Thursday, September 30, 2010

Performance For Third Quarter of 2010

Up until the last week or so, this would have been a pretty good quarter. Unfortunately, Alnylam (Nasdaq: ALNY) and Monsanto (NYSE: MON) spanked me hard recently, and banks like BB&T (NYSE: BBT), SocGen (Nasdaq: SCGLY) and JPMorgan (NYSE: JPM) have done me no great favors this quarter.

Old standbys FEMSA (NYSE: FMX), MSC Industrial (NYSE: MSM), and Portfolio Recovery (Nasdaq: PRAA) did well, and newcomers like Quest (Nasdaq: QSFT) and Tower Group (Nasdaq: TWGP) contributed as well.

My portfolio "A" : +12.2%
My portfolio "B" : +13.9%
My combined portfolios: +12.8%

S&P 500: +10.7%
Nasdaq: +12.3%
Russell 3000: +11.0%

Ugh ... here's hoping Monsanto and the banks start earning their keep!

Disclosure - I own shares of all the stocks mentioned in this post.

Financial Edge: Easy Ways To Diversify Your Portfolio

Like a great car, diversification is something that almost everybody wants but seems hard to get if you do not have a lot of money to spend. Luckily for investors, there are more options now than ever before for adding diversity to a portfolio. Better still, these options are not all that expensive. (For more, see The Importance Of Diversification.)

Mutual Funds - Old, But UsefulAn actively-managed mutual fund is still an excellent way to diversify a portfolio. By allocating even just one "slot" of a portfolio to a mutual fund, an investor can draw on the accumulated benefit of potentially thousands of stocks, as well as the skill of the management team making the selections. Although some funds still charge loads, many do not and it is not hard to find funds that are likewise efficient with respect to expenses and taxes.

Please read the full column:

Wednesday, September 29, 2010

Paychex Sees A Slow Road Back

There are plenty of ways in which the U.S. economy is stronger now than it was a year ago, but that does not mean that current conditions make for a rollicking good time. In particular, companies are not yet hiring in a big way, and that is keeping a lid on the recovery of payroll and HR outsourcer Paychex (Nasdaq:PAYX). 

The Quarter That Was
Paychex's fiscal first quarter seems to fit the overall sense of the economy - slight improvement here and there, but nothing close to enough strength to lift the overall sense of gloom (or at least deep concern). Revenue was up 4% (and ahead of expectations), as payroll service revenue rose almost 2% and human resources services-related revenue rose more than 10%. 

The link below will take you to the full article:

Wal-Mart Looks To The Long-Term

Give Wal-Mart (NYSE:WMT) credit, in a financial world obsessed with short-term rewards, this massive retailer is not afraid to make long-term investments. While investors will almost certainly continue to pay much more attention to its expansion in China, Brazil and India, Wal-Mart's proposed acquisition of South Africa's Massmart could pay dividends over the long run. 

The Details of the Deal
There is no finalized deal between the two companies, but Wal-Mart is proposing to pay about $4.2 billion for this retailer. That represents about a 10% premium for a company that had long been trading on expectations of a bid from foreign operators. In fact, Massmart's stock was trading a bit higher than Wal-Mart's proposed price - suggesting that investors expect some sort of higher bid to materialize. 

Please click on the link below for the full article:

Companies With Big MDx Dreams

This is a relatively unusual quiet period in medical technology, as there are so few emerging sectors that are really capturing attention and drawing high stock multiples. One of the areas that still is drawing attention, however, is molecular diagnostics. A subset of the lucrative multi-billion dollar diagnostics market, molecular diagnostics focuses on the use of modern life sciences technology to use genomic and/or proteomic expression information to diagnose or predict disease. (Find an investment that will give your portfolio a shot in the arm. To learn more, check out A Checklist For Successful Medical Technology Investment.)  

Molecular diagnostics (often abbreviated as MDx) has garnered a lot of hope, enthusiasm, and more recently, disappointment. Although many of the leaders in this space are some of the large companies investors might expect (Roche (Nasdaq:RHHBY), et al), there are several small companies that could give risk-seeking investors an interesting play on the space. 

Please follow the link for the full piece:

Unilever's Yo-Yo Diet

It does not seem like it was all that long ago that Anglo-Dutch consumer products giant Unilever (NYSE:UL) (NYSE:UN) was slimming down, centralizing and cutting its product portfolio. Nevertheless, Unilever has decided that it is time to get a little bigger again, and the company is buying Alberto-Culver (NYSE:ACV), a hair and skin care specialist, in an all-cash deal. 

The Terms 
Unilever is proposing to pay $3.7 billion in cash, or $37.50 per share. That is a rather healthy premium for Alberto-Culver. Even granting that the spin-off of Sally Beauty Holding (NYSE:SBH) makes past cash flow performance less predictive, investors have to make some rather exceptional profitability improvement assumptions to make Unilever's price seem sound. On the other hand, this deal will meaningfully expand Unilever's market share and there are solid reasons to think that Unilever's marketing machine will do more to grow Alberto-Culver's brands and international exposure than the company did on its own. 

To continue on to the full piece, please click below:

Facts Versus Food

If there is a demand, you can assume that a company will step up to supply it. While the seemingly unstoppable rise in obesity may make one consider how much Americans really care about what they eat, there is undeniably strong interest in so-called "functional foods". It is not enough anymore to just call your product "fresh", "natural", or even "organic" - no, these days consumers want your product to prevent their heart disease, clean their colons and give them shiny, healthy hair. 

Trouble is, the science behind many of these claims is (to be charitable) lacking and seldom meets the standards of the major peer-reviewed journals. Consequently, the FDA and FTC have stepped up their attempts to enforce rules about unsupported nutritional claims. That could be bad news for packaged food companies ranging from Coca-Cola (NYSE:KO) to Unilever (NYSE:UL), as these claims are often baked into the ad campaigns and constitute what the companies hope will be enduring ways to differentiate their product in the aisles at your local Wal-Mart (NYSE:WMT). 

The link below leads to the full piece on Investopedia:

The Tortured Mating Dance Of M&T and Santander

Even though the right amount of money has a way of smoothing over many differences, it looks like the all-too-logical acquisition of M&T Bank (NYSE:MTB) and Spain's Santander (NYSE:STD) is once again leaning more towards "unlikely" than "likely". With reports out there suggesting that talks once again broke down over an issue of control, it may be time for both parties to move on and pursue strategies that do not involve each other. 

The Story So Far
Both Santander and M&T Bank have acknowledged that the two companies have talked about possible combinations, but so far they have not managed to strike a deal. While M&T is a fine target in its own right, it is probable that Santander's interest originated in the struggles of Allied Irish Banks (NYSE:AIB). Allied Irish owns a large chunk of M&T (about 22%), but desperately needs to clean up its balance sheet and raise capital. Consequently, that stake in M&T is pretty much up for bid. 

Please click the link to read the whole article:

Correction - Got a very nice email from MTB's head of Corp Comm., who pointed out that MTB has not actually officially/formally responded to any of these rumors/stories. So, I have asked the editors at Investopedia to correct the piece to reflect that. 

Tuesday, September 28, 2010

Monsanto - At What Point Is "Patience" The Same As Stubborness

Well, here's a shocker ... Monsanto (NYSE: MON) is down again.

