Friday December 15, 2006:

IMMUNICON CORP [IMMC] jumped 30.2% closing at $3.45 following the announcement that VERIDEX LLC, a JOHNSON & JOHNSON [JNJ] company, had received FDA clearance for the CellSearch™ Circulating Tumor Cell Kit from IMMUNICON for the monitoring of breast cancer.

W R GRACE & CO [GRA] surged up 9.3% closing at $20.35 following a bankruptcy court ruling, denying a motion for a summary judgment related to the asbestos claims associated with the company’s Zonolite attic-insulation product. Apparently the court decided that asbestos in the product did not pose “an unreasonable risk of harm.” So, given what we know about the carcinogenic properties of asbestos, we should logically assume this implies the product must pose a reasonable risk of harm!

QUIKSILVER INC [ZQK], which designs, produces and distributes a broad range of outdoor sports apparel brands, shot up 8.3% closing at $15.77 after announcing operating results for the fourth quarter ended October 31^st. The company reported net revenues of $778.4 million for the quarter, up 22% over the same period last year. Net income for the quarter was $65.3 million, up 94% over the same period last year. The stock was downgraded by Wedbush Morgan from “Buy” to “Hold.” Given expectations for a mild winter, and hence weakness for the Rossignol brand, and some weaker growth going forward, with a relatively high P/E ratio (32.7 based on trailing 12 months), we do not see a great deal of upside potential at the moment.

TEKTRONIX INC [TEK] (Scientific & Tech Instr) dropped 9.3% to close at $27.63 after announcing results for the second fiscal quarter ended November 25^th. The company reported net earnings from continuing operations of $19.6 million or $0.24 per share for the quarter, compared with earnings of $0.24 per share last year as well, which was well below the consensus estimate of $0.37 per share. The company reported net sales of $272.8 million, which matched the consensus estimate, up 7.7% from the same period last year. The stock was also downgraded by Robert W. Baird from “Outperform” to “Neutral.”

PRA INTERNATIONAL [PRAI], which provides product development services for pharmaceutical and biotech companies worldwide, plummeted 9.5% closing at $25.63 following the announcement of the resignation of Patrick K. Donnelly as Director, President and CEO. While the departure at this time appears cordial, the reason given – “to embrace new challenges and opportunities” – certainly raises more questions than it answers. The stock was downgraded by Robert W. Baird from “Neutral” to “Underperform,” and by Goldman Sachs from “Buy” to “Neutral.”

BLACK & DECKER CORP [BDK] was hammered down 10% to close at $78.26 following a press release in which it lowered earnings guidance for the fourth quarter and the full year. Earnings are now expected to be in the range of $1.30 to $1.35 per share for the fourth quarter and approximately $6.50 per share for the full year. The consensus estimate for fourth quarter earnings had been $1.86 per share. The company also projects a decline in sales of approximately 8% for the quarter, primarily attributed to the housing decline in the U.S. It would appear that the short-term outlook is still somewhat grim, but that the company is fundamentally very strong and generating strong positive cash flow. A good buying opportunity should materialize in a 3 to 6 month timeframe.

Daily Sector Performance Chart

The week ended on weak note with the average member of the SI Universe posting a loss of 0.11% and only 43.9% of the members posting a positive return for the day. The big sector moves on Friday were Mining (down 1.4%) and Railroads (down 1.1%).

LODGENET ENTERTAINMENT CORP [LNET] (Communication) jumped 15.3% closing at $26.75 on the news that it had entered into a definitive agreement with LIBERTY MEDIA CORP to purchase all of the capital stock of ASCENT ENTERTAINMENT GROUP INC which in turn is the owner of 100% of the capital stock of ON COMMAND CORP for $380 million – in cash and 2.05 million new shares of LNET to be issued. ON COMMAND, like LNET, provides interactive media services to approximately 830,000 hotel rooms in North America and also owns 80% of HOTEL NETWORKS INC, the distributor of ad-supported, satellite-delivered TV programming to approx. 300,000 hotel rooms in the U.S. The closing price was obviously significantly impacted by an arrangement with PAR CAPITAL MANAGEMENT INC which agreed to buy 1 million LNET shares for $23.35 per share, which is conditional on the acquisition of ON COMMAND going forward. No significant opportunities are visible.

