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%).

Despite a better than expected Chicago PMI release, in which the regional manufacturing index rose from 49.9 to 52.4, the Daily Sector Performance Chart for Thursday, December 28th, was generally weak except for Alternative Energy (up 1.1%) and Tobacco (up 2.5%). The average member of the SigmaInverse universe lost 0.22%, with only 34.2% of the members posting gains for the day. The Alternative Energy sector was led by DIVERSA CORP [DVSA] which jumped 10.4%, closing at $11.00, following an announcement that it had entered into collaboration with GENOMATICA INC with the goal of developing more efficient bio-manufacturing processes for biologically-derived enzymes, needed in the commercialization of bio-fuel technologies. The Tobacco sector was driven primarily by STAR SCIENTIFIC INC [STSI] (up 12.3%) but given the low price, the move should probably be treated either as an event in the tail of the distribution with no particular significance or possibly as additional speculation on the upcoming legal ruling. Since the volume was up about 40% relative to the average daily volume for the past 90 days on a day when the rest of the companies in the sector were seeing very light volume (less than half the usual daily volume), it appears that there is indeed an anticipation that STAR will receive a favorable ruling by judge Garbis in the patent infringement suit being brought by STAR against RJ REYNOLDS.

KEYSTONE AUTOMOTIVE INDUSTRIES INC [KEYS] was down a stunning 21.2% closing at $30.55 on the news the International Trade Commission had ruled in favor of FORD regarding 7 of 10 design patents dealing with parts of the Ford F-150 truck. Given the almost inconsequential impact of this decision on the KEYSTONE revenues (0.1% for sales on a trailing 12-month basis according to a Reuters story), we are inclined to view this as a definite buying opportunity for KEYS. Also, the ruling will be contested, although we have no estimate for the probability of a reversal at this point. Would suggest a conservative value between 0 and 0.5.

PARLUX FRAGRANCES INC [PARL] was hammered down 14.6% closing at $5.77 on the announcement that it would be selling back the Perry Ellis fragrance brand to Perry Ellis for approximately $63 million, which is well below the $140 million for which PARLUX had agreed to sell the brand to Victory International last summer. Looks like PARLUX has very little control over its brands if this is any indication. Hopefully they can put the $63 million to good use in acquiring some new brands. Given recent performance, we are not optimistic and it appears new leadership is needed.

CREE INC [CREE] tumbled 12.9% closing at $18.39 after revising downward its projections for the second fiscal quarter ending December 24^th. The company now projects sales of just $90 to $92 million for the quarter, well below the consensus estimate of $107.2 million and well below last year’s sales of $105.6 million for the same period. Yuck! Given declining sales, we do not see an opportunity at this time.

REDBACK NETWORKS INC [RBAK] jumped 11.7% closing at $16.94 after announcing that it had won the second phase of a broadband network upgrade by Guangdong Telecom – the largest provincial carrier in China. The carrier will use REDBACK’s SmartEdge® family of multi-service edge routers to deliver broadband internet, IPTV and VPN services for up to 4 million homes and businesses. With more than 50 million broadband customers, China is REDBACK’s second largest market outside the U.S. and it currently has edge routers deployed in 22 of the 32 provinces in China. Despite the high P/E ratio (89.6) and projected revenue growth of just 23% next year, we suspect the actual growth could be a lot stronger because of the international markets and this is still an interesting opportunity.

ON SEMICONDUCTOR CORP [ONNN] was up 10.6% closing at $7.52 following a very strong presentation at the Lehman Brothers Technology conference in San Francisco on Thursday. Given the relatively low P/E ratio (12.4) but only 5% expected growth next year, we do not see a lot of upside potential at this time and the continued selling by TPG is likely to continue to keep downward pressure on the stock.

MOVIE GALLERY INC [MOVI] up once again – this time 10.3% - to close at $4.49. Probably a good time to sell since we see no justification for the 47% increase in price since Monday!

IMMUNOMEDICS INC [IMMU] ramped up 10% closing at $3.09 following the announcement that the company had been awarded a patent for various methods of treating B-Cell lymphomas, leukemias and autoimmune diseases using the company’s monoclonal antibody that binds to a certain antigen present on B-lymphocytes. We need some evidence of execution here. A patent award by itself does not necessarily bring in revenue. Can the company successfully license its patents? The jury is out.

