(EMAILWIRE.COM, October 15, 2012 ) New York, NY -- 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.
In this week's 'Weekly Stock Watch', VFC's Stock House, an information and research outlet that brings ideas and opens discussions to a broad spectrum of investors, comments on those trends from last week, and also on stocks and stories that could make headlines or influence trends during the upcoming week as well.
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...
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.
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.
OncoSec Medical Incorporated (ONCS): 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.
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: Long CPST.
Follow the developments of these and other small cap stocks at VFCsStockHouse.com
About VFCsStockHouse.com: VFC's Stock House is an information and research outlet that brings new ideas to the table and opens discussions for a broad spectrum of investors, with a strong focus on - but not limited to - biotech stocks, biopharma stocks, and pharmaceutical and healthcare stocks. VFC's Stock House provides individual company profiles, write-ups and reports as well as giving general insights into broader-market news through various 'Stock Watch' lists. At the conclusion of most weeks, VFC's Stock House issues a "Weekly Stock Watch" that examines 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. The information contained within the pages of VFCs Stock House are not intended to be taken as advice, but as a starting point where investors can follow up with their own DD and devise their own entry and exit strategies.