Software provider, CHORDIANT SOFTWARE INC [CHRD] (Software) dropped 10.5% to close at $2.91 following the announcement of preliminary results for fiscal 2006 and new guidance for fiscal 2007. For fiscal fourth quarter 2006, ended September 30^th, the company expects a net loss of $8.4 million and a net loss of $16.0 million for the year, on revenues of approximately $97.5 million, representing an increase of approximately 16% over fiscal 2005. The company of course is one of the tardy late filers with the SEC – referred to as the White Rabbits on this blog, with a current gap of 258 days since the last date covered in an official filing. With losses widening, a lack of transparency and restatements of financial statements likely soon, we see little upside potential here. The only apparent good news is that apparently cash and equivalents should be up for the quarter. Likely to become an acquisition target at some point.

SIRF TECHNOLOGY HOLDINGS INC [SIRF] (Electronics & Semi) tumbled 11.5% closing at $26.20 in response to speculation by a Jeffries & Co analyst that TOMTOM NV [TMOAF] may have signed a deal with a privately held competitor (GLOBAL LOCATE) of SIRF for the GPS chipset. While the correction is probably excessive, the current P/E (385 based on trailing 12 months) is absurdly high and cannot be justified by the expected growth of 47%, assuming 2006 revenues are anywhere near the expected $243 million.

Daily Sector Performance Chart

Some persistence in the good news on the earnings front buoyed the market despite a bump in oil prices and the market seems to have the potential for a year end rally before we see any major corrections.  For the day, the average member of the SI Universe posted a gain of 0.59%, with 66% of the members posting a positive return for the day.  Significant sector moves were posted by Mining (down 0.7%), Network Technology (up 2.3%, led by REDBACK NETWORKS [RBAK] and POLYCOM INC [PLCM]) and Railroads (up 2.1%, led by CSX CORP [CSX] and NORFOLK  SOUTHERN CORP [NSC], but they were all gainers for the day).   Airlines surely wanted to fly higher but were held back by the spike in oil.

Wednesday, December 6, 2006:

DIRECTED ELECTRONICS INC [DEIX] (Electronics & Semi) dropped 14.3% closing at $11.28 after lowering guidance fro the 2006 to reflect lower than anticipated sales of satellite radio receivers. Sales for 2006 are not projected to be in the range of $430 to $440 million, compared to earlier guidance of between $440 and $460 million, corresponding to a reduction in growth from about 48% to 43%. Not much of a drop in growth, BUT with a P/E ratio of 389 (good grief!), we do not recommend running out to buy this quite yet.

One of our perennial white rabbits (defined as companies tardy in filing SEC quarterly statements) SIRVA INC [SIR] (Transportation) dropped 11.8% closing at $3.28, after reducing its guidance for 2006 earnings BEFORE interest expense, taxes, depreciation and amortization to between $45 and $55 million, compared to previous guidance of $65 to $80 million. Given the company’s sensitivity to the slowing U.S. real estate market and growing inventory costs within its Global Relocation business, the writing on the wall is pretty grim for SIR. It’s almost two years now since the last 10-Q! Beware.

BLYTH INC [BTH] dropped 11.5% closing at $22.05 after issuing a press release (but not filing an 8-K – Tsk! Tsk!) lowering its outlook for fiscal 2007. For fiscal 2007, the company projects a loss in the range of $2.50 to $2.60 per share. Excluding special items, earnings should be in the range of $1.20 to $1.25 per share. The company apparently plans to continue aggressively paying off the long term debt and eventually the bottom line will benefit from the discontinued operations in Europe, but the biggest upside potential here in the near-term is probably a private equity buyout, given the strong cash flow from operations.

SONICWALL INC [SNWL] (Network Tech) dropped 10.9% closing at $8.81 with an analyst warning from WR Hambrecht based on channel surveys that indicate a soft quarter. Given some less than pleasant experience with the hardware (VERY small sample of ONE!) and a sense that the company really doesn’t position itself well at all for the SOHO environment price-wise, we are inclined not to see any opportunity here.

Another white rabbit, NOVELL INC [NOVL] (Software) dropped 5.4% closing at $5.99 after preliminary announcements of Q4 results in which the fading Netware related sales continue to dangle like an albatross around the rapidly growing Linux platform. Not sure the company is really capable of reinventing itself once again.

