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%).

It’s probably just a coincidence, but the Airline sector on the busiest day of the year for airlines was the biggest gainer on Daily Sector Performance Chart (see below), thanks to some interesting news events involving regional carriers. Overall, of course trading was light in anticipation of the holiday. The average stock in the SI Universe of 3,521 lost 0.14% on Friday, with 35.6% posting positive returns for the day, 60.5% posting losses and 3.9% unchanged.

PINNACLE AIRLINES CORP [PNCL] took off on Friday, closing at $16.75 or a gain of over 56%, after announcing a new Airline Services Agreement, extending the partnership with NORTHWEST AIRLINES CORP [NWACQ] through 2017. NWACQ was down 8.6% closing at $4.04. PNCL was upgraded by Prudential, all the way from “Underweight” to “Overweight.” Part of the deal includes a $377.5 million claim in the bankruptcy proceedings of NORTHWEST AIRLINES so the exposure in that area appears to be largely covered. While the P/E ratio remains attractive, and the terms of the deal are likely to prove favorable over the next 11 years (especially the obligation of NW to provide jet fuel to PINNACLE at no charge, removing fuel as a revenue and expense item from PINNACLE’s statement of operations), we fail to see significant further upside potential unless the company takes advantage of new non-exclusive clauses in the new agreement.

Another interesting deal in the airline sector involved MESA AIR GROUP INC [MESA] up 2.7% closing at $7.92, after announcing that the company would be creating a Chinese regional airline in a joint venture with Shenzhen Airlines. The new airline is expected to launch operations within the year and to have 20 regional jets flying prior to the Beijing Olympic Games in 2008. Given the revenue growth that we are likely to see in this area and the rather attractive P/E ratio, this appears to be an interesting buy opportunity.

SCICLONE PHARMACEUTICALS INC [SCLN] jumped an impressive 38.5% closing at $3.13, on the news of Phase 2 clinical trial results in which a test group of patients with stage IV malignant melanoma, taking its new drug ZADAXIN® in combination with chemotherapy had a median survival period of 10.2 months, compared with 6.6 months for the control group treated with a combination of chemotherapy and interferon alpha.  Even more significant was the fact that the test group had more than double the tumor response compared with the control group.  On the basis of these results, we expect that the company will proceed with Phase 3 trials. Recalling the negative Phase 3 trial results last year for the combination of ZADAXIN and interferon alpha in the treatment of hepatitis C, this remains very speculative at this point. However, the balance sheet is reasonably healthy and the income statement showed a loss of only $0.03 per share in the third quarter. In addition, there is another proprietary drug, SCV-07, in the pipeline that has shown some efficacy in the treatment of multi-drug resistant tuberculosis and possibly other diseases. Given these considerations, it appears this remains a very speculative but intriguing buy opportunity.

Another drug stock with good news on Friday was INTERMUNE INC [ITMN] which shot up 29% closing at $28.40 on the news that a Japanese drug company SHIONOGI & CO LTD had reported positive results in a Phase 3 trial of a new drug pirfenidone in the treatment of idiopathic pulmonary fibrosis. INTERMUNE is also conducting Phase 3 trials for the same drug, although there is no guarantee that the results will also be positive since the dosage and length of treatment in the two studies are not the same. We see little remaining upside potential here because of the huge response in October to the ROCHE deal and the fact that profitability appears very far off at this point.

RED HAT INC [RHT] jumped 25% after announcing a very impressive third quarter result. Revenue for the quarter ended November 30^th, was up 45% over the same quarter last year. Net income for the quarter was $14.6 million or $0.07 per diluted share. Excluding stock compensation and special tax expenses, the profit was $0.14 per share, versus a consensus estimate of $0.12 per share. Also helping were upgrades by First Albany from “Neutral” to “Buy” and by Citigroup from “Sell” to “Hold.” It would appear that this move offsets the overreaction in October to the ORACLE announcements and indicates that ORCL and MSFT/Novell competitive moves are ultimately strengthening the Linux OS market. Despite the current P/E ratio (59.4 on trailing 12 months earnings) there is still some significant upside potential given the strong cash flow and growth possibilities through acquisition.

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%).

