What? An anthrax vaccine company? Yes, apparently there is big business here, at least for now. We might have forgotten about the whole anthrax debacle from 2001, but the government hasn’t. The Rockville, MD based Emergent has the only, the sole, the one vaccine approved in the U.S. for the deadly disease. Over the last decade, it has sold 30 million of its Bio Thrax vaccine to the government, mostly to the Department of Defense and the Department of Health and Human Services. About 2 million of these doses have gone to the troops. The rest have gone to strategic stockpiles to be used in case of a bio-chemical attack. The government is buying the vaccines as fast as the company can make them. They don’t want to be caught flat-footed in case a crisis develops again.
In the past year, the company has signed two large contracts to deliver more than 33 million dosages of the vaccine over the next three years at $25 a piece. The price will increase to $27 if the life of the vaccine can be extended to 4 years, as opposed to 3 years as it is today. This gives insight to company’s earnings until 2011, analysts say, which is valuable in today’s markets.
The race is also to secure government contracts for the next generation of the anthrax vaccines. Emergent is one of the companies in the run to produce a vaccine with faster immunity and fewer risks or side effects. The market could be huge. The government set aside $5.6 billion in 2004 under its Project BioShield to develop and stockpile next generations vaccines.
Emergent also has other products in its pipeline. It is working on two drugs to treat the anthrax toxins for people already infected. It also has two botulinum vaccine in development and other vaccines or treatments for typhoid, tuberculosis, Chlamydia and hepatitis B.
It’s also working to acquire other capabilities. Earlier this year, Emergent tried to buy Protein Sciences and its promising flu vaccine that is in the late stages of testing and approval. The deal is now in the hands of lawyers and there is doubt if it will go through however. The guidance posted by Emergent after its third quarter did not reflect any revenue from Protein Sciences.
The third-quarter earnings per share of 34 cents are up 240% from one year ago. Analysts polled by Thomson Reuters had expected just 18 cents. Sales were up 30% to $56.6 million. For the year the company expects earnings per share between 70 cents and 83 cents. The consensus is 77 cents.
The company’s future is not certain. There is no guarantee that it will win the race for the next generation vaccine, but it may get part of the contracts. Also, having one customer is dangerous. But there are many worse customers than Uncle Sam, in this current environment.
Sunday, November 30, 2008
Weekly Recap - November 30, 2008
Back to normality? Some would say so, especially after the convincing rally for the past five days… ok, four and a half. Stocks jumped 18% in the four days leading to Thanksgiving, and they may establish a bottom, reinforcing hopes that the worst is over. The Dow Jones Industrial Average Index and the S&P500 have had their best five-day rally since the Great Depression. It could be that the government attempts to prop up an ailing financial system work? OK, keep your fingers crossed.
Dow Jones Industrials index closed at 8829.04, up 9.73% for the (short) week. S&P 500 climbed up to 896.24, for a weekly gain of 12.03% and Nasdaq closed at 1535.57, up 10.92%.
Next week may bring some down days. The history says the best five-days rallies were often followed by retreats averaging 2.4% over the next five days, according to Bespoke Investment Group.
There are reasons to be optimistic about the future. First, this is the human nature, and second, there are signs we can count on. China’s stock market, down 72% since 2007 peak, has recently recouped 11%. In the U.S., energy stocks have begun to outperform the S&P 500 since late-October. The markets may take a blow if there is another credit crisis blossoming somewhere (CMBS, maybe?) but we’ve gotten quite pessimistic lately. The public sentiment is really dismal. Hear this: the word of the year – “bailout” – according to Merriam-Webster, due to the highest lookups on its online dictionary. The VIX has made a lower low on November 20 at 81, which is less than its previous low, at 90. This means the panic is exhausting.
*Black Friday*
It’s called Black Friday because this is supposed to be the day when retailers are getting back to making a profit for the year. Well, early data shows that the holiday shopping season got off to a great start, much better than last year. Sales during the day after Thanksgiving rose 3% to $10.6 billion (preliminary data) compared to $10.3 billion last year. The data comes from 50,000 outlets tracked by ShopperTrak RCT Corp, a Chicago based firm. Now, that’s good, but a reason may be the deep discounts the retailers throw at consumers, to lure them into the stores. I think the holiday will still be one of the weakest ever, because the contraction in spending is still there, and the season is shorter – 27 days till Christmas compared to 32 last year.
*Thinking of buying Citi? Flip a coin. *
If you enviously watched Citi going from $3.11 to $8.29 in just one week, kicking yourself because you haven’t bought it then, you are not alone. But it will still be wiser to wait until the smoke clears until buying some shares. Yes, the shares are cheaper than dirt at $8.29 a piece, if you think that Citi will earn more than $2 per share later. The company has yet to prove itself that it can survive, let alone thrive, after receiving the lifeline from the government last week. Citi had to write down a staggering $44 billion since the third quarter of 2007, mostly because of the bad investment in the mortgage debt. As part of the rescue plan, the Treasury will invest $20 billion in Citi preferred stock via the Troubled Asset Relief Program, or TARP.
If you’re still keen to invest in Citi, despite its formidable challenges, you may be better served buying calls options. As of November 26, the premium for a January 2010 call with a strike price of $10 was around $2.65.
Dow Jones Industrials index closed at 8829.04, up 9.73% for the (short) week. S&P 500 climbed up to 896.24, for a weekly gain of 12.03% and Nasdaq closed at 1535.57, up 10.92%.
Next week may bring some down days. The history says the best five-days rallies were often followed by retreats averaging 2.4% over the next five days, according to Bespoke Investment Group.