I swear, this stock spends more time in the toilet than your average Hollywood celebutard.

The cause d'jour is early signs that the company's SmartStax product is not leading to the level of crop yield that the company promised. If true, that will force the company to make good on guarantees (hurting earnings) and it will make them look like jackasses (again) in the face of real improvement at DuPont (NYSE: DD).

I've preached patience before on this one, but I have to say that my patience is waning. True, this is only an early report on yields and there are plenty of crops still to come in. It is not unreasonable to think (hope?) that the trend could reverse and Monsanto could come out of this looking a little better. But then, that's just the sort of excuse-making that you do when you're stuck in a loser-stock.

I'm not selling Monsanto ... yet. I still believe in the long-term thesis and I still think the company's R&D is worth quite a lot. But I have to admit, it is getting harder and harder to hold this one ...

Disclosure - I own shares of Monsanto ... but I think I'd rather own a case of herpes at this point.

Neogen Is No Bad Egg

There seems to be a sad inevitability to food safety scares in the United States. While the latest outbreak revolved around contaminated chicken eggs, it has not been all that long since numerous people were sickened by bad peanut butter, jalapeno peppers, ground meat or scallions. In fact, the CDC estimates that one in four Americans experiences food poisoning every year (those "24-hour flu" cases are far more likely to be food poisoning). 

Given the huge potential consequences to a brand or business being associated with food poisoning, it may be surprising that food safety testing is not a larger business in the United States. Yet, it is big enough to make Neogen (Nasdaq:NEOG) an interesting business. 

Click the link for the full article:

Please note - a mistake was made in the editing process and an editor accidentally replaced Merck KGaA with Merck (MRK) as the owner of Millipore. I've pointed this out and it should be corrected shortly. 

Monday, September 27, 2010

FinancialEdge: Rising Cash - And Rising Debt, Too

Context is everything - without seeing the big picture, it is easy to get distracted and misled by a little nugget of information. That would appear to be the case when contemplating the balance sheet of "Corporate America". While there has been a fair bit of attention to the rising cash levels of the balance sheets of public companies, there is critical detail that goes missing in many of these stories. Debt is also climbing.

More and More CashA recent article in Bloomberg Businessweek pointed out a significant increase in cash for the S&P industrials. For the second quarter, cash holdings stood at more than $842 billion, up from nearly $837 billion in the first quarter and representing more than 11% of current market value. The information technology sector likewise appears flush with cash, with holdings equivalent to 18% of market value and more than two years' worth of operating income.

Doing some spot-checking here and there would seem to confirm this trend. Cisco (Nasdaq:CSCO) and Apple (Nasdaq:AAPL) have huge amounts of cash on hand, as do Microsoft (Nasdaq:MSFT), Google (Nasdaq:GOOG), Pfizer (NYSE:PFE) and Wal-Mart (NYSE:WMT).

Please follow the link for the full piece.

TIBCO's Scarcity Value

These are pretty good days to be a small software company. With Oracle (Nasdaq:ORCL), SAP (NYSE:SAP) and Hewlett-Packard (NYSE:HPQ) showing a seemingly indefinite willingness to open their wallets to round out their product verticals, valuations for stand-alones has been on the upward march. With an attractive middleware business in service-oriented architecture, TIBCO (Nasdaq:TIBX) has certainly been buoyed by a favorable one-two of an improving IT market and a nice and toasty M&A environment. 

The Quarter That Was
That aforementioned improving IT environment certainly helped TIBCO's fiscal third quarter. Revenue was up 23% (license revenue up 23% and service revenue up 22%), and the company lifted its guidance more than 5% above Wall Street's prior bogey. Although TIBCO beat the revenue guess for this quarter by about 5%, it was not a totally spotless quarter - bears can nitpick that the company did a smaller number of large deals (13 vs. 17 last year) and added fewer new license customers. Still, a beat is a beat, especially when combined with a hike in expectations. 

For the complete piece, please click below:

Santander and M&T Bank - Here We Go Again (Again...)

The dealings between Spain's Santander (NYSE: STD) and U.S. bank M&T Bank (NYSE: MTB) are starting to remind me of the cheesy horror movies I loved as a kid. This deal just will not die ... it keeps coming back again and again, only to die at the end of the latest installment.

According to multiple media reports, Santander and M&T had once again been in discussions regarding some sort of merger. And once again, the deal fell apart over an inability to agree on who would run the company.

If these reports are to be believed, M&T's CEO Robert Williams actually had the chutzpah to insist that his team run the combined entity. Keep in mind, Santander is 10 TIMES the size of M&T. Although Santander was apparently willing to consider letting them run Sovereign Bank (that is Santander's U.S. operation and the likely "home" for M&T if a deal happens), that was not acceptable to MTB.

The fact that this keeps coming up shows that Santander is indeed keen to do this deal; helped no doubt by the reality that Allied Irish Banks (NYSE: AIB) is very much in trouble and needs to sell its large stake in M&T Bank. It seems equally clear, though, that M&T management does not want to let go of the reins and sell the company.

Who knows how much longer this is all going to go on? I have to imagine that M&T would dearly love for AIB to find another more-or-less silent partner that would take that 22.5% stake and just be content with that. Unfortunately, non-controlling stakes in foreign banks have burned many of the major European banks and there is likely a shortage of volunteers to try again.

Likewise, I am beginning to wonder if Santander needs to move on to a new target. M&T is a well-run bank, but you can only pine for the girl of your dreams for so long before you need to get on with life. If Santander could find a more willing partner in PNC (NYSE: PNC), BB&T (NYSE: BBT), or SunTrust (NYSE: STI), maybe they ought to explore that.

Ultimately, this deal does make financial sense for both sides. Unfortunately, there are issues of ego and non-financial factors that seem to be very difficult to surmount. Given the track record of M&T management, MTB shareholders should not be in any great hurry (the "down side" to no deal is that it is still an excellent independent bank). Likewise, Santander should not be so keen on M&T that they ignore other high-quality (and perhaps more willing) partners.

Disclosure - I own shares of BBT

Update - Other sources are indicating that the debate about post-merger control has to do only with Sovereign; whether M&T management would control the combined Sovereign + MTB bank or whether it would be the current team. That certainly makes a great deal more sense than my initial read (thinking that MTB wanted control of all of STD). 

Friday, September 24, 2010

Nike's Winning Formula

Although Nike (NYSE:NKE) is well-known as a global athletic brand juggernaut, it may yet still not get all of the credit it deserves. How many suppliers can dominate its retailers like Nike? How many companies have been so successful in their home markets and then ported over that popularity to overseas markets with hardly a hiccup? At best, it is a short list and would probably be made up mostly of much-larger companies like Coca-Cola (NYSE:KO) and Apple (Nasdaq:AAPL).

Looking at Nike's first fiscal quarter results, it seems like this story just keeps rolling on.

The Quarter that Was
Last year was a tough one, but Nike seems to be bouncing back well. Revenue was up 8% this quarter, with footwear and apparel posting similar growth rates of about 7%. Global futures, though, were up 13%, and that suggests an ongoing consumer recovery. That futures growth was strong in China and in emerging markets was not surprising, but North America futures were also very strong. Perhaps not so surprisingly, Western Europe and Japan were both soft (Japan in particular). 