ORACLE CORP [ORCL] (Software) dropped 5.2% closing at $17.88 following a warning from an analyst at Lehman suggesting that the company’s fourth quarter sales would likely fall short of expectations. Given the strength of competitive offerings and an appalling lack of innovation, combined with a dizzying pace of acquisition that must be posing significant cultural adjustment problems, it is very likely that investors are in for a rude surprise at some point in the next two quarters. This is not a buying opportunity in our estimation.

MONSTER WORLDWIDE INC [MNST] up 7.5% closing at $45.79 with strong technicals as the price moved above its 200 day moving average and the big staffing companies took some hammering. This looks interesting although the monstrous P/E ratio makes me just want to observe from a distance.

LEADIS TECHNOLOGY INC [LDIS] (Electronics & Semi) up 8.3% closing at $4.71 with no particular news other than a lot of speculation about apparent institutional buying. Relatively low price, but they need to get cash flow positive again soon.

MOVIE GALLERY INC [MOVI] up once again 16% closing at $4.07 apparently on speculation that the company might be close to announcing some relief on the debt front. Since the resolution in our opinion is likely to result in significant dilution and the long-term business prospects for a company that is likely to be hit hard by video-on-demand this is beginning to look a time for extreme caution.

INSPIRE PHARMACEUTICALS [ISPH] (Pharmaceuticals) up an inspiring 16.8% closing at $6.18 with a trading volume that was ten times the average daily trading volume for the past 3 months! Large block trades suggest institutional buying. No immediate upside opportunity, but definitely appears to have a strong balance sheet.

VERSANT CORP [VSNT] (Software) soared 20.3% to close at $14.74 after announcing strong results for the fourth quarter. The company reported revenues from continuing operations or $4.6 million for the quarter, compared to $3.8 million for the same period last year, an increase of approximately 21%. Net income for the quarter was $0.38 per share compared to $0.14 per share for the same period last year. With a P/E ratio of about 15 this company is probably a very strong acquisition target and seems to represent a very strong buy opportunity.

DOCUCORP INTERNATIONAL INC [DOCC] (Software) jumped 30.1% closing at $9.76 announcing it had agreed to a buyout by privately held Skywire Software for about $127 million or $10 per share.

Daily Sector Performance Chart

The average stock in the SI Universe posted a loss of just 0.02%, however the losers significantly outnumbered the winners with only 43.5% of the 3,543 members posting a positive return for the day. The big sector moves were Alternative Energy (down 2.2%), Construction (up 1.3%) and Railroads (down 1.6%).

US AIRWAYS GROUP INC [LCC] shot up 16.8% closing at $59.46 on news that it had made a hostile $8 billion bid for troubled DELTA AIR LINES INC [DALRQ.PK]. This news triggered a feeding frenzy for other potential targets in the Airlines sector. CONTINENTAL AIRLINES INC [CAL] was up 12.3% closing at $43.08, UAL CORP [UAUA] was up 9% closing at $39.99, AMR CORP [AMR] was up 5.4% closing at $32.33, JETBLUE AIRWAYS CORP [JBLU] was up 7.4% closing at $15.13 and NORTHWEST AIRLINES [NWACQ.PK] was up 93.3% closing at $0.84. However, the news was good for all airlines. Regional service providers, like MESA AIR GROUP INC [MESA], REPUBLIC AIRWAYS HOLDINGS INC [RJET] and SKYWEST INC [SKYW] were all down significantly on the assumption that the US AIRWAYS bid could interfere with contracts between DELTA and those regional providers.

EMBREX INC [EMBX] shot up 39.6% closing at $16.64 on the news that Pfizer Animal Health, a division of PFIZER INC [PFE] had agreed to acquire the company for a purchase price of approximately $155 million, or $17 per share in cash. Given PFIZER’s size, there does not appear to be an opportunity here.

RAILAMERICA INC [RRA] rocketed up 27.8% closing at $15.82 on the news that it had agreed to be bought by an affiliate of Fortress Investment Group LLC for about $1.1 billion, or $16.35 in cash per share of RRA. We were just a little tardy on this one, as it popped out on a screen yesterday suggesting it would be an interesting private-equity play.

DAKTRONICS INC [DAKT] jumped 26% closing at $33.60 after reporting very strong fiscal 2007 second quarter results. The company reported net sales of $123.5 million and earnings of $8.9 million, or $0.22 per share, compared with net sales of $75.8 million and earnings of $5.2 million, or $0.13 per share, for the same period last in fiscal 2005. The consensus estimate had been for net sales of $98.42 million and earnings of $0.15 per share. Given the company’s guidance of fiscal 2007 sales at $450 million, an increase of about 14% we find the current P/E ratio of 64 to be much too pricy.