DYNAVAX TECHNOLOGIES CORP [DVAX] shot up 32.3% to close at $9.79 after announcing highly statistically significant results in Phase 3 trials of its new hepatitis B virus vaccine, HEPLISAV™, comparing its efficacy with a vaccine, Engerix-B® from GLAXOSMITHKLINE. The results show that HEPLISAV provided 100% seroprotection after 3 doses, compared to 73.1% for those receiving Engerix-B (with the probability of a difference that large by pure chance being less than .01% given the trial population sizes). The differences were even more substantial for older subjects who are generally more difficult to immunize. The tests were completed at sites in Singapore, Korea and the Philippines and confirmed earlier Phase 2 clinical test results in Singapore for a younger population. DYNAVAX plans to pursue approval of a two-dose regimen and expects to initiate multi-center Phase 3 safety and efficacy trials in Europe, Canada and the United States before the end of the year. These trials should be completed in 2008. With its acquisition of Rhein Biotech in April of this year, the company claims to have sufficient manufacturing capabilities in Dusseldorf, Germany, to produce both clinical and commercial quantities of the vaccine. In addition, the acquisition included an existing hepatitis B vaccine product called SUPERVAX, which has been tested in more than 600 subjects with 99% seroprotection on a two-dose schedule. Insider buying of the stock has been pretty intense over the last 6 months (about 1.4 million shares), which is clearly encouraging. Currently the company is losing approximately $16 million per quarter from operations and it appears commercial results for both TOLAMBA™, a ragweed allergy drug, and HEPLISAV are probably at least 2-3 years off. In the latest 10-Q, the company claims not to have sufficient data to provide a timeline to registration for either drug. The agreement with ASTRAZENECA for the discovery and development of a treatment for asthma and chronic obstructive pulmonary disease, has put $10 million in deferred revenue on the books, which we take as a positive, and in other respects the balance sheet is reasonably encouraging. On balance, we see DVAX as very speculative buy in the long-term, but expect some short-term pull-back, with too much reaction to the early trial results.

3COM CORP [COMS] tumbled 10.5% closing at $4.02 on the news that it would be purchasing HUAWEI TECHNOLOGIES’s entire stake in their joint venture H-3C for $882 million. The joint venture is a leading IP networking vendor headquartered in Hong Kong, with R&D centers in China and India. HUAWEI TECHNOLOGIES is a leader in next generation telecommunications network products globally, and believes the divestment will enable it to focus on its core business - the IP-based fixed and mobile convergence solutions market. It appears 3COM initiated the bid process in mid-November and that both companies are satisfied with the outcome, but, like some other analysts, we are skeptical that this was the right move for 3COM. The price appears reasonable, given that it appears some private equity groups were offering $1 to $1.5 billion for H-3C back in October. While HUAWEI may have balked at the initial offer, 3COM probably persuaded its partner to sell its share for a slightly richer offer. However, the difficulties of remotely managing H-3C should not be underestimated. The stock was downgraded by Bear Stearns from “Outperform” to “Peer Perform.”

NEW YORK TIMES CO [NYT] jumped 7.5% closing at $24.76 in the wake of significant buying of NYT shares by Maurice “Hank” Greenberg, former CEO of AIG. A number of other media properties were also up, although unrelated. THESTREET.COM INC [TSCM] was up 4.8% possibly on the announcement that Jim Cramer would be ending his radio show to focus on video programming.

ALLEGHENY TECHNOLOGIES INC [ATI] and TITANIUM METALS CORP [TIE] were up 6.8% and 7.7% closing at $88.36 and $30.42, respectively, thanks to comments by the CEO of ALCAN indicating the attractiveness of titanium firm acquisitions to address needs in the aerospace industry.

MSC SOFTWARE CORP [MSCS] was up 7.9% closing at $14.89 with considerable recent insider buying (c 140,000 shares) and/or speculation regarding

GASCO ENERGY INC [GSX] was up 13.5% closing at $2.61. While there is no recent news of note, the company would appear to be a somewhat attractive acquisition target at its current valuation. Despite the rather significant loss reported of $54 million for the first 9 months of 2006, most of this ($51 million is a non-cash impairment charge) and the company generated a positive cash flow from operations of $9.1 million for the first 9 months. The main concern might be the $65 million in 5.5% convertible notes due in 2011, but this appears manageable. We see considerable upside potential here.