MEDAREX INC [MEDX] shot up 7.5% closing at $15.46 after announcing that the FDA had designated as a Fast Track product the company’s new drug ipilimumab used in combination with chemotherapy in previously untreated metastatic melanoma patients, or by itself in previously treated metastatic melanoma patients.

AKAMAI TECHNOLOGIES INC [AKAM] up 7.4% closing at $53.38 with a trading volume more than double that of the average daily volume for the past 3 months. No real news and the P/E is 143.5 and the consensus estimate is for next year’s revenue growth to be about 34%, which I think is on the aggressive side, so this appears to be considerably over-valued at this point.

Daily Sector Performance Chart

With lots of nervousness on the jobs front, the markets were off with some substantial drops in all ranges of market capitalization. The average stock in the SI Universe posted a loss of 0.33% on Thursday.  Only 32.3% of the members posted a positive return for the day.  Unusual sector moves were Alternative Energy (down 1.7%), Construction (down 1.5%), and Tobacco (up 1.2%).

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%).

With oil prices up sharply – the November 2006 future’s contract for light sweet crude oil settled at $59.94 per barrel, up $1.37 over the previous close and currently trading slightly over $60 as we write – and earlier than expected winter weather in many parts of the country, the usual repercussions were felt in the market. The Oil & Gas Production sector was up dramatically and Alternative Energy stocks were back on the fast track. Leading the pack were: PACIFIC ETHANOL INC [PEIX] up 11.2% closing at $17.91 and EVERGREEN SOLAR INC [ESLR] up 11.2% closing at $9.46. Actually ESLR has been mapped to the Electronics & Semiconductors category (sector) through today, but given that their focus is the production of photovoltaic cells used in solar power generation, it seems more appropriate to ESLR into the Alternative Energy category (sector). This change will become effective tomorrow.

The impact of the New York Stock Exchange shifting to a hybrid (more automated) market was severely felt by LABRANCHE & CO INC [LAB], which fell 17.9% closing at $9.07 after reporting an operating loss of $0.03 per share for the third quarter. The company operates as a registered broker-dealer and member of the NYSE and other exchanges. As more trades on the NYSE are executed electronically, the need for human intervention is dropping, improving the efficiency of the market and leading to layoffs and less revenue at LABRANCHE. However, this is in fact positive for NYX and the company’s inclusion of $17.6 million on the Income Statement, representing the estimated pre-tax gain of the restricted shares of the NYSE GROUP [NYX] is a reasonable way of reflecting the net effect of the hybrid move on LAB. On the other hand, the success of the hybrid move would seem to limit the growth potential for LAB in the traditional equity markets. While the company has been moving more into options and ETF’s, the contribution to revenue is still relatively minor, so growth outside the core is not yet a driver. Given a P/E ratio of 4.8, and an increasing share of the NYSE dollar volume ($870.5 billion for Q3 compared with $821.8 billion for the same period last year), Monday’s reaction appears far too negative and we see this as a long opportunity.

INTERCONTINENTALEXCHANGE INC [ICE] cooled off 6.8% closing at $77.30, probably reflecting acquisition sentiment, since there was no specific news that seemed relevant.

FINISAR CORP [FNSR] finished up 9% closing at $4.12. Volume in this stock has been incredible since the beginning of March (probably due to Mad Money hype). However, Monday’s volume was about 3 times the average daily volume for the last 3 months (31.7 million shares). This appears to be speculation in anticipation of good news. See our earlier post here.

Financial software provider OPEN SOLUTIONS INC [OPEN] soared 24% closing at $37.56 after announcing that it was being acquired by a private equity group for $785 million plus the assumption of debt. Providence Equity Partners and The Carlyle Group have agreed to pay $38 per share in the deal which is expected to close in the first quarter of 2007.

JLG INDUSTRIES INC [JLG] was up 33% closing at $27.60 after OSHKOSH TRUCK CORP [OSK] announced that it had signed a definitive agreement to acquire JLG INDUSTRIES in a deal valued at $3.2 billion. Holders of JLG will receive $28 per share in the all-cash transaction. Despite the fact that OSHKOSH believes the acquisition will prove “modestly accretive” to earnings in 2007, [OSK] dropped 5.5% closing at $52.49 per share. We think this could provide an excellent long opportunity in [OSK].

With only about 9 hours left before the projected U.S. population reaches exactly 300,000,000 ( click here for the latest ), it seems only fitting that we predict the Dow Jones Industrial Average will also break 12,000 on Tuesday, October 17th as well.

