While I've traded Dr. Reddy's Laboratories (RDY) in the past, I have not touched it in the past few years; however as we await for the new Market Vectors Indian Small Cap fund to launch, I was poking my nose around Indian stocks this weekend since the Indian market has corrected quite a bit (and rebounded from oversold levels last week). So this name came back onto my radar in the limited universe of Indian ADRs. (full list of Indian stocks available at TickerSpy)

Other than Bucyrus (BUCY), I cannot find a better chart, and right now it's all about charts, momentum, and liquidity so let's start there. Not much you can argue with here; you can see as Sensex took a big hit (large caps were hit hard in India) Dr. Reddy's downdraft was relatively limited. Further, with today's move the stock has broken out to yet another new high which technicians love to see (and chase into).

Currently, the market is in a correction, and last week it began to inflict some pain on some players. But I have peace of mind because I’ve been here before.

I note the headlines about job losses, the health care bill, pollution controls, GMAC’s cash shortage, the H1N1 flu and the corresponding vaccine shortage, our national debt, the continuing credit crunch, the weak dollar (until last week), Barack Obama’s falling approval ratings and the continuing trouble in Afghanistan, Iran, Iraq and–of course–Israel.

The complete list of Indian ADRs traded on U.S. exchanges is listed below:

It was only a matter of time before speculation about GlaxoSmithKline’s intentions towards Dr. Reddy’s Laboratories reared its head, after a strategic alliance was forged between the two groups three months ago. Rumours are currently abounding that the British pharma giant is set to buy a 5% stake in the Indian generics firm.

The deal between the two groups does feel a lot like the collaboration set up with Aspen Pharmacare in 2008; a year later this was extended and a 16% stake in the South African firm acquired. Given Glaxo’s (GSK) stated aim to expand in emerging markets and the fact that Dr. Reddy’s (RDY) is arguably one of the strongest Indian generics players, it is not unreasonable that this partnership should progress in a similar vein.

4:10 PM, Sep 11, 2009 --

• NYSE down 6.98 (0.1%) to 6,843.83.
• DJIA down 22 (0.23%) to 9,605.
• S&P 500 down 1.41 (0.14%) to 1,043.
• Nasdaq down 3.12 (0.2%) to 2,081.

GLOBAL SENTIMENT

I really like the generic market right now. With patents expiring you can literally gauge how much a generic will make based on the patents expiring in the next few months. These generics are the hyenas in a pack of lions that have a good way of scavenging for their food in the Serengeti. The hyena has a distinct relationship with the Lions. The lions kill much of the food the hyena scavenges. But then there are vultures too so we will end this charade and get to the point. They may not come up with the drugs but they are definitely going to make a nice profit from them. But the competition is fierce these days. Some competitors in the generic market include Watson (WPI), Teva (TEVA) , Dr Reddy's Labs (RDY), Hi-Tech Pharmacal (HITK), Par Pharmaceuticals (PRX), and Caraco (CPD).

Xian-Janssen, a division of Johnson & Johnson (NYSE: JNJ), announced the China launch of Dacogen (decitabine), a novel treatment for myelodysplastic syndrome (see story). Dacogen received SFDA approval through the Green Channel, an expedited approval process that the SFDA introduced in January 2009. In Dacogen’s case, the SFDA allowed Xian-Janssen to begin marketing the drug in China based on trials done ex-China because MDS remained an unmet need and the incidence of MDS in China is small.

GlaxoSmithKline (NYSE: GSK) has partnered up with Dr. Reddy's Laboratories (NYSE: RDY) in a deal that will allow GSK to sell Dr. Reddy’s generic pharmaceutical products in emerging markets (see story). The targeted countries include China. GSK has the right to select products from Dr. Reddy’s portfolio of over 100 branded pharmaceuticals, which GSK will distribute through its established sales infrastructure.

GlaxoSmithKline (NYSE: GSK) has partnered up with Dr. Reddy's Laboratories (NYSE: RDY) in a deal that will allow GSK to sell Dr. Reddy’s generic pharmaceutical products in emerging markets. The targeted countries include China, though Dr. Reddy’s home market of India is excluded. GSK has the right to select products from Dr. Reddy’s portfolio of over 100 branded pharmaceuticals, which GSK will distribute through its established sales infrastructure.