SIGMA DESIGNS INC [SIGM] surged another 15.8% closing at $26.45, for a two day gain of about 20%. As expected the quarterly results were impressive, but the P/E ratio is far too extreme at this point.

WINN DIXIE STORES INC [WINNV] jumped 16.8% closing at $14.15, although it is not completely clear what is moving the stock since the company emerged from bankruptcy on November 21^st. On Wednesday, the company announced that there were about 54.5 million common shares outstanding, implying a market capitalization of about $770 million, rather than the $2 billion found on thestreet.com or finance.yahoo.com.

DRESS BARN INC [DBRN] surged 19.3% closing at $24.46 after announcing record results for its fiscal first quarter ended October 28^th. The company reported net sales of $358.4 million, up 12% from the same period last year. Comparable store sales increased 7% for the quarter, although the company also reported November comparable store sales increased only 4%. At the current P/E ratio of about 21.3, we do not see any opportunities, relative to the rest of the Retail Apparel sector.

Daily Sector Performance Chart

Another strong day thanks to some positive macroeconomic news. The average stock in the SI universe posted a gain of 1.11% with 77% of all 3,551 members posting positive returns for the day. The big outlier sectors were Alternative Energy (up 2.8%, thanks to higher oil prices), Mining (up 2.7%), and Oil & Gas Production (up 3.2%).

PALM INC [PALM] tumbled 7.7% closing at $14.19 as it updated its financial guidance for the second quarter after the markets closed on Monday. Palm currently expects to announce revenue in the range of $390 to $395 million for the second fiscal quarter ending December 1^st. This is down about 11% from earlier guidance of $430 to $450 million. Palm attributed the shortfall to a delay in certification for the Treo 750 in the U.S., which is now expected to begin shipping “early” in the next fiscal quarter.  Since sales for the second quarter last year came in at $443.6 million, the new guidance is a significant drop from last year and we are inclined to think there is little upside opportunity at this point.  It appears that a great deal of pessimism is already baked into the P/E ratio.

MANNKIND CORP [MNKD], headquartered in Valencia, California, was down 7.4% closing at $15.93 after announcing that it intended to offer to sell 17,500,000 shares of its common stock in an underwritten public offering as well as $100,000,000 of senior convertible notes due 2013 in a separate public offering. The company is engaged in the discovery, development and commercialization of therapeutic products for diseases such as diabetes and cancer. It’s lead product is the Technosphere Insulin System, which is currently in Phase 3 clinical trials to study its safety and efficacy in the treatment of diabetes. While the 50% reservation in both offerings for the chairman and CEO, Alfred E. Mann, is encouraging, it appears there is no real commitment on his part, and we would like more information regarding the expected usage of the proceeds before pulling the trigger on these offerings. Also, we are reluctant to take on the risks associated with convertibles.

DONALDSON CO INC [DCI] dropped 8.3% closing at $33.93 after announcing record first quarter sales and earnings. The company announced first quarter net income of $36 million or $0.47 per diluted share, compared with $0.37 per diluted share for the same period last year. The consensus estimate had been $0.43 per diluted share. Sales were $446.4 million, up 10.7% from the same period last year, which matched the consensus estimate. However, the company’s guidance of low double digit growth in sales next year seems consistent with a P/E ratio in the low 20’s which is where we find it, so it does not appear that there is a significant opportunity at this time.

DISTRIBUTED ENERGY SYSTEMS CORP [DESC] surged for the second day in a row, up 14.4% to close at $4.36. Today’s surge, however, was most likely in response to a press release announcing that its subsidiary, Proton Energy Systems, had launched a new product called the StableFlow™ Hydrogen Control System, enabling electric power generating plants to produce electricity more efficiently from coal, oil or natural gas. It now appears yesterday’s surge could be explained by a news leak. While the new cooling system product from Proton Energy appears to be a big winner, the contribution from Northern Power Systems appears to be a drain on the combined entity, and we currently have very little visibility into the expected impact of the new product on revenue or profit. It is of course very unlikely that Q4 will be profitable, so the reaction to Q4 results is unlikely to be very dramatic. However, the 10-K next March should give some visibility into the bottom line impact of the new product and provide some insight as to whether the recent price change is an over or under-reaction.

