wall street nuggets

Cosmetics maker and direct marketing giant AVON PRODUCTS [AVP] reported second quarter results that just weren’t pretty. Profits fell 54% and the earnings for the quarter were $0.33 per share compared to $0.69 per share for the same period last year. Its shares lost 11.6% on Monday, closing at $28.99.

Pharmaceutical company POZEN INC [POZN] rose 26.9% closing at $7.70 on the news that it plans to submit a full response to the Trexima™ “Approvable letter” during the fourth quarter. Trexima is a new drug to be used in the treatment of migraine headaches. The decision to submit the full response came after POZEN and partner GLAXOSMITHKLINE met jointly with the FDA to reach an agreement on the proposed plan to address the FDA’s safety concerns.

REPLIGEN CORP [RGEN] shot up 25% closing at $3.00 on Monday after a federal court refused to dismiss its claims in a patent infringement lawsuit against IMCLONE [IMCL]. REPLIGEN alleges that IMCLONE’s cancer drug Erbitux infringes on a patent owned by MIT and licensed exclusively to REPLIGEN. The case will now proceed to trial. IMCLONE SYSTEMS INC [IMCL] was down 4.2% closing at $32.50 for the day on a volume of 3.5 million shares.

The development-stage pharmaceutical company HOLLIS EDEN PHARMACEUTICALS INC [HEPH] exploded up 21.7% on Monday, closing at $6.33, after announcing that it had been informed by the Department of Health and Human Services (HHS) that it was “within the competitive range for discussion and further evaluation” with respect to its response to an RFP from HHS. The company’s leading product candidate being proposed to HHS is Neumune™ which is entering late-stage development for the treatment of Acute Radiation Syndrome, which results from exposure to high levels of radiation following a nuclear or radiological incident. The estimated date of the award is September 15, 2006, and a very attractive long opportunity would be [HEPH] before that date.

Chip interface solutions provider RAMBUS INC [RMBS] continues on a roller coaster ride up 12.7% on Monday following an upgrade by BWS Financial, closing at $17.63. This gained back most of the territory lost on July 18^th with a downgrade by WR Hambrecht. Monday night’s news on the class action suit involving options backdating will probably send the stock plummeting yet again.

ARCH COAL INC [ACI] and PEABODY ENERGY CORP [BTU] surged up 9.3% and 8.4% closing at $37.94 and $49.90 on Monday, as oil and gas prices continue to make those lumps of coal ever more attractive. Even poor MASSEY ENERGY [MEE] (see Friday’s nugget) was up 6.7% making up at least some lost ground,

Health benefits company HUMANA INC [HUM] was humming up 8.5% on Monday closing at $55.93 after announcing impressive results for the second quarter. Second quarter earnings were $0.53 per diluted share, $0.19 higher than the mid-point of the company’s prior guidance. The company continues to estimate full year earnings in the range of $2.82 to $2.88 per share.

PHELPS DODGE CORP [PD] rose 7.9% closing at $87.34 on the news that Teck Cominco Ltd. was increasing its bid for INCO leading to speculation that PHELPS DODGE might not end up acquiring INCO after all. Was at least part of the huge spike in the Mining sector on Monday due to speculation about what other companies might be taking the place of FALCONBRIDGE and INCO?

XM SATELLITE RADIO HOLDINGS INC [XMSR] was down 8.4% closing at $11.60, and prompting Jim Cramer to view it as a buy, speculating on a possible acquisition by SIRIUS. As we have said before, there are some rather serious FTC regulatory concerns here that, despite examples like WHIRLPOOL, make me very skeptical. Furthermore, both companies have over $1 billion in long term debt and the assumption that you could use monopoly leverage to raise prices and thereby achieve profitability for the combined entity implies a willingness on the part of the consumer to swallow the higher monthly bill that I find a bit specious. The better strategy here would seem to be the last guy standing and then pick up the subscribers from the other side without all the debt.

ITRON INC [ITRI] sank 9.8% closing at $46.54 on the news that it was planning to offer $300 million in convertible notes. Yuck!

Agricultural equipment maker AGCO CORP [AG] tumbled 10.7% closing at $22.96 after it reported earnings of $0.45 per share versus a consensus estimate of $0.55 per share and down from $0.47 for the same period last year.