The partnership helps both companies. GSK has been diversifying its offerings away an emphasis on high-cost blockbuster drugs. It currently offers eight vaccines in China from its GSK Biologicals division and expects to add two more before the end of the year. At least some of the 20 additional vaccines the company has in development will also eventually find their way to China.

EPS Hit, Sales Miss

The second of the 3 big weeks for S&P 500 type companies arrives; last week was an unqualified success of setting expectations low, cutting expenses aggressively and beating very slow-to-adjust analysts expectations. Now with the bar raised higher as expectations ramped up, I expect the sledding to be a bit tougher.

Here are names of interest in the early part of the week, with names the market will be watching and some additional ones that I like to look at. Tuesday will be the more interesting day. I forgot about earnings knee jerk reaction time, when I shorted American Express (AXP) and Capital One (COF) late Friday; both report Thursday so despite extreme overvaluations and gaps in each chart, I'll be heading to the sidelines before then on the 2 positions.

When you lose, Don’t lose the lesson - The Dalai Lama

For the better part of 5 months I’ve been kicking myself over not dumping Pfizer (PFE) from the Secular Trends Portfolio the day they announced the Wyeth merger. The second I heard about the deal I honestly thought the TV announcer had made a mistake; “No no, it couldn’t be Wyeth. That would just be stupid”

I am going to list some charts below of stocks that are on an incredible runs right now... basically the most '45 degree' angle like structure on the chart, without a lot of "gap ups" or "spiky" action. The market overall is really just a hodge podge mess, going nowhere for 2 months - but some action as always is happening under the surface. To clear out penny stocks or just daytrader specials, these all have at least 200K in volume on average, and a market cap over $300M.

We've already discussed Riverbed Technology (RVBD), and Palm (PALM) which also are on this list. Many of these names are so strong, they are at most pulling back to their 10 day moving average and not even within sniffing distance of their 20 day. One low risk way to play is buy the basket (preferably at the 10 day moving average or in between the 10 and 20 if possible), and place stops 2-3% below the 20 day moving average - rinse, wash, repeat on a weekly basis.

As stated on April 27 of this year in my blog post U.S. Futures Looking Dismal but Possible Swine Flu Profit Play, I gave you a look at how the media plays a role in helping stocks performance over a period of time. Since then the H1N1 Flu (Swine Flu) has been declared a pandemic. Although I don't expect the media to be reporting about the Swine Flu too much over the next week or two, unless something drastic happens (due to other stories that have crept up recently), this is still an issue we have to deal with, and don't think drug companies have stopped the R&D process on finding another pill.

I was doing my nightly research and I noticed an unbelievable amount of stocks from the healthcare sector (Biotech and Drugs) which have been strong the last 30 days (Swine Flu has been a popular topic in the media over the past 30 days, but note that all of the companies in this article are not trying to develop a vaccine for the Swine Flu, but are in the healthcare sector), and are still demonstrating strength on the technical level. The ratio used in evaluating these stocks is called the Bull:Bear ratio, which is defined on my blog post Bull Bear Ratio Defined. I don't like using just one piece of software so I go to another source which is Investor's Business Daily (IBD) as they give a very nice composite rating for these stocks. For details on how IBD ranks these stocks check out my blog post One of My Methods to Finding Bullish Stocks.

By Marie Daghlian

Though the pharmaceutical giant Merck (MRK) raised $4.25 billion in a four-part bond issue to help finance its impending acquisition of Schering Plough (SGP), last week was fairly quiet for raising capital in the life sciences. Medical device companies continued to attract venture capital, with four companies closing mid- to late-stage rounds of funding. The one bit of excitement came from a potential billion-dollar alliance between GlaxosmithKline (GSK) and Chroma Therapeutics.

by Marie Daghlian

...Economic conditions continue to remain weak for raising capital outside of venture activity. Public companies have also been relying on private investors for funding and PIPEs continue to be the main vehicle for raising capital. Outside of a secondary or follow-on financing on the heels of a major announcement such as Dendreon's (DNDN) $300-million issue after the release of positive data on its cancer vaccine Provenge, there has only been a trickle of secondary financings, and they have to be creative to get done. ImmunoGen (IMGN) decided to take the creative route. Aiming to bolster its balance sheet, the Waltham, Massachusetts-based oncology company, announced a public offering of 5 million shares of its common stock at $7 each, a 10.5 percent discount to its closing price on June 17.