AMERICAN ORIENTAL BIOENGINEERING INC [AOB] was up 17.3% closing at $9.89 after announcing great third quarter results. Both quarterly revenue and earnings more than doubled those of the third quarter 2005. The company expects fourth quarter revenue to be in the range of $37 to $39 million and earnings of at least $0.15 per share, easily topping the consensus estimates of $30.48 million and $0.12 per share, respectively. With a P/E ratio of only 29.17, and no significant debt, this still looks like it has a lot of upside potential.

ARVINMERITOR INC [ARM] advanced 9.1% closing at $17.68 after announcing fourth quarter (ended September 30^th) results that were basically in line with expectations but providing 2007 guidance that was better than expected. The company reported a loss of $261 million, or $3.76 per diluted share, with most of the loss due to a non-cash goodwill impairment charge. Income from continuing operations before special items was $28 million, or $0.40 per diluted share, matching the consensus estimate. The guidance for 2007 is for revenue to be in the range of $8.7 to $8.9 billion and earnings to be in the range of $1.15 to $1.25 per share. The current consensus estimate for 2007 is for revenue to be $8.58 billion and earnings to be $1.07 per share. The Balance Sheet is looking considerably better with a reduction in net debt by $103 million in the fourth quarter and by $501 million over the course of the fiscal year. With only 4% revenue growth over the past year, and a current P/E of about 15.6 it is hard to argue that this stock is undervalued. However, with $400 million in cash flow from operations in the fourth quarter and only $1.18 billion in long-term debt, this could be a private equity target as well.

CAREER EDUCATION CORP [CECO] climbed 7.9% to close at $26.02 on the news that it planned to sell some of its schools and campuses, including the 9 campuses that comprise the Gibbs division; McIntosh College; two campuses belonging to Brooks College; and Lehigh Valley College. The sale will enable CECO to concentrate on its core competencies where it has the greatest competitive advantages and the highest levels of expertise. From this perspective, we think it is a tad early to speculate on the strategy. Generally speaking it makes sense, but before passing judgment, it will be interesting to see how much money is raised by sales and how exactly it is put to use.

ARIAD PHARMACEUTICALS INC [ARIA] was up 7.4% closing at $5.40 on about 5 times the average daily volume with no really dramatic news. Looks like either a short squeeze or the impact of being featured as one of 7 bargain stocks in The Kiplinger Letter http://www.kiplinger.com/magazine/archives/2006/11/seven.html

Daily Sector Performance Chart

It was another strong day in the markets, thanks to encouraging comments following the FOMC meeting, speculation regarding more consolidation in Airlines, and better than expected manufacturing data thanks to the NY Empire State Index. The average gain in the SI universe was 0.79% with 66.7% of the 3,551 members posting positive returns for the day. The big outlier sectors were Airlines (up 4.2%), Alternative Energy (up 4.8%) and Railroads (up 3.9%). Alternative Energy’s big gains were probably due to a press release by PACIFIC ETHANOL INC [PEIX] indicating that it would be delayed in filing its 10-Q for the quarter, BUT that it would be reporting an actual profit for the first time!!! PEIX was up 10%, VERASUN ENERGY [VSE] was up 8.6% and MGP INGREDIENTS INC [MGPI] was up 8%.

Dallas based, HOME SOLUTIONS OF AMERICA INC [HSOA], a provider of restoration and rebuilding services for commercial and residential properties in the U.S., plummeted 14.8% closing at $5.18 after announcing its third quarter results. The company reported revenues from continuing operations for the quarter ended September 30^th, were $49.1 million, up 159% from the revenues from the same period last year. Third quarter earnings increased to a record $8.1 million, or $0.18 per diluted share, compared to $0.08 per diluted share for the same period in 2005. However, this was two cents below the “street” estimate of $0.20 per share (based on only one analyst!). While Accounts Receivable is up sharply for the quarter (2x), it is proportional to the increase in Revenue. The only significant negative in the announcement was the revision of the projected full-year revenue from $160 to $165 million down to $155 to $160 million. The company’s projection for revenue growth in 2007 is 30% over 2006, so with a P/E ratio of about 15, this looks like a great buying opportunity.

