All Sectors Show Gains - Dow Hits New High
DISCOVERY LABORATORIES INC [DSCO] climbed an impressive 23.9% closing at $2.64 on a volume that was almost 13 times the average daily volume over the past 90 days. This was in response to a press release indicating a very positive Phase 2 Clinical trial results for its new Surfaxin® for the prevention and treatment of Bronchopulmonary Dysplasia (BPD), a lung disease typically affecting premature infants.
DELUXE CORP [DLX] jumped up 16.9% closing at $21.29, pretty much recovering from the big hit taken at the end of June, when it canceled a project to automate some of its operations and took a pretax charge of $45 million. The company announced before the markets opened on Thursday that it now expected earnings for the quarter ended September 30th to be in the range of $0.59 to $0.61 per diluted share, compared to its previous guidance of $0.41 to $0.45 per share, due primarily to lower manufacturing costs and lower SG&A expenses. That undoubtedly generated the pop.
TUESDAY MORNING CORP [TUES] rose a remarkable 12% closing at $16.33, with a press release announcing comparable store sales decreased 4.6% for the third quarter, and expected earnings for the third quarter in the range of $0.07 to $0.08 per diluted share. Given the rather low P/E ratio and healthy dividend, this one does look like a reasonably safe investment, although we don’t see much evidence of growth, with only a 1.1% increase in net sales over the same period last year.
BE AEROSPACE INC [BEAV] rocketed up 10.4% closing at $23.75 on no apparent news. Price movements here are somewhat suspicious. BE CAERfull.
SIGMATEL INC [SGTL] was up 9.3% closing at $5.51 with an upgrade by Am Tech/JSA Research from “Sell” to “Neutral.”
YUM BRANDS INC [YUM] was up a tasty 8.3% closing at $59.08 after reporting very positive third quarter results, including strong double-digit operating growth from China (26%) and a 7% reduction in shares outstanding for the quarter. The company raised its earnings outlook from $2.83 per share to $2.89 per share, which represents 14% growth before special items.
There was a huge focus on COSTCO WHOLESALE CORP [COST] which rose 7.6% closing at $53.90 with over 18 million shares traded. The company reported a very healthy 19% increase in net sales for the 17-week fourth fiscal quarter ended September 3rd, although it should be noted that the comparable period in 2005 only had 16 weeks and therefore the actual increase in net sales was probably closer to 12%. Net income for the 17-week period was $0.75 per diluted share ($355.6 million), compared with $0.73 per diluted share during the 16-week fourth quarter last year. The consensus estimate for earnings for the quarter had been $0.73 per share.
SIRF TECHNOLOGY HOLDINGS INC [SIRF] rode the waves higher 7.3% closing at $21.68. The P/E ratio seems a bit out of whack. Probably a good idea to wait until the third quarter conference call scheduled for October 19, 2006 at 4:30 PM Eastern time.
CB RICHARD ELLIS GROUP [CBG] surged 7.3% closing at $25.99 on the news that it would be added to the S&P 500 index, replacing BellSouth, which is being acquired by AT&T.
FIVE STAR QUALITY CARE INC [FVE], an operator of senior living communities, was down 7.3% closing at $10.34, after announcing that it intended to offer $80 million of Convertible Senior Notes due 2026. Proceeds from the offering will be used for general business purposes, including possible future acquisitions. It is our opinion that the next 10-Q is critical in evaluating whether the termination of the management contracts with SLS have improved the margins as expected. While the demographics argue that the company is well positioned, the rental fees and management challenges in the near term could be a problem.
INTERNAP NETWORK SERVICES CORP [INAP] dropped 9.6% closing at $15.41 on the news that it was buying VITALSTREAM HOLDINGS INC [VSTH] for $217 million. VITALSTREAM provides products and services for storing and delivering streaming digital media over the Internet and would compete against AKAMAI. According to one analyst quoted by Reuters, the “acquisition will be dilutive from an earnings per share perspective probably for a couple of quarters.” While the exchange ratio of 0.5132 implies VSTH shares are being valued an unusually high premium of 36.7% based on Wednesday’s closing prices, which probably explains the unusually large drop for INAP, it does appear that the savings INAP will realize by switching from AKAMAI to VITALSTREAM fully justifies the acquisition.
SYSTEMAX INC [SYX] tumbled another 21.5% closing at $11.80 for a combined two day loss of 37%. Yesterday’s press release at 3:55 pm, apparently did not allow enough time for the full public reaction to the announced delay in the 10-Q filing. Those who sold yesterday morning should perhaps be congratulated for their extraordinary good luck. :-)
It reminded us of the “Perfect Storm.” Except in this case everything came together to send the market higher. The latest Beige Book struck the perfect balance between slowing growth and inflation. Quarterly earnings from COSTCO were encouraging (although probably not read closely enough). Oil prices were up only slightly, with the November futures contract for light, sweet crude oil settling at $57.86 per barrel, up only $0.39 for the day. Despite the pathetically small sample and lack of consistency in what it really represents, the Dow Jones Industrial Average continues to have an amazing psychological impact on the markets that is hard to discount. When it gets into new territory, the herds are likely to stampede on the slightest provocation.
The average gain for the day in the SI Universe of 3,567 stocks was 1.69%, with 83.7% of the members posting positive returns for the day. Rather remarkably, all sectors showed very respectable gains. So forget about using sector rotation to explain some of the gains.