As a continuation of my previous piece on Perrigo Company (PRGO), the second health care company I would recommend is Dr. Reddy's Laboratories (RDY). The company is based in India and has been a major player in the generic drug business for some time. It is not as large as TEVA (TEVA) or Barr Pharmaceuticals (BRL) but is on the next tier down, ranking in the top 12 generic drug manufacturers in the U.S.

Dr. Reddy's products are positioned mainly against prescription pharmaceuticals. Although they produce some over-the-counter products, for the most part they cover a different segment of the market than Perrigo.

• Ramp up to financial reform. Details continue to emerge on Obama's financial reform plan, due to be released tomorrow. Among other changes, the plan will urge stronger consumer and investor protections, more power for the Federal Reserve, larger bank capital cushions and more robust lending standards. It will also call for the originator of a securitization to retain a financial interest in its performance. Still unknown is how the plan will approach executive pay and streamlined bank supervision. (Read the WaPo op-ed by Geithner and Summers)
• Crunch time for California. Democrats and Republicans in California's legislature are gearing up for battle as they try to close a $24B deficit that could leave the state unable to pay its bills next month. Democrats are calling for higher taxes and fees while Republicans are pushing for $16B in program cuts. Top state officials approached the White House for emergency aid but were rebuffed; the Obama administration is concerned a California bailout would set off a wave of requests from other states.
• So long, Saab. General Motors reached a deal to sell its Saab unit to Swedish luxury carmaker Koenigsegg. Compensation details haven't been released yet, but the deal is tied to a $600M loan backed by the Swedish government.
• Cash for clunkers. The House of Representatives votes today on a 'cash-for-clunkers' bill that would let consumers collect up to $4,500 on car trade-ins. The $1B subsidy, which will likely be approved, is meant to encourage Americans to switch their old cars for new, more fuel-efficient models, and automakers have thrown their full support behind the measure as a way to get consumers into showrooms.
• Raising the stakes on Data Domain bids. Data Domain (DDUP) recommended shareholders reject EMC's (EMC) unsolicited all-cash $1.9B bid, pointing to a binding agreement with NetApp (NTAP) and the uncertainty of an EMC acquisition. It's unlikely that EMC will be deterred, and a bidding war between EMC and NetApp is likely.
• Extended Stay in bankruptcy. In one of the current recession's largest real-estate bankruptcies, Extended Stay Hotels filed for Chapter 11 protection yesterday. The hotel chain, with over 680 properties in 44 states, ended last year with $7.1B in assets and $7.6B in debt. The top holders of secured debt are Wachovia (WFC) and Bank of America (BAC).
• Glaxo is Reddy for emerging mkts. GlaxoSmithKline (GSK) teamed up with Indian drug maker Dr. Reddy's Laboratories (RDY) to focus on emerging markets, excluding India. Under the agreement, products will be manufactured by Dr. Reddy's and licensed and supplied by Glaxo in countries in Africa, the Middle East, Asia Pacific and Latin America. For Glaxo, this is just the latest in a series of moves designed to expand the company's emerging markets presence. GSK +2.5% premarket (7:00 ET).
• ECB sees more writedowns. In its Financial Stability Review, the European Central Bank said it expects eurozone banks will need to write down another $283B by the end of next year, with total crisis-related losses for the region at $649B vs. an IMF forecast of $904B. Risks to eurozone financial stability 'remain high' despite some signs of stabilization in the economy.
• Credit card defaults soar. Credit card defaults reached a record high in May as consumers remained under severe stress. In particular, Bank of America (BAC) experienced a steep deterioration in its lending portfolio, with its default rate jumping to 12.5% from April's 10.47%. Delinquency rates fell across the industry, but analysts said the drop was because of a seasonal trend and the numbers will likely rise again in the coming months.
• IMF raises U.S. outlook. The IMF issued a new outlook for U.S. economic growth, forecasting a 2.5% contraction this year and a 0.75% expansion in 2010. It's not exactly the makings of a robust recovery, but beats earlier forecasts of -2.8% growth in 2009 followed by a stall in 2010. Unemployment is expected to peak at around 10% next year. (Read the IMF report)
• BoJ cautious on outlook (.pdf). Bank of Japan kept its overnight lending rate at 0.1%, and indicated it's unlikely to wind down extraordinary policy steps anytime soon because there's no guarantee the economy's revival will be sustained. Despite the caution, the bank noted that Japan's recession is easing as exports and factory output improve.
• NY manufacturing declines. The New York Fed's Empire State Manufacturing index fell to -9.4, a five-point drop vs. consensus of -2, as conditions deteriorated at a moderately faster pace than in May. Technology and capital spending indexes were positive for the first time since October. Future indexes continued to rise.
• Treasury International Capital. Net foreign purchases of long-term securities were $11.2B in April, well short of $60B consensus and a fraction of last month's $55.4B (revised). Private investors were net buyers of $18.3B, and foreign institutions bought another $16B, while U.S. investors took in $23B of long-term foreign securities.
• Housing index dips down. NAHB/Wells Fargo's Housing Market Index dropped 1 point to 15, the first decline since January, vs. consensus of 17. The index indicates about one in six homebuilders think the market is "good." Headwinds include "the expiration of the tax credit at the end of November; a recent upturn in interest rates; and especially the continuing lack of credit for housing production loans."