The Daily Sector Performance Chart exhibited some unusual behavior today. While the Dow was off 34 points for the day, the average return in the SigmaInverse Universe was 0.22%, although only 50.3% of the universe avoided negative returns. Airlines took a big hit with crude oil futures settling at $74.50, up $0.10, for light sweet crude September futures. On the positive side, Mining and Oil & Gas Production sectors were the big winners.

We posted a graphic on Friday, that compared the average returns on 27 July 2006 for various market cap size bins (1-500, 501-1000, etc.). On a day when the market was generally down, it was not surprising to see that the largest 500 stocks were down the least, the next 500 down more, etc. The following chart depicts the same content, but rather for 28 July 2006, a day where the market was generally up.  The average daily return for the largest 500 companies was 1.35%, for the next 500 it was 1.526%, etc.  Other than the rather trivial observation that you would rather be in large cap stocks in a bear market and small cap stocks in a bull market, we don’t have much more to say at this point, but it does seem that there might be some additional signal in these charts.

RACKABLE SYSTEMS INC [RACK] collapsed 39.2% closing at $21.23 after reporting record second quarter revenues of $88.6 million and earnings of $.18 per share compared to revenues of $44 million and earnings of $.07 per share for the same period last year. Second quarter revenues beat the consensus estimate of $84.6 million but earnings fell a bit short of the consensus estimate of $.22 per share. Non-GAAP earnings of $.28 per share handily beat the consensus estimate. This again has overreaction written all over it, and despite all the hype that had inflated these shares for the past four months or so, it would appear the hype is gone and despite the company’s guidance for a tough second half, we finally see [RACK] as an attractive long position but no serious upside potential until near the end of the third quarter.

The innovative clothing designer, marketer and distributor that is focused on the skateboard crowd, VOLCOM INC [VLCM] wiped out big time losing 29.4% of its market cap and closing at $20.04 after beating consensus estimates in the second quarter reporting earnings of $.27 versus $.24 expected. While third quarter guidance of $.38 to $.39 per share was somewhat below the consensus estimate of $.45, the full-year guidance was in line with consensus estimates. There was a downgrade by Wachovia from “Market Outperform” to “Market Perform” but neither the third quarter guidance nor the Wachovia downgrade could possibly justify lopping off 29.4% of the market cap. Therefore we conclude that [VLCM] is also an attractive long opportunity.

UNITED SURGICAL PARTNERS INTL [USPI] found itself under the knife getting sliced 17.2% and closing at $24.34 after announcing second quarter earnings of $.29 per diluted share on revenues of $150.5 million, up 22% over the same period last year. The consensus estimate had been for earnings of $.28 per diluted share on revenues of $148.28 million. So what went wrong? The growth was due primarily to the acquisition of 25 new facilities. If we look at same-facility statistics, the revenue per case was approximately the same in the second quarter of 2006 as for the previous year, viz. $1,794 in the U.S. There was an increase in the U.S. of 4,324 facility cases in the second quarter over the same period of 2005 generating an increase in U.S. same-facility net revenues of $7.9 million. However, the income margins (income/revenues) declined from 31.3% in 2005 to 28.4% in 2006. There was also a decline in United Kingdom operating income margins from 25.7% to 22.5%.

Blaming mining problems, coal producer MASSEY ENERGY CO [MEE] tumbled 13.9% to close at $25.05 after reporting an awful second quarter. The company reported net income of $.04 per share, compared to $.48 for the same period last year, and well below the consensus estimate of $.45 per share. While one facility that was idled due to a fire in the second quarter is back in operation, the company has elected to idle 4 underground mining sections and to discontinue production at the Rockhouse longwall in mid-August. In the company’s press release, Don Blankenship, Chairman and CEO, asserted that “Central Appalachia coal mining has been, and continues to be, under significant cost pressure.”

The Chicago based provider of demand and supply chain management software and consulting services CLICK COMMERCE INC [CKCM] got clipped 12% closing at $14.99 despite a strong quarterly result. Basically, the company failed to meet the consensus earnings estimate of $.34 per share, reporting second quarter earnings of $.24 per share. The main concern is probably with the lack of growth in the subscription area.