Click below for the full column:

Red Hat Solidly In The Black

Forget about the wiggles and waggles of gold, oil and Treasury bonds, and you see something interesting - companies in the tech sector are making money again. Whether this upturn in IT spending is a release of demand that was pent-up during the worst of the recession, or whether companies see buying software and hardware as an alternative to wetware (that is, additional employees), software companies like Red Hat (NYSE:RHT) are definitely seeing some improvement in business.   

The Quarter That Was
This open-source software and services company posted 20% revenue growth in its fiscal second quarter. Within those figures, subscription revenue rose 19%, while deferred revenue rose 12% to $650 million. The company not only saw new subscriptions rise 21%, but managed a 100% renewal rate for its top accounts in the quarter, and saw those customers actually sign on for even more services - for a total value of 120% of the initial subscription value. As much as some analysts may harp on about Red Hat's open-source platform preventing any sort of durable moat, it is pretty clear with numbers like that that there are definitely companies out there willing to continue to pay for Red Hat's service and support.  


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General Mills Succeeds In A Shaky Sector

Brands are funny things. Everybody knows that they have value, but nobody is ever really sure just how much value they have. Looking across the packaged food sector these days, it seems like the companies with the winning brands are doing quite well for themselves. That is one possible explanation, then, for why General Mills (NYSE:GIS) continues to grow while its rivals struggle with weak volumes. 

The Good News
To be sure, General Mills' fiscal first quarter results were nothing to be framed and put on the wall; sales growth was about 1.3%, as higher volumes fueled the growth. Cereals and yogurt were leaders in the U.S. retail business, helping to offset some weakness in the Pillsbury lines. Even if sub-2% growth is not a cause for celebration, General Mills does deserve praise and respect for continuing to grow at a time when rivals like Del Monte Foods (NYSE:DLM), Kellogg (NYSE:K) and ConAgra (NYSE:CAG) are having a much harder time of it. 

To read the complete article, please continue to:

Thursday, September 23, 2010

Johnson & Johnson and Boston Scientific - Could They? Should They?

I'm sure I'm not the only person thinking about whether or not Johnson & Johnson (NYSE: JNJ) and Boston Scientific (NYSE: BSX) might end up together. I think this subject was raised recently by a long-term correspondent of mine and it's been rattling around in my brain since.

JNJ has definitely been busy of late - acquiring Micrus and publicly entering into a mating dance with vaccine biotech Crucell (Nasdaq: CRXL). Likewise, BSX has been active as well - buying Asthmatx and reportedly talking about selling its neurostim and neurovascular businesses.

So maybe it's time for these two long-time rivals to get together. It would probably cost less than $12B for JNJ ... certainly not an impossible deal to contemplate. 

Why would JNJ do this? Well, it is pretty clear from the stagnant growth at JNJ that management needs to figure out some additional ways to grow and growth-through-acquisition is a tried-and-true (if qualitatively poor) way of growing. For BSX, it would be tantamount to a mercy killing for this long-underperforming company.

Beyond that, though, JNJ did once want to get into the CRM business (by buying Guidant) until BSX pushed the bidding up to a ridiculous level - a decision that has effectively crushed BSX ever since. Beyond that beyond, there are some other compelling reasons BSX could appeal to JNJ. It would potentially reinvigorate JNJ's drug-eluting stent business, even though both JNJ and BSX are losing the race against Abbott Labs (NYSE: ABT). I hope I don't sound too cynical, though, when I suggest that combining two has-beens seldom leads to a new leader...

Stents aside, BSX does have some solid business units that would not only round out JNJ's offerings, but could represent fix-er-up turnaround opportunities (the BSX IVUS business, which has been all but ceded to Volcano (Nasdaq: VOLC) comes to mind).

I don't believe that JNJ would the only suitor for BSX, were it to become clear that BSX was amenable to a sale. Covidien (NYSE: COV) could be a consideration and maybe Stryker (NYSE: SYK) would see that as a way of achieving some major diversification (although I highly, *highly* doubt that one).

Likewise, BSX would not be the only large target that JNJ could consider. Bard (NYSE: BCR), Becton Dickinson (NYSE: BDX), and CareFusion (NYSE: CFN) could all make sense (though BDX is quite a bit larger), as well as any number of fast-growing (and expensive) smaller companies like Nuvasive (Nasdaq: NUVA) or Thoratec (Nasdaq: THOR). Hell, even ZOLL (Nasdaq: ZOLL) could make sense and JNJ's salesforce could do amazing things with the LifeVest product.

Then again, maybe JNJ buys up a few more biotechs or takes a run at a big pharmaceutical company like Genzyme (Nasdaq: GENZ) or Lilly (NYSE: LLY). But then again, here is the precise problem playing the "who might buy who" game - once you get started, it's kinda hard to stop!

All in all, the safest bet to make in M&A speculation is that nothing happens. I think a JNJ-BSX deal *could* happen, and it probably would not be the worst deal that JNJ has made. But I'm still going to bet on the side that says JNJ won't be buying BSX any time soon.

Disclosure - I own shares of JNJ

Alynlam - News Sounds Bad, But I Don't Think It Is

I think the folks at Alnylam (Nasdaq: ALNY) might want to take a lesson in press release-writing from some of their more promotional peers. Why do I say this? Because even I had to double-check my notes to make sure that the news ALNY announced was nothing out of the ordinary.

Alnylam announced what is tantamount to the end of the first stage of its relationship with Novartis (NYSE: NVS). The deal with Novartis covered 30 targets, with an option for up to 10 more. Novartis has chosen to take 31 targets - so, perhaps not as good as it could have been, but not bad. The company has, to my knowledge, not really outlined how the up-to-$75 million in milestones was going to work - whether it was based on the 30 (and any of the 10 would in fact be "bonus") or whether it was based on all 40. So I'm not sure if there's any incremental upside to Novartis taking the one extra target.

As part of the end of this phase of the relationship, ALNY is also doing a sizable headcount reduction. This is where people new to the story might not appreciate that this isn't as bad as it sounds. The people that ALNY will be cutting were basically being subsidized by NVS (at a guaranteed rate) to work on this project, so with this phase of the deal over, there is no near-term economic reason for keeping them.

I do wonder, though, whether ALNY is making a mistake. First, there have got to be ample targets for research and with over $300M in cash, ALNY isn't hurting for cash. Moreover, let's be honest - firings are bad for morale even if they are expected and understood. Also, while there is no shortage of PhDs in the biological sciences, the company already has an idea of what these people can do. So, you can look at this as a sign that ALNY management is very cost-conscious and pragmatic, or perhaps a bit cheap. I'll go with Door #1 for now.

ALNY is still at a ridiculously early stage and fills a slot in my portfolio that I call "I hate casino gambling, so I will buy some crazy-ass ridiculously risky stock and see what happens". Hardly a ringing endorsement, I realize, but I do think ALNY has very exciting potential and could be a leader in a potentially huge field. We'll see.

By the way, for anyone else interested in crazy-risky (but crazy-promising) stocks, ALNY is a good candidate. RNAi could be a huge move forward in pharmaceuticals. And along with ALNY, maybe take a look at Marina Biotech (Nasdaq: MRNA), or Tekmira (RXi Pharmaceuticals (Nasdaq: RXII could also be in the discussion as well....).