There are reasons to be optimistic about the future. First, this is the human nature, and second, there are signs we can count on. China’s stock market, down 72% since 2007 peak, has recently recouped 11%. In the U.S., energy stocks have begun to outperform the S&P 500 since late-October. The markets may take a blow if there is another credit crisis blossoming somewhere (CMBS, maybe?) but we’ve gotten quite pessimistic lately. The public sentiment is really dismal. Hear this: the word of the year – “bailout” – according to Merriam-Webster, due to the highest lookups on its online dictionary. The VIX has made a lower low on November 20 at 81, which is less than its previous low, at 90. This means the panic is exhausting.
*Black Friday*
It’s called Black Friday because this is supposed to be the day when retailers are getting back to making a profit for the year. Well, early data shows that the holiday shopping season got off to a great start, much better than last year. Sales during the day after Thanksgiving rose 3% to $10.6 billion (preliminary data) compared to $10.3 billion last year. The data comes from 50,000 outlets tracked by ShopperTrak RCT Corp, a Chicago based firm. Now, that’s good, but a reason may be the deep discounts the retailers throw at consumers, to lure them into the stores. I think the holiday will still be one of the weakest ever, because the contraction in spending is still there, and the season is shorter – 27 days till Christmas compared to 32 last year.
*Thinking of buying Citi? Flip a coin. *
If you enviously watched Citi going from $3.11 to $8.29 in just one week, kicking yourself because you haven’t bought it then, you are not alone. But it will still be wiser to wait until the smoke clears until buying some shares. Yes, the shares are cheaper than dirt at $8.29 a piece, if you think that Citi will earn more than $2 per share later. The company has yet to prove itself that it can survive, let alone thrive, after receiving the lifeline from the government last week. Citi had to write down a staggering $44 billion since the third quarter of 2007, mostly because of the bad investment in the mortgage debt. As part of the rescue plan, the Treasury will invest $20 billion in Citi preferred stock via the Troubled Asset Relief Program, or TARP.
If you’re still keen to invest in Citi, despite its formidable challenges, you may be better served buying calls options. As of November 26, the premium for a January 2010 call with a strike price of $10 was around $2.65.
Sunday, November 23, 2008
Company of the Week - November 23, 2008 - Dollar Tree, Inc
Very fittingly in this environment, the company of the week is Dollar Tree (Ticker: DLTR), a deep discounter based in Chesapeake, Virginia. It sells gifts and novelty items at a dollar or less in price. But in the recent years, the company moved beyond themed holiday goods and party knickknacks to sell things people need every day: food, water, household cleaners, health and beauty. They sell brand names as well, like Bumble Bee, Del Monte and Progresso, all priced at a buck. The strategy seems to be paying off, Dollar Tree managing to increase same-store sales in nine of the 10 last quarters. The company will report its earnings on Tuesday, but they’ve already preannounced that same-store sales in the third quarter rose 6.2%. Overall sales grew by 11.6%. Company profit guidance is 40 to 43 cents a share, but analysts are looking for 44 cents. About an year ago, Dollar Tree began accepting Visa in their stores. Visa’s sales contributed a percentage point of sales growth, as Dollar Tree shoppers using Visa cards spend more. The average Dollar Tree customer paying by cash or check spends just $5 to $6, but Visa customers spend $16 to $17 on average. Another paying option, food stamps, is also helping drive traffic and sales. There is plenty of room to grow, according to CEO Sasser. At the end of the second quarter, the chain had 3,517 stores. In just the first half of this year, Dollar Tree opened 133 new stores. In time, it could have 5,000 to 7,000 stores in the U.S, according to Sasser. The newest acquision, Deal$, made in 2006 adds more goods at various price points, a slight departure from the buck-or-less formula. Last year, Dollar Tree added 23 new Deal$ stores, and another 14 were opened this year. Deal$ still represents a small portion of Dollar Tree sales, roughly 6% to 7%. As the consumers are under pressure to tighten their belts, Dollar Tree can prosper for a while.
Weekly Recap - November 23, 2008
A guy falling down a high rise thinks to himself “so far so good, so far so good” as he passes each floor on his way down. But is not the falling that counts, is the landing. The market is looking for any good news in this environment to stop the falling. Friday, the markets cheered the nomination of Timothy Geithner as the new Secretary of the Treasury, and rebounded about 6%. Who is Timothy Geithner? He is currently the head of the New York Federal Reserve, but I don’t think it would have mattered for the markets. Just the idea of change is enough to get them started.
However, the major indices are still down for the week, even with Friday’s nice rally. Dow Jones Industrial Average sits at 8,046, down 5.3% for the week, S&P500 dropped 8.4% to 800, after hitting 741 early Friday, and Nasdaq Composite Index lost 8.7% to 1,384. One of the interesting facts of this week is that S&P 500 dividend yield, about 3.79%, exceeded the 10-year Treasury yield, about 3.20%, for the first time in half a century. While many dividends will likely be cut next year, which will send the equity yields back down, the cross suggests that stocks are cheaply valued. The bear camp simply says that it means no more earnings growth for a while. One bearish indicator: the insider buying and company buybacks. With stocks almost down 50%, many would think that the companies are scrapping up cash in order to buy back their battered stock, but that’s not the case. For the 10 days ended November 19, announced new stock buybacks averaged $420 million a day, down almost 90% from $3.6 billion in November – December of 2007. Insiders follow the same pattern, buying back $3.4 billion in the past two months, down 24% from the year-ago period, when stocks were double than they are now.
There are not many places to hide these days. Strong health-care stocks, usually a defensive group, are getting thrown out with the financials. So far, they are down 35%. One of the companies being in this situation is Medco Health Solutions (MHS), the country’s biggest pharmacy benefits manager, which is down a third from its highs of $37.32. The indiscriminate selling has gotten Medco at a PE of 14 times forward earnings, lower than its growth rate, which is rare. The numbers look good: for the first nine months, Medco sales rose 17% to $38.3 billion and profits 25% to $829 million, or $1.74 a share. Medco expects 2008 earnings of $2.30 - $2.33 a share, up 20% from 2007, and $2.67-$2.77 next year, up 15%. It also plans to buy back $3 billion of shares.