AUDIBLE INC [ADBL] faded 11.1% closing at $7.42 after reporting second quarter results and receiving a downgrade from Citigroup from “Buy” to “Hold” on the basis of slowing subscriber growth. Looking at the subscriber growth for AudioListener, we see pretty steady growth with 65,200 adds in the second quarter. (About 60K maintains linear growth, which is what we would expect.)

There might be some confusion with the number of total new customers being reported being compared with new subscriptions for AudioListener. In any case, the lower churn number is somewhat encouraging. The net loss per share of $0.09 for the second quarter compared to the profit of $0.03 for the same period last year was definitely a downer.

PIXELWORKS INC [PXLW] plummeted 9.8% closing at $2.20 reporting a net loss of $3.02 per share compared to a net loss of $0.05 for the same period last year. Revenues were down, expenses were up and the company booked an impairment loss on goodwill of $133.74 million. Downgraded by Wedbush Morgan. Too much long term debt on the Balance Sheet.

MCAFEE INC [MFE] is mired in stock option issues and needs to restate financials. Expect delayed filings. Downgraded by WR Hambrecht and AG Edwards from “Buy” to “Hold.” Shares down 7% closing at $22.35.

LEAR CORP [LEA] was down 5.2% closing at $22.82 despite an upgrade by Robert W. Baird from “Underperform” to “Neutral.” The company reported a second quarter loss of $0.10 per share compared with a profit of $0.32 per share for the same period last year. None of the 15 analysts covering the company had expected the loss – the low end of the range was a profit of $.07 per share).

LIBBEY INC [LBY] sparkled up 24.5% closing at $24.75 despite reporting a loss of $0.68 per share compared to a loss of $0.06 per share for the same period last year. The explanation of course was the inclusion of charges related to the acquisition of Vitrocrisa Holdings in Mexico back in March of this year. On an adjusted basis, earnings were $0.27 per share on revenues of $158 million, versus a consensus estimate of $0.15 per share.

LAWSON SOFTWARE INC [LWSN] gapped up dramatically, slid down precipitously for a while and then recovered nicely, up 19.8% for the day, closing at $6.77. The wild ride appears to have hinged on an upgrade by Deutsche Securities. While the company is in the process of preparing financial statements that will fully reflect the impact of Intentia International AB in April of this year, the company did release on Thursday a preliminary report for the legacy Lawson Software operations, reflecting 9% revenue growth for the fourth quarter ended May 31^st. Too many moving parts here for an easy assessment of synergies at this time.

FORMFACTOR INC [FORM] was in good form, surging up 19.4% to close at $42.45 after announcing a strong second quarter and getting a two step upgrade from Banc of America Securities from “Sell” to “Buy.” Impressive Balance Sheet. Relatively high P/E ratio.

The global provider of nutritional supplements NBTY INC [NTY] was boosted up 17.4% closing at $29.20 after announcing second quarter earnings of $.43 per share compared to $.23 per share for the second quarter of 2005 and well above the high end of the analysts’ estimates of $.40 per share. The stock may have also benefited from an upgrade by Brean Murray from “Sell” to “Hold,” although that upgrade seems a bit tardy.

XM SATELLITE RADIO HOLDINGS INC [XMSR] must be near its bottom, having surged up 16.3% closing at $12.67 after reporting what we would say was a pretty dismal quarter, unless you were able to find some basis for hope in a Sirius merger in the quarterly report. While second quarter revenues were up 88% at $228 million versus a consensus estimate of $221.48 million, the loss of $229 million or $0.87 per share was considerably worse that the consensus estimate of $0.67 per share. The company continues to revise downward its projections for end-of-year subscriptions, having started at 9 million, the latest guidance is for between 7.7 and 8.2 million. Having hit 7 million subscribers in July, the low end of that range is feasible, but it is likely that the high end of subscription guidance at the end of the third quarter will be below the 8 million mark. More disconcerting is the Cost Per Gross Addition having increased from $98 at the end of 2005 to $112 at the end of June. With monthly revenue per subscriber now at $11.36 and the likelihood that this is probably close to optimal, we are skeptical that the company will become cash flow positive in the fourth quarter, although they are still projecting that this will be the case.