ISIS PHARMACEUTICALS INC [ISIS] dropped 8.9% closing at $11.32 with heavy insider selling taking place. Not a good sign! Some concerns regarding long term safety issues with ISIS 301012 have been raised by Marc Lichtenfeld. To be frank, the sample sizes so far are not very convincing when it comes to safety issues in either direction. The slide show from the conference call can be found here.

Daily Sector Performance Chart

It was another strong day thanks to some good quarterly reports (WAL-MART [WMT] reporting better than expected earnings, and INTEL CORP. [INTC] being ahead of schedule with the new quad-core processors, pushing the DJIA to a new record), the Producer Price Index being down more than expected (PPI ex food and energy had the biggest drop in 13 years!) and the continued decline in oil (December light sweet crude settling at $58.28 per barrel), prompted a very broad rally.

The average gain in the SI universe of 3,549 stocks was 1.22% with 76.5% of the members posting positive gains for the day. The outlier sectors were Construction (up an incredibly strong 3.9%), Railroads (down 1.2%) and Tobacco (down 1.1%).

FIRST DATA CORP [FDC] tumbled 7.6% closing at $41.25 as the company released its road show presentation for the upcoming spin-off of Western Union planned for September 29^th. While the presentation focuses on the financial outlook for Western Union, the short term view reflects “softness in its U.S. domestic and U.S. to Mexico consumer-to-consumer money transfer businesses,” which is expected to result in slower growth rates. Strongly recommend looking at the powerpoint. This looks like a rather attractive long-term investment.

GEVITY HR INC [GVHR], a provider of Human Resources services, gravitated down 13.7% closing at $20.92 as it revised downward its guidance for 2006. The cumulative effect of updated third and fourth quarter revenue guidance is for full year growth to be in the range of 8% to 10%, which reduces the previous guidance by 1/3. Gross profits are now projected to grow only 1% to 4% versus previous guidance in the range of 7% to 11%.

ARQULE INC [ARQL] dropped 10.1% closing at $4.02 with no apparent news. As previously announced the company has decided to focus its attention on R&D of cancer therapeutics and exit the pre-existing chemistry services business. The principal chemistry services customer PFIZER terminated a collaborative agreement with the company in the second quarter, so that no chemistry services revenues are expected in the third quarter. The company’s lead oncology drug candidate is ARQ 501 which entered Phase 2 trials this year and the company estimates it takes 2-3 years to complete Phase 2 trials, so we do not expect any really positive news for some time.

SYMBOL TECHNOLOGIES INC [SBL] shot up 15.4% closing at $14.67 apparently on speculation regarding a possible acquisition by MOTOROLA that appeared online in the WSJ on Friday.

PLAINS EXPLORATION & PRODUCTION CO [PXP] popped up 9.7% closing at $43.72 on the announcement that it had sold 3 oil deep-water prospects in the Gulf of Mexico to STATOIL ASA for $700 million. Proceeds from the sale will be used to pay down the company’s debt and fund a planned stock buyback. Given the modest investment by PXP to date, and the apparently high price being paid for unproven reserves, it is clearly a good deal for PXP. The deal does provide some additional long term prospects for STATOIL, which is currently too dependent on aging North Sea wells.

Overall there was not much movement today with the average return for the day being only 0.01%, and 43.1% of the members of the SigmaInverse Universe posting positive returns for the day. Big gainers for the day were the Oil & Gas Production sector (up 1.71% on average) thanks to a bump up in crude oil prices and Railroads (up 1.70% on average).

GENERAL MOTORS [GM] set the tone for the day by obliterating consensus estimates and closing up 4.4% at $32 per share with a volume of more than 30 million shares. However, as the actual earnings approximated consensus estimates, extreme sensitivity to the spin on the announcement was apparent. In the case of GM, we have a remarkable turn-around from the broad based employee discount program of last summer that indiscriminately undermined profitability across all models, pulled future sales forward in the pipeline and undercutting future financial results.

DIGITAL INSIGHT CORP [DGIN] dropped out of sight, down 30.1% closing at $22.11 after announcing second quarter earnings of $.18 per diluted share, well below the $.26 per share that was expected. Raymond James followed the announcement with a downgrade from market outperform to perform. The company provides outsourced online banking applications and services. The decline in the number of Business Banking Contracts (from 671 as of March 31^st to 658 as of June 30^th) is a cause of concern.