DIVX INC [DIVX] was trading flat until about 2:15 pm when it started advancing steadily to close up 14% at $31.36 on no public news with very heavy volume (almost twice the normal daily volume). The video codec maker, recently announced a very strong third quarter, has a very healthy balance sheet and also has a very high P/E ratio of about 141 (trailing twelve months of earnings). Since growth projections for 2007 are not that aggressive (about 24%), it would probably be prudent to wait until there is a formal announcement.

RITA MEDICAL SYSTEMS INC [RITA] jumped 12.9% closing at $4.46 after announcing the signing of a definitive agreement to be acquired by ANGIODYNAMICS INC [ANGO] for approximately $220 million plus the assumption of $3.3 million in net debt. Each share of RITA will be exchanged for a combination of ANGO stock and cash equal to $4.70 per share if the ANGO price is between $18.18 and $27.29, with some risk/opportunity if the ANGO price is below/above the target range. While ANGIODYNAMICS reacted negatively in the morning trading hours, it recovered sharply in the afternoon and closed up 0.86% so there does not appear to be any significant opportunity at this time.

With a press release before the markets opened, SERVICEMASTER CO [SVM], provider of lawn and pest control services and a variety of home maintenance services, shot up 10.5% closing at $13.15 as it announced that it was retaining Morgan Stanley and Goldman Sachs as its financial advisors as it explores strategic alternatives including the possible sale of the company.

Daily Sector Performance Chart

The average stock in the SI universe was up 0.27% on Tuesday, with about 56.5% of the 3,550 members posting positive returns for the day. The big outlier segments were: Alternative Energy (up 1.5%), Oil & Gas Production (up 1.9%) and Railroads (down 1.4%).

HOT TOPIC INC [HOTT] was up a sizzling 17.4% to close at $13.04 after reporting third quarter results that met earnings expectations and reaffirming guidance. Earnings for the quarter ended October 28, 2006, were $7.07 million, or $0.16 per share, compared with earnings of $5.93 million, or $0.13 per share, for the same period last year. The consensus estimate was for earnings of $0.16 per share. Since earnings were up in contrast to most others in the Retail Apparel sector, and also in-line with expectations, the market’s gut reaction was favorable. However, net sales were up a truly tepid 2% year-over-year, despite having opened 45 Hot Topic stores and 15 Torrid stores over the course of the year. To make matters even more depressing, same-stores sales for the quarter were down 6.8% for the quarter. With an extremely high P/E ratio of 41.1, this one is definitely not a buying opportunity!

BEA SYSTEMS INC [BEAS] was beaten down 16.4% closing at $13.11 after announcing third quarter results that were in line with expectations at the top line (up 19%), but raised concerns in the area of higher margin license fees (up only 12%). Because of its ongoing investigation into stock option granting practices, there is now a 200 day gap between the last period covered by a quarterly report and today (in other words, it has the dubious distinction of belonging to our White Rabbits club). The stock was also downgraded by WR Hambrecht from “Buy” to “Hold.”

Convenience store operator, PANTRY INC [PTRY], slipped 11.7% closing at $47.03 after announcing its financial results for its fourth fiscal quarter, ended September 28, 2006. Total revenues for the quarter were $1.7 billion, representing a 22.5% increase over the same period last year and in line with the consensus estimate. Earnings of $26.7 million, or $1.16 per share, represent a 5.2% increase over the same period last year, and slightly better than the $1.15 per share consensus estimate. However, the company’s guidance for 2007 earnings between $2.80 and $3.00 per share were well below the consensus estimate of $3.32 per share.

DENDREON CORP [DNDN] dropped 11% closing at $4.76 after announcing that it had entered into a definitive agreement with some institutional investors to sell 9,890,110 shares of its common stock for gross proceeds of $45 million (about $4.55 per share). No opportunity.

WILLIAMS SONOMA INC [WSM] dropped 9.9% closing at $31.70 after announcing disappointing third quarter results. Net revenues increased only 3% to $852.8 million. Earnings of $0.25 per diluted share were down 19.4% from the previous year.