NVIDIA CORP [NVDA] was up 10.4% closing at $22.67 after receiving two “Best in Show” awards at the second-annual Freescale Technology Forum in Orlando, Florida, for its GoForce® 5500 graphics processing unit (GPU) technology demonstration.

A leader in outsourced e-commerce services, DIGITAL RIVER INC [DRIV] was up 9.2% on Friday closing at $44.16 after announcing second quarter results and dropping lots of hints about imminent deals. The company’s reported earnings were $.30 per diluted share compared to $.26 per diluted share for the same period last year. The company’s non-GAAP earnings which excluded stock-based compensation and amortization of acquisition-related intangibles were reported at $.41 per share, which at least beat the consensus estimate of $.38 per share. The guidance for the third quarter and full year were in line with expectations, so we assume the 9.2% pop is due almost exclusively to the hints of upcoming deals, and would recommend caution until we know more about the deals.

UNIVERSAL HEALTH SERVICES INC [UHS] reported a healthy quarter indeed and surged up 8.7% closing at $56.29, after beating consensus estimates for revenues and earnings and even managing to handle an increased patient load while containing costs to increase margins.

CALLAWAY GOLF CO [ELY] managed to get out of the rough and up 8.4% on the green closing at $12.47. It was basically a quick recovery from missing the earnings expectations but since the earnings growth was reasonably strong, Thursday’s behavior made little sense.

MICROSEMI CORP [MSCC] up 8.1% closing at $25.09 after an upgrade by Needham & Co. from “Buy” to “Strong Buy.” Growth in the Balance Sheet is very impressive.

Recall that CA = Current Assets, PPE = Property, Plant & Equipment, OA = Other Assets, CL = Current Liabilities, LTL = Long Term Liabilities, SE = Shareholder Equity. Not cheap but should easily get to $30.

Overall an impressive day with sector gains across the board. An average return of 1.61% and about 79% of the members of the SigmaInverse Universe posting positive returns.

Yesterday provided a good example of the extent to which investors are avoiding small cap stocks on a down day.  In the following chart we plot the average daily returns for July 27, 2006, by bins where the first bin consists of the top 500 companies in terms of market cap, the second bin consists of the next 500 companies in terms of market cap, etc.  The average return for the top 500 stocks in terms of market cap was -.52%; the average return for the next 500 companies in terms of market cap was -1.05%; etc.

Suggested title for EXXON MOBIL’s 10-Q which reported near record earnings for the second quarter. EXXON MOBIL [XOM] was down .2% closing at $66.47 per share after reporting second quarter earnings of $10.4 billion.

BRISTOL MYERS SQUIBB CO [BMY] was beaten down 7.5% on news that the Department of Justice is conducting a criminal investigation regarding the proposed settlement of the Apotex litigation involving the company’s major blood thinner drug, Plavix, which accounted for 23.5% of total second quarter net sales. Looks grim from where we sit.

SYMANTEC CORP [SYMC] surged up 9.1% closing at $17.24 after posting second quarter revenues of $1.26 billion versus consensus estimate of $1.24 billion, and compared with revenues of $700 million last year (before the acquisition of VERITAS). Restating 2005 results to include VERITAS, results in rather meager revenue growth of only 2% over the same period last year. Furthermore, earnings for the second quarter were only $.09 per diluted share compared with $.27 for the same period last year. Non-GAAP earnings, excluding certain acquisition costs, would have generated earnings of $.24 per share, which would have been more in line with consensus estimates. We expect there are serious limits to growth in the Veritas area that will probably offset the advantages that Norton software has over the McAfee in-your-face, time-wasting nonsense. (In case you haven’t figured it out, this small sample of one has a rather strong bias against McAfee’s approach to anti-virus software.)

AKAMAI TECHNOLOGIES INC [AKAM] was up 22.8% closing at $36.83 after posting very strong second quarter results and receiving at least three upgrades on Thursday, with volume over 17 million shares. Revenue was a record $100.6 million, up 56% from the same period last year. Net income was $.07 per diluted share compared to $.11 per diluted share for the same period last year. The inclusion of equity related compensation in operating expenses had considerable impact this year. The revenue growth was very impressive and bodes well for the remainder of the year, but the lack of earnings growth is a concern. Until we see progress on that front, we remain skeptical.