SIRF TECHNOLOGY HOLDINGS INC [SIRF] was seriously repositioned downward 23.2% closing at $19.69 after announcing second quarter earnings of $.03 per share which was significantly below the consensus estimate of $.19 per share, and providing guidance for the third quarter that was slightly below expectations. The P/E ratio (60) is still relatively high and modest growth prospects make us question whether there is a big opportunity here.

AMAZON.COM INC [AMZN] was hammered down 21.8% closing at $26.26 after announcing a 55% decline in operating income, compared with last year’s second quarter results. Decreasing margins and online reach are serious concerns for the long term prospects here, so the precipitous decline does not seem to be creating an opportunity. The P/E ratio remains on the high side.

Another victim of disappointing second quarter earnings was GETTY IMAGES INC [GYI] which faded 18.3% closing at $45.12 after reporting earnings of $.35 per share down from $.53 per share last year and well below analysts’ expectations of $.61 per share.

PLANTRONICS INC [PLT] plummeted 21.3% closing at $15.38 after announcing quarterly results significantly below expectations. With a P/E ratio of 9.25, this looks like a very nice long opportunity for those with a six month horizon.

PANERA BREAD CO [PNRA] was knocked down 12.4% closing at $51.93 after meeting second quarter expectations but providing guidance for the third quarter that didn’t quite measure up. We see this as a temporary setback and would view the stock as an interesting long opportunity at this point.

FLORIDA ROCK INDUSTRIES INC [FRK] was hammered down 11.8% closing at $39.85 after announcing third quarter earnings of $.87 per share, representing a 27% increase over the same period last year. Unfortunately, the consensus estimate was for earnings of $.95 per share on revenues of $411.7 million. The company has been able to offset declines in residential construction with higher prices and growth in commercial construction. With continued growth in commercial construction and the fundamental strength of the earnings and low P/E ratio, we see this now as a long opportunity.

JUPITERMEDIA CORP [JUPM] down 10.3% closing at $10.23

CYMER INC [CYMI], the world’s leading supplier of lasers used in semiconductor manufacturing, was zapped 9.6%, closing at $36.67 after reporting earnings of $.55 per share on revenues of $22.6 million, more than twice that of the same period last year. Earnings were significantly better than the consensus estimate of $.42 per share. The company’s guidance for third quarter revenue was in the range of a 5 to 10 percent increase, implying about $145 million versus previous expectations of about $150 million. This is clearly a long opportunity at this level.

SIGMATEL INC [SGTL] up 31.9% closing at $5.08 after announcing its very strong second quarter. The company sold its PC Audio product line to INTEGRATED DEVICE TECHNOLOGY INC [IDTI] for approximately $80 million, which should improve margins and provide resources to help it focus on becoming the “market leading Portable Media Player supplier.” Expect more upside potential for [SGTL] here.

While INTEGRATED DEVICE TECHNOLOGY INC [IDTI] was up 12.1% closing at $3.93, which is unusual for an acquirer, the fact that is back in red ink leaves the jury here in a quandary.

YANKEE CANDEL INC [YCC] up 18% closing at $26.05 after announcing a decline in second quarter earnings due to problems in the wholesale business. The company also reported that it has retained Lehman Brothers to explore the possibilities of a sale of the company, which explains the stock price increase, although it seems far too premature at this point.

BE AEROSPACE INC [BEAV], based in Wellington, Florida, soared 14.8% closing at $23.22 after announcing strong second quarter results and the acquisition of oxygen-systems maker Draeger Aerospace GmbH for approximately $80 million.

MARTHA STEWART LIVING OMNIMEDIA INC [MSO] up 10.3% closing at $16.99 after reporting much smaller than expected losses for the second quarter. The improved situation is attributed to the return of advertisers to its magazines, but until it gets back in the black, we would be very cautious.

Generic drug maker, MYLAN LABORATORIES INC [MYL], rose 10.1% closing at $22.29 after reporting earnings of $.35 per share, when expectations had been for $.28 per share. The company also raised guidance for the full year.

Yet another insurance broker to reap the wild wind with windfall profits from so-called contingent commissions and ultimately benefiting from better-than-expected second quarter results was ARTHUR J GALLAGHER & CO [AJG], which was up 10.1% closing at $27.70. Pretty much the same story as for BROWN & BROWN [BRO] yesterday.

