This week, VFC's Stock House, an information and research outlet that brings ideas and opens discussions to a broad spectrum of investors, identifies multiple stocks and stories that could have been - or still may be - effected by the broad market drop and slow earnings season.
A full version of this week's report is available at: http://VFCsStockHouse.com
The markets started tanking on Wednesday -following the re-election of US President Barack Obama - but to be completely fair to the President, the pullback cannot solely be attributed to investor reaction to the election results - there were many other factors at play last week that likely led to the market drop.
Most significantly, evidence started rolling in from across the Atlantic at the mid-week mark indicating that the European economy may be in for another recession. That news - coupled with a general lack of confidence from US investors that the 'status-quo' American government would be able to come to an agreement and keep the fiscal cliff at bay - likely played as the lead culprits behind last week's bearish moves.
Additionally, Greece remained in the spotlight as government officials voted on new austerity measures in order to keep EU bailout money flowing. Without a new influx of cash, Greece could be looking at a state of bankruptcy as early as later this week. That, too, has the attention of global investors. Still worrisome is the fact that Greece may still have a long way to go in terms of austerity, especially with the economy predicted to shrink by another 4.5% in 2013.
Although Washington continues to look as gridlocked as ever, it's likely that the politicians see the need to come to a consensus regarding the cliff sooner, rather than later, since the very state of the US economy may hang in the balance. Pundits predict that the tax increases and spending cuts that would be invoked by the cliff would spiral the US into another recession, far from the desired outcome of any political party. Whether it's another postponement or an all-out agreement, it's probably safe to assume that something will get done.
While much of last week's drop could be attributed to international fiscal developments, as described above, there are also some direct bearish correlations to the election results. For instance, many investors predict that capital gains taxes will spike during the President's second term, compelling some of them to sell. That trend could continue into the new trading week and beyond.
Investors are also alarmed of the rapid sell-off of Apple (AAPL) shares, which dropped by another five percent-plus last week, and the ongoing earnings season continues to disappoint.
Earnings reports over the past week were essentially thrown to the back burner as hype surrounding the political elections and economic news from overseas dominated the headlines, but there were still a couple of key stories to note. AOL (AOL), for example, demonstrated that it may be in the midst of a turnaround as revenues from online advertising sales proved on the uptick while J.C. Penny (JCP), on the other hand, showed that the company is having a tough time re-inventing itself after the economic turmoil of the past few years killed the company's profit margins. Both are worthwhile stories to watch as potential rebound plays, but it's also worth noting that both are operating in very competitive sectors and still have a tough road ahead.
Amarin Corporation (AMRN): Amarin's report and conference call last week was not expected to be about the numbers, rather investors were looking to key in on any updates that could be had in relation to the Vascepa launch, still expected for 1Q 2013. Many investor concerns relating to the launch were addressed by company officials - although there is still no definitive word on a buyout, partnership or go-it-alone - and shares responded accordingly, jumping by nearly ten percent on Friday on volume slightly above average.
Spectrum Pharmaceuticals (SPPI): As noted last week, Spectrum was another hot earnings story to watch. Shares had been on the decline as many investors and popular financial media outlets continued to predict growing competition for FUSILEV from generic providers such as Teva (TEV) and Sagent Pharmaceuticals (SGNT). SPPI shares flew last week, though, following an earnings report that beat analyst estimates and offered more encouraging revised guidance for the full year 2012. Revenue of $69 million came in ahead of analyst expectations of $65 million, a 35% increase over the same quarter of the previous year, and full year guidance was revised to indicate expectations of the company "exceeding" the $300 million mark, where before expectations were floated as coming in at "around" that mark. Spectrum also received a boost from its newest product, FOLOTYN, recently-added to the portfolio through an acquisition of Allos Therapeutics (ALTH), and the company also cited resulting savings from synergies from the deal that help reduce expenditures. All in all, it was a decent report from the company for the latest quarter and investors immediately responded with the price push back towards twelve.
Capstone Turbine (CPST): Shares of Capstone enjoyed a high-volumed push to over the dollar mark early last week leading into the company's Thursday afternoon earnings report, but they quickly fell below a buck again as the broad market dropped and revenue numbers for the quarter came in below expectations. Encouraging signs were prevalent, however, as the company recorded the fifth straight quarter of expanding margins and, as noted by the Capstone President and Chief Executive Officer in a conference call, record backlog was achieved for the third consecutive quarter while revenue has increased four quarters in a row.
Sunshine Heart (SSH): Sunshine Heart also reported earnings last week, but like Amarin, investors were more interested in updates and pending milestones than they were with the numbers. Earlier this year, Sunshine achieved a notable benchmark when its C-Pulse Heart Assist system was approved in Europe for the treatment of Class III heart failure. C-Pulse is an implantable device considered much less invasive than other implantable devices on the market - from Heartware International (HTWR) and Thoratec (THOR), for example - given that the C-Pulse is implanted outside of a patient's bloodstream. Additionally, Sunshine has relatively no competition for its device, given its target patient set of Class III patients.
The company used its third quarter report to recap the milestones met during the previous three months, including the European approval, the IDE approval by the FDA that clears the way for the initiation of a US trial during the current quarter and the positive trends noted in the results of the already-completed feasibility trial. Sunshine also reiterated its planned milestones for the fourth quarter, including the launch of the US trial and the commercial launch of C-Pulse in Europe. With prospects of the company starting to realize revenue in Europe as early as this quarter, and with the meeting of expected milestones on time, multiple analysts have reiterated their positive outlooks on the company following the report.