Despite missing the 12,000 mark by just 3 points, Monday was a very impressive day (except for Airlines and Tobacco). The big winners were Alternative Energy (up 2.69%), Oil & Gas Production (up 2.64%) and Railroads (up 2.36%). The average gain in the SI Universe of 3,566 stocks was 0.86%, with 68.9% posting positive returns for the day.

The announcement by BANK OF AMERICA [BAC] that it would be offering free online trades to customers with combined deposit balances of at least $25,000, spooked investors in online brokers. Some of the collateral damage:

• CHARLES SCHWAB CORP [SCHW] down 4.7% closing at $17.22,
• E TRADE GROUP INC [ET] down 8.8% closing at $22.31,
• AMERITRADE ONLINE HLDGS CORP [AMTD] down 11.9% closing at $16.82.

Mutual fund manager LEGG MASON INC [LM] dropped 17.2% closing at $87.15 after warning that its second quarter profit would fall well below the consensus estimate.

JACUZZI BRANDS INC [JJZ] shot up 19.3% closing at $12.35 on the announcement that it had signed a definitive agreement to be purchased by private-equity firm Apollo Management L.P. in a deal having a total value of $1.25 billion including $260 million of assumed debt, with each shareholder of JJZ receiving $12.50 in cash. The deal is subject to the usual regulatory approval and shareholder consent. The wave of buyouts by private-equity firms is finally starting to attract some attention and we can only hope for some increase in transparency going forward, but at this point it does not appear likely.

SIGMA DESIGNS INC [SIGM] surged 18.1% closing at $17.51, on volume that was almost 8 times normal, with no public news of note. The company announced on September 21^st that it had received a Nasdaq Staff Determination on September 15^th that it was not in compliance the requirement of a timely filing of its 10-Q as required by Marketplace Rule 4310(c)(14) and that its securities are therefore subject to delisting. The company blames the delay on its continuing internal investigation into the company’s practices in administering stock option grants and its belief that certain prior financial statements should not be relied on. Given the absurd P/E ratio and lack of transparency, we would steer clear of this.

RAMBUS INC [RMBS] surged 10.7% closing at $19.13 on the news that Toshiba had signed a license agreement for the Rambus XDR™ memory controller interface cell and the Rambus PCI Express® Gen 1 PHY cell.

MEDIS TECHNOLOGIES LTD [MDTL], which is engaged in the development of fuel cell products for portable electronic devices, dropped about 12% closing at $26.83, on volume that was about 4 times normal on Wednesday. While the company had published a letter to shareholders in a Market Wire press release at 8:30 am, there did not appear to be any significant news in that letter. However, in a CNBC interview with Herb Greenberg that aired early in the day, MEDIS was clearly identified as an irrationally valued stock, with very little substance behind the numbers.

IDT CORP [IDT] tumbled 12.2% closing at $12.69, after announcing operating results for the fourth fiscal quarter ended July 31^st. The company reported a net loss of $0.91 per diluted share, compared with ($0.00) for the same period last year. Only one analyst had an estimate for the fourth quarter, and was expecting a loss of $0.36 per share.

SYSTEMAX INC [SYX] slipped 20% closing at $15.04 as it became clear that the company would be delaying the reporting of second quarter results. It is very suspicious that the press release was published on Business Wire at 3:55 pm, although most of the big trading and the big drop in price came between 11:00 and 11:30 am.

With ALCOA [AA] badly missing the consensus estimate for earnings ($0.62 per share from continuing operations versus a consensus estimate of $0.75) and some hawkish interpretation of the comments following the FOMC meeting today, the markets were generally not able to find much traction with the exception of Airlines, Electronics & Semiconductors, and Tobacco. And this was despite a drop in oil prices! The average loss in the SI Universe was -0.38% with only 34.4% of the members posting a positive return for the day.

Must be getting awfully dusty. A maker of air filtration systems, DONALDSON CO INC [DCI] dazzled investors with better than expected fourth quarter results and ended the day up 16% closing at $38.34.

HAIN CELESTIAL GROUP INC [HAIN] skyrocketed up 9.3% closing at 25.35 thanks to a swing to profitability ($0.22 per share for the 4^th quarter and $0.95 per share for 2006) for the natural food and personal care products maker. It also provided guidance for 2007, predicting revenue growth of 19% to 22% and earnings growth of 13% to 17%, which exceeded analysts’ expectations.