Earnings: Tuesday Before Open

• A-Power Energy Generation Systems (APWR): Q1 EPS of $0.04 misses by $0.08. Revenue of $31.2M (-3.4%) vs. $51.2M. Sees FY '09 revenue of at least $320M vs. $335.2M consensus, prior guidance $290M. Sees FY '09 net income of at least $32M vs. prior guidance of $29M. (PR)
• Best Buy (BBY): FQ1 EPS of $0.42 beats by $0.08. Revenue of $10.1B (+12.3%) in-line. (PR)
• Smithfield Foods (SFD): FQ4 EPS of -$0.55 beats by $0.05. Revenue of $2.85B (-0.6%) vs. $3.1B. (PR)

Today's Markets

Asia markets slipped Tuesday after yesterday's U.S. selloff, but Europe stocks are carrying modest gains. Futures are slightly higher in light overnight trading.

Drug and biotech stocks have underperformed in the recent market rally, but recent high profile investor conferences and positive FDA announcements have the group buzzing once again. Mergers and acquisitions have been in focus, and investors are always trying to find the next target.

I recommend looking to foreign soil for the next potential biotech acquisition, which is further backed up by recent comments by Pfizer (PFE) saying it is looking for acquisitions in emerging markets and the Middle East.

• India stocks up 17% on landslide victory. India's benchmark BSE Sensex index jumped a record 17% before trading was halted, and the rupee gained the most in two decades (+3.3%) after Prime Minister Manmohan Singh’s Congress Party won national elections in a decisive victory. With 262 of 543 seats, the most in almost two decades of fractious coalition politics, Singh should have enough power to further reduce barriers to foreign investment, which have been opposed by communist lawmakers. Five years ago the Sensex plunged 11% after Congress' ambiguous victory.
• Smaller banks need another $24B. Small and medium-sized U.S. banks would need to raise $24B to meet the capital standards set by the government in its stress tests of large institutions, according to research by investment bank Sandler O'Neill. As many as 500 more banks could close. Regulators have increased their focus on the next tier of lenders following the recent release of stress-test results.
• AIG hopes for $5-10B in AIA IPO. AIG (AIG) said Sunday (statement) it will speed up plans to list its Asian subsidiary, AIA, hoping to raise $5-10B, which it could use to pay back some $180B in government loans. AIG failed to sell a large stake in AIA earlier this year, prompting the move toward a Hong Kong IPO.
• Lloyds' Blank walks the plank. Shares of Lloyds (LYG) are up 4.3% premarket after it announced over the weekend that Chairman Victor Blank will stand down by June next year, a move analysts say could placate shareholder anger over its ill-timed acquisition of U.K. mortgage lender HBOS. Lloyds also said it will launch its £4B capital raise, intended to pay back preferred shares held by the government as part of its rescue package, on May 20.
• Brazil food giants talk tie-up. Brazil meat processors Sadia (SDA) and Perdigao (PDA) said they're in discussions of a merger that would rescue struggling Sadia, and create one of the world's largest frozen and processed food companies. In a report Thursday, Citigroup speculated the Brazil government could help finance a merger with as much as $750M.
• New taxes for life insurers? The Obama administration wants to tag life insurers with $12.8B in new taxes over the next decade, even as the sector recently garnered approval to receive TARP bailout funds. New proposals would restrict some tax breaks received by purchasers of insurance or insurance companies themselves. Industry followers say the changes could hit sales of corporate-owned life insurance.
• High-profile Madoff victims probed. The probe into who knew about Bernard Madoff's massive fraud has broadened to include high-profile investors including philanthropists Jeffry Picower and Stanley Chais, and Carl Shapiro, an old friend. Sources say investigators have evidence Picower and Chais sought - and received - better returns than other investors, sometimes reaching an astonishing 300-950% a year. A lawyer for Picower says his client was "totally shocked" by the fraud and was in no way complicit in it.
