Stock Watch Thursday, 7 February 2013

by: VFC's Stock House

Markets in the U.S. closed flat on Wednesday as investors postured their positions in anticipation of a push towards record highs. International investors were also holding back for the day while awaiting comments from the European Central Bank (ECB), which is due to hold a policy meeting on Thursday. Positive comments from the ECB indicating that the eurozone looks to be on the road to recovery may reinvigorate the early-year rally, but a more cautious tone may have some investors inclined to pull profits from the table following the January run. Given recent insights into a few of the zone's individual economies, such as Germany's - which many report a quarter of retraction - and Spain's - still struggling to find solid footing - comments to the tune of "we're not quite there yet" should be expected.

The key to all the Europe talk lately is that the media is again paying attention to developments over there, while they haven't been during the opening weeks of the new year. Since the European recovery is still lagging behind that of the U.S.', investors tuning into the news may entertain the fact that the markets are not yet stable enough to sustain near-record highs. Any surprises from the ECB either to the up or downside could lead to the U.S. markets trading in-line with those comments on Thursday, but it's more likely that U.S. investors will be more interested in the budget talks in Washington and to the individual stocks and stories of their respective portfolios.

One consideration to keep in mind is that although the budget negotiations in Washington are not making heavy headlines just yet, the information being released to the public would indicate that tax hikes and budget cuts are looming. Given our discussions earlier in the week in regards to the economy not yet operating on solid enough footing to brush off the drastic cuts that are already starting to have real-world impact, the markets may experience a pullback if these measures are put in place. Everyone knows (or they should) that the government spending needs to be taken into check, but should those cuts go into place on a significant scale at the same time taxes are going up, then there could be some short pain in store. Proof in point is the GDP retraction of the fourth quarter that resulted from massive cutbacks in defense spending.

These budget talks are currently flying relatively below the radar right now, but it's a situation that should be watched closely for those considering taking some profits in order to bulk up the cash reserves in anticipation of either buying back in should the market dip, or just for a nice spring time vacation to a European destination of choice.

While the big-world stuff plays out, here are a few individual stocks and stories to keep an eye on for Thursday, 7 February, 2013 ...


Visa Shows Strength In The Numbers And Economy

Visa Inc. (NYSE:V) reported earnings on Wednesday afternoon, and the company did not disappoint - although shares traded modestly lower during after-hours trading. Profit numbers beat the general consensus leading into the report and were up by 26% over the same quarter for the previous year. Encouragingly enough, much of the profit spike was attributed to increase in consumer spending on credit cards, which is not just a good sign for Visa, but also a good sign for the economy as it is indicative of consumer confidence. Also key from this report was a surge in profits from other areas of the globe, specifically in the MENA, South and Central America and European regions. As the company looks to infiltrate other areas of the world, too, that may not yet be saturated with the means to pay for merchandise electronically, Visa offers a continued avenue for growth.

More than digesting this earnings report for the potential of Visa as an investment, however, it could be used as amplifying information to gauge the health of the overall economy. Consumers feeling confident about spending, while worrisome in one right if too much debt is being racked up, is a good sign that the economy, wages and jobs numbers are on the upswing.

Wednesday's report should satisfy those looking for potential growth in Asia and other areas of the world as consumer confidence and spending continues to rise, especially if the after-hours trend continues into Thursday trading and allows investors to buy on any "sell the news" weakness, while investors eyeing the report strictly as a sign of the health of the recovery should also move forward in a satisfied manner.

Healthcare, Biotech, Pharmaceutical:

AEterna Postures Before Pending Catalysts

The fact that AEterna Zentaris (NASDAQ:AEZS) shares pulled back fairly rapidly after spiking high on huge volume during the closing days of January is indicative that the rally was likely attributed to the Keryx Biopharmacueticals (NASDAQ:KERX) run that materialized at the same time based on positive Phase III trial results for Zerenex, a treatment for hyperphosphatemia in patients with end-stage renal disease (ESRD) on dialysis. While the two companies have no relationship at the current time, they were partnered before in bringing Perifisone through the developmental stages, but then parted ways early last year when Perifisone failed a Phase III colon cancer trial. AEZS shares closed Wednesday up by three percent, an indication that the slide off the recent highs may be finished and the stock could be consolidating before some of the pending catalysts on slate for early 2013 start to play out.

One such catalyst is related to the above-mentioned Perifisone, which is still moving along in another late stage trial for multiple myeloma. Interim results are slated to be analyzed by an independent committee within the current quarter and if it is recommended that the trial continue, investors still skeptical after the colon cancer outcome may be reassured to take a chance on the product's future in the MM indication. While such recommendations are generally more related to the demonstrated safety of a product and not necessarily efficacy, they are often stopped if results look negative in order preserve company resources, so a positive recommendation is a sign of validation, regardless.

Should Perifisone make it through the current trials, one benefit for AEterna is that it retains worldwide rights to the product as a result of the termination of the Keryx partnership. The two entities had previously shared rights. That opens the door for another partnership or better positions the company for a possible merger or acquisitions - such rumors always creep up with positive trial results.