Across the broad scope of the SigmaInverse Universe, the average return for Wednesday was -0.23%, with only about 41% of the universe posting positive returns. Oil & Gas Production was the hot sector for the day, while Railroads and Travel were hit the hardest.

UNITED PARCEL SERVICE [UPS] failed to deliver good earnings guidance for the remainder of the year and had to suffer the consequences. Brown was down 10.25% closing at $71.80 per share.

But BROWN & BROWN [BRO] was far from down. The Florida based insurance broker was reaping the wild wind with windfall profits from higher insurance rates in the wake of recent hurricanes that have hit the south. Its stock was up 11.8% closing at $31.25 with 2.3 million shares trading.

RYANS RESTAURANT GROUP INC [RYAN] shot up to $15.70 per share on the news that it was being acquired by BUFFETS INC for about $692 million or $16.25 per share. Including assumed debt, the price tag is close to $876 million. Both RYANS and BUFFETS have about 340 restaurants each, and the combined entities will create the largest buffet style restaurant chain in the country. BUFFETS was taken private in 2000.

MOMENTA PHARMACEUTICALS INC [MNTA] up 38.1% closing at $18.02 per share after announcing that the generic drug company SANDOZ would be buying a $75 million stake in the Cambridge based biotech company and that the two companies would be partnering in the development of four generic drugs.

AGERE SYSTEMS INC [AGR] up 24.2% closing at $14.90 per share after the company posted third quarter earnings that easily beat expectations. Given the decline in revenues, high P/E ratio and rather ugly trends in the balance sheet with considerable long term liabilities, we do not see a long opportunity here at all.

Unfazed by higher zinc costs, the Energizer bunny left the tortoise (Spectrum Brands) in the dust. ENERGIZER HOLDINGS INC [ENR] surged up 9.8% closing at $60.60, beating expectations for earnings and revenues.

MCGRAW-HILL COMPANIES INC [MHP] up 7.8% closing at $54.32 per share after announcing second quarter earnings of $.60 per share versus expected earnings of $.52 per share. Strength came from the financial services area (Standard & Poors) and the broadcasting group, benefiting from increase political and local advertising.

ENCYSIVE PHARMACEUTICALS INC [ENCY] down 40.3% closing at $3.69 following yet another “approvable” letter from the FDA for Thelin™. Once again it appears to create a speculative opportunity, given some guidance from the FDA in terms of what it needs for final approval and the fact that it already has EMEA approval.  Some historical perspective can be found here and here.

AVAYA INC [AV] dropped 13.7% closing at $9.10 after announcing disappointing earnings of $.10 per share, when analysts were expecting $.12 per share and last year’s second quarter earnings had been $.40 per share.  There was also a change in leadership at the top contributing to uncertainties.

NETFLIX INC [NFLX] dropped 21% closing at $18.78 after easily beating second quarter expectations, but apparently disappointing the market with third quarter guidance. It appears analysts are having a hard time identifying the seasonal pattern that emerges due to the surge from holiday promotions and gift subscriptions which inevitably leads to a blip in second quarter cancellations. The big opportunity here will probably come just before fourth quarter results are announced.

WABTEC CORP [WAB] dropped 21.6% closing at $25.45 after announcing earnings that were up 34% at $.43 per share versus expected earnings of $.42 per share. However, second quarter sales came in at only $261.9 million versus expected $297.6 million. Further confusing the picture was the announcement that the company would be restructuring and shifting production from two Canadian plants in an effort to cut expenses, presumably reducing capacity.

CHAMPION ENTERPRISES INC [CHB] dropped 23% closing at $6.62 despite posting 16.9% revenue growth and second quarter earnings of $1.55 per diluted share including a one-time income tax benefit. Excluding the tax benefit, operating earnings were only $.15 per share versus an expected $.26 per share, easily explained by the continued and expanding softness in the manufactured home industry. The company has benefited from FEMA modular orders as a part of hurricane recovery, but this is not likely to be sustainable and the margins tend to be lower. Can’t see a big opportunity here, despite the drop.

It was nice to see the markets hold onto Monday’s gains. The average member of the SigmaInverse Universe had a daily return of .85% with about 67% of the 3,604 members posting positive returns for the day. The Mining and Oil & Gas sectors were the big gainers, while Online and Railroads took big hits.