AEZS shares will be worth keeping an eye on during the coming week.
OncoSec Medical Incorporated (ONCS.OB): OncoSec Medical was a heavy mid-week mover last week as strong volume boosted a dramatic push higher even as the broad markets dropped. Such moves in the developmental healthcare sector are often followed by pull-backs, so investors will be watching this week to gauge whether or not last week's move was based on pending yet-to-be released news or as the result of increasing attention to OncoSec and its technology - some of which (electroporation) it shares with Inovio Pharmaceuticals (INO) - that will result from presentations at major investor/medical conferences this month and next. Electroporation uses electrical pulses to more effectively inject a treatment directly into targeted cells without damaging the surrounding tissue and both OncoSec and Inovio have registered successes in utilizing the technology thus far in development. Because of last week's move and the pending presentations, ONCS remains one to watch this week.
Inovio Pharmaceuticals: Inovio also begins the new week as one to watch due to its own share price run last week based on positive trial results and the publication of data in a peer-reviewed journal, but also because the company is making moves via its majority-owned subsidiary, VGX Animal Health. In an early-Monday report the company announced that it had received approval in New Zealand [NZ] to market LifeTide, which increases overall meat production by increasing the rate of live births for treated pigs. LifeTide is the first such-approved hormone, is already approved in Australia and has a direct impact on increased profits and production in the pork industry. Also of significance, NZ does not allow genetically modified products [GMO] in its market, providing firm validation that the LifeTide technology can gain acclaim as a non-GMO DNA based therapy that works as producers and governments looked to de-facto move away from genetically modified products.
Monday's news provides an alternative insight to the company and is worth noting, but Inovio is best known for its SynCon technology, which produces synthetic vaccines to treat various infectious diseases and cancer types. The company has multiple Phase II trials underway and six others still in the earlier stages of development, including a universal flu shot that would potentially treat multiple strands of influenza, rather than just focusing on one, as is the standard for the treatments of today.
BioDelivery Sciences (BDSI): It's been a kind year for long-patient shareholders of BioDelivery Sciences, and the new week opened on a solid note, too, as the company announced that it has launched BREAKYL in Europe, which sparks a final milestone payment from partner Meda from $2.5 million. BREAKYL is known as ONSOLIS by its United States trade name and treats breakthrough pain in cancer patients utilizing the company's proprietary BEMA drug delivery technology, which enables a patient to absorb a medication through the inner lining of the cheek. For years Onsolis has been hindered on the US markets due to ongoing REMS issues with the FDA, but since those issues moved towards resolution early this year - at right about the same time the company Endo Pharmaceuticals (ENDP) came on board as a partner - BDSI shares have been on the move and are trading as nearly a ten-bagger from the 52-week lows. Monday's announcement of a commercial launch in Europe strengthens BioDelivery's position as a solid rebound/growth play, in my opinion, although the potential still exists for a pullback or two until product revenues gain significant traction on the market for a few quarters running. Shares opened the year at eighty cents, so this one is a proven winner for 2012 and there still may be more to come.
Roundup: Another bunch of major companies - other than those already noted - will be reporting this week, including McDonald's (MCD), Coca Cola (KO), Johnson & Johnson (JNJ) and Ebay (EBAY), emphasizing the influence that this one week alone can have on dictating the trading trends for the duration of the year. It's also becoming crunch time for the presidential race and the markets could also react accordingly to whichever party and/or candidates are predicted to take up residence in DC for the next four years. The consistent wild card is still international events where economic troubles in Europe can scare investors on the American mainland overnight and threats of spreading war and violence in key economic zones can also keep investors jittery. With that much uncertainty, I like the strategy of having some spare cash on the sidelines in preparations for any all-around market dip, but at the same time stocks have proven resilient enough through the late summer months that some are still predicting that new highs will still be reached. Such varying views tends to lead to continued volatility, which makes this still a trader's market.
Disclosure: I am long CPST.