Investing

The Unusual Suspects (BMY, CNO, HMIN, JBL, OSIP, RHT, GLD, SQNM, V, WAG)

This might have seemed a tough week to come up with a list of unusual suspects.  There are only a handful of earnings, but there are many follow-on items from last week or that are still developing.  While the volume will really start to peter-out by Wednesday afternoon, there is no shortage of expected events and trade ideas for the week.  Our list of unusual suspects for this coming week is Bristol-Myers Squibb (NYSE: BMY), Conseco Inc. (NYSE: CNO), Home Inns & Hotels Management Inc. (NASDAQ: HMIN), Jabil Circuit Inc. (NYSE: JBL), OSI Pharmaceuticals, Inc. (NASDAQ: OSIP), Red Hat Inc. (NYSE: RHT), SPDR Gold Shares (NYSE: GLD), Sequenom Inc. (NASDAQ: SQNM), Visa Inc. (NYSE: V), and Walgreen Co. (NYSE: WAG).

We have compiled detailed expectations and background data for each.  For earnings, we have provided Thomson Reuters data, the other expected data, and historical data on each stock.

Bristol-Myers Squibb (NYSE: BMY) has finally gotten past the  Dec2009 options expiration date.  Ahead of the spin-off of Mead Johnson Nutrition Company (NYSE: MJN) and rebalancing of indexes, Bristol-Myers used to trade about 10 million shares a day.  Bristol-Myers traded a whopping 123 million shares on Friday as a result of this event.  Mead Johnson even traded 36 million shares on the event Friday, and that is 50% more than it traded on its IPO date 10 months ago in February.  The Bristol-Myers DEC2009 options had an unbelievably large open interest of what appeared to be 900,000 PUT and CALLS in the $30 strike at the end of last week.  That is not just unheard of, it was outright ludicrous.  Bristol-Myers shares closed up $25.78 after hitting as high as $26.08 on Friday.  A new high was hit this week and now the 52-week trading range is $17.23 to $26.17.  Bristol-Myers did trade above $30 briefly in 2007, but the stock is now at a share price that used to act as resistance on the charts before it ran to $30+.  In short, now a further run-up in the shares has to occur because of more good news for the company itself rather than indexers and options traders making index and spin-off bets.  The stock is also trading above its implied analyst price target as Thomson Reuters has a mean target of $24.80 and a median target of $25.00.

Conseco Inc. (NYSE: CNO) had a secondary offering of 45 million shares at $4.75 per share this last week to raise just over $200 million.  Of the funds $150 million was paying off credit obligations and the rest is for general corporate purposes.  The stock had gotten back to $5.14 before the pricing this last week.  What is left to watch is that it is likely that billionaire John Paulson already took a huge stake and it is probably a safe guess that you will see a Fed Filing this week showing that he bought more shares.  While that is not a game changer, it may offer many bulls a fresh lift on technically no-new-news.  There are no assurances on this filing coming out, but it would make sense as Paulson is already a large holder here in Conseco and certainly knows how to play the game as this is back close to where he first invested in Conseco.

Home Inns & Hotels Management Inc. (NASDAQ: HMIN) is a large economy-priced hotel chain in China with hundreds of locations.  Its stock has been on a rampage and after Friday’s 1% gain to $36.18, its 52-week trading range is $7.50 to $38.00.  This one has only been public since 2006 and the stock is getting back up to the old 2007 highs where the stock ran up twice to above $40.00 after its 2006 IPO.  So why do we care?  It was listed as the #1 CHART of the IBD 100 this weekend.  You have to decide for yourself on this one because we don’t endorse chasing merely for the fact that someone noticed its chart has not had a pullback in months.

Jabil Circuit Inc. (NYSE: JBL) is back from the tech-EMS deathbed that so many investors thought was looking to be the case.  At $14.80, its 52-week trading range is $3.10 to $15.45.  It is one of the reports this week with earnings on Monday.  Thomson Reuters has estimates at $0.29 EPS and $3.11 billion in revenues.  Jabil’s year-end is not until August, so if we take a blend of the $1.02 EPS estimate for Aug-2010 and the $1.32 EPS estimate for AUG-2011 we get a forward multiple of 12.6-times forward earnings.  That is fairly cheap considering earnings and revenue growth are expected, but EMS stocks tend to always trade with discounted multiples.  A blended analyst target from Thomson Reuters appears to be about $15.75, although this figure may have changed or might not be updated.