Wild VIX
We are heading towards the most volatile market ever. The S&P 500 three-month realized volatility is now 66%, within striking distance of the 68% peak of the 1929 crash. We will likely pass it in short time, making this market the highest sustained volatility environment in S&P 500 history. No one trading options these days has experienced situations like this one. The average peak in volatility during the last nine bear markets since 1950 was 30%, with a high of 64% in 1987. The options market’s fear gauge, the Chicago Board Options Exchange’s Market Volatility Index (VIX) which is calculated by measuring the implied volatility of certain S&P500 index options expiring in 30 days, set a new all-time closing high of 80.90 on Thursday. This spells trouble for stocks. VIX at 80 implies a S&P500 average daily move of about 5%.
Other news:
- Detroit automakers failed to secure $25 bil in loans from Congress as lawmakers required a business plan to return to profitability. I wonder how could the Big 3 go to Capitol Hill without a plan.
- Citi and JP Morgan Tumble – As a proof that we still don’t know how many more losses are to come from the big financials, Citi and JPM shares plunged 60% and 34%, respectively, as concerns grew that the banks will be forced to write off billions of dollars in losses in the coming quarter.
- New jobless claims hit a 16-year high of 545,000 while continuing claims topped 4 mil for the first time since ’82.
- Housing starts in October fell to their slowest pace going back 50 years
However, the major indices are still down for the week, even with Friday’s nice rally. Dow Jones Industrial Average sits at 8,046, down 5.3% for the week, S&P500 dropped 8.4% to 800, after hitting 741 early Friday, and Nasdaq Composite Index lost 8.7% to 1,384. One of the interesting facts of this week is that S&P 500 dividend yield, about 3.79%, exceeded the 10-year Treasury yield, about 3.20%, for the first time in half a century. While many dividends will likely be cut next year, which will send the equity yields back down, the cross suggests that stocks are cheaply valued. The bear camp simply says that it means no more earnings growth for a while. One bearish indicator: the insider buying and company buybacks. With stocks almost down 50%, many would think that the companies are scrapping up cash in order to buy back their battered stock, but that’s not the case. For the 10 days ended November 19, announced new stock buybacks averaged $420 million a day, down almost 90% from $3.6 billion in November – December of 2007. Insiders follow the same pattern, buying back $3.4 billion in the past two months, down 24% from the year-ago period, when stocks were double than they are now.
There are not many places to hide these days. Strong health-care stocks, usually a defensive group, are getting thrown out with the financials. So far, they are down 35%. One of the companies being in this situation is Medco Health Solutions (MHS), the country’s biggest pharmacy benefits manager, which is down a third from its highs of $37.32. The indiscriminate selling has gotten Medco at a PE of 14 times forward earnings, lower than its growth rate, which is rare. The numbers look good: for the first nine months, Medco sales rose 17% to $38.3 billion and profits 25% to $829 million, or $1.74 a share. Medco expects 2008 earnings of $2.30 - $2.33 a share, up 20% from 2007, and $2.67-$2.77 next year, up 15%. It also plans to buy back $3 billion of shares.
Wild VIX
We are heading towards the most volatile market ever. The S&P 500 three-month realized volatility is now 66%, within striking distance of the 68% peak of the 1929 crash. We will likely pass it in short time, making this market the highest sustained volatility environment in S&P 500 history. No one trading options these days has experienced situations like this one. The average peak in volatility during the last nine bear markets since 1950 was 30%, with a high of 64% in 1987. The options market’s fear gauge, the Chicago Board Options Exchange’s Market Volatility Index (VIX) which is calculated by measuring the implied volatility of certain S&P500 index options expiring in 30 days, set a new all-time closing high of 80.90 on Thursday. This spells trouble for stocks. VIX at 80 implies a S&P500 average daily move of about 5%.
Other news:
- Detroit automakers failed to secure $25 bil in loans from Congress as lawmakers required a business plan to return to profitability. I wonder how could the Big 3 go to Capitol Hill without a plan.
- Citi and JP Morgan Tumble – As a proof that we still don’t know how many more losses are to come from the big financials, Citi and JPM shares plunged 60% and 34%, respectively, as concerns grew that the banks will be forced to write off billions of dollars in losses in the coming quarter.
- New jobless claims hit a 16-year high of 545,000 while continuing claims topped 4 mil for the first time since ’82.
- Housing starts in October fell to their slowest pace going back 50 years
Tuesday, November 18, 2008
Weekly Recap - November 16, 2008
Stocks have hit a new low during Thursday’s session, on mounting evidence of quickening economic decline, but the buyers returned from the sidelines once the Dow hit 8000, and sent it straight up. And speaking the language of technical analysis, S&P500 has held to its support of 840. Should it break through it, the next level of support is 769, its October 2002 low. The 840 pts support line could be tested next week as well, as we helplessly noticed during Thursday’s final hour. Oil has continued its astonishing descent, from a peak of $147 in July to $57 this week, on continuing weak global demand, which puts some money back into consumers’ pockets. It seems that just yesterday – OK, July – that the picture was reversed and the $147 price was ‘justified’ by the increased global demand. Huh?
Every bit of help in the right direction is welcome. Governments around the world continue to throw money at the problem, with China announcing the $586 bailout – the Chinese TARP – and Korea cutting rates. Europe is already in recession, WSJ announced yesterday, and the leaders gathered in D.C. this weekend to figure out a solution. It’s the first recession for the euro zone – the 15 countries that now use the euro currency – since 1999, when the shared currency was launched. Most economists doubt that any new rescue plan will come out of D.C.
On other news:
- U.S. Won’t Buy Mortgages – Treasury Secretary Henry Paulson said the government won’t buy troubled mortgage debt from banks – the original focus of the $700 billion financial rescue plan. Instead, it’ll keep injecting capital directly into banks and will try to help revive securitization markets for credit card, auto and other consumer debt. Paulson said the TARP should not be used for automaker aid. Hmm, you wanna bet?
