wall street nuggets

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.

After about a month of dramatic slippage during December, it appears Biotech may be recovering, although the gains of the past few weeks have certainly been modest.

SEATTLE GENETICS INC [SGEN] soared up 24% closing at $6.56 following the announcement of an exclusive worldwide license agreement with GENENTECH [DNA] for the development and commercialization of SGN-40, a monoclonal antibody, for the treatment of multiple myeloma, chronic lymphocytic leukemia and non-Hodgkin’s lymphoma. The agreement calls for an upfront payment of $60 million and potential milestone payments exceeding $800 million. Royalty payments were described as “escalating double-digit royalties.”

IMMUNOMEDICS INC [IMMU] was up 16.9% closing at $4.23. This company is another biopharmaceutical company focused on the development of monoclonal antibody-based products for the treatment of cancer, autoimmune and other serious diseases. It appears that Monday’s move can be attributed to a combination of buyout rumors and the speculation regarding licensing deals similar to the one involving SEATTLE GENETICS.

AFFYMETRIX INC [AFFX] jumped 13.6% closing at $24.68 following the announcement that it was projecting fourth quarter revenue of about $100 million. Given the extremely high P/E ratio (196 on trailing 12 months earnings) and the fact that the projected fourth quarter revenues are below those of the same period last year makes us somewhat less than enthusiastic. However, the microarray area in general is hot and the company is expanding its production facilities in Sacramento so eventually there might be an opportunity here.

RADIOSHACK CORP [RSH] jumped 11.6% closing at $18.76, following its press release indicating that it expected fourth quarter net income to increase. However, the reaction here is rather odd, given there is no estimate of the profitability being given. The projection that comparable same store sales will decrease by approximately 7.8% implies stronger margins, but probably meager revenue growth. Given the high P/E ratio (63.6 on trailing 12 months earnings), we would be very cautious here.

DYNAVAX TECHNOLOGIES CORP [DVAX] dropped 30% closing at $5.96. Analysis of interim one-year data from its two-year ragweed allergy trial of its TOLAMBA™ treatment indicates no meaningful ragweed-specific disease was present in the study population! So of course there was no response relative to the placebo. A 30% drop in this case is rather absurd if in fact there the population did not support a measurable disease condition during the ragweed season. There is obviously the question as to what was behind the absence of the disease state in the test population – perhaps there is a new preventative treatment that will be discovered, but we would expect a follow-up study in a population actually suffering from a ragweed allergies.

The average gain in the SigmaInverse Universe on Monday was 0.1% with 50.1% of the members posting gains for the day and 46.7% posting a loss for the day. Significant sector moves for the day were Alternative Energy (up 1.2%), Automobiles (down 0.9%) and Construction (down 1.0%).

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.

It was a very good year indeed! Many thanks to the small (but growing) and loyal group of readers who stuck with us the year. Not sure how much longer we will continue the flow of nuggets, but it has at least kept us busy.

The year ended on a bit of a sour note, with the average member of the SigmaInverse universe losing 0.55% on Friday and only about 27% of the members posting positive returns for the day. The only unusual sectors on Friday were those posting gains for the day. Biotech was up 0.5% for the day, Construction was up 0.1% and REITs was up 0.2%. The remaining sectors were all in the red.

While the week ended on a sour note, the markets certainly got off to a strong start and the early strength sustained it so that the cumulative returns for the week were healthy across all ranges of market capitalization, ranging from 0.47% for the Large Cap stocks to 1.28% for those with market capitalization ranks between 2001 and 2500 (Micro2000).

HAYES LEMMERZ INTERNATIONAL INC [HAYZ] jumped 40.6% to close at $3.50 following the release of financials for the fiscal third quarter ended October 31^st. The company reported sales of $589.5 million for the quarter, a decline of 2.4% from the same period last year, and a net loss from operations of $27.6 million, compared with earnings from operations of $16.8 million for the third quarter last year. However, the loss includes a one-time $39 million non-cash impairment charge. Excluding the impairment charge, the company’s earnings from operations would have been $11.4 million. The company attributes the decline in sales to a shift away from dependency on the North American automotive clients, which have seen declines of 15% in production volumes over the same period. The company also reported a reduction in overall debt by approximately $24 million in the third quarter, although long-term debt remains uncomfortably high at $667 million. (There was a reduction of $10.5 million in long-term debt during the third quarter.) Also encouraging was a positive free cash flow of $27.6 million, excluding the company’s securitization program. For the full year, the company provided revenue guidance in the range of $2.2 to $2.3 billion (basically the same as for 2005), and improved EBITDA compared to 2005. However, the company still has a long way to go before we could recommend it on fundamentals. From a trading perspective, it’s looking expensive again. Note that the company has almost no analyst coverage, so one cannot expect to find low risk opportunities based on gaps between expectations and likely results. The free cash flow is helping to create value by allowing some reduction in the long-term debt, but the rate of improvement is still very weak at this time.  Short-term bearish - long-term, the jury is still out.

NUVELO INC [NUVO] (Biotech) was crushed losing 79.3% to close at $4.05 with trading volume of over 85 million shares (over 180 times the average daily volume for the past 90 days) after it was announced that its new drug Alfimeprase had flunked its Phase 3 clinical trials. The company was downgraded by Miller Johnson from “Outperform” to “Market Perform,” by Banc of America Securities from “Buy” to “Neutral,” and by Brean Murray from “Hold” to “Sell.” Our sense is that Monday’s reaction was too extreme given the company’s balance sheet (especially considering deferred revenues) and that while the pipeline is thin for the next few years), this would be an attractive, albeit speculative, entry point.

NEOPHARM INC [NEOL] (Biotech) was also hammered losing 67.9% to close at $2.16 after announcing that its new drug, cintredekin besudotox, for the treatment of recurrent brain tumors, also flunked a critical Phase 3 clinical trial for improved efficacy over an existing drug. Although the company was downgraded by First Albany from “Buy” to “Neutral” and by JMP Securities from “Strong Buy” to “Market Outperform,” it was actually upgraded by Brean Murray from “Sell” to “Hold.” Given the current burn rate, balance sheet and expected difficulties in maintaining a market capitalization above $50 million, we do not see this as an attractive entry point at this time.

Daily Sector Performance Chart

The average stock in the SI Universe posted a return of 0.07% on Monday, with 51.9% of the members posting positive returns and 3.2% unchanged.  The big sector moves were Biotech (down 2.6%, thanks of course to the impact of the two wicked outliers noted above) and Airlines (up 1.5%, thanks to CONTINENTAL AIRLINES [CAL] being the subject of rumors regarding it being a takeover target).

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%).

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%).