OSI Pharmaceuticals, Inc. (NASDAQ: OSIP) fell for four days in a row last week.  The news was that the FDA panel was rejecting Tarceva as a first-line maintenance program for certain lung cancer patients.  While this was not good, there was actually very little trader anticipation here in the binary options patterns trading which you normally see ahead of an FDA panel recommendation date.  Shares were at $35.41 last Monday and closed out the week at $31.07 for more than a 12% loss.  So far we have only seen Thomson Reuters estimates for 2010 go down  to $1.62 EPS from $1.66 EPS a week before.  With a $27.01 to $43.00 range over the last 52-weeks, this seems as though they are more than compensating you for the loss of an added indication.

Red Hat Inc. (NYSE: RHT) hit a new 52-week high on Friday.  The maker of boxed Linux software operating systems and office suite software also reports earnings on Tuesday.  This was once considered a likely takeover target, but the price has gotten in the way now.  At $29.27, its 52-week trading range is $11.60 to $29.68; and its market cap is now $5.5 billion.  Thomson Reuters has estimates pegged at $0.16 EPS and $188.49 million in revenues.  February 2010 is its fiscal year-end and consensus is $0.67 EPS on $736.91 million in revenues.  So this one trades at 43-times earnings and 7.5-times revenues.  The stock has almost 5.5 million shares listed in its most recent short interest, or about 2.5-days to cover.  Even with this short interest, this has all the look and feel for a company which HAS TO blow away earnings and raise guidance.

We have said that the gold trade may be dead for the rest of 2009, and this week will be a part of that.  The SPDR Gold Shares (NYSE: GLD) has completely broken out of that bullish pattern that was in place and now it is in a technical No Man’s land.  You can have gold go up or down $40.00 an ounce and no technical alerts will be challenged with significance in either direction. Gold went out at $1,112.70 per ounce on Friday.  A longer-term trend line will likely come up, if it needs to be tested that is, closer to $1,000 per ounce later in January.  With everyone’s eyes on the US Dollar, any strengthening of the dollar after a perpetual period of a weakening dollar will likely make this more of a risk than exists today on the sole gold fundamentals without the inverse-dollar relationship.  We’d only look to buy big dips or sell big gains here if they occur for the rest of the year.  Adam Hewison at INO was right, this is the silly season of gold.

Sequenom Inc. (NASDAQ: SQNM) may be done or may have been shown to be as bad as the most skeptical observers have feared after the roller coaster ride of 2009.  Everyone suspected very foul play here, but allegations this last week from an outside group called Xenomics, Inc. may have sealed the fate if there is truth to the allegations.   Xenomics said “an ongoing internal investigation by Xenomics’ personnel of the events surrounding its licensing deal with Sequenom in late October, 2008 leads it to conclude that Sequenom purposely misled the Company – fraudulently inducing Xenomics into granting Sequenom an exclusive license to its transrenal technology. Sequenom’s announced success in developing a Down Syndrome test in late 2008 was the principal factor in Xenomics’ decision to exclusively license its core Transrenal DNA and RNA technology in the area of fetal diagnostics to Sequenom.” This means jail time potentially for former officers if you take this just one small step further, and the company does not have enough capital to defend itself from shareholder suits.  The $57+ million in cash and in short and long term investments will be consumed faster than a keg at a frat party, and the company is already burning liquidity at a rapid rate.

Visa Inc. (NYSE: V) ramped up all week ahead of its S&P 500 Index inclusion.  This was a shoe-in index inclusion for Visa with a market cap of over $60 billion before it was even announced, and the stock ran up from $81.34 a week before to $88.97 on Friday on trading volume of 84,383,400 shares alone on the day S&P included it.  This gave an almost 5% gain for those who bought last Monday on the first index inclusion alert even after the first pop on the news.  With shares back at all-time highs, the traders who made their front-running trades will probably see an exit this week. At $88.97, it is also about $2.00 shy of the official analyst average price targets listed by Thomson Reuters.

Walgreen Co. (NYSE: WAG) is one of the few earnings this coming week.  Thomson Reuters has estimates of $0.48 EPS and $16.3 billion in revenues for the quarter-end NOV2009.  Estimates for the coming quarter-end in FEB2010 are $0.74 EPS and $17.7 billion.  Shares closed at $36.64 on Friday after a near-2% loss on very large volume of over 17 million shares, and the 52-week trading range is $21.39 to $40.69.  The good news for investors is that analysts still have an average price target north of $42.00.  The bad news is that Friday’s close was the lowest reading since the end of September for a closing price, meaning there are no great expectations going into earnings.  Walgreen has a year-end after Aug-2010, so if we take a blended figure of $2.36 EPS for AUG-2010 and $2.77 EPS for AUG-2011 for an implied forward ratio then the forward earnings multiple for Walgreen is 14.3-times earnings.  Not overly expensive, not generously cheap.

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JON C. OGG
DECEMBER 20, 2009

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