- Retail Sales, Outlook Grim – October retails sales fell a record 2.8% vs. Sept, as job losses and other economic woes kept consumers on hold. Circuit City filed for bankruptcy amid what larger rival Best Buy called the worst retail climate in its history. Several dept stores and apparel chains also expect a tough holiday season. Wal-Mart beat Q3 views and is reasonably upbeat.
- Jobless Claims Hit 516,000 – New claims rose 32,000 to their highest since just after 9/11. The number of people still collecting benefits jumped 65,000 to 3.987 million, a 25-yr high. Businesses continue to slash jobs, as Sun Microsystems will cut 5,000-6,000 jobs, or 15-18% of its job force. Citi will cut 10,000 jobs. Applied Materials, Fidelity, Office Max, Textron, US Steel and others announced layoffs.
- Intel, Nokia Weigh On Tech – Intel sees Q4 sales of roughly $9 billion vs. its old midpoint of $10.5 billion, citing weakness across the board. No. 1 cell phone firm Nokia cut industry targets for Q4 and ’09. Researcher IDC cut its ’09 tech spending growth forecast to 2.6%. Intel fell 9%, Nokia 18%.
- Lenders Redo Mortgages – Owning or backing $5 trillion in mortgages, Freddie Mac and Fannie Mae will modify delinquent loans by cutting rates, extending terms or reducing principal. Citi offered to revise $20 billion in home loans. The FDIC called for using $24 billion of the $700 bil rescue fund to help 1.5 million homeowners avoid foreclosure.
- Dollar Firms, Crude Slips – The dollar fell hard Thursday, but ended the week higher vs. the euro as data showed the euro zone in its first recession. December crude settled $1.20 lower to $57.04 a barrel, a 7% drop for the week. Copper and silver jumped 8%, as gold edged up 1%.
- Credit Markets Gains Stall – The 3-month dollar Libor rate rose Thu-Fri from 4-yr lows after diving from the Oct. 10 4.82% peak. Despite Fed buys, commercial paper barely rose last week after big gains the prior 2 weeks. But there were signs that huge Fed liquidity efforts are satisfying banks.
Every bit of help in the right direction is welcome. Governments around the world continue to throw money at the problem, with China announcing the $586 bailout – the Chinese TARP – and Korea cutting rates. Europe is already in recession, WSJ announced yesterday, and the leaders gathered in D.C. this weekend to figure out a solution. It’s the first recession for the euro zone – the 15 countries that now use the euro currency – since 1999, when the shared currency was launched. Most economists doubt that any new rescue plan will come out of D.C.
On other news:
- U.S. Won’t Buy Mortgages – Treasury Secretary Henry Paulson said the government won’t buy troubled mortgage debt from banks – the original focus of the $700 billion financial rescue plan. Instead, it’ll keep injecting capital directly into banks and will try to help revive securitization markets for credit card, auto and other consumer debt. Paulson said the TARP should not be used for automaker aid. Hmm, you wanna bet?
- Retail Sales, Outlook Grim – October retails sales fell a record 2.8% vs. Sept, as job losses and other economic woes kept consumers on hold. Circuit City filed for bankruptcy amid what larger rival Best Buy called the worst retail climate in its history. Several dept stores and apparel chains also expect a tough holiday season. Wal-Mart beat Q3 views and is reasonably upbeat.
- Jobless Claims Hit 516,000 – New claims rose 32,000 to their highest since just after 9/11. The number of people still collecting benefits jumped 65,000 to 3.987 million, a 25-yr high. Businesses continue to slash jobs, as Sun Microsystems will cut 5,000-6,000 jobs, or 15-18% of its job force. Citi will cut 10,000 jobs. Applied Materials, Fidelity, Office Max, Textron, US Steel and others announced layoffs.
- Intel, Nokia Weigh On Tech – Intel sees Q4 sales of roughly $9 billion vs. its old midpoint of $10.5 billion, citing weakness across the board. No. 1 cell phone firm Nokia cut industry targets for Q4 and ’09. Researcher IDC cut its ’09 tech spending growth forecast to 2.6%. Intel fell 9%, Nokia 18%.
- Lenders Redo Mortgages – Owning or backing $5 trillion in mortgages, Freddie Mac and Fannie Mae will modify delinquent loans by cutting rates, extending terms or reducing principal. Citi offered to revise $20 billion in home loans. The FDIC called for using $24 billion of the $700 bil rescue fund to help 1.5 million homeowners avoid foreclosure.
- Dollar Firms, Crude Slips – The dollar fell hard Thursday, but ended the week higher vs. the euro as data showed the euro zone in its first recession. December crude settled $1.20 lower to $57.04 a barrel, a 7% drop for the week. Copper and silver jumped 8%, as gold edged up 1%.
- Credit Markets Gains Stall – The 3-month dollar Libor rate rose Thu-Fri from 4-yr lows after diving from the Oct. 10 4.82% peak. Despite Fed buys, commercial paper barely rose last week after big gains the prior 2 weeks. But there were signs that huge Fed liquidity efforts are satisfying banks.
Sunday, November 9, 2008
Company of the Week - November 9, 2008 - ICU Medical
The company’s niche is single-use medical and surgical products.
Its line includes:
• Caterers and disposable connectors that cut the chances of catheter-related infections
• Safe needles to prevent accidental harm to practitioners
• Heart-monitoring systems
• Devices for administering intravenous cancer drugs without the risk of contamination to the drug or exposure of health workers to dangerous spray or vapor.
• Customized intravenous sets built to order for the health professionals who use them to administer infused drugs to patients.
