Healthcare Business

The Unusual Suspects For The Week Ahead (APOL, AUO, BKS, BHP, POT, BP, CPIX, FISV, GENZ, JAZZ, NFLX, NOVL, SYMC, TYC, VRML, CALL)

There are many issues to watch in the coming week for this weekend’s edition of THE UNUSUAL SUSPECTS.  We have some earnings on deck and some unfinished business from last week, but there are several events that will be key to watch around charts and catalysts.  The Unusual Suspects for the week of August 23 to 27 are Apollo Group Inc. (NASDAQ: APOL), AU Optronics Corp (NYSE: AUO), Barnes & Noble, Inc. (NYSE: BKS), BHP Billiton plc (NYSE: BHP), Potash Corp. of Saskatchewan (NYSE: POT), BP plc (NYSE: BP), Cumberland Pharmaceuticals Inc. (NASDAQ: CPIX), Fiserv, Inc. (NASDAQ: FISV), Genzyme Corporation (NASDAQ: GENZ), Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ), Netflix Inc. (NASDAQ: NFLX), Novell Inc. (NASDAQ: NOVL), Symantec Corp. (NASDAQ: SYMC), Tyco International Ltd. (NYSE: TYC), Vermillion, Inc. (NASDAQ: VRML), and VocalTec Communications, Inc. (NASDAQ: CALL).  We have compiled summaries and an outlook on most of the names provided.

In addition to The Unusual Suspects, we have several key issues to consider.  On Friday, there were many large cap stocks hitting 52-week lows and many of these looked and felt counter-intuitive on the surface.  There were also billions of dollars in new share buyback plans announced this last week on top of many buyback updates and expansions.

Apollo Group Inc. (NASDAQ: APOL) has been battered along with all for-profit education stocks due to reimbursement rate, recruiting tactics, post-graduate expectation reality checks, student loan default rates and more.  Apollo has also experienced SEC issues.  Despite an Asensio report slamming it Friday, Apollo actually closed up on a down day Friday and the company appears to have passed the criteria set in the initial regulatory tests.  This was one of the 5 options trades in the sector we wrote about for as outlier bets for potential exponential returns (low premiums for out of the money calls) if the regulatory pressure eases even a fraction that could lead to an upside surge in share prices.

AU Optronics Corp (NYSE: AUO) is getting press it does not want.  The Taiwanese maker of thin film LCDs had its CEO indicted over price fixing in June, but this last week CEO Lai-Juh Chen was ordered to surrender his passport this week so he cannot leave the country.  At $9.02, the ADRs 52-week trading range is $8.68 to $13.30.

Barnes & Noble, Inc. (NYSE: BKS) reports earnings this coming Tuesday.  Shares were at $12.84 before it put itself up for sale, and they popped to $15.31 the next day in early August.  The high was $16.74 since then but shares closed at $15.53 on Friday. A proxy situation and earnings will make the sale process a key focus here this coming week.  With a $914 million market cap and a 52-week trading range of $11.89 to $25.07, the big question comes down to what it can fetch or if it can fetch a bid.  RadioShack ran into troubles in selling its brick and mortar retail system, so the question is if a book brick and mortar player can compete against Amazon and Apple in the future.

BHP Billiton plc (NYSE: BHP) reports earnings on Wednesday.  The company’s offer for Potash Corp. of Saskatchewan (NYSE: POT) is what everyone will be focusing on.  The belief by many is that the now hostile tender will need to to $160 per share or higher.  The CEO’s payday will be one of the larger paydays in history if this occurs.  Investors will be looking very closely for the merger details and US investors are unlikely to pay attention to BHP’s actual earnings report.

BP plc (NYSE: BP) may have been out of the spotlight over the last three weeks now that its top-kill well blockage seems to have worked.  This coming Wednesday it may be in the news again as the President’s commission on the BP oil spill meets.  At $36.40, BP shares are down over 10% from the highs after recovery.

Cumberland Pharmaceuticals Inc. (NASDAQ: CPIX) saw shares fall 8.8% in the after-hours session down to $5.49 on over 60,000 shares in the after-hours session.  This one fell because it disclosed that the FDA is extending the review period by three months of its liver drug candidate called Acetadote.  Average volume is only about 100,000 shares and the market cap was a mere $123 million.  The prior 52-week trading range was $5.51 to $17.24, so if this holds it will mark a new 52-week low.

Fiserv, Inc. (NASDAQ: FISV) is one to watch ahead as this was the newest common stock addition from Berkshire Hathaway and Warren Buffett in the stock portfolio. Buffett bought a new position of 4.4 million shares of common stock during the second quarter and shares closed up over 3% week over week.  This one has now moved on to more investor radars and volume was lighter than you might have expected due to this being the slow days of August.  Berkshire’s full holdings are here.

