wall street nuggets

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%).

VOLT INFORMATION SCIENCES INC [VOL] up 13.8% closing at $54.17 on 62% increase in net income, $0.86 per share compared to $0.54 per share for the fourth quarter last year. However, net sales were only up 3%. Rather high P/E ratio at 33 based on trailing 12 months.

STAGE STORES INC [SSI] jumped 11.5% closing at $33.05 following (1) updated guidance on 2007 earnings that projects a 20% increase over previous guidance, (2) approval of a $50 million Stock Repurchase Program, and (3) a 3-for-2 stock split to be paid as a stock dividend on January 31, 2007 to all holders of record of the company’s common stock at the close of business on January 18, 2007.

INCYTE CORP [INCY] up 11% closing at $7.06 following the announcement of positive clinical results from its HIV and Diabetes programs at the 25^th JPMorgan Healthcare Conference. This was followed by upgrades by UBS from “Neutral” to “Buy” and by Piper Jaffray from “Market Perform” to “Outperform.”

Long standing White Rabbit, CHEESECAKE FACTORY INC [CAKE] jumped 9.9% closing at $26.99 following an announcement that fourth quarter sales had come in at $360.4 million, representing an 18% increase over a comparable 13-week period in 2005. However, earnings continue to be veiled and there is very little visibility into recent operations given the tardiness of the reporting. Comparable restaurant sales were rather unimpressive, increasing only 0.8%.

ALNYLAM PHARMACEUTICALS [ALNY], a leading RNAi therapeutics company, jumped 8.9% closing at $22.22, following the announcement that it had obtained an exclusive worldwide license to a liposomal delivery formulation technology for the discovery, development and commercialization of RNAi therapeutics from a Canadian pharmaceuticals company, INEX PHARMACEUTICALS CORP [TSX: IEX]. RNAi or RNA Interference is a naturally occurring mechanism within cells for selectively silencing and regulating specific genes, and was recognized as a major break through with the award of the 2006 Nobel Prize for Physiology or Medicine. INEX PHARMACEUTICALS has obtained key patents for the development and commercialization of liposomal and/or lipid nanoparticle formulations that are required for systemic delivery of RNAi therapeutics.

APPLE COMPUTER INC [AAPL] soared 8.3% closing at an all time high of $92.57 on extraordinary volume of almost 120 million shares following the announcement of the revolutionary iPhone device due for release in the summer. While we are find the memory options somewhat disappointing, the carrier option (Cingular) disappointing and the price point on the high side, there is much that is compelling and little doubt that it will sell like hot cakes.

SPRINT NEXTEL CORP [S] dropped 11.2% closing at $17.45 on a huge volume of almost 150 million shares. The drop was probably due primarily to the announced decline of 306,000 post-paid subscribers, despite a slight improvement in the post-paid churn rate at 2.3% for the quarter (high compared to other wireless carriers). The planned headcount reduction of about 5,000 in the first quarter may finally reflect some post-merger synergies as the company transitions to a unified customer care, financial systems, device activation, and billing systems. Downgrades by CIBC World Markets, Deutsche Securities, Credit Suisse and HSBC Securities did not help. There is probably an interesting buying opportunity close to this level. The key is probably whether the iDEN network problems are finally solved. Hopefully, they will start to refine the bizarre content of some of the TV ad campaigns based on feedback.

MILLS CORP [MLS] slid 21.8% closing at $14.82 following the announcement that it had completed its investigation into its historical accounting policies and practices. As a result of the adjustments arising in part from the investigation, the company will be restating its financial statements for 2001-2004 and the first 3 quarters of 2005. The expected impact of the corrections is projected to be between $347 and $352 million. It is also noted that the company could be forced to seek protection under Chapter 11 if the company is unsuccessful in its efforts to pay-off the Senior Term Loan by March 31, 2007. See our earlier post:

“And all should cry, Beware! Beware!”

…

And close your eyes with holy dread,

For he on honey-dew hath fed,

And drunk the milk of Paradise.”

From Kubla Khan, by Samuel Taylor Coleridge.

ESCALA GROUP INC [ESCL] tumbled 41.3% closing at $4.54 on the announcement that the company would be delisted by Nasdaq for failure to file financial statements in a timely fashion. There are now about 22 other Nasdaq White Rabbits for which the gap between the last reported period and today is 284 days! (Look at our White Rabbit list for December and focus on the companies for which the Gap value matches that of ESCALA GROUP [ESCL] and the ticker symbol has 4 characters.)

