wall street nuggets

We’ve been a little remiss in posting the weekly summaries of market returns broken down by market capitalization, so as a special treat we will present the weekly summaries for the first January, 2007, in a stacked format that we believe gives a very compelling view of the market’s performance so far this year.

Recall that in each separate graph the first set of bars indicates the returns by day for the large cap stocks (ranks 1-500 in our universe) with the last orange bar being the cumulative return for the week.  The second set of bars indicates the returns by day of the week for the mid cap stocks (ranks 501-1000).  Etc.

The bottom graph provides this view for the first week of the year, and it was pretty ugly, especially in the micro cap area.

The second week of trading was definitely strong across the board, although again Micro2500 bin definitely underperformed the others.

The third week (also a short week with the MLK holiday) was another downer exept for the Large Caps.

The fourth week was definitely a mixed bag and not much to write home about.

The fifth week was stellar, with positive returns for all ranges on all days and cumulative returns for the Micro2000 bin coming in at 3.7% for the week!

It was of course a strong week across all market capitalizations, with the Mid Caps performing best cumulatively for the week (up 2.66%).

NITROMED INC [NTMD] jumped 19.7% closing at $2.92 (Pharma, 6x volume) with no apparent news events. Given the company’s continued relatively high dependence on BiDil and the fact that BiDil XR (Extended Release) is not yet approved, it would not appear that profitability is on the horizon. It is curious to note that the company’s efforts to apply its nitric oxide technology in developing new pharmaceuticals might lead to some synergy with a company like TERRA INDUSTRIES, which engages in the production of nitrogen products for the agricultural market (i.e. fertilizers), and that TERRA is also up rather mysteriously, but this seems like a real stretch.

TERRA INDUSTRIES INC [TRA] rose 12.1% closing at $13.39 (chemicals, 3x volume). While there was no specific news this week other than the debt restructuring efforts announced on Business Wire on Wednesday, there was some intense buying pressure between the opening bell and 1:12 pm, that is hard to explain. The recent insider selling does not seem like a good sign. As noted above, the NITROMED move is also mysterious.

APPLIED DIGITAL SOLUTIONS INC [ADSX] jumped up 12% closing at $2.14 (2.5x volume) with most of the move coming about mid-day. Seems to be fallout from the BusinessWeek.com article on RFID (radio frequency identification device) technology featuring two companies, DIGITAL ANGEL (55% owned by ADSX) and VERICHIP (100% owned by ADSX).

ALKERMES INC [ALKS] was up 8.5% closing at $15.37 (Pharma, 3x volume) probably on some buyout speculation, but be careful. We are still waiting on financial details regarding the collaboration with ELI LILLY AND CO. [LLY] regarding the manufacturing agreement for AIR® Inhaled Insulin.

NAPSTER INC [NAPS] jumped 7.9% closing at $4.12 (Software, 13x volume) after announcing that it will become the exclusive music subscription provider for Time Warner’s AOL Music in a deal estimated to be worth about $15 million. NAPSTER will replace AOL MUSIC NOW® and will involve the migration of approximately 350,000 paid subscribers. It appears the migration should be seamless for current subscribers.

OWENS ILLINOIS INC [OI] surged 7% closing at $21.55 (Manufacturing, 4x volume) after announcing that it had retained Goldman Sachs as a financial advisor in reviewing strategic options, including a possible sale, for its plastics packaging business. With revenue of about $770 million for the 12 months ended September 30^th, it is believed the plastics packaging unit could bring in between $1.6 and $1.8 billion.

ADVANCED MICRO DEVICES INC [AMD] was down 9.5% closing at $18.26 (5.3x volume) after announcing results for the fourth quarter ended December 31^st. Excluding ATI-related sites, revenue is expected to increase just 3%. While fourth quarter income is expected to be positive, it is expected to be substantially lower than in the third quarter, due primarily to lower microprocessor selling prices that are more than offsetting increasing unit sales. The stock was downgraded by Citigroup, Prudential and Bear Stearns.

