The Unusual Suspects (HRB, TIVO, AAPL, AMLN, LLY, ALKS, PCX, BCE, MBT, QCOM, ZANE)
This week’s list of UNUSUAL SUSPECTS for stocks to watch is actually much different from what we have seen in other reports. Earnings season is finally over, so we only have two earnings we gave previews and color in for H&R Block Inc. (NYSE: HRB) and Tivo Inc. (NASDAQ: TIVO). Apple Inc. (NASDAQ: AAPL) has two trading issues to watch out for this week and beyond. Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) has a significant binary FDA event that will be important for Eli Lilly & Co. (NYSE: LLY) and Alkermes, Inc. (NASDAQ: ALKS). Patriot Coal Corporation (NYSE: PCX) is one to watch for either M&A or at least for business improvements, or for profit taking. We have a Barron’s trifecta in telecom in BCE, Inc. (NYSE: BCE), Mobile TeleSystems OJSC (NYSE: MBT), and QUALCOMM Inc. (NASDAQ: QCOM). Zanett, Inc. (NASDAQ: ZANE) is the new micro-cap penny stock for traders to watch, at least until the next one comes along.
We have details on each with added color, opinion, possible price reaction, and related news and background data.
Apple Inc. (NASDAQ: AAPL) hit 52-week highs and all-time highs on Friday. Stocks that hit new highs (or which hit new lows) rarely do it just once. It is the extreme momentum. But there are two big issues here to consider for traders. First is that its market cap of now almost $200 billion puts it as one of the 5 largest companies in America and the mega-cap status may get in the way of its ability to grow indefinitely. The second issue is that options trading has exploded as traders are looking for a way to get upside exposure on the cheap. Friday’s fully leveraged options trading was effectively another 50% of the stock volume depending upon your treatment of speculative stock options versus the shares of stock traded.
Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) has March 12 (Friday) as its PDUFA date for an FDA panel to issue a recommendation on Byetta as the the first once a week treatment for Type II diabetes. Analysts are mixed on the stock with BMO cutting its rating last week, but there were two positive calls from Credit Suisse and Jesup & Lamont. The open interest of stock options is also large enough that the $20 synthetic options straddle would imply that shares have to rise above $24.70 or drop below $15.30 to be profitable. Byetta is already sold with Eli Lilly & Co. (NYSE: LLY), and Alkermes, Inc. (NASDAQ: ALKS) provides the technology that makes Byetta last longer in the delivery mechanism for a once per week use. Open interest in the Alkermes options is elevated but not astronomical. There is a risk here… some feel the FDA will delay this recommendation with a request for more side effect data.
H&R Block Inc. (NYSE: HRB) is set to report earnings Monday. The tax filer had already issued an earnings warning based on so many fewer tax returns that will be filed due to unemployment and underemployment. Thomson Reuters has estimates of $0.15 EPS and $949.55 million for the last quarter, but the coming quarter we are in now has estimates of $$2.13 EPS on $2.47 billion in revenues. The options open interest is surprisingly tiny considering that this one dropped from almost $20 to under $16 when it guided earnings lower two weeks ago.
Patriot Coal Corporation (NYSE: PCX) saw yet another big price spike on Friday, just of about 13.5% to $21.67. The reason being the continued chatter and talk of a Massey (MEE) buyout as well as hopes for continued higher prices-paid for coal to make steel. While we have some pause for concern and while it did temporarily shut its federal mine, the options trading has been very elevated as well in just the March expiration month which means that M&A speculators are betting a deal comes within the next two weeks. Patriot is one of the newest public coal players as it only came public in late 2007, and it saw a triple in the stock in its first few months due to the commodity and energy bubble of 2008. If Massey is really buying the company, its shares traded higher as well by 6% Friday. But there is an issue. Patriot shot up like a Patriot missile from $17 to almost $22 this last week, so if no deal is announced on Monday or Tuesday then we expect at least some profit taking.
Tivo Inc. (NASDAQ: TIVO) is up for earnings Monday and that is just on the heels of it winning an intellectual property war with Dish Network. TiVo literally soared from about $10 to end the week at $17.50. Thomson Reuters has estimates of -$0.12 EPS on $47.45 million in revenues. The market cap based on its win is now $1.9 billion, so we’ll just have to wait and see what the company says in addition to earnings about what will come from its recent win. Based on the new win, the earnings report is likely not important in comparison to the money coming its way. TiVo’s open interest for March options is elevated, and April is now higher than normal.
This weekend’s Barron’s was littered with analysis and picks around telecom. BCE, Inc. (NYSE: BCE) was given a very positive feature article in Barron’s for having better income growth with more room for upside than AT&T and Verizon in the U.S. Also touted was Mobile TeleSystems OJSC (NYSE: MBT) in Russia for its return to growth and for its ability to see continued gains after it underperformed the local stock exchange and an analyst calling for the stock to double in five years. Our call on price impact: On BCE, the tout may generate a 1% or so increase from the $29.51 close; On MBT, the tout may generate up to a 3% increase on top of Friday’s 2.25% gain to $54.50. QUALCOMM Inc. (NASDAQ: QCOM) was given a lightly defended article about its recent woes with the blame game after its poor earnings being about the mix. Due to the big bounce we saw last week on its dividend and share buyback raise, it is possible that QCOM sees another 1.5% gain or so on a static basis.
Zanett, Inc. (NASDAQ: ZANE) had an absolutely crazy week. Its ‘ZANE’ ticker should give this one the new name “Zaney” for traders. It was just on Wednesday that it warned about expecting to receive a NASDAQ delisting notice. But then on Thursday the company announced that “business is booming” as it set a record for contracts closed in the months of January and February 2010 with over $12 million dollars in new business put on the books from 42 different customers. This was a $0.38 stock that is micro-cap and used to sometimes even skip trading days because no volume was there in shares. Yet is closed up exponentially at $2.12 on 8.09 million shares Thursday, only to be followed by an equally zany Friday. Friday’s high was $3.11 and share volume was 8.25 million shares… and its close was $1.93. Call it zany or crazy, but the day traders and speculative penny stock players are all over this one and trading volume here is going to be considerably elevated to its past.
The last issue we want to watch this week is that the valuations are changing somewhat. For starters, this is the first anniversary of the selling apex of March 2009 that then became the biggest bull market seen since the late 1990’s. We have shown how the 52-week trading ranges are about to at least normalize and look more rational in the next month or so without so many stocks being up exponentially from their 52-week lows. We saw this in major tech shares with many normalizations coming, and then the money center bank changes will start to look far more normalized.
A last valuation trend is one that came in the world of biotech and biohealth stocks. There are suddenly many more biotech and biohealth stocks which have crossed into the $1 billion market capitalization level and higher. The long and short of it is that this now makes the ‘investable universe of’ those stocks much larger for institutions.
You can join our free daily email distribution list to hear about analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.
JON C. OGG