Another beneficiary of a strong second quarter report was NEWPORT CORP [NEWP], a leading global supplier of advanced-technology products focusing on lasers to a broad range of markets including scientific research, health sciences, aerospace, defense/security and general industrial. The stock was up 17.4% closing at $17.25 after reporting income of $.22 per diluted share, an increase of approximately 67% over the same period last year, with revenues of $112.4 million, an increase of 14% over the same period last year. The consensus estimate for second quarter earnings had been $.15 per share. The book-to-bill ratio for the second quarter was a very healthy 1.1. Unfortunately, the big opportunity here is probably gone, although it might break through $20 per share.

A not so scintillating second quarter was turned in by HARMONIC INC [HLIT], which was up 16.7% closing at $4.96 per share. While results fell short of expectations, some aspects of the report including improved gross margins and a rebound in order activity led to an upgrade by Merriman Curhan Ford. We were not at all impressed and will need to see some future results.

PLEXUS CORP [PLXS] down 31.9% closing at $22.89 after hitting the expected earnings of $.53 per share on record revenues of $397.4 million, slightly below expectations of $399.86 million. However, the company lowered guidance for the fourth quarter, indicating earnings per share in the range of $.46 to $.50. In my book it looks like the company is indicating annualized EPS of about $2 per share which makes it sound like there was an irrational overreaction and that we are looking at an interesting long opportunity. The only risk we see is the exposure to a relatively small number of very large customers – top 10 customers make up 63% of sales.

Loan shark ADVANCE AMERICA CASH ADVANCE CENTERS [AEA] was down 25.6% closing at $13.31 after reporting earnings of $.16 per share which was well below the consensus forecast of $.21 per share. The company blamed state regulations in several states that effectively limited the rates they could charge and the amounts that could be borrowed. Downgrades by JMP Securities and Jefferies & Co. did not help.

NAVTEQ CORP [NVT] appears to have lost its bearings and fell sharply by 25.6% closing at $26.25. Quarterly results were weak and the demand for in-car navigation systems seems to be weakening. How do they keep up with the Big Dig?

With a downgrade from Bear Stearns and a generally strong quarterly report (EPS of $.67 per share versus consensus estimate of $.64 per share) with increased guidance for the full-year, AETNA INC [AET] was hammered down 16.8% closing at $33.25. The company cited higher medical claims in the second quarter and indicated it was lowering its guidance for net new members in the full year to the range of 700K to 750K, down from the prior range of 900K to 1 million. It was also increasing its full-year Medical Cost Ratio (MCR) from 79% to 80%. Seems like an overreaction creating yet another long opportunity but how in the world can the net new member forecast be so far off?

Despite swinging from a loss of $.30 per share in 2005 to a profit of $.13 per share for the second quarter of 2006, AMKOR TECHNOLOGY INC [AMKR] was bumped down 16.8% closing at $6.25 when it provided guidance for third quarter earnings that fell below analysts’ expectations. Revenue guidance for the third quarter is consistent with expectations, so we feel this is a bit of an overreaction and a reasonable long opportunity although the horizon should be at least six months and

TELLABS INC [TLAB] down 15.9% closing at $9.25 after reporting a strong quarter but warning that industry mergers were likely to result in constrained capital expenditures and lowered guidance for the revenue growth in the third quarter to 10 to 15 percent. This would seem prudent and of course still represents a rather healthy revenue growth target, so we believe today’s drop does in fact create an interesting long opportunity.

BLOCKBUSTER INC [BBI] was anything but on Thursday. It was down 12% closing at $4.12 after reporting earnings of $65.6 million or $.31 per share, which included a $91.2 million settlement of a tax audit. Subtracting out the one-time items, the company lost $21.4 million in the quarter or $.13 per share. The consensus estimate had been for a loss of $.08.

Feeling the pinch of higher raw material costs, DOW CHEMICAL CO [DOW] was down 10% closing at $33.54 after reporting disappointing earnings for the second quarter.