The company focuses on niches where there’s no competition. That’s an interesting concept. Instead of going after markets already dominated by health industry giants, their philosophy has been to attack the empty markets. The company has competition – bummer!- from Baxter International, Cardinal Health, Becton Dickinson, Fresenius, Edwards Lifesciences, Merit Medical and Hospira, but none of them competes across all of ICU’s product lines.It’s quite a recession proof company, as they are not affected by consumer consumption. On Oct. 16, the company raised guidance for fiscal 2008 revenue to $199 million to $203 million. Its previous target was $190 million to $200 million. Earnings expectations are of $1.48 to $1.53, up from $1.35 to $1.45. It also reported a 68% third-quarter earnings increase, pushing the stock from 27 to 35. The company sits on $100 million in cash, but the investors are more excited about a deal ICU Medical has made with Premier, a distributor of health and surgical products to hospitals. Premier is a bulk buyer, giving hospitals, clinics and group practices extra purchasing power. Starting in 2009, Premier will market and distribute products from ICU. The deal will give ICU access to 2,000 hospitals and 50,000 other sites it could not previously reach. The deal was signed on August 7, and it runs for five years. Dr. George Lopez, the company CEO, is focusing attention to expanding its European sales, where he sees a lot of opportunity. It’s building a plant in Slovakia, to be able to deliver anywhere in Europe within 48-72 hours.
Its line includes:
• Caterers and disposable connectors that cut the chances of catheter-related infections
• Safe needles to prevent accidental harm to practitioners
• Heart-monitoring systems
• Devices for administering intravenous cancer drugs without the risk of contamination to the drug or exposure of health workers to dangerous spray or vapor.
• Customized intravenous sets built to order for the health professionals who use them to administer infused drugs to patients.
The company focuses on niches where there’s no competition. That’s an interesting concept. Instead of going after markets already dominated by health industry giants, their philosophy has been to attack the empty markets. The company has competition – bummer!- from Baxter International, Cardinal Health, Becton Dickinson, Fresenius, Edwards Lifesciences, Merit Medical and Hospira, but none of them competes across all of ICU’s product lines.It’s quite a recession proof company, as they are not affected by consumer consumption. On Oct. 16, the company raised guidance for fiscal 2008 revenue to $199 million to $203 million. Its previous target was $190 million to $200 million. Earnings expectations are of $1.48 to $1.53, up from $1.35 to $1.45. It also reported a 68% third-quarter earnings increase, pushing the stock from 27 to 35. The company sits on $100 million in cash, but the investors are more excited about a deal ICU Medical has made with Premier, a distributor of health and surgical products to hospitals. Premier is a bulk buyer, giving hospitals, clinics and group practices extra purchasing power. Starting in 2009, Premier will market and distribute products from ICU. The deal will give ICU access to 2,000 hospitals and 50,000 other sites it could not previously reach. The deal was signed on August 7, and it runs for five years. Dr. George Lopez, the company CEO, is focusing attention to expanding its European sales, where he sees a lot of opportunity. It’s building a plant in Slovakia, to be able to deliver anywhere in Europe within 48-72 hours.
Weekly Recap - November 9, 2008
Not a bad week after all. We have elected a new president, Barack Obama, and the Chicago Business School got a new name: Chicago Booth, for a cool $300 million, both historical events that will affect our lives for years to come. As hope usually dies last, we can all hope that these changes will bring better life for ourselves. That’s fine, but prepare for the worst and hope for the best. Because the economy is not getting any better any time soon. President-elect Obama has his work cut out for him, dealing with so many issues that it pains me just to enumerate them here. I’d say, why wait until January 20th to let Obama in the White House? The sooner, the better as it stops Bush from making other mistakes and increase the risk of ruin for the economy.
Under Obama, there will be clearly some winners and some losers. Let’s take a look.
The Market
Latest swings in the market – the huge rally on the election day followed by erasing the gains the days after the election – signaled market’s uneasiness about what’s to come in the next two months, as it looks for direction from Obama’s cabinet. The seesawing may very well continue, until we know how will Obama deal with the credit crisis. One of the first moves will probably be replacing Mr. Paulson with either Lawrence Summers, former Clinton Treasury Secretary or New York Fed President Timothy Geithner, but Mr. Obama has said that it will approach this decision with great care.
Financial Services
The banks may take some more beating under Obama, as more regulations may be implemented, which will reduce returns. The financial stocks have gotten so cheap now that they will be the first ones to bounce back once the smoke clears. The S&P financial index is down about 51% this year, trading at 11.3 ’09 earnings, versus a 36.6% drop for the S&P500.
Infrastructure
Muni bonds are gaining some appeal lately, as Obama has made clear that the infrastructure of
the nation needs improvement. The Obama administration will likely send money to the states to allow them to complete old project and start new ones. But playing in the infrastructure stocks may be trickier. Don’t just hope that this government spending plan will turn around entire industries, like steel for example, where United States Steel (ticker: X) is down 72% for the year.
Defense
You may be tempted to put defense sector under losers, as lovable House Financial Services Chairman Barney Frank said that the budget defense should be cut 25%. Not so fast! Obama is in a tight situation, and with other issues at stake, he has little room to maneuver here. Even if he pulls troops out of Iraq (pulling them out costs as much as putting them into the country), he wants to add more troops in Afghanistan, so it’s a wash. He can’t really cut the weapons spending. The unintended consequences of cutting Lockheed Martin’s F-35 jet, for example, could be disastrous. Some of the U.S. key allies may be hurt, as they want to buy the jet and put money into the R&D budget. For these reasons, the defense stocks may be oversold. Raytheon (Ticker: RTN) boosted estimates for 2009 earnings in recent weeks, and it’s now trading at a reasonable 10.6 times estimated earnings for 2009. Lockheed’s shares (Ticker: LMT) have fallen 25% this year and trade at a reasonable 9.8 times estimated 2009 earnings. Northrop Grumman (Ticker: NOC), down 44% year to date, trades at 8.2 times 2009 estimates.