Disclosure - I own shares of Alnylam

ConAgra Looking To Go From Stale To Fresh

It looks like reality is giving conventional wisdom another punch to the gut. Although food stocks are supposed to be good places to hide out during tough economic times, some of the major food shares have not done all that well over the past year relative to the broader market. Given how ConAgra's (NYSE:CAG) business performed over the past quarter, it is not hard to figure out why the stock has lagged.

The Quarter That Was
All in all, it is hard to say that ConAgra's performance in its fiscal first quarter was much better than lousy. Sales dropped more than 2% for the quarter, led by a 3.2% decline in commercial food sales. Although management did seem to say that the company had gained some market share during the quarter, the relatively better performance of General Mills (NYSE:GIS) puts that into at least some doubt. Then again, Del Monte Foods (NYSE:DLM) showed some volume weakness as well, so investors probably ought to be cautious about making "apples to not-exactly-apples" comparisons between the major food companies.

Please follow the link to read the full article:

Packaging Getting Boxed In

Investors certainly brought out the box cutters on Monday, taking down the stocks of most of the significant corrugated packaging companies. While the S&P 500 and other market indexes started off the week with better than 1% gains, packaging companies saw their stocks drop on average around 5% amidst higher volume. While the largest packaging company, International Paper (NYSE:IP), suffered the worst with a 6.4% drop, number two player Smurfit-Stone (Nasdaq:SSCC) got off relatively lightly with a nearly 3% decline.  

No Mystery As to Why
The reason for the drop was pretty straightforward. An industry journal, Pulp and Paper Week, reported that a price hike implemented by the industry in August has not held up, and prices have settled back to the former level. Not only will that pricing adjustment trigger some customer rebates, it also will take a meaningful chunk of out the sector's forward earnings prospects, as these companies are presently profitable and a fair bit of that price hike should have flowed to the bottom lines. 

The full article can be found at the following link:

Wednesday, September 22, 2010

A Little More on Unicredit

The more I look at this Unicredit situation, the less I like it.

It looks like the proximate cause of former CEO Profumo's departure (which very much reads like a "jump ... or we push" situation) was two Libyan entities taking a combined 7.4% stake in the bank. Nevermind the fact that Unicredit needed to raise capital and large stable investors are typically a good thing, apparently this rankled some on the board and caused problems.

Truth be told, I don't know exactly what the problem is. Libya is not exactly fully rehabilitated in the eyes of the West and its not as though European institutions are overjoyed to see Arab/African investors buying their assets. And maybe that's part of what lies underneath the controversy - Libya and Italy certainly have a "history" together, and it probably aggravates the hell out of some Italians to see Libya buying into Italian assets from a position of relative power. With rumors that certain Italian politicians were displeased with this arrangement and making that known to the board, who knows exactly what role this had.

Whatever the case may be, the fact still remains that Profumo guided Unicredit from being just another Italian bank to being a major player in Europe - the second-largest bank in Italy, the third-largest in Germany, and the largest in both Austria and CEE. Even granting that the stock performed better in the first half of his tenure than the second, Profumo should still be appreciated by long-term shareholders.

And now it's time to see where the bank goes from here. There is definitely some need for restructuring at Unicredit, and perhaps that was also part of the CEO's departure - whether he wanted to go slower than the board or faster. So if Unicredit is about to change itself in some pretty significant ways, maybe it is better to do so with new management at the helm.

The vacuum at the top is certainly a big risk factor, as nobody can really say what the near-term direction for the bank is going to be (at least not until the new CEO lays it out). Likewise, it is fair to wonder just how this board operates and what sort of "non-operating influences" get to be played out behind the closed doors of the boardroom.

Still ... this bank was a quality company before the crisis and even if Italy sometimes seems like a perpetual economic and political head-case, it seems likely to be a good candidate for a strong recovery. I have enough European banking exposure for now (though Santander (NYSE: STD, Danske, and a few Swedish banks are enticing...), and would rather add in places like South America (Itau), South Africa (Standard), and Asia (DBS Group), but Unicredit seems pretty dang cheap right now.  Assuming that the board isn't daft enough to screw up over a decade of progress, this could be a good opportunity to buy a dip and get a quality pan-European bank.

IBM Pays For Speed

Time is money, and IBM (NYSE:IBM) is willing to pay plenty of money to Netezza (NYSE:NZ) shareholders to offer a faster data analytics solution to its customers. (For more stock analysis, see Best Dividend Stocks.)

Before Monday's open, IBM announced an agreement with Netezza where it would pay $27 a share in cash for the smaller technology company. While $27 a share is not a huge premium relative to Netezza's closing price on Friday, the stock had been on a tear since a strong earnings report in late August lifted the shares from a base in the low-to-mid teens. Paying an enterprise value to revenue multiple of almost seven, it is difficult to say that Netezza is selling itself cheaply.

What IBM is Getting

IBM has long since shed its "big iron" legacy and its middleware and data service business are a very significant part of its business. Within that, customers have increasingly turned to companies like IBM, Oracle (Nasdaq:ORCL) and Teradata (NYSE:TDC) to help them integrate their platforms and analyze large volumes of data in ever-shorter times. This is where Netezza comes in; Netezza boasts query speeds that are 10- to 100-times better than more traditional approaches, and its purpose-built data warehouse appliances have made it a strong competitor to the aforementioned Oracle, Teradata and its new owner, IBM. 

Click the link for the full article:

Cintas Not Scintillating

These are lousy times to be in the business of providing services to business. Whether you look at payroll and HR service companies like Paychex (Nasdaq:PAYX) and ADP (NYSE:ADP), staffing companies like Manpower (NYSE:MAN), or sanitation service providers like Ecolab (NYSE:ECL), the combination of stagnant employment and cost-cutting has been a headache for almost every player. As the leader provider of uniform rentals in North America, Cintas (Nasdaq:CTAS) is likewise caught up in that malaise. 

The Quarter That Was
All things considered, Cintas likely made the best of a difficult situation in the company's fiscal first quarter. Overall revenue growth exceeded 3%, with organic revenue growth of just under that figure. Although core uniform rental revenue was barely positive, at least it was positive, unlike the negative organic revenue performance in the prior quarter. On the other hand, the company did see solid double-digit growth in both uniform sales and document management.

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Discover Shows A Better Credit Environment

Whether or not the recent news that recession "officially" ended a year ago has any meaning or not, it is hard to argue that improving consumer credit trends are not a positive for the economy. When reviewing Discover Financial Services' (NYSE:DFS) August quarter earnings announcement, there are definitely some encouraging signs of improvement.

The Quarter that Was
The number four credit card company - behind Mastercard (NYSE:MA), Visa (NYSE:V) and American Express (NYSE:AXP) - Discover, announced a solid earnings beat for its fiscal third quarter. Earnings were up 73% for the period, handily beating the consensus estimate. Transaction volume increased about 7% in the quarter, an interesting metric for both consumer spending and the company's relative market share. 

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NASCAR And A Sign Of The Times

NASCAR racing is not everyone's cup of tea, but it arguably has the most direct ties to the economy of all major American sports. Unlike most professional sports teams outside the U.S., major U.S. team sports typically do not have corporate logos plastered all over their jerseys or playing fields. NASCAR races, though, feature 43 rolling billboards on major television networks for at least three hours at a stretch. Accordingly, it seems fair to wonder what the current sponsorship environment says about the economy. (To learn more, check out NASCAR: From Back Alleys To Big Bucks.)  