Genzyme Corporation (NASDAQ: GENZ) may be running out of time or shareholder patience.  This Sanofi-Aventis offer has remained on the table with what is effectively nothing but silence.  Henri Termeer may be running short on investor patience here, even if this is obvious stalling to see if competing bids will come.  The due diligence here is the big risk he is taking.  If a company decides that Genzyme has continuing manufacturing woes and if Sanofi gets impatient, Genzyme could be reminded that there is a 15% hot-air premium in the shares.  Reuters says the silence may indicate talks are taking place.  Investors better hope that stance is right.

Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ) got crushed on Friday after the close.  It failed to win an FDA advisory panel backing for its fibromyalgia drug candidate.  Shares fell 28% to $7.05 versus a 52-week trading range of $6.01 to $13.95.  This one traded over 1 million shares in the after-hours on Friday so it will be very active on Monday.

Netflix Inc. (NASDAQ: NFLX) was listed as the #1 pole position chart in IBD this weekend, for the second week in a row. The week before saw a 12% gain but the stock actually closed down this last week.  Shares closed at $129.96 versus $132.26 the Friday before and versus a high print this last week of $140.90.  We don’t really agree that this represents solid strength, although the market weakness was a part and IBD has a history of years and years here.

Novell Inc. (NASDAQ: NOVL) has earnings on deck this coming Thursday and it recently trimmed its third quarter revenue range to $197 to $199 million versus prior guidance of $205 to $210 million. The company said its guidance reflects what it believes is customer uncertainty associated with Novell’s ongoing review of various alternatives to enhance stockholder value.  In short, that new hoped-for alternative buyout has not materially come about.  We predicted in May that the $5.75 buyout might need to be closer to $7.00 to secure the deal.  Shares are still at $5.81 and the 52-week trading range is $3.84 to $6.36.  One to watch for sure.

Symantec Corp. (NASDAQ: SYMC) is an ongoing stock to watch after the Intel-McAfee merger this week.  Symantec was in deep $%^& before the merger after it warned.  It just can’t ever get its act together.  Now there is a dual risk and opportunity ahead.  If Intel can convince PC makers that the McAfee bundle into hardware and into software is better than software alone, the Symantec could find its Norton anti-virus business getting ripped apart.  If Symantec can convince PC makers and device makers that it is now more important than ever to double-up on security providers then it has a huge opportunity.  The company’s history sort of, well it stinks.  This week’s gain was almost 12% to $13.80, which is the highest close since its $14.67 close before earnings and its earnings warning in late-July.

Tyco International Ltd. (NYSE: TYC) went through its big breakup in June of 2007, but Standard & Poor’s endorsed it all over again.  S&P is readmitting Tyco back into the S&P 500 Index.  Shares closed up 5.3% at $38.70 on more than triple-normal trading volume with more than 19.9 million shares trading hands.  The date it will be added is after the close on August 26 and we expect heavy trading volume to continue as indexers have to add in shares.  There are still millions of shares that need to be purchased going into the S&P 500 Index addition.

Vermillion, Inc. (NASDAQ: VRML) was a top active trader alert we asked “How long can a trend last?” because there had been 13 straight days of losses and was at $11.80 when the mudslide started.  It closed up 1.7% at $6.03 on Friday.  If this trend continues, Vermillion will have to change names to “Vermin.”  One day is no victory, but that is a concerning chart that should attract both bears and bargain hunters ahead.  Volume is still very low, but this is a new battleground stock that we won’t assign any upside or downside targets to.

VocalTec Communications, Inc. (NASDAQ: CALL) has been on fire and we want to revisit this one since our first alert one month ago.  When we saw that VocalTec merged with the owner of MagicJack, we could not help but to recognize the potential here even though it went through a reverse stock split.  That jumped to roughly $15.00 on the closure of the merger and it has steadily climbed higher and higher.  Shares closed at $38.00, which is close to 150% appreciation.  It keeps rallying because the CEO has been given permission to increase ownership to over 25% and there is even a share buyback of $12 million.  The company’s own investor relations site links to NASDAQ, which now says that the market cap of the combined companies after the share issuance is $445.9 million based on 11.736 million shares.  This one now trades at a multiple of revenue guidance rather than a discount to revenue guidance.  We can’t call for a short sale but those who are sitting on big gains should at least consider taking the cost basis out of the trade here so that you can still have upside and you leave assured returns in the name.

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