Green Energy
Obama’s promise to create a green energy industry has alternative energy stocks in everyone’s attention now, despite recent sell-offs in the sector. Manufacturing capacity is constrained by the high cost of credit, but the winners may emerge from the better positioned players, such as Danish wind-turbine producer Vestas Wind Systems (Ticker: VWDRY), and solar MEMC Electronic Materials (Ticker: WFR). Because Obama supports a carbon cap-and-trade system to curb greenhouse gases, U.S. utilities could move away from coal to alternatives like natural gas. Given the weak economy, the plan may be put on hold for a while, but eventually it could hurt coal producers like Peabody Energy (Ticker: BTU) and Massey Energy (Ticker: MEE).
Auto Makers
Obama is committed to rescue the U.S. auto industry, which he called “the backbone of American manufacturing.” But this has to be treated carefully, for all we remember Fannie and Freddie disasters. Detroit’s costs are too high and there is excess capacity.
Health Care
Drug companies may take some big hits, as Obama and the Democrats are trying to come up with an universal health care system, which will bring down the costs of drugs and services. Shares of Pfizer (Ticker: PFE) and GlaxoSmith-Kline (Ticker: GSK) both fell 8% the day after the election. Some winners may be Teva Pharmaceutical (Ticker: TEVA), a generic drug maker. Medco Health Solutions (Ticker: MHS) and Express Scripts (Ticker: ESRX) could also benefit, as each offers pharmacy-benefits services. But the best hope for the health care sector is this: the public needs a hefty dose of painkillers while Obama finds a way out of the current fiscal mess.
Other news:
• Joblessness hits 14-Yr High of 6.5% - Employers cut 240,000 jobs in October, worse than expected, with broad declines across industries, and pointing to a severe and rapid recession
• Pending home sales fall 4.6% - and they could fall even more in October and November, signaling that the sharp recession may pressure home sales.
• Bank lending rates keep falling – the 3-month dollar-based LIBOR fell 10 ticks to 2.29%, a 4-yr low and well off the Oct. 10 peak of 4.83%. The overnight rate held at a record low.
• Factory, service data dive – the ISM manufacturing index fell 4.6 points in October to 38.9, a 26-yr low, with a plunge in output and orders – including export demand. ISM’s service-sector index slid 5.8 pts to a new low of 44.2. Factory and service indexes fell sharply worldwide, even in China.
• The dollar strengthens, oil dips – the dollar gained against the euro and pound, but the yen outpaced the pack. Crude futures settled off $6.77 for the week to $61.04 a barrel. Gold climbed 2.2%. Other metals were mixed.
Under Obama, there will be clearly some winners and some losers. Let’s take a look.
The Market
Latest swings in the market – the huge rally on the election day followed by erasing the gains the days after the election – signaled market’s uneasiness about what’s to come in the next two months, as it looks for direction from Obama’s cabinet. The seesawing may very well continue, until we know how will Obama deal with the credit crisis. One of the first moves will probably be replacing Mr. Paulson with either Lawrence Summers, former Clinton Treasury Secretary or New York Fed President Timothy Geithner, but Mr. Obama has said that it will approach this decision with great care.
Financial Services
The banks may take some more beating under Obama, as more regulations may be implemented, which will reduce returns. The financial stocks have gotten so cheap now that they will be the first ones to bounce back once the smoke clears. The S&P financial index is down about 51% this year, trading at 11.3 ’09 earnings, versus a 36.6% drop for the S&P500.
Infrastructure
Muni bonds are gaining some appeal lately, as Obama has made clear that the infrastructure of
the nation needs improvement. The Obama administration will likely send money to the states to allow them to complete old project and start new ones. But playing in the infrastructure stocks may be trickier. Don’t just hope that this government spending plan will turn around entire industries, like steel for example, where United States Steel (ticker: X) is down 72% for the year.
Defense
You may be tempted to put defense sector under losers, as lovable House Financial Services Chairman Barney Frank said that the budget defense should be cut 25%. Not so fast! Obama is in a tight situation, and with other issues at stake, he has little room to maneuver here. Even if he pulls troops out of Iraq (pulling them out costs as much as putting them into the country), he wants to add more troops in Afghanistan, so it’s a wash. He can’t really cut the weapons spending. The unintended consequences of cutting Lockheed Martin’s F-35 jet, for example, could be disastrous. Some of the U.S. key allies may be hurt, as they want to buy the jet and put money into the R&D budget. For these reasons, the defense stocks may be oversold. Raytheon (Ticker: RTN) boosted estimates for 2009 earnings in recent weeks, and it’s now trading at a reasonable 10.6 times estimated earnings for 2009. Lockheed’s shares (Ticker: LMT) have fallen 25% this year and trade at a reasonable 9.8 times estimated 2009 earnings. Northrop Grumman (Ticker: NOC), down 44% year to date, trades at 8.2 times 2009 estimates.
Green Energy
Obama’s promise to create a green energy industry has alternative energy stocks in everyone’s attention now, despite recent sell-offs in the sector. Manufacturing capacity is constrained by the high cost of credit, but the winners may emerge from the better positioned players, such as Danish wind-turbine producer Vestas Wind Systems (Ticker: VWDRY), and solar MEMC Electronic Materials (Ticker: WFR). Because Obama supports a carbon cap-and-trade system to curb greenhouse gases, U.S. utilities could move away from coal to alternatives like natural gas. Given the weak economy, the plan may be put on hold for a while, but eventually it could hurt coal producers like Peabody Energy (Ticker: BTU) and Massey Energy (Ticker: MEE).
Auto Makers
Obama is committed to rescue the U.S. auto industry, which he called “the backbone of American manufacturing.” But this has to be treated carefully, for all we remember Fannie and Freddie disasters. Detroit’s costs are too high and there is excess capacity.