MERGE TECHNOLOGIES INC [MRGE] showing some signs of life, was up 6.8% closing at $8.05. The company took a huge hit at the beginning of July when accounting irregularities forced it to restate financial results and led to the resignation of its CEO and CFO. Wednesday’s 8-K filing included five items of interest. Key items were the announcement of a new CEO, Kenneth D. Rardin, the announcement of a poison pill and stock buyback plan, and the announcement of second quarter results which may avoid a NASDAQ delisting.

CARRIER ACCESS CORP [CACS] collapsed 36.6% closing at $5.78 on new third quarter guidance resulting from lost orders from largest customer. Demonstrating rather graphically the risk associated with having too much of the revenue stream dependent on too few customers, CACS failed to land a rather big fish (Cingular) and had to reset expectations for the third quarter from a profit of $.01 per share to a GAAP loss of $0.14 to $0.19 per share. This led to a downgrade by First Albany from “Buy” to “Neutral.”

WOLVERINE TUBE INC [WLV] weakened 26.2% to close at $3.81 after issuing a press release indicating that it had “terminated all business combination discussions.” However, it did indicate that it will continue to address the need to restructure the company which is a major supplier of copper tubing and other copper products.

REDBACK NETWORKS INC [RBAK] dropped another 16.1% to close at $14.09. It is our sense that the bottom has been found and that this might be a good speculative buy after the company reports third quarter results. While it appears they may have lost to Cisco on a big sale to Verizon, it does appear that their technology is more advanced and there has been a lot of insider buying over the course of the last 6 months. The loss of $0.03 per share for the second quarter should probably be cut in the third quarter, but it seems very unlikely that they will be able to hit the consensus estimate of a profit of $0.10 per share. The Balance Sheet should remain very strong, so we expect a good time frame to buy might be mid-November.

KOMAG INC [KOMG] tumbled 13.6% closing at $31.33 as it reset guidance for the third quarter. We believe this reflects a worst case scenario reading of the press release and therefore would conclude that this is most likely a good buy opportunity with a very attractive P/E ratio. The downgrade by Bear Stearns from “Outperform” to “Peer Perform” should magnify the upside potential.

FINISAR CORP [FNSR] finished down 11.9% at $3.26 after reporting a lackluster first quarter (ended July 31^st) with a GAAP loss of 0.3 cents per share, little changed from the $0.01 profit in the first quarter, but certainly a lot better than the loss of $0.07 per share in the first quarter last year. The revenues of $106.2 were up about 30% from the same period last year but fell slightly short of the consensus estimate of $107.47 million. Basically it looks like the Mad Money hype on this stock is now gone and that we are back to a point where it looks attractive, assuming revenues continue to grow at anywhere near current rates. Again a downgrade by Miller Johnson on Wednesday should help magnify the upside potential.

PRICELINE.COM INC [PCLN] plummeted 9.6% closing at $30.87 with the news that two major holders, Hutchison Whampoa Ltd. and Cheung Kong Holdings Ltd., had sold 8.9 million shares, representing approximately 70% of the 12.7 million shares owned by the two investment firms. Take it as a very interesting data point.

PETMED EXPRESS INC [PETS] was down 8.7% closing at $9.63 following a downgrade by JMP Securities from “Strong Buy” to “Market Outperform.”

NOVEN PHARMACEUTICALS INC [NOVN] nose dived 8.4% closing at $23.15 with a downgrade by Oppenheimer from “Buy” to “Neutral.” Don’t get too excited here. The P/E ratio is still rather absurd at 65.4.

The Daily Sector Performance Chart shows general weakness across all sectors except Tobacco. (Does that explain the Donaldson surprise? :-) ) The overall market reaction was attributed to the unit labor cost increase of 4.86% (year over year) reported for the second quarter. This apparently sparked concerns that the inflation genie might be back out of the bottle and that the Fed might be forced to hike rates once again. This is rather unfortunate, because the blip seems to be similar to the one seen in the first quarter of 2000, when the unit labor cost number reflected a one-time boost. The same thing happened in the first quarter of 2006 and we are likely to see perhaps one more quarter of what appears to be significant growth (year over year) before the reality of almost flat unit labor costs throughout 2006 becomes apparent. The most likely explanation for the 2006 shift up in the first (and subsequent) quarter(s) is the impact of how stock option grants are being expensed. The graph below makes it pretty clear what is going on.