The Economics of the Decals
Like any other sport, it takes a lot of money to field a NASCAR team. Unlike most sports, where more than half of the cost goes toward player salaries, racing demands huge investments in equipment - multi-million dollar cars, multi-million dollar R&D, and millions more spent here and there on supplies and equipment, travel, and so on. 

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Tuesday, September 21, 2010

Bad Timing For UniCredit

This is not a good time for UniCredito to be seeing a change at the top, but word came out tonight that CEO Profumo quit. He had been in a pretty heated squabble with the board (obviously...), and it finally comes to a head with him leaving.

It's unfortunate - although UniCredit has clearly been badly hurt in the credit crunch, they are in vast company in that regard. And it should be remembered that during Profumo's tenure at the top, he did guide the company from a conglomeration of unspectacular Italian banks into a sizable pan-European bank with once-promising businesses in Central and Eastern Europe (that could still be worth quite a bit in the future).

Admittedly, I was wrong to be so keen on banks like Societe Generale, Danske Bank, and Unicredito going into the credit crisis; I would have been far better off with banks like Itau (Nasdaq: ITUB), DBS Group (Nasdaq: DBSDY) and Standard. Luckily, SocGen was the only one I actually bought, but still ... knowing your aim was off is not comforting even if you didn't pull the trigger.

I want to write more on this tomorrow ... but suffice it to say for now that this is another challenge for a bank that already has plenty of them.

Disclosure - I own shares of SocGen

Sequenom Back On Track?

At a UBS presentation the other day, Sequenom (Nasdaq: SQNM) confirmed that it was basically on track with the timeline that the company has been talking about for its trisomy 21 (Down Syndrome) pre-natal test.

According to the plan, the company hopes to launch a lab-derived test (LDT) test in late 2011 (fourth quarter), with a PMA filing in the second half of 2012. Along the way, the company says it expects to submit clinical data for publication in the third or fourth quarter of 2011, which should mean that the data is in print well before the FDA filing. Data from a 450-person validation test should be available around the end of the quarter, with the large-scale pivotal study following thereafter.

This company has had a helluva time over the past couple of years, with a scandal regarding the prior trisomy 21 test data costing the company its CEO, CFO, credibility, time, and money. It does appear, though, that the company's fundamental underlying technology does work and there was always a real market opportunity waiting for the right product/technology.

Sequenom is developing this test to run on the Illumina (Nasdaq: ILMN) HiSeq platform, as sequencing has been shown to be the better approach. Why Illumina's platform instead of Life Technologies' (Nasdaq: LIFE) SOLiD? Just look at the market share ... Illumina is clearly winning the sequencing market share battle today and it looks like the HiSeq is the better "box"

While it might sound like marketing a test to run only on a $700,000 piece of equipment (for the most basic model) is a profit-limiting decision, that likely will not be the case. I've seen a few analyst models that suggest that running the machine at full capacity will produce a gross profit break even in just 23 days of testing.

All in all, this trisomy 21 test could have a market potential of around $1 billion on the basis of high-risk pregnancies and reflex testing for lower-risk pregnancies. That's assuming very solid market penetration and reimbursement, but the limitations of alternative approaches reduce those risks somewhat. Given that Myriad Genetics (Nasdaq: MYGN) manages to pull over $3,300 from managed care groups for its BRCA test, it seems pretty credible that SQNM can charge at least $1,500 for the test (especially since invasive pre-natal tests cost $1,500 and up).

Keep in mind, too, that these tests are exceptionally lucrative - assuming just average manufacturing capabilities, SQNM should be able to produce gross margins in the 60's or 70's.

Does that make SQNM a good buy now? Well, even allowing for all of the garbage in SQNM's past, this looks like a pretty interesting test and one that should be less initially controversial than Myriad's BRCA test. By the same token, I would not rule out the risk of what I would call "social controversy" here.

The reality is that while some parents may use the results of this test to prepare for a child with special needs, others will elect to terminate the pregnancy upon learning the results. It does not seem unreasonable, then, to think that this test is going to be a flashpoint in that debate and a target of activists. That could create some complications for doctors who wish to offer the test, but it likely is something that can be worked around - at the bottom line, if the test works people are going to find a way to get access to it.

So, buy the stock here? I dunno ... maybe? My model says a fair price is somewhere around $8.50 to $9 a share ... certainly a higher level than today's price, but not a great amount of upside for a story that still carries some risk. On a dip, it would be more interesting but there are just too many other cheap names to reach too far for this one.

Quick update - Although I neglected to mention it in the original post, I had modeled the company doing a capital raise of about $125M (equity) when I originally did the valuation analysis. So, the shelf filing after the close today doesn't change anything for my analysis. The company needs to raise capital and the stock is at a price where doing so won't be punishing.

Monday, September 20, 2010

FDA To Obesity Drugs: Drop Dead

Lorcaserin, Arena Pharmaceutical's (Nasdaq:ARNA) experimental obesity drug, was not necessarily the last best hope for new obesity medications, but a 5-9 panel vote against recommending FDA approval is a pretty clear indication that the standards for obesity drugs are exceptionally high. This ruling is not altogether shocking in the wake of Vivus' (Nasdaq: VVUS) similar rejection on Qnexa, but it should certainly have Orexigen (Nasdaq:OREX) shareholders feeling nervous when their company's number comes up.

Why The Panel Said "No"Are 
It was clear from listening to the proceedings that many panelists had issues with the efficacy and safety of the drug, as well as how Arena went about designing the trials and performing the statistical analysis. If I may be so bold, though, it sounded like at least a few panel members went in locked and loaded with a mindset against this drug and judging by their comments and concerns, it is difficult to foresee just how good a drug would have to be to get their blessing. (For more, see Arena's Big Day Looms Large.)
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FedEx Still Loading Up

There is nothing that regular investors can do to change the short-term-ism that infects so much of Wall Street's institutional money management. What investors can do is to exploit it for their own advantages. When FedEx (NYSE:FDX) shares sold off on Thursday because management remained conservative on guidance, that gave potential new shareholders a nice little discount for what seems to be a solidly-performing company. (For more on using companies like FedEx to read the market, read Using Consumer Spending As A Market Indicator.)

The Quarter That Was
Revenue rose 18% in the company's fiscal first quarter to $9.5 billion. Growth was strong across the board, as freight grew 28%, ground grew 13% and express grew 20%. Along the way, volumes and yields were also solid.

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Friday, September 17, 2010

Another Big Gulf Clean-Up Operation

It looks like the U.S. government is getting serious about cleaning up the Gulf of Mexico. In the wake of the BP (NYSE: BP) Macondo oil spill, the U.S. government has issued an order that will require energy companies to permanently decommission idle wells in the Gulf. Under the order, wells and platforms that have been idle for five or more years will have to be plugged and dismantled, and it would appear to include roughly 3,500 wells and 650 production platforms.

To a large extent, this move makes sense. The temporary plugs that are installed in idle wells do not last forever and can leak. Likewise, a platform can be vulnerable to severe events, like a hurricane. While severe damage is relatively rare (these platforms are built to withstand bad weather), it is nevertheless possible that a bad storm could wreck a platform and create both an oil spill risk and a hazard to navigation.