By the way, yesterday’s comments on DYNAVAX TECHNOLOGIES CORP [DVAX] failed to make an important observation. While the failed test of TOLAMBA™ due to the absence of the disease certainly did not provide any evidence that the treatment was not effective, the wasted year of testing probably delayed the final commercialization of the product by that much and probably provided an opportunity for competitors to bring other treatments to market and gain market share – so of course some negative impact on the stock price should be expected. However, the 30% drop still seems a bit excessive for a non-test.

It was a mixed bag on Tuesday but no really strong moves on the part of any one sector. Overall, the average member of the SigmaInverse Universe was up 0.09% with 51.3% of the members posting positive returns for the day. The extremes were Mining, down 1.3% on average. and Restaurants, up 1.5% on average.

LENOX GROUP INC [LNX] was crushed dropping 36.8% to close at $4.19 following news of the departure of its CEO, Susan Engel, and new guidance regarding 2006 earnings.  Excluding special items, the company now projects a net loss from continuing operations of $0.20 to $0.30 per share for fiscal 2006.  Including unusual items, the loss is projected to be in the range of $2.07 to $2.17 per share.  While the long-term debt had been rather high, the company apparently reduced its term debt by $32.9 million, to $48.8 million.  With new management and less debt overhead, it will be interesting to see if this company can get back on track.

JAMES RIVER COAL CO [JRCC] down 17.3% closing at $6.69, following the announcement that the sale of its Bell County Coal Corporation subsidiary has been delayed to the end of the month. The company appears to be in a tough financial position, with very high long-term debt and a very weak current ratio (Current Assets / Current Liabilities). Also note amended Senior Secured Credit Facility effective 12/27/2006.

GLOBAL PAYMENTS INC [GPN] down 16.2% closing at $41.09 apparently because revenues for the second quarter ended November 30^th, only grew at 19%, just meeting expectations. With a P/E ratio of only 24, based on the trailing 12 months, this does appear to be a bargain at this point.

NEUROMETRIX INC [NURO] down13% closing at $12.12 on the news that yet another insurer would not be covering testing for problems like carpal tunnel syndrome using devices like NEUROMETRIX’s NC-stat strap-on device. The stock was downgraded by Punk, Ziegel & Co. from “Buy” to “Accumulate.”

MOTOROLA INC [MOT] was down 7.8% to close at $18.94 on a volume over 175 million shares (more than seven times normal daily volume for the past 3 months) as it reported fourth quarter results that fell well short of consensus estimates.

Downgrades by a host of analysts - Deutsche Securities, Piper Jaffray, CIBC World Markets, Bear Stearns, Oppenheimer and Needham & Co. - contributed more than a little to the downward pressure. To make matters worse, JMP Securities initiated coverage with a “Market Underperform” rating. (Oh, and by the way, Cowen & Co. downgraded the stock on December 19^th.) While units sold increased about 48% at annual rates, the strategy of selling inexpensive phones in emerging markets and significant discounts during the Christmas season, all contributed to lower margins. With lower earnings expectations and no exciting new products in view, buyers are hard to find, despite the very low P/E ratio.

The average member of the SigmaInverse Universe lost 1.3% on Friday, with only 19% of the members posting positive returns for the day and 79.1% posting negative returns for the day.  The only two outlier sectors were Biotech and Education, which both shared the distinction of being the only two sectors to post positive returns for the day.

The new stem cell research legislation which is likely to be proposed in Congress on Friday appears to have stimulated some stocks in the SigmaInverse Biotech sector which was up 1.4% on Thursday (see the chart below). Leading the sector, with significantly higher volume than normal, was STEMCELLS INC [STEM] which was up 16.9% closing at $3.11.

An upgrade to “Neutral” by Merrill-Lynch sparked IMCLONE SYSTEMS INC [IMCL] up 8.0% closing at $29.21. Another biotech company benefiting from an upgrade was GENZYME CORP [GENZ] up 5.6% closing at $65.60, following an upgrade by Robert W. Baird from “Neutral” to “Outperform.”

Up on strong quarterly results were ANGIODYNAMICS [ANGO] which rose 15.6% closing at $25.39 and IMMUCOR INC [BLUD] which was up 7.4% closing at $32.35.

BIOCRYST PHARMACEUTICALS INC [BCRX] jumped 8.1% closing at $12.07 on the news that it had been awarded $102.6 million from the U.S. Department of Health and Human Services to develop an influenza neuraminidase inhibitor for the treatment of seasonal and life-threatening influenza strains, including avian flu.

Overall, the average stock in the SigmaInverse Universe posted a gain of 0.21% on Thursday, with 52.5% of the members posting positive returns for the day and 44.6% posting negative returns for the day.  Unusual sector moves were seen in Mining (down 1.9%), Oil & Gas Production (down 2.0%) and Online Technology (up 1.7%).

