Investing

The Unusual Suspects (ATVI, AIG, ALTH, TREE, GOOG, PAY, EXPO, WIRE, AXYS)

We have almost a whole new slate of stocks in this week’s round of “The Unusual Suspects” for key stocks traders need to keep an eye on for the week ahead.  Activision Blizzard Inc. (NASDAQ: ATVI) was singled out by Barron’s.  We ran a bit noting $100 as a possible target for American International Group Inc. (NYSE: AIG), and let’s just say that it was widely read.  Allos Therapeutics Inc. (NASDAQ: ALTH) has a key FDA ruling this coming week.  Tree.com, Inc. (NASDAQ: TREE) may have its model crushed by none other than Google Inc. (NASDAQ: GOOG).  And troubled VeriFone Holdings, Inc. (NYSE: PAY) has earnings due this coming week, right at a key stock inflection point.  Exponent Inc. (NASDAQ: EXPO) and Encore Wire Corp. (NASDAQ: WIRE) are S&P index additions as new entrants.  Axsys Technologies Inc. (NASDAQ: AXYS) also has a shareholder proxy date this week, and some think a higher buyout price may be in the works.  We have run key details and previews for all of these to watch in the coming week.

Activision Blizzard (NASDAQ: ATVI) may be worth almost 30% more than its current price according to a Barron’s feature article.  The article notes that this is the one  video game company to benefit the most if  games will eclipse film and television in as little as five years… With its wildly popular Guitar Hero, World of Warcraft, Call of Duty, and more…. Barron’s thinks it has the most to gain.

American International Group Inc. (NYSE: AIG) has become crack for day traders.  Runs of $5 and $10 in a day are being seen and they  are now so fast that that many traders are having to buy and sell put and call options because they can’t get a fill fast enough on the stock unless they want to risk trusting a market order.  This volatility is not likely to stop as long as the markets stay favorable.  Interestingly, there are no real targets on it, its value is completely up for debate, and it is heavily shorted.  After closing up 5% just above $50.00 on Friday, and after seeing $55.00 intra-day, we wanted to beg the sinful question… What does $100 AIG look like????

In yesterday’s DAY TRADER alerts, we noticed that four of our six picks were hitting new 52-week highs… Traders frequently chase stocks on highs as more highs often beget more highs….

The FDA calendar…. Allos Therapeutics Inc. (NASDAQ: ALTH) is braced for a September 2 announcement from a regulatory panel which is reviewing its cancer drug candidate pralatrexate.  This stock pulled back and came down about 7% from the highs of the week to close at $7.48 and its 52-week trading range is $3.82 to $9.95.  With a $667 million market cap, Allos is going to be one of this week’s top small-cap biotech stocks to watch.  You don’t have to take our word for it… Look at Friday’s massive options trading just in the SEPTEMBER Put and Call options where bets were made with real cash:

  • $7.50 CALLS 1,070 contracts traded Friday vs. open interest of 5,086 contracts.
  • $10.00 CALLS 3,251 contracts traded Friday vs. open interest of 19,302 contracts.
  • $12.50 CALLS 2,121 contracts traded Friday vs. open interest of 1,255 contracts.
  • $2.50 PUTS 11,649 contracts traded Friday vs. open interest of 4,616 contracts.
  • $5.00 PUTS 12,871 contracts traded Friday vs. open interest of 54,723 contracts.
  • $7.50 PUTS 2,865 contracts traded Friday vs. open interest of 6,074 contracts.

Tree.com, Inc. (NASDAQ: TREE) may have just gotten its future dimmed.  Tree’s LendingTree.com unit filed a lawsuit last week against technology provider Mortech, Inc. for contract violation.  Mortech’s technology helps automate lender offer pricing and LendingTree asserts that Mortech violated its contractual covenants by partnering with Google Inc. (NASDAQ: GOOG) to launch an online mortgage loan aggregator service similar to LendingTree.   It said that it “was unsuccessful in resolving the dispute amicably and therefore took legal action” and is seeking temporary restraining order and preliminary injunction enjoining Mortech from assisting Google.  Tree has every reason to be scared here.  Google entering subscriber businesses or other premium businesses that offer a close alternative for free in order to hopefully score on advertising dollars down the road.  Go ask Stifel Nicolaus what it think this will do TREE… the brokerage firm cut its rating to SELL after the news.  This fell almost 6% on Thursday and then fell almost 7% on Friday to $7.38.  This was hitting $10.00 briefly in early August and its 52-week trading range is $1.42 to $13.07.

Earnings season is officially over.  But there are some stragglers still dribbling earnings, and VeriFone Holdings, Inc. (NYSE: PAY) is among them with its report on Tuesday September 1… VeriFone is not a market-call make or break stock, but the company has never really recovered from its pre-accounting woes.  Thomson Reuters has estimates pegged at $0.18 EPS on close to $202.2 million in revenue.  The merchant transaction processor closed at $11.06 on Friday and the 52-week trading range is $2.31 to $21.17 and its market cap is still just under $1 billion.  But when you go back to its pre-fraud stock level that had nothing to do with a recession or a bear market,  VeriFone went from $50.00 to $20.00 and then spent almost all of 2008 between $10 and $20 before the rug was yanked out from under it again.  So why do we care?  The stock is at a major inflection point.  Its 2005 IPO was at $10.00 and now literally just about every single investor who bought VeriFone since November 2008 is now very profitable.  This is also right at the old support level of 2008… Watch this one as the earnings reaction either way could be a substantial one.  Oddly enough, the options trading here in this one has been very soft.

S&P announced some index changes on Friday, and this will likely create pops in the two new S&P entrants.  Exponent Inc. (NASDAQ: EXPO) will replace Kirby in the S&P SmallCap 600 after the close of trading on Tuesday, September 8.  Encore Wire Corp. (NASDAQ: WIRE) will replace Axsys Technologies Inc. (NASDAQ: AXYS) in the S&P SmallCap 600 after the close of trading on a date to be announced since Axsys Technologies is being acquired by General Dynamics (NYSE: GD).

Speaking of Axsys Technologies Inc. (NASDAQ: AXYS), this will also be one to watch this week.  Axsys has received an early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, meaning there were no problems by the government review of its proposed acquisition by General Dynamics (NYSE: GD).  But the deal does remain subject to Axsys shareholder approval and customary closing conditions. Axsys is going to be key to watch as it has a special stockholder meeting for September 1, 2009 regarding this merger.  Many consider the buyout at $54.00 one that is too cheap, and its stock is already at $54.00.  We had a hedge fund manager contact us regarding the “deal looking too cheap” and he gave more detailed information on the options trading.  For starters, Gabellli’s GAMCO Investors, Inc. (NYSE: GBL) has amassed a rather large stake of close to 10% and many feel they and other holders are going to try to press for more many.  Our own digging around looks like many are wanting north of $60.00, and the 52-week highs aren’t just north of $60.00… the high is over $73.00.  The NOV-2009 $55 CALLS had 1,671 contracts trade on Friday versus a listed open interest of 15,496 contracts and we saw the FEB-2010 $55 CALLS had 2,224 contracts trade on Friday versus a listed open interest of 10,595 contracts.  Some think a better deal is going to be demanded.

Enjoy your weekend, and don’t be too shocked this week as trading volume starts to dry up with so many traders and investors out during the pre-Labor Day holiday week.  All major US financial markets are closed on Monday, September 7.

You are welcome to join our open email distribution list if you wish to receive reminders and updates on information like this and on IPO’s, mergers, Buffett and guru position changes, key analyst calls, and more.
JON C. OGG
AUGUST 29, 2009

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