Major Gulf operators like Chevron (NYSE:CVX), ExxonMobil (NYSE:XOM), BP and Apache (NYSE:APA) could all be on the hook, as well as numerous tiny operators. Although it is not uncommon for operators to use temporary plugs for marginal wells (particularly when prices are low), this order would require permanent plugs that would not be removable later. Then again, given the high prices of the past five years, if a well has been idle for all of that time, it is not too likely that it would be coming back into significant production. (For related reading, see A Primer On Offshore Drilling.)

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The Steel Sector: No Jam Today, But Maybe Tomorrow

Investors might feel like the White Queen is running the economy these days. There was good growth in the past, and a lot of people seem to be expecting it again in the not-so-distant future, but it is pretty hard to find in the present. With a series of pre-announcements over the last few days, the steel sector is definitely shaping up as a "jam yesterday, jam tomorrow, sorry ... none today" sort of sector right now. 

Steel Dynamics
To a certain extent, maybe Steel Dynamics' (Nasdaq:STLD) downward revision for the third quarter was not a big surprise. After all, analysts have taken down the numbers on this major mini-mill operator multiple times over the last three months and estimates are now about a third lower.

For the full piece:

Thursday, September 16, 2010

Can Savient Soar On One Specialty Drug?

Getting Food and Drug Administration approval for a new drug is usually a slam-dunk piece of good news for a company. For Savient Pharmaceuticals (Nasdaq:SVNT), though, it is only part of the story. While approval of the company's new gout treatment is absolutely a major positive development for shareholders, the ultimate fate of the company is still up in the air.  (Learn about some of the most profitable drugs of all time in Stocks On Drugs: What It Takes To Get High.)  

A Specialty Drug for a Rare Indication
Although gout is thought of as a disease from yesteryear, it still occurs in the Western world. For whatever reason, there is a modest percentage of gout patients who do not respond to current therapies, and Savient's drug (Krystexxa) could be a new option for them.

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China's Potash Hypocrisy

If nothing else, China has chutzpah. China's government put out a statement early on Wednesday indicating that it was paying "close attention" to the possibility that BHP Billiton (NYSE:BHP) would succeed in its bid to acquire Canadian fertilizer giant Potash (NYSE:POT). In mentioning that a so-called BHP potash monopoly would "harm global interests" and that prices are already "unbearable" for Chinese farmers, it would seem that this is a not-so-subtle shot across the bow for not only BHP, but perhaps Canada as well. 

Given that BHP Billiton has a significant stake in Chinese potash company China Sinofert, China actually does have some influence in this process and could certainly apply pressure to BHP through that investment. Moreover, there is still the possibility that a Chinese investment fund or company could make a competing bid for Potash - even as large Chinese companies seem reluctant to commit to much interest in such a move.

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Five Gold Ideas Off The Beaten Path

No matter what an individual investor may think about gold these days, there is no denying that it is a major topic of conversation. The SPDR Gold Shares (NYSE:GLD) is just one of several ETF options, and investors have been turning to funds, bullion, coins and miners of all shapes and sizes to make their plays on the shiny yellow metal that is once again so popular. (To learn more, see Why Gold Matters.) 

With such a significant interest in gold, it is difficult to find too many credible ideas that would really meet the standard of "overlooked" or ignored. Nevertheless, here are five ideas that investors may not always see in broader discussions of gold mining stocks. In particular, these are names that may attract the attention of larger miners looking to build their reserves through the checkbook instead of the drillbit.

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Chocolate 2.0

Perhaps humanity has seen the first step towards a long-held dream. No, not a manned mission to Mars, a cure for cancer or a solution for world peace; those would pale in comparison to the promise of healthier, cheaper and tastier chocolate. 

Scientists from Mars (the chocolate company), the U.S. Department of Agriculture and IBM (NYSE:IBM) have announced that they successfully sequenced the cacao plant. Although this is merely the first step, it opens up the door to a lot of potential changes. Though there will no doubt be howls of protests about the grim spectre of "Franken-chocolate" ruining the candy aisle forever more, agricultural companies and chocolate producers could ultimately forge a more sustainable crop and a healthier, tastier end-user product. 

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FinancialEdge: Investing Myths That Need To Go

It is almost impossible to make good decisions using out-of-date information. Imagine trying to drive around a fast-growing city like Las Vegas with a map that was printed in 1980. Similarly, investors should be very careful about relying upon old sayings about the stock market - sayings that are so old that they have transitioned from helpful advice to potentially harmful myth. (Learn how to stop using emotion and bad habits to make your stock picks. Check out How To Avoid Common Investing Problems.)

You Cannot Beat the MarketAcademics have spent a lot of time trying to convince people that it is not possible to beat the market. Fortunately for investors, the models that support those analyses are simplified versions of reality with real flaws. In actual practice, people can and do regularly beat the market. It is not easy, and nobody beats the market every year, but it does happen and there are ample studies that show that following simple value-oriented strategies can lead to consistent market-beating returns. 

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Wednesday, September 15, 2010

Arena's Big day Looms Large

For investors who believe in the predictive power of Wall Street, things are not looking good for Arena Pharmaceuticals (Nasdaq: ARNA), the small biotech that is facing an FDA panel meeting for its potential obesity drug lorcaserin. Amidst downgrades and worries about FDA concerns regarding safety and efficacy, Arena shares were off more than a third midday Tuesday. This follows in the wake of the surprising recommendation against approval in July for Vivus' (Nasdaq:VVUS) drug Qnexa and widespread uncertainty regarding Orexigen's (Nasdaq:OREX) Contrave. 

Is the Data Good Enough?
The biggest problem for Arena is the efficacy data. Although the one-year efficacy data on lorcaserin is okay, it is no blockbuster. More than 47% of patients who took lorcaserin in the BLOOM trial lost 5% or more of their baseline weight (versus about 20% in the placebo group), with an average loss of 5.8%. More than one in five people who took Lorcaserin saw better than 10% weight loss.

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Note: The editors at Investopedia made a small error here in the original version, capitalizing "lorcaserin", "valvulopathy", and "fenflueramine". That should all be changed and corrected soon. 

Get Paid To Wait By Paychex

Imagine a business that makes money when companies are hiring and interest rates are at a nice, healthy level. Now imagine how well a business like that might be doing right now. Therein lies the problem with Paychex (Nasdaq:PAYX). Although this provider of HR and payroll services to small-to-mid-size businesses is a fine company with ample growth prospects, the company's stock has been knocked down by a one-two punch outside of its control. 

Low Rates Are Not Good For Everybody
Like its larger competitor Automatic Data Processing (NYSE:ADP), Paychex has traditionally garnered a nice chunk of very high-margin revenue by earning interest on the payroll amounts that it processes for employers. In a nutshell, Paychex requires that client companies transfer funds to them before they must send them on to the employees, creating a "float" that the company can invest in interest-bearing instruments like commercial paper or bonds. While not exactly the same, this float is analogous to the float that Berkshire Hathaway's (NYSE:BRK.A) Warren Buffett often references as a major source of that company's competitive advantage. (For more on this topic, check out Competitive Advantage Counts.)

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Tuesday, September 14, 2010

Rails And Supplies Suggest More Volatility

There is no doubt that the general opinion concerning the U.S. economy is not all that positive among professional investors and commentators these days. After all, the stock market has been bumping along since a big drop in late spring, gold has found some renewed vigor, lending activity is still soft and interest rates and inflation appear to be low. 