With unseasonably warm temperatures across much of the country through Saturday, it is likely that the global warming (GW) impact will exert further downward pressure on Oil & Gas, through the middle of next week.  However, there is an interesting paradox in the fact that, although we see more sunshine every day in the northern hemisphere following the winter solstice, the average daily temperatures will continue to drop well into February, as we continue to lose more heat overnight through radiational cooling than we pick up during the day.  While GW is real, the short term impact of warm weather on the markets appears to be somewhat irrational.

By the way, Thursday’s gainers were more concentrated in the micro cap stocks and we expect to see more of this through the announcements coming out of the Consumer Electronics Show in Las Vegas (January 7-11) next week.

Spurred on by lower oil prices, the Airline sector launched into the first quarter apparently determined to continue the impressive fourth quarter performance. Big gainers in the sector on Wednesday were AMR CORP [AMR] up 8.7% to close at $32.86 and JETBLUE AIRWAYS CORP [JBLU] up 7.0% to close at $15.20. Despite the recent sector gains, there are still some rather attractive P/E ratios among the airlines. Big sector losses for the day were Oil & Gas Production (down 3.7%) and Mining (down 3.9%).

Across the entire SigmaInverse Universe of 3,517 members, the average loss for the day was -0.09% although gainers outnumbered losers, 1,779 to 1,646.

The markets turned south about mid-day on Thursday when the results of the Philadelphia Fed’s Manufacturing Survey were announced. The drop of 4.3% in manufacturing activity was the third negative reading in four months and the biggest drop in more than three years, and provided yet another sign that we are likely to see a correction as we enter 2007.

The average member of the SI Universe lost 0.20% on Thursday, with 36.8% of the members posting positive returns for the day. Unusual sector behavior was seen in Furniture & Fixtures (up 1.0%), Mining (down 1.4%), Pharmaceuticals (up .8%) and Travel (down 1.4%).

One of the leaders in the Furniture & Fixtures sector was HERMAN MILLER INC [MLHR] which was up 4.4% after posting strong results for the second fiscal quarter, ended December 2^nd. Sales for the quarter were $499.1 million, up 13.9% over the same period last year and orders were up an even more robust 22.1%. Net earnings were $36.6 million or $0.56 per share, which was an increase of 31.2% over last year, and in line with consensus estimates. The company provided guidance for third quarter (ending February 7^th) sales of $480 to $500 million, which was substantially above the consensus estimate of $459.47 million, and consistent with year over year growth in the range of 13% to 18%. With a forward P/E ratio of 15.9, strong current quarter corporate profits that are likely to result in significant capital expenditures for office furnishings and the very impressive increase in orders, we see considerable upside potential here, for at least one more quarter, although there are signs that double digit growth may not be sustainable through all of 2007.

PRAECIS PHARMACEUTICALS INC [PRCS] of Waltham, Mass., soared up 145% closing at $4.89 on the news that it was being bought out by GLAXOSMITHKLINE PLC for a cash purchase price of $5.00 per share or $54.8 million - the second acquisition by GLAXOSMITHKLINE PLC [GSK] this week. While we normally don’t track non-US companies, GSK is looking very attractive for some modest, but very stable upside potential.

The Mining sector appears to have a penchant for extreme behavior, being an outlier once again, but this time on the down side. While the SI Universe as a whole was up 0.31%, the Mining sector was down 2.7% on Wednesday. JAMES RIVER COAL CO [JRCC] was the biggest loser dropping 8.2% to close at $8.72. Obviously, one cannot attribute a drop of this magnitude in a single day to just one more mild temperature day, although the cumulative effect of many days of mild temperatures should continue to exert some modest downward pressure on the group. There was no significant news event, so the most likely explanation is another large sell-off by Pirate Capital LLC which last filed a 13D on December 7^th, indicating major sales of JRCC between December 5^th and 7^th, and the ownership of 679 thousand shares. The lack of profitability and long-term debt ($150 million) makes this hard to justify on valuation, but the cash flow from operating activities could make this an attractive buyout opportunity, if they improve on the third quarter result in the current quarter.

Note that the other two big losers in the Mining sector were PEABODY ENERGY CORP [BTU] and HECLA ENERGY CORP [HL] both tumbling 3.5%. We have some concerns regarding the Balance Sheet for PEABODY, but HECLA looks like a interesting buy opportunity.

We need to keep an eye on natural gas inventories tomorrow when the EIA reports its weekly numbers. Given the mild weather, it is likely we will continue to see a significant gap between last year’s storage at this time and the current storage level.

We are sad to see REDBACK [RBAK] being lost as one of our significant growth opportunities for 2007, as it agreed to be acquired by ERICSSON for $2.1 billion or $25 per share - an 18% premium over its closing price on Tuesday.