Explosive Trace Detection (ETD) / Global Defense:
Implant Sciences (IMSC): The Implant Sciences story will be heavily watched this week following a highly volatile move last week ignited by a bearish Seeking Alpha report that was widely-viewed as sparking a large-volumed, mid-week selloff of IMSC shares. The quick drop culminated in a low of seventy five cents, but an impromptu conference call set up by management on the heels of the bear raid provided enough momentum that shares closed the week in the range where they had been trading before the SA article was published. The basis of the bearish report was again financials - a theme that has been often discussed time and again as investors await a final approval determination by the TSA for the QS-B220 explosives and narcotics trace detector. The DMRJ Group LLC currently holds over $20 million in Implant debt and concerns are often aired by short-minded investors that Implant will be unable to meet its debt obligations. Some of those concerns were alleviated months ago when DMRJ agreed to extend the terms of the most pressing agreement until the end of March, 2013, providing a full two quarters of development and progress for Implant before having to worry about debt coming due, but the concerns will persist - nonetheless - until the company can consistently demonstrate signs of sustained life.
Healthcare, Biotech, Pharmaceutical:
Synergy Pharmaceuticals (SGYP): Synergy Pharmaceuticals was another company whose share price came crashing down last week as the broad markets dropped. Having traded for close to five bucks just a month ago, SGYP shares closed last week at $3.22 after announcing that the company would push the release of its quarterly report due to difficulties relating to Hurricane Sandy in New York. As noted last week, however, any slide in SGYP right now may be viewed as an opportunity for those looking to play the very significant late-year catalyst of trial results. Synergy is still on track to release Phase IIb/III Plecanatide trial in the treatment of chronic idiopathic constipation (CIC) by the end of September and shares could be positioning for a pre-release runup into those results. Synergy shares initially ran to the five dollar range after Ironwood Pharmaceuticals (IRWD) received approval for Linzess in September. Linzess uses the same mechanism-of-action as Plecanatide and its approval provided validation to the Plecanatide trials in the eyes of investors.
Technology, Products, Services:
Sirius XM Radio Inc. (SIRI): Although SIRI was still a highly speculative player during the market crash in early 2009 when bankruptcy loomed and shares traded for a nickel, as mentioned above, the tide has turned these days and the stock is fresh off a run that sputtered just below the three dollar mark. No longer considered speculative, SiriusXM has become a major player in the radio entertainment industry with a lineup of unique content and personalities that keeps listeners and investors fully engaged. The share price run was also supported by Liberty Media's (LMCA) methodically increasing position in the company that will imminently turn into de facto control of the company, pending FCC approval.
MRI Interventions (MRIC): MRIC is another one to keep an eye on as the market drops and some of the more speculative plays retreat more substantially than the market as a whole. As discussed during previous weeks, this company has been able to note impressive revenue gains in relation to the 'disposable items' associated with its ClearPoint procedures. ClearPoint - with due respect to ClearTrace, too - are MRI-enhancing systems that provide medical professionals with real-time imagery during complicated procedures on the brain and heart, respectively. The company banks revenue on sales of ClearPoint itself, but can continue generating revenue from a sold system through those disposable items. The case can be made that MRI Interventions is still in the earlier stages of growth as it is only just now preparing to significantly boost its sales force. It is also noteworthy that the company has already attracted the interest of some big players, such as Siemens AG (SI), Boston Scientific Corporation (BSX) and Brainlab, hinting that larger partnerships or an all-out buyout could materialize once the technology is deemed more accepted and mature.
Facebook (FB): Following a spike into the mid-twenties after an encouraging earnings report last month, Facebook shares dropped to below the twenty dollar again mark last Friday. A late-day swoon had FB ticking down all afternoon and, again, much of that activity could be attributed to the overall bearish market sentiment driving the market action for the better part of all last week. That said, the bearish sentiment is only exacerbated in regards to Facebook trading by the selling resulting from another round of lock-up expirations that dumped another 200 million-plus shares onto the trading markets. Many investors with hesitant interest in taking a position in this company may be waiting to see the full impact of the lock-up expirations before jumping in, especially since the broad market dip has the potential to push prices lower than they otherwise would have been. With hundreds of millions more shares still set to potentially hit market as the result of expiring lockups before year's end, FB will be one to watch. Bearish forces could combine to give those hesitant investors the relative bargain that they've been waiting for.
Roundup: Attention is all on the pending fiscal cliff and the European bailout of Greece and other weakening economies. As of Monday morning it looked like the Greeks voted enough austerity through to warrant another round of bailout money and stave off bankruptcy or a potential return to the drachma for the time being, but worries about other economies in Europe - like France - re-entering the recessionary phase will still damper investor enthusiasm. Meanwhile, in Washington, nothing has changed in terms of the political make-up of the government, so the same entities that have not been able to come up with a budget for years are going to be tasked again with making something happen. It is evidenced by the market sell-off last week that investors are skeptical that a deal can be reached. Being a 'glass half full' kinda guy, I would count on the powers-that-be finally coming up with a plan that shows compromise by both sides; if not, then it could get ugly, both politically and economically.
Exciting times ahead.
Disclosure: Long AMRN, IMSC, TTNP, SSH, SGYP, CPST.
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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.
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