Yet, a quick look at some other industrial indicators suggests that things are not yet getting all that bad.  

Rails Roll On
September's Rail Time Indicators report from the Association of American Railroads (covering the month of August) continued to show what amounts to at least a tepid recovery in rail traffic. Overall carload volume was up almost 6% from the year-ago level, though still below 2008 levels (to say nothing of 2007 and 2006) by more than a double-digit margin. What does stand out as a potential warning flag, though, was the seasonally-adjusted sequential performance where carloads did fall about 1.6% from August.

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Lab Corp And Genzyme Find Some Common Ground

Apparently Genzyme (Nasdaq:GENZ) is not adverse to all deals, just the current deal that Sanofi-aventis (NYSE:SNY) is offering. On Monday morning, Genzyme announced that it had reached an agreement to sell Genzyme Genetics to Laboratory Corporation (NYSE:LH) for $925 million in cash. It had been widely known that Genzyme was looking to sell some non-core businesses (including a diagnostics product and pharmaceutical intermediaries), and Genyzme did not waste a lot of time finding a buyer.

A Buyer's Market for Labs
Although this division goes by the name of "Genzyme Genetics", it is basically a laboratory testing business; one that has a rather strong brand in prenatal and hematopathology testing. Accordingly, it fits in pretty well with Lab Corp.'s stated interest in expanding its genetic and esoteric testing business.

Genzyme made the unfortunate decision to sell in the middle of a tough market. Labs are struggling with weak volume as doctor visits are down and people seem to be foregoing health care during the current economic troubles. With weak volume and strong competition from major players like Lab Corp., Quest (NYSE:DGX) and Bio-Reference Laboratories (Nasdaq:BRLI), a lot of labs are choosing to sell out and routine deals are going for about 1.5x sales.

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Allied Irish Banks Tries To Avoid Trouble

Irish literature and music is full of tales of trouble, sorrow and woe, and Allied Irish Banks (NYSE:AIB) is trying hard not to become part of that canon. Allied Irish has been walloped by the same overheated markets and poor underwriting decisions that have hammered many Western banks, and Allied Irish is scrambling to shore up its capital. Although asset sales will help, Allied Irish could be in for a long slog as what the company needs most of all is a healthy operating environment, and that looks to be a ways off. 

A Housing Bubble Taken to "11"
Once called the "Celtic tiger", Ireland hit the rocks harder than most other Western economies. Not only were there bubbles in residential and commercial real estate, but the export-driven economy has taken a serious hit from the decline in demand throughout Europe. Allied Irish found itself in a situation where it had become dependent upon wholesale funding to fill the gap between loan demand and deposit supply, and then found its loan book going very bad very quickly. Even though Ireland has set up a government-sponsored "bad bank" to take on bad loans, Allied Irish still saw one-quarter of its loans in some state of concern at the end of its June quarter. AIB reports credit in "watch", "vulnerable" and "impaired" categories, and the 25% refers to the combination of all three. (For more on housing bubbles, check out 5 Steps Of A Bubble.)

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Monday, September 13, 2010

Good Luck At Nokia, Elop, You'll Need It

Can a company simultaneously be No.1 in its industry and still be doomed? If the company in question is Finland's cell phone giant Nokia (NYSE: NOK), then the answer would seem to be "yes". While Apple (Nasdaq: AAPL), HTC and Research In Motion (Nasdaq: RIMM) rocket ahead with smartphones, analysts have seemingly written off Nokia as the Commodore of the cell phone industry. 

Nokia is not going down without some kind of fight. The company announced September 10 that former Microsoft (Nasdaq: MSFT) executive Stephen Elop will be replacing Olli-Pekka Kallasvuo as the company's CEO. Will Elop turn this ship around, or is it too late to save what used to be one of the largest tech companies in the world? 

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Note: The original version of this stated that Elop is American. He is not (he is Canadian). I would have sworn that I originally wrote "North American", but whether I did or not, it went out as "American". 

Market News That Seems Promising ... But Isn't

Not all good news is created equal. Sometimes, what seems like good news is just a candy coating around something that is actually much more bitter. The trick is to spot the real reasons to rejoice from the news that serves little purpose but to add some froth to a slow news day. (Wanna get started investing? Check out our Investopedia Stock Simulator and hone your skills risk free!)  

Record Earnings
"Today, we at XYZ Corporation are pleased to announce record earnings for the second quarter!"

Notice that corporate announcements of "record earnings" almost never put them into context. If the prior record was achieved ten years ago, how much should long-suffering shareholders celebrate? Likewise, if the company's ROIC is in the low single digits, there would not seem to be any immediate cause for dancing in the streets because better management could do more with those same assets. Companies also do not generally talk about what sorts of maneuvers go into their calculations, and there is no shortage of tricks, gimmicks and shortcuts that motivated managers can use to goose the numbers a little higher (often at the expense of future results). (For more, check out 5 Tricks Companies Use During Earnings Season.)

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Friday, September 10, 2010

Bristol-Myers Pays A Premium For Its Partner

Bristol-Myers Squibb (NYSE:BMY) may have the unfortunate distinction of being among the most highly-concentrated pharmaceutical companies in the U.S. (For a quick refresher on this, check out Top-Heavy Pharmaceuticals), but management is certainly looking to do something about that. After Monday's close, Bristol-Myers announced a friendly buyout of its partner ZymoGenetics (Nasdaq:ZGEN) in a deal that gives shareholders of this small biotech $9.75 a share in cash, or an 84% premium to the prior closing price.

What is Bristol-Myers Buying?
ZymoGenetics actually has quite a lot going on, but Bristol-Myers is almost certainly buying the company in order to have 100% ownership of its PEG-Interferon lambda drug. This promising hepatitis C therapy is in Phase 2 testing, but could be a blockbuster ($1 billion or more in sales) in less than five years' time. Moreover, this drug could fit in nicely with Bristol-Myers' other clinical HCV candidates, and lead to a potential combination therapy. Just as Gilead (Nasdaq:GILD) has significantly changed the HIV treatment landscape with its combination therapies, Bristol-Myers could possibly do something similar in hepatitis C. 

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Thursday, September 9, 2010

4 Companies That Should Have Sold Out

Mergers and buyouts are part and parcel of the investing experience. While a buyout bid can give a nice return to a short-term investor, longer-term investors often fret that a bid may entice management to sell a company for less than its true long-term value. What is also true, though, is that sometimes managers are unreasonably and unproductively stubborn - refusing to hand over the reins (and their large executive salaries) and allow shareholders to book a profit or own shares in a larger enterprise. (For related reading, take a look at Mergers: The Sign Of Economic Recovery?)

With news swirling around 3Par's (NYSE:PAR) willingness to sell to either Dell (Nasdaq:DELL) or Hewlett-Packard (NYSE:HPQ), there is the sharp contrast of Genzyme's (Nasdaq:GENZ) resistance to a bid from Sanofi-aventis. Let us take a look at examples where shareholders really would have been better-served if their managers had signed on the dotted line and taken the deal. (Find out how you can cash in, read Trade Takeover Stocks With Merger Arbitrage.)

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A Tale Of Two Cities In The Chip Space?