The Daily Sector Performance Chart is based on 3,599 stocks of which 28.6% posted positive returns for the day.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MERCK [MRK] reported a very strong quarter (beating expectations) with lots of good news regarding new drugs (Vytorin, Guardasil, etc.) and undoubtedly benefited from a very positive article in Barron’s over the weekend, but VIOXX litigation risks probably limited the response with the stock up only 4.26%.

SILICON LABORATORIES INC [SLAB] soared up 21% closing at $35.70, after easily beating expectations for second quarter earnings. The stock has been steadily dropping since the beginning of May but still has a relatively high P/E ratio, so this needs deeper analysis. The balance sheet is very attractive.

EXCO RESOURCES INC [XCO] was up 18% closing at $12.10, after announcing its acquisition of Winchester Energy Co. (natural gas properties) from Progress Energy Inc. for $1.2 billion in cash. This price is in line with similar deals, but shares of PROGRESS ENERGY [PGN] were only up only about .5% on a day when the average return was 2.1%. The sale will help PROGRESS ENERGY cut it’s corporate debt very significantly and help to preserve its dividends.

POLO RALPH LAUREN CORP [RL] shot up 15.7% closing at $55.40 after raising its quarterly forecast of revenue growth to the mid twenties percent compared to first quarter 2005. Earlier estimates from the company had been for revenue growth to range between the high teens and low twenties percent.

NOVATEL WIRELESS INC [NVTL] up 11.1% closing at $11.67. I don’t see a compelling reason for this increase. Could it be that they might actually post a profit for the second quarter or is there an acquisition possible?

NVIDIA CORP [NVDA] up 10.1% closing at $19.56. Could be benefiting from either the acquisition of rival ATI by AMD or just the fact that it was absurdly undervalued.

It was a wild ride for the country’s second largest toymaker HASBRO INC [HAS] which ended the day up 9.5% closing at $19.15, after it dipped briefly announcing that earnings and revenues were down from the last year. However, the earnings of $.07 per share were in line with expectations and revenues of $527.8 million for the quarter ended July 2^nd were considerably above expectations of $517.85 million.

PARLUX FRAGRANCES INC [PARL] up 7.8% closing at $8.55 after finally getting their 10-K filed. The fourth quarter results were quite impressive with net sales for the quarter ended March 31^st more than double those of fourth quarter 2005. The PF Acquisition deal is off, but the P/E ratio here still seems to argue that there is an opportunity. Seems to be a lot of Florida real estate still on the books.

PACKETEER INC [PKTR] up 7.6% closing at $8.51. While certainly coming no where near to recovering from Friday’s drubbing, the modest recovery probably still leaves some reasonable upside potential.

PDL BIOPHARMA INC [PDLI] up 7.5% closing at $17.75 with an upgrade by Deutsche Securities which justified the upgrade on the basis of what is judged an overcorrection. The key here is certainly the current quarter results expected on August 3^rd. The company needs to report a profit.

SANDISK CORP [SNDK] flashed up 7.2% closing at $40.20 and is already at $47.92 in after hours trading. Following the very positive earnings conference, we expect that the irrationality of price drop that we observed two weeks ago will probably be completely erased.

ASTEC INDUSTRIES INC [ASTE] was tarred and feathered for missing expectations, but given the thin analyst coverage, reasonable earnings growth (21% year over year) and fundamental health of the road infrastructure industry, we sense a reasonable opportunity here with a 3 to 6 month horizon.

Strong corrections across the board (except for Tobacco) in the Daily Sector Performance Chart. While oil prices were up on some refinery and pipeline issues, the market seemed to finally wake up to the positive second quarter earnings stories. The average return in the SigmaInverse Universe was 2.18%, with 85% of the universe posting positive returns.