ZUMIEZ INC [ZUMZ] plummeted 9.6% closing at $28.49 after announcing strong but lower than expected third quarter numbers. The company reported third quarter revenues of $82.3 million, and increase of 43% over the same period last year. Earnings of $0.24 per diluted share were up 33.3% year-over-year but below the consensus estimate $0.27 per diluted share. The company’s guidance for the 2006 fiscal year remains in the range of $0.66 to $0.67 per diluted share, although this is still a bit below the consensus estimate of $0.69 per diluted share. Comparable same-store sales were a very strong 10.7% for the quarter. While the revenue growth of 43% certainly warrants a high P/E ratio, the current P/E ratio of 55.2 is a tad-bit high. Probably less risky than getting on the damn skateboard, but not much.

MENS WEARHOUSE INC [MW] dropped 7.7% closing at $37.00 after announcing third quarter results. Earnings for the quarter were $0.58 per share compared to $0.44 per share for the same period last year. The consensus estimate had been for earnings of $0.54 per share. Guidance for the fourth quarter earnings of $0.68 to $0.72 was below the consensus estimate of $0.79, although it included a special charge of $0.08 per share. Guidance for same-store sales has been pretty good and we see this as a good sign. With a fairly low P/E ratio of 16.7, and revenue growth of 9.5%, this could be an interesting buying opportunity, although there does not appear to be any really significant opportunity for revenue growth at this time – just a relatively attractive entry point for a well run business.

RAMBUS INC [RMBS] soars once again up 30.5% to close at $21.72 on speculation that an upcoming ruling by the FTC will not involve penalties related to at least two of the memory-chip technologies that the company licenses. Meanwhile the company continues to delay its quarterly filing with the SEC due to an ongoing investigation into its stock option grant practices. The gap is now 230 days for RAMBUS since we have had any visibility into its profitability (another White Rabbit). According to a recent 8-K filing, revenues for the third quarter were $45.9 million, up 28% year-over-year, but down 6% sequentially. Given lack of visibility and rampant speculation on muddy legal matters, we would exercise extreme caution here.

ZOLL MEDICAL CORP [ZOLL] rolled up 28.2% closing at $53.06 after announcing very strong results for the fourth fiscal quarter ended October 1, 2006. Net sales for the quarter were $72.3 million, up 26.5% from the same period last year, easily beating the consensus estimate of $64.75 million. Earnings for the fourth quarter were $0.56 per share, more than double the $0.23 per share from the same period last year, and again easily topping the consensus estimate of $0.37 per share. However, with a rather pricey P/E ratio of 64.8, we do not see an additional opportunity at this point.

DYNCORP INTERNATIONAL INC [DCP] up 10.1% closing at $11.47 on unusually large volume (3 times average daily volume) with no particular news. This looks suspicious. Accounts receivable is unusually high. Long-term debt of $629.3 million as of September 29, 2006, is also very high. The cash flow from operations for the first six months of 2006 was about $65.8 million, but the P/E ratio is extremely high, so this does not seem to be a classic private-equity deal candidate. Sounds like some buying taking place in anticipation of a big contract announcement.

READERS DIGEST ASSOCIATION INC [RDA] rose 7.7% to close at $16.70 with the announcement that it had entered into a definitive merger agreement under which it would be going private in a transaction valued at $2.4 billion including debt, or $17.00 per share. Long-term debt at the end of the third quarter was $776.3 million, but the cash flow from operations has turned sharply negative and with declining quarterly revenues, the long-term prospects for the company were rather bleak. We’re not sure what the strategy will be for creating value in this case, but the road ahead will not be easy.

L-1 IDENTITY SOLUTIONS INC [ID] climbed 7% to close at $16.26 after announcing yet another acquisition – this time the target is COMNETIX, a Canadian company, trading on the Toronto Stock Exchange under the symbol [CXI]. The deal is estimated to be worth $12.5 million, or approximately $0.82 per share of COMNETIX to be paid in cash. L-1 expects COMNETIX to add $13 million in revenue next year and to be cash flow positive. Not too surprised to see ID trading higher.

Daily Sector Performance Chart

Despite the strength in the large and midcap stocks, the broader market was generally very mixed, despite the big drop in oil prices. The average member of the SI universe posted a gain of just 0.03% with 53% of the members posting positive returns for the day. The only capitalization bins posting positive gains for the day were the large and midcap bins.

Given the big drop in oil, there was little surprise in the outlier sectors. Alternative Energy was down 1.6%, Mining was down 3% and Oil & Gas Production was down 2.5%.