SCP POOL CORP [POOL] sank 10.4% closing at $36.35 (14x volume). This appears to be more collateral damage from declining residential construction. There is likely to be some more downside, especially given the apparent lag effect, so it appears prudent to wait for the P/E ratio to come down more. Relative to the rest of Construction, [POOL] looks awfully expensive. Avondale Partners downgraded the stock from “Market Outperform” to “Market Perform.”

RC2 CORP [RCRC] tumbled 11.7% closing at $39.31 (10x volume) after reporting lower than expected fourth quarter and year-end preliminary net sales. Increasing zinc costs are resulting in lower margins. In order to focus on its higher growth infant products and children’s toys categories, the company decided last month to discontinue its automotive collectibles business and expects to record a non-cash impairment charge in the range of $6 to $9 million in the fourth quarter. Robert W. Baird downgraded the stock from “Outperform” to “Neutral.” Given a rather low P/E ratio of 15.8 and double digit growth in the infant products and children’s toys categories, this looks reasonable attractive at this level.

VOLT INFORMATION SCIENCES INC [VOL] slid down 16.1% closing at $53.00 (10x volume) with no real news events. P/E ratio of 32.2 still seems high for 7.4% growth in sales reported in today’s 10-K for the year ended October 29, 2006.

The average member of the SigmaInverse Universe posted a gain of 0.73% on Friday, with a strong 64.1% of the members posting positive returns, 32.4% posting negative returns, and 3.5% unchanged. Unusual sector moves were seen in Mining (up 3.7%), Oil & Gas Production (up 2.6%) and Tobacco (down 0.9%).

HORNBECK OFFSHORE SERVICES INC [HOS] was crushed, sinking 22% with volume close to 20 times normal, to close at $26.14. This followed the company lowering earnings guidance for the fourth quarter from a range of $0.72 to $0.77 per share to a range of $0.61 to $0.63 per share. Contributing to the decline was a downgrade by Goldman Sachs from “Neutral” to “Sell.” In addition to the lowered guidance and the downgrade, there was the continued drop in oil prices, and, given the dependency of the company on transporting offshore oil in the Gulf, there was apparently a perfect storm effect, generating some panic in the market.

With a rather attractive P/E ratio of 9.7 and given plans to increase the capacity of the fleet by 30%, this appears to be an great buying opportunity at this price.

Overall, it was a good day in the markets, with the average member of the SigmaInverse Universe gaining 0.95% and a very healthy 72.6% of the members posting positive returns for the day. Strong sector moves were seen for Airlines (up 2.2% - thanks to lower oil prices), Automobiles (up 2.3%), Entertainment (up 2.7%) and Oil & Gas Production (down 0.5%).

While there were not a lot of gains across the domestic markets on Wednesday, it appears that the large gains were definitely concentrated in the large capitalization range (i.e. ranks 1 to 500 in the universe tracked by SigmaInverse).

SYNTROLEUM CORP [SYNM] rose 20.6% closing at $3.81 on volume that was about four times normal with no significant relevant news events. The volume of the trades was also very suspicious with only one spike of 2 million shares at about 2:43 pm. We expect some sort of relevant news leak or a move by one very large institutional investor.

XM SATELLITE RADIO HOLDINGS INC [XMSR] jumped 10.1% closing at $16.65 apparently due to a Citigroup research note released on Wednesday, indicating increased openness on the part of XM SATELLITE for a merger with SIRIUS SATELLITE RADIO INC [SIRI] also up 7.3% closing at $3.98. We continue to believe that speculation on this merger is extremely risky and that, for a least one of the players, there is a more attractive strategy than the merger approach.

Overall, the markets were up with the average member of the SigmaInverse Universe posting a gain of 0.19%, although only 50.2% of the 3,501 members of the Universe posted positive returns for the day. Big sector moves were seen in Airlines (up 1.7% - oil prices down), Oil & Gas Production (down 1.2%) and Travel (up 1.7%).