• Takeda to buy IDM Pharma. Takeda Pharmaceutical agreed Monday to acquire IDM Pharma (IDMI), a developer of anti-cancer treatments, for $2.64/share in an all-cash tender offer followed by a merger. Shares of IDM were recently +19% premarket to $2.02.
• Trump on Trump. Trump-watchers may, or may not, get a better idea of what Donald Trump's empire is really worth today, as his 2007 deposition explaining how he values his assets will be revealed in a hearing. A 2005 book estimated Trump's worth at $150-200M, a defamation Trump alleges cost him subsequent deals. At the time of the deposition, Trump called $4B "a very conservative" estimate, and said $6B is also a good number including brand value. In an interview yesterday, Trump cited $5B, not including brand value. The suit implicates author Timothy O'Brien, and publisher Warner Books (TWX).
• ECB hopes it's done with easing. European Central Bank governing council member Axel Weber said it's unlikely the ECB will take further action to address the financial crisis. "Unless circumstances worsen considerably, previous measures are adequate, in my view," Weber said, adding, "We would come to reassess our strategy only in the case of a dysfunctional banking system." Late last week, Eurostat reported euro-area GDP fell a record 2.5% in Q1 from Q4, sparking speculation of further rate cuts from the current 1% benchmark.
• Euro zone trade surplus rises unexpectedly. The euro zone posted a surprise €0.4B trade surplus for March; economists were expecting a deficit of -€0.3B consensus. In a sign that trade flows may be starting to pick up again, exports (€108B, -17% y/y) and imports (€107.6B, -18% y/y) were both higher from a month ago. (see Eurostat's external trade report

Earnings: Monday Before Open

• Dr. Reddy's Laboratories (RDY): FQ4 net profit of INR1.56 billion vs. consensus of INR 1.17B. Revenue of INR16.78B. Shares +10.6% premarket. (DJ)
• Lowe's (LOW): Q1 EPS of $0.32 beats by $0.07. Revenue of $11.83B (-1.5%) vs. $11.63B. Comps fell 6.6%. Sees full-year EPS of $1.13-1.25 vs. $1.11. "The economic pressures on consumers remain intense, and bigger ticket projects continue to be postponed as wary home improvement consumers watch the economic climate and housing market dynamics very closely. But, as spring arrived, we saw relative strength in smaller, outdoor projects," firm says. (PR)
• Perfect World (PWRD): Q1 EPS of $0.62 beats by $0.16. Revenue of $62.2M (+40.1%) vs. $57M. Shares +8.2% premarket. (PR)
• State Street (STT) announces common stock offering of $1.5B. Says it sees full-year EPS of $4.25-4.50, vs. consensus of $3.83. Sees operating revenues down 12% Y/Y. Shares -3.9% premarket. (PR)

Today's Markets

Overseas markets were mixed Monday, and futures are marginally higher after spending much of the overnight session in the red.

The Indian indices managed to end the day marginally above the dotted line as buying activity led the indices to pare off losses during the final trading session. The BSE-Sensex ended the day with gains of around 40 points. However, the NSE-Nifty closed lower by about 10 points. Stocks from the mid-cap and small-cap space however, ended the day on a negative note, lower by 0.4% and 1% respectively. Barring stocks from the banking and capital goods space, selling activity was witnessed in stocks across sectors. The realty and power sector stocks remained the top losers of the day. At the time of closing, the overall decline to advance ratio was poised at 1.2 to 1 on the BSE.

Other Asian markets ended the day on a mixed note. The European indices are currently trading weak. Rupee was trading at 50.12 against the US dollar at the time of writing.