Is it the best of times or the worst of times in semiconductors? It depends on who you ask. Following about two weeks after Intel's (Nasdaq:INTC) downward revision in guidance, Altera (Nasdaq:ALTR) and Silicon Labs (Nasdaq:SLAB) came out with very different outlooks on the current quarter. Looking through it all, it seems like the buzzword these days is "location, location, location" - some markets are still relatively healthy, while others have clearly weakened in the past few weeks. 

Altera Brings the Good News
Altera, a leader in the programmable logic device market with Xilinx (Nasdaq:XLNX), significantly boosted revenue guidance for the current quarter. Instead of the 4-8% sequential revenue growth that management originally projected, the figure is now in a range of 10-14%. While the company said that there was broad strength across all categories, it seems like the wireless infrastructure market is a particular area of momentum right now. Companies like Verizon (NYSE:VZ) and AT&T (NYSE:T) continue to develop 3G networks in the U.S., while foreign companies too are building more capacity for their networks. 

The full piece can be found at the link below:

Hewlett-Packard Not Done With Hurd Yet

Hewlett-Packard's (NYSE:HPQ) board of directors may or may not have wanted former CEO Mark Hurd to stay, but the company certainly does not want him going to work at Oracle (Nasdaq:ORCL). Hewlett-Packard has filed suit against Hurd in an attempt to block him from accepting Oracle's offer of the role of company co-president, citing the protection of its own trade secrets. While these sorts of suits are not all that uncommon, this one has a bit of a sharper edge than most.

The Background
The story of Mark Hurd's departure from Hewlett-Packard has garnered so much attention, we will only summarize it here. In response to allegations of sexual harassment, Hewlett-Packard conducted an investigation of its then-CEO. Although the investigation did not find an actionable violation of the company's sexual harassment policies, Mr. Hurd's conduct did apparently violate somewhat vaguer provisions about executive conduct.

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Wednesday, September 8, 2010

BP Quietly Hits A Grim Milestone

Lost amid the languid slide into the Labor Day weekend and the general Wall Street obsession with the next new thing, BP (NYSE:BP) quietly reached an unfortunate milestone last week. The large international energy giant announced that the company had spent $8 billion in direct costs tied to the Deepwater Horizon/Macondo disaster. These costs include the direct costs of addressing the spill, as well as various claims paid to date, but likely do not come close to the ultimate cost. 

Better, But Not Over
It does appear that the worst is over for BP in terms of the actual well disaster. Oil is no longer leaking from the well (at least not in significant measurable quantities), the company has successfully cemented the well and Transocean's (NYSE:RIG) Development Driller II and III are on the job for the drilling of the relief well. In a relatively short time, then, the technical and engineering aspects of recovering from the disaster could be at a close.

That is not to say that this accident will not continue to haunt BP and the Gulf coast for years to come. The environmental impact is still very much unknown, though rather likely to be less severe than the radical predictions that it would devastate the area and its economy for decades. All the same, it seems like a virtual certainty that BP will continue to face new claims and will have to go to court with those claimants who refuse BP's settlement offers. (For related reading, check out The Great Oil Spill Of 2010.)

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Tuesday, September 7, 2010

Back To The Future With Ethanol?

This has been a hot summer for ethanol. Prices have been on the march for almost all of this year's so-called "driving season", and actually edged ahead of gasoline for a bit, though gasoline is now on top again. Will this move trigger another round of the "fuel of the future" frenzy and a surge in construction and investment, or is this likely to be just another head-fake in what has been an exceptionally difficult market for investors? 

Why The Move Now?
It is often fatuous to look at a move in a commodity's price and spend a lot of time trying to explain it. Nevertheless, "often" does not mean always. In ethanol's case, it is impossible to look at the move in ethanol prices as somehow wholly separate from a major move in corn over the past year. Although corn prices slid a bit in the first half of the year, they have jumped through the summer and stand at levels not seen since 2008.

On top of that, there is a sizable tax credit to companies that blend ethanol with gasoline. That gives blenders like Chevron (NYSE: CVX) and Valero (NYSE: VLO) incentive to keep adding ethanol to the mix - even in the face of higher ethanol prices. Moreover, since the federal government has no apparent desire to lift the protectionist tax policies that punish cheaper ethanol imports from countries like Brazil (where Cosan (NYSE: CZZ) produces cheaper ethanol from sugarcane), U.S. producers do not have to worry about foreign supply soaking up the demand. (For more, see A Sweet Ethanol Deal.)

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How To Double (Or Triple) Your Bets On Financials

Leverage can do remarkable things. With enough leverage, a 20% return can be transmuted into 100%. Of course, in the math world whatever is given can also be taken away. Plenty of investors (professional and amateur) have blown themselves up with leverage and that boost to returns in good times can turn around and bite ferociously when the play is wrong. Just ask the likes of Lehman Brothers what can happen when someone is highly leveraged and hits a rocky patch in the road.

Investors have always had some tools at hand to add leverage to their investment decisions. From buying on margin, to investing in options, to playing the commodity markets, these are all ways of making $1 of investment capital go a little further in exchange for higher risks. Relatively recently, though, financial services firms have come out with new products for investors - highly-leveraged ETFs that look to multiply the returns of underlying markets. 

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Buy Joseph A. Bank, Get A Double Free?

Effective advertising is supposed to infiltrate the brain and prompt it to make certain leaps automatically. Go up to somebody who watches a lot of CNBC or Bloomberg TV and say, "Buy one executive suit," and see if they do not reply with something like "get the second suit and a silk tie, free". Jos. A. Bank (Nasdaq:JOSB) is by no means the only apparel company to offer that sort of sale, but one way or another it seems to be working for the company.   

The Quarter That Was
Total sales for the fiscal second quarter rose more than 12%, as JOSB saw same-store sales rise over 9% and direct marketing sales increase better than 12%. It is difficult to say exactly what the secret sauce here is, particularly as the company is doing a fair bit better with growth than its larger (and perhaps better-known) rival, The Men's Wearhouse (NYSE:MW). The idea that value-priced retail fills a niche during tough times is nothing new, but Jos. A. Bank does seem to have figured out a working formula with its merchandising and pricing strategies. 

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Pfizer's Decision Leaves Celldex Reeling

Apparently the cancer vaccine honeymoon is over. Despite what looked like promising early-stage clinical data, Pfizer (NYSE:PFE) has decided to end its collaboration with Celldex Therapeutics (Nasdaq:CLDX) for the anti-cancer immunotherapeutic CDX-110.

While it is not unusual for small oncology-focused biotechs to trade down after the annual ASCO meeting - the most important oncology-related medical conference on the calendar - Celldex has done a bit worse than most. There had been fears that Pfizer's commitment was something less than complete, but Friday's announcement walloped Celldex's stock.  

Where Does Celldex Go From Here?
Celldex is putting on a brave face for its shareholders. The company is vowing to continue developing the product on its own, presumably with an eye toward striking another deal with a larger pharmaceutical company somewhere down the road. Sometimes this works out - there are examples where a partner has dropped out and the drug still ultimately makes it to market. Unfortunately, companies like GenVec (Nasdaq:GNVC), Trubion (Nasdaq:TRBN) and Neurocrine Biosciences (Nasdaq:NBIX) have all found that the loss of Pfizer as a partner is not a good sign for the drug involved.

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