wall street nuggets

It was of course a strong week across all market capitalizations, with the Mid Caps performing best cumulatively for the week (up 2.66%).

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%).

HORNBECK OFFSHORE SERVICES INC [HOS] was crushed, sinking 22% with volume close to 20 times normal, to close at $26.14. This followed the company lowering earnings guidance for the fourth quarter from a range of $0.72 to $0.77 per share to a range of $0.61 to $0.63 per share. Contributing to the decline was a downgrade by Goldman Sachs from “Neutral” to “Sell.” In addition to the lowered guidance and the downgrade, there was the continued drop in oil prices, and, given the dependency of the company on transporting offshore oil in the Gulf, there was apparently a perfect storm effect, generating some panic in the market.

With a rather attractive P/E ratio of 9.7 and given plans to increase the capacity of the fleet by 30%, this appears to be an great buying opportunity at this price.

Overall, it was a good day in the markets, with the average member of the SigmaInverse Universe gaining 0.95% and a very healthy 72.6% of the members posting positive returns for the day. Strong sector moves were seen for Airlines (up 2.2% - thanks to lower oil prices), Automobiles (up 2.3%), Entertainment (up 2.7%) and Oil & Gas Production (down 0.5%).

While there were not a lot of gains across the domestic markets on Wednesday, it appears that the large gains were definitely concentrated in the large capitalization range (i.e. ranks 1 to 500 in the universe tracked by SigmaInverse).

SYNTROLEUM CORP [SYNM] rose 20.6% closing at $3.81 on volume that was about four times normal with no significant relevant news events. The volume of the trades was also very suspicious with only one spike of 2 million shares at about 2:43 pm. We expect some sort of relevant news leak or a move by one very large institutional investor.

XM SATELLITE RADIO HOLDINGS INC [XMSR] jumped 10.1% closing at $16.65 apparently due to a Citigroup research note released on Wednesday, indicating increased openness on the part of XM SATELLITE for a merger with SIRIUS SATELLITE RADIO INC [SIRI] also up 7.3% closing at $3.98. We continue to believe that speculation on this merger is extremely risky and that, for a least one of the players, there is a more attractive strategy than the merger approach.

Overall, the markets were up with the average member of the SigmaInverse Universe posting a gain of 0.19%, although only 50.2% of the 3,501 members of the Universe posted positive returns for the day. Big sector moves were seen in Airlines (up 1.7% - oil prices down), Oil & Gas Production (down 1.2%) and Travel (up 1.7%).

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%).