REWARDS NETWORK INC [IRN] was down 36.5% closing at $5.49 after announcing disappointing second quarter results and losing a court decision.  The company provides marketing services to the restaurant industry through a Marketing Credits Program and a Marketing Services Program.  The former makes up about 92% of the total and involves payments by [IRN] to the participating restaurants in return for dining credits earned by members.  Member benefits also include airline miles and other perks.  However, at the end of the day, the business model appears to be flawed for reasons we don’t have to go into here (think zero-sum game).  While net income for the second quarter was $2.6 million (or $.10 per share) compared with $1.4 million (or $.05 per share) for the same period last year, total sales for the second quarter were only $66.4 million, which represents a 9.2% decrease from last year’s second quarter sales of $73 million and is attributable to a 9.9% decline in the Marketing Credits Program, due to a 22% decline in the number of participating restaurants over the course of the past year.  Doesn’t sound too healthy.

PMC SIERRA INC [PMCS] cratered 26.4% closing at $5.14 after reporting second quarter results.  Analysts had been expecting earnings of $.09 for the quarter, which apparently did not include acquisition costs, but the company reported a loss of $.15 per share (GAAP) due primarily to the inclusion of acquisition costs.  Net revenues for the second quarter were $118.8 million, which represents an increase of 35% over the second quarter of 2005.  The positioning of the company in China and the Fiber to the home (FTTH) market are very compelling and, despite the downgrade by Stanford Research, we believe this company could be very attractive at this price.

PACKETEER INC [PKTR] crashed 21.9% closing at $7.91 also missed second quarter expectations.  Analysts had been expecting earnings of $.14 per share, but the company reported a loss of $.02 per share.  While there are some similarities with PMC SIERRA, in coping with acquisition costs, removing extraordinary items from the income statement still only gets to $.12 per share, so it might be prudent to wait for further evidence that all is well.  While revenues of $34.2 million exceeded expectations, they were only up 21% over the same period last year.

ADVANCED MICRO DEVICES INC [AMD] was down 15.7% closing at $18.26 after missing earnings expectations ($.18 per share versus $.22 per share) and sales expectations ($1.22 billion versus $1.25 billion).  There are also many other factors here including fears of the price war with Intel, Dell’s possible use of AMD chips, the rumored acquisition of ATI, etc.  Looks like choppy seas ahead for a bit.  No need for panic at this point.

BROADCOM CORP [BRCM] was broadsided dropping 12.3% to close at $23.11 after reporting rising inventories, slowing sales, and increased margin pressure.  Guidance for third quarter sales is now $900 million, which is considerable below expectations of $986.5 million.  Fourth quarter results also projected to be weaker than previously expected.

Despite reporting a 26% increase in earnings over second quarter 2005 from continuing operations, AMCOL INTERNATIONAL CORP [ACO]  slipped 11.8% on Friday, closing at $20.57.  It reported second quarter earnings of $.39 per share versus expectations of $.40 per share.  This appears to be an interesting opportunity generated by yet another overreaction.

DELL INC [DELL] dropped 9.9% closing at $19.91 after announcing it expects second quarter earnings of approximately $.21 to $.23 per share.  Analysts had been expecting earnings of $.32 per share.  The company has not done well in transitioning from dependence on the corporate market where double digit growth was no longer possible into the retail arena and has had major problems maintaining product quality and service levels – at least as far as one disgruntled consumer is concerned.

SKYWORKS SOLUTIONS INC [SWKS] tumbled 9.9% closing at $4.10 after the company quarterly earnings expectations ($.02 per share versus expected $.05 per share).  Revenues of $197.1 million actually exceeded expectations of $195.4 million and were up 14% over the same period last year.  Good opportunity here.

CAPITAL ONE FINANCIAL CORP [COF] dropped 9.7% closing at $77.70 after announcing second quarter earnings of $1.78 per share, which fell well short of the expected earnings of $2.06 per share.  The addition of more commercial banking operations with the acquisition of New Orleans based Hibernia Bank last November and the upcoming acquisition of North Fork seems to be stressing the corporation which was focused more on credit card products.

HALLIBURTON CO [HAL] was down a shocking 8.1% closing at $30.04.  Whatever hype was built into this stock is now obliterated, and we would have to consider this a great buy at this point.  P/E ratio is 12.71!

NVIDIA CORP [NVDA] was down 7.5% closing at $17.77, responding to rumors of [AMD] buying rival GPU maker ATI.  In the end, it makes very little difference since [NVDA] is an opportunity in either case.