Health Care
Drug companies may take some big hits, as Obama and the Democrats are trying to come up with an universal health care system, which will bring down the costs of drugs and services. Shares of Pfizer (Ticker: PFE) and GlaxoSmith-Kline (Ticker: GSK) both fell 8% the day after the election. Some winners may be Teva Pharmaceutical (Ticker: TEVA), a generic drug maker. Medco Health Solutions (Ticker: MHS) and Express Scripts (Ticker: ESRX) could also benefit, as each offers pharmacy-benefits services. But the best hope for the health care sector is this: the public needs a hefty dose of painkillers while Obama finds a way out of the current fiscal mess.
Other news:
• Joblessness hits 14-Yr High of 6.5% - Employers cut 240,000 jobs in October, worse than expected, with broad declines across industries, and pointing to a severe and rapid recession
• Pending home sales fall 4.6% - and they could fall even more in October and November, signaling that the sharp recession may pressure home sales.
• Bank lending rates keep falling – the 3-month dollar-based LIBOR fell 10 ticks to 2.29%, a 4-yr low and well off the Oct. 10 peak of 4.83%. The overnight rate held at a record low.
• Factory, service data dive – the ISM manufacturing index fell 4.6 points in October to 38.9, a 26-yr low, with a plunge in output and orders – including export demand. ISM’s service-sector index slid 5.8 pts to a new low of 44.2. Factory and service indexes fell sharply worldwide, even in China.
• The dollar strengthens, oil dips – the dollar gained against the euro and pound, but the yen outpaced the pack. Crude futures settled off $6.77 for the week to $61.04 a barrel. Gold climbed 2.2%. Other metals were mixed.
Wednesday, November 5, 2008
Weekly Recap - November 2, 2008
The worst month in 21 years for the stocks finished with a bang. The major indexes closed the month with double digit gain for the last week, one of the best weeks ever. The Dow Jones Industrial Average ended last week up 946, or 11.3% to 9325. It was the Dow’s biggest one-week point gain ever and its best percentage rise since 1974, but the blue chips are still down 29.7% this year. The S&P500 jumped 92 to 969, and that 10.5% rise was its best since 1974. The Nasdaq Composite Index enjoyed its best week since April 2001 in point or percentage terms as it rallied 169, or 10.9%, to 1721. The Russell 2000 had its best week ever, rising 66, or 14.1%, to 538.
One hot, one cold. The Dow’s 14.1% slide was its worst monthly loss since 1998. The S&P500 absorbed its biggest monthly beating since October 1987 as it fell 16.9%. The Nasdaq skidded 17.7%; the Russell 20.9%.So far, the S&P500 has bounced hard each time it approached its Oct. 10 low near 840, and its ability to hold above that threshold will help sway undecided traders. But a warning sign: Each bounce since has lifted the index to a series of weaker peaks – reaching 1044 on Oct. 14, and the 985 on Oct. 21 and 984 on Friday, hardly a picture of gathering strength. Until that improves, stocks remain mired in a downtrend, with last week’s rise a bear-market bounce.
IBD's Top 10 - Friday Big Week Ends With More Gains
1) The Nasdaq and NYSE composite rose for a 4th straight day, ending a week of big gains. The session also capped one of the worst months ever on Wall Street. On Fri., the Dow gained 1.6%, the S&P 500 1.5%, the NYSE 1.4% and the Nasdaq 1.3%. Volume retreated moderately. Consumer stocks such as auto parts and housewares were among the day's best. Credit Rates Extend Rapid Slide
2) The Libor rate for 3-month bank-to-bank loans in dollars fell nearly 17 basis points to 3.03% — well off the Oct. 10 peak of 4.82% — as global rescue efforts help. The overnight rate fell to 0.4% from 0.73%, well below the Fed's 1% target rate. Some signs point to further big Libor rates on Mon. But there is still some doubt as to how much interbank lending actually is happening.McCain Calls Obama 'Far Left'
3) GOP candidate John McCain warned in Ohio that Dem rival Barack Obama's "far left" policies would undermine an already weak economy, a top concern among voters in a state where unemployment is well above the nat'l average. Obama, in Ill., Iowa and Ind., repeatedly blamed McCain's support of Bush policies for current woes.Chicago Factory Activity Plunges
4) The NAPM-Chicago purchasers index dived to 37.8 in Oct. from 57.7 in Sept., signaling the fastest fall in regional factory activity in 7 years. Output and orders also plunged, labor conditions deteriorated and price pressures eased. It's the latest report showing a rapid reversal in Oct. for factories and the economy overall. ISM releases its U.S. manufacturing index Mon. Dollar Turns After 3-Day Slide
5) A late rally drove Dec. crude futures 3% higher, up $1.85 to $67.81 per barrel. Natural gas sparked 4%. Retail gasoline fell to $2.50 a gallon, down 31% for the month. Copper futures pared losses but closed lower, and down more than 30% in Oct. The dollar, the Swiss franc and the yen rose vs. the euro amid the prospect of European Central Bank rate cuts this week. Japan Cuts Key Rate To 0.3%
6) The Bank of Japan cut its lending rate by 20 basis points, a little less than the 25 ticks investors had expected. That follows rate cuts earlier in the week from the Fed, China, Hong Kong, Taiwan and others. Talk of BoJ action had buoyed Japanese stocks earlier in the week, but the Nikkei fell 5% Fri. on the actual move. Hong Kong stocks fell 2.5%, but Korea's Kospi gained 2.6%.Consumer Spending Fell In Sept.