Another anti-cancer compound, AEZS-108, is also slated to return interim results or updates over the coming quarters and could provide multiple price and volume catalysts for AEZS shares. These updates will be compiled from ongoing Phase II trials for the treatment of prostate and bladder and - if encouraging - may give a clear indication that the company has a very solid "Plan B" behind Perifisone, as the market does not currently give that one much credit for success, if the current market cap is any indication. AEZS-108 has already proven successful in multiple Phase II trials and is also being prepared for a near-term launch of a Phase III trial in the indication of endometrial cancer, according to the latest information published to the company's website.

Also in store for AEterna within the current quarter is an NDA filing with the FDA for AEZS-130 as a diagnostic test for Adult Growth Hormone Deficiency. Although not expected to be a huge money maker, AEterna maintains world-wide rights to the product, which has previously been slapped with an orphan drug designation. This milestone event may at the least attract attention to the company's pipeline, and at the most provide a modest-to-decent catalyst over the short term.

Aside from the recent volatility, AEZS is also in the spotlight Thursday and moving forward due to an announcement that the stock has been rated as a "Strong Buy" by Zacks on Wednesday. Other analysts have also jumped on board earlier in the year, likely attracting new and continued investor interest to the stock as a potential catalyst and rebound play. Given the fact that the market is paying little credence to Perifisone right now, AEZS is currently trading in similar fashion to other "Phase II plays" and as discussed on previous occasions, these types of plays tend to trade sharply in line with trial catalysts, but are also highly volatile and very risky - poor results are likely to drop shares quick, fast and in a hurry. In order to alleviate risk as much as possible from these high risk/high reward plays, in my opinion, is to play the volatility with a handful of trading shares while also potentially holding onto a core group of shares to play the long term story, too. This way an investor can bank profits along the way and end up on at least house money before the longer term catalysts come to fruition. This strategy is widely used in the sector, as evidenced by the quick sell-offs after catalyst runs, and keeps investors actively engaged in their investments.

With AEZS looking to have settled following the run, and with near term catalysts pending and a solid rating by Zacks, this will be one to keep an eye on for Thursday and beyond.


Dendreon Potentially In Line For Comeback Player Of The Year

Dendreon (NASDAQ:DNDN) shares are well worth keeping an eye on these days. Shares closed the day Wednesday up by another eight percent, an uptrend that indicates investors are becoming believers in the turnaround potential of Provenge sales discussed in conjunction with the fourth quarter results, which were announced in early January. Aside from the reinvigorated revenue increase for sales, investors are also anticipating the continued benefits of expanding insurance coverage - an area where the company made headway last year - and a move into the European market that could provide a significant boost in revenue. Additionally, companies that were previously looked at as competition are now being assessed as potential supporting players for Dendreon, given the studies using Provenge in conjunction with other treatments. Numerous popular financial media sites have also released positive coverage of the stock, a change in pace from last year's woes and an encouraging sign for attracting new investor interest. DNDN could still become one of the better 'comeback player of the year' candidates and is worth keeping an eye on.

TrovaGene Consolidates Ahead Of Presentation

TrovaGene Inc (NASDAQ:TROV) shares look to be in the midst of consolidation following any impressive early-year run and will again be in the spotlight as the company is slated to present next week at the Leerink Swan Global Healthcare Conference in New York. TROV still has numerous catalysts pending for the duration of the year and investors will be able to tune in for updates by following the instructions contained in the above-linked press release.

Specific catalysts that could renew a price run would be related to the number of collaborative efforts agreed upon over the past couple of months, specifically in relation to December's announcement that the company will work in conjunction with the University of Texas MD Anderson Cancer Center to detect transrenal BRAF mutations in the urine of patients with advanced or metastatic cancers. Such deals have attracted the attention of analysts, too, and not just investors, a key sign of validation moving forward. Other notes to look for are updates regarding the pipeline of diagnostics that are able to detect certain cancer types through simple urine samples.

A couple of short-term launch milestones are slated for the current quarter while additional launches are also scheduled to take place over the coming quarters, too, according to information contained on the company's website. While volume has picked up of late, it's still not the point of widespread acknowledgement, so a significant boost in that area could also provide a potential price catalyst. With consolidation in place and catalysts and a conference pending, still one to watch.

Roundup: Most of the major international markets traded flat again on Thursday, all within one percentage point of their respective opens, and futures in the U.S. indicate that the same pattern will take shape over here, too. It looks like a holding pattern is in place, at least for the time being, as the budget talks look to intensify over the course of the next couple of weeks. The European Central Bank comments will also play a factor on Thursday, as mentioned in the open, although that news is unlikely to trump anything related to budget discussions in Washington. It's a good time to concentrate on individual investments, in my opinion, while using any profits taken to boost a cash reserve stockpile in preparation for any pullbacks.

Disclosure: I am long AEZS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.