Yet another day of loading the springs for the what could be a very impressive rebound.  The average return for the day was -1.42% with only about 20% of the members of the SigmaInverse Universe (3,607 members) having a positive return for the day.  Sectors with having the most difficult time on Friday were Electronics & Semiconductors and Mining.  The prognosis for the next few weeks will depend considerably on what happens in Lebanon this weekend and whether the Fed calls a truce on the rate hike front.  We are currently assuming that the Mideast conflict remains contained and that the FRB will not increase the Fed Funds rate in August - resulting in a rather bullish short term view.

MGI PHARMA INC [MOGN], was down 32.2% closing at $14.54, with lowered expectations and a second quarter of loss of $.08 per share. Reduced guidance for the company’s drug Aloxi used in treating chemotherapy-induced nausea and vomiting, was the main source of pain. With the prospects of a generic version of the competitive drug Zofran earlier than expected in the fourth quarter, [MOGN] was downgraded by Robert W. Baird, JP Morgan, Prudential, AM Tech/JSA Research and JMP Securities. Bear Stearns upgrade earlier in the week is probably at risk.

Also suffering from reduced guidance and a downgrade, TALEO CORP [TLEO] was down 28.7% closing at $7.97, after projecting a second quarter loss of between $.10 and $.12 per share. It has been expected to post earnings of $.05 per share. Where’s the talent?

LABOR READY INC [LRW] which provides temporary labor was down 21.6% on Thursday, closing at $15.97, following its announcement of second quarter results. While earnings ($.35 per share) were in line with expectations, revenues of $339.8 million fell short of expectations, apparently reflecting a slowdown in the demand for construction workers. The reaction was extreme, but we don’t see much growth potential here so be ready for a reversal of much of the territory gained in the last three years.

The world’s largest medical air transportation company, AIR METHODS CORP [AIRM] was down 21.5% closing at $18.28, following the announcement of second quarter financials indicating decreases in revenues attributed to increases in uninsured patient numbers.

INTEL CORP [INTC] out of sync. The company announced a management shakeup along with a really awful quarter, dropping 7.5% and closing at $17.10. Revenue versus second quarter 2005 was down 13% at $8 billion, operating income down 60% at $1.1 billion, and earnings per share was down 55% at $.15 per share. A protracted price war with AMD [AMD] also didn’t help the situation. With second quarter earnings generally looking very good, this was a real downer for both the market and the sector.

APPLE COMPUTER INC [AAPL] up 11.8% closing at $60.50, with very impressive second quarter results. The new MacBook seems to be gaining market share albeit from a very low base and with better margins than the iPod should really help the bottom line. Looks like the third quarter will be quite impressive.

TRADESTATION GROUP INC [TRAD] up 11.1% closing at $13.76 after announcing a fabulous second quarter with record revenues of $32.5 million, record quarterly earnings of $.17 per diluted share, and record Daily Average Revenue Trades (DARTs) of approximately 62,500. The company added 1,885 brokerage net new accounts during the second quarter, reaching a total base of 28,682 brokerage accounts as of June 30, 2006. It was also reported that the average TRADESTATION client traded 567 times per year and that the average revenue per account was $4,300, while the average TD Ameritrade or E-Trade account had only 11 to 13 trades per year.

MOTOROLA INC [MOT] up 7% closing at $20.60 after announcing a very strong second quarter that saw record revenues of $10.88 billion, up 29% over the second quarter of 2005, and earnings of $.55 per share compared to earnings of $.37 for the same period last year. This was driven by record handset shipments of 51.9 million units which represented an increased market share of 22% according to Motorola (up 4.3% versus second quarter 2005).

With some encouragement from MICROSOFT [MSFT], APPLE [AAPL] and MOTOROLA [MOT] it looks like the Tech sectors should be able to shrug off INTEL [INTC] and might do reasonably well on Friday.

While the net effect of the last two days is still positive, Thursday indicated some early profit taking and the need for extra work in locating real bargains. The average return for the day was -1.95% across 3,612 members of the SigmaInverse Universe. Only 16% of the members had positive returns for the day. The sectors showing the most damage were Airlines, Construction, Mining and Railroads.