7) Sept. spending fell 0.3% as job losses and Wall St. woes hurt consumers' ability and will to make purchases. The drop wasn't a surprise after Thu.'s Q3 GDP — also a Commerce Dept. report — showed real consumer spending falling at the fastest pace in 28 years. All signs suggest Oct. and Q4 will be even worse. Real disposable income is flat vs. a year ago.Leading U.S. Index At New Low
8) The Economic Cycle Research Index fell 1.1 points to 112.9 in the week ended Oct. 24. That's the lowest since Oct. '01. The annualized growth rate slumped to -21.9%, the lowest ever, from -19.3% in the prior week. It was -11.6% in mid-Sept. and just -0.6% a year earlier. "The outlook for the economy has darkened dramatically," ECRI said.JPMorgan Holds Off Foreclosures
9) The bank temporarily halted foreclosures as it renegotiates $70 bil in mortgages held by 400,000 customers.JPMorgan, (JPM) which bought Washington Mutual in Sept., is working with owner-occupied mortgages and "homeowners who show a willingness to pay." The bank said it's already modified 250,000 mortgages worth $40 bil in '08.Bernanke: Back Freddie, Fannie
10) Fed chief Ben Bernanke said the gov't should keep backing the seized mortgage lenders' debt, for now. Longer-term, he said the gov't could makeFreddie Mac (FRE) andFannie Mae (FNM) more public — or fully privatize them. The gov't also could create a bond insurer much like the FDIC, which protects bank deposits. Bernanke says mortgage securitization may need some gov't backstop.
One hot, one cold. The Dow’s 14.1% slide was its worst monthly loss since 1998. The S&P500 absorbed its biggest monthly beating since October 1987 as it fell 16.9%. The Nasdaq skidded 17.7%; the Russell 20.9%.So far, the S&P500 has bounced hard each time it approached its Oct. 10 low near 840, and its ability to hold above that threshold will help sway undecided traders. But a warning sign: Each bounce since has lifted the index to a series of weaker peaks – reaching 1044 on Oct. 14, and the 985 on Oct. 21 and 984 on Friday, hardly a picture of gathering strength. Until that improves, stocks remain mired in a downtrend, with last week’s rise a bear-market bounce.
IBD's Top 10 - Friday Big Week Ends With More Gains
1) The Nasdaq and NYSE composite rose for a 4th straight day, ending a week of big gains. The session also capped one of the worst months ever on Wall Street. On Fri., the Dow gained 1.6%, the S&P 500 1.5%, the NYSE 1.4% and the Nasdaq 1.3%. Volume retreated moderately. Consumer stocks such as auto parts and housewares were among the day's best. Credit Rates Extend Rapid Slide
2) The Libor rate for 3-month bank-to-bank loans in dollars fell nearly 17 basis points to 3.03% — well off the Oct. 10 peak of 4.82% — as global rescue efforts help. The overnight rate fell to 0.4% from 0.73%, well below the Fed's 1% target rate. Some signs point to further big Libor rates on Mon. But there is still some doubt as to how much interbank lending actually is happening.McCain Calls Obama 'Far Left'
3) GOP candidate John McCain warned in Ohio that Dem rival Barack Obama's "far left" policies would undermine an already weak economy, a top concern among voters in a state where unemployment is well above the nat'l average. Obama, in Ill., Iowa and Ind., repeatedly blamed McCain's support of Bush policies for current woes.Chicago Factory Activity Plunges
4) The NAPM-Chicago purchasers index dived to 37.8 in Oct. from 57.7 in Sept., signaling the fastest fall in regional factory activity in 7 years. Output and orders also plunged, labor conditions deteriorated and price pressures eased. It's the latest report showing a rapid reversal in Oct. for factories and the economy overall. ISM releases its U.S. manufacturing index Mon. Dollar Turns After 3-Day Slide
5) A late rally drove Dec. crude futures 3% higher, up $1.85 to $67.81 per barrel. Natural gas sparked 4%. Retail gasoline fell to $2.50 a gallon, down 31% for the month. Copper futures pared losses but closed lower, and down more than 30% in Oct. The dollar, the Swiss franc and the yen rose vs. the euro amid the prospect of European Central Bank rate cuts this week. Japan Cuts Key Rate To 0.3%
6) The Bank of Japan cut its lending rate by 20 basis points, a little less than the 25 ticks investors had expected. That follows rate cuts earlier in the week from the Fed, China, Hong Kong, Taiwan and others. Talk of BoJ action had buoyed Japanese stocks earlier in the week, but the Nikkei fell 5% Fri. on the actual move. Hong Kong stocks fell 2.5%, but Korea's Kospi gained 2.6%.Consumer Spending Fell In Sept.
7) Sept. spending fell 0.3% as job losses and Wall St. woes hurt consumers' ability and will to make purchases. The drop wasn't a surprise after Thu.'s Q3 GDP — also a Commerce Dept. report — showed real consumer spending falling at the fastest pace in 28 years. All signs suggest Oct. and Q4 will be even worse. Real disposable income is flat vs. a year ago.Leading U.S. Index At New Low
8) The Economic Cycle Research Index fell 1.1 points to 112.9 in the week ended Oct. 24. That's the lowest since Oct. '01. The annualized growth rate slumped to -21.9%, the lowest ever, from -19.3% in the prior week. It was -11.6% in mid-Sept. and just -0.6% a year earlier. "The outlook for the economy has darkened dramatically," ECRI said.JPMorgan Holds Off Foreclosures
9) The bank temporarily halted foreclosures as it renegotiates $70 bil in mortgages held by 400,000 customers.JPMorgan, (JPM) which bought Washington Mutual in Sept., is working with owner-occupied mortgages and "homeowners who show a willingness to pay." The bank said it's already modified 250,000 mortgages worth $40 bil in '08.Bernanke: Back Freddie, Fannie
10) Fed chief Ben Bernanke said the gov't should keep backing the seized mortgage lenders' debt, for now. Longer-term, he said the gov't could makeFreddie Mac (FRE) andFannie Mae (FNM) more public — or fully privatize them. The gov't also could create a bond insurer much like the FDIC, which protects bank deposits. Bernanke says mortgage securitization may need some gov't backstop.
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