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Ian Wyatt

Savient (SVNT) Leads Small-Cap Gainers Through Choppy Trading Session

All major indices were trading down for much of today's session with the Nasdaq leading the losses by shedding 0.19% to close at 1,858.80. In late trading the Dow closed at 8,799.26 for a modest gain of 0.32% and the S&P 500 closed up 0.14% to finish the day at 946.21.

The Russell 2000, the widely followed index of the largest 2,000 small cap stocks, closed down today at 524.32 losing 0.33%.

Leading the small-cap gainers today was Savient Pharmaceuticals (Nasdaq:SVNT) up 56% to close at $9.26 on news that the Food and Drug Administration said that the firm's gout treatment drug, Krystexxa, works. Based in East Brunswick, NJ, Savient makes specialty biopharmaceuticals as was founded in 1980.

Other small-cap leading gainers include WSP Holdings (NYSE:WH) up 24.5%; Independent Bank Corporation (Nasdaq:IBCPO) up 22.4%; and AC Moore Arts & Crafts (Nasdaq:ACMR) up 16.4%.

Small-cap decliners were lead by Hawaii-based Hoku Scientific (Nasdaq:HOKU) down 30.3% to close at $3.05. Hoku, a raw materials provider for the solar industry, announced that it may be unable to fund its operations over the next year and stated that it will not provide guidance for fiscal year 2010.

The other small-cap stocks posting big share price drops include iPCS (Nasdaq:IPCS) down 21.6%; P&F Industries (Nasdaq:PFIN) down 19.9%; and one of Wednesday's big gainers, Corel (Nasdaq:CREL), which slid 18.4%.

*****Its worse in Europe than here in the U.S. Industrial production dropped 1.9% in a particularly cruel April, nearly double the 1% drop that was expected. First quarter GDP was also down 2.5% for the 16 Euro-zone countries.

The recession there seems far from over, and Europe's weakness might be contagious because it should act as a stark reminder just how tenuous global economic recovery is.

*****Oil prices may have just hit their blow-off highs above $72 yesterday. As you know, I was early to the oil stock party. My SmallCapInvestor PRO readers took a 142% gain on one stock, Gulfport Energy (Nasdaq:GPOR), and we're holding +60% on another. And of course, if you've been following closely over the past six months you know that I've been in and out of Graham (AMEX:GHM) several times.

Now, it's getting late and I suspect the party might be ending, at least for a brief pause. I'm not calling for oil prices to crash. And the $33 a barrel price we saw back in February may never be seen again. But oil stocks, and stocks in general, are due for a pullback.

The 2nd Quarter ends June 30. And it would be reasonable to expect institutional investors to lock in some gains. I'm sure they are using put options to do some hedging, which helps explain the recent rise in volatility. But I also won't be surprised to see some outright selling. And it might have started with yesterday's afternoon drop for the indices.

The Dow Industrials were up well over 100 points in the early afternoon, but couldn't hold it as a late wave of selling left it with a gain of just 30. That's the opposite pattern of what we've seen for much of this rally. Institutional investors have been buying late in the day, supporting prices and leaving stocks with daily gains.

Institutional activity usually occurs at the beginning and end of the trading day, so this is something to keep an eye on.

*****Brazil, Russia, China and India contribute 15% to global GDP, but they have 42% of the world's currency reserves. And they may be on the verge of throwing their liquidity weight around.

Bloomberg reports that these countries will hold their first summit next week, and it's widely expected that they will announce that they are increasing their holdings of IMF bonds. Yes, that comes at the expense of U.S. bond holdings.

Apparently, fears of rising deficits and the potential inflation from an expanded money supply in the U.S. are driving them to diversify a bit.

Investors should take note. While the U.S. muddles through, and Europe continues to be mired in recession, the BRIC countries (Brazil, Russia, India and China) are the only countries in the world that can support their economies without taking on debt.

Chinese stocks are the ones I'm bullish on right now. If there is a slight pullback later this month, then Chinese stocks will suffer the least and more importantly, present great buying opportunities before the next leg up. To get my top Chinese selections, click HERE.

*****Finally, as I announced yesterday, TradeMaster Daily Stock Alerts technical analyst Jason Cimpl has graciously agreed to give us a weekly forecast for the stock market. You can access his video analysis and commentary HERE.

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Ian Wyatt

KVB, SEH, and ROYL Lead Small Cap Gainers

Stocks extended their gains today with all of the major indices closing up from this morning's open. The Dow Jones Industrial average closed at 8,770.92, up 0.37%; the Nasdaq added 9.29 points to close at 1,862.37; and the S&P 500 closed up 5.74 points at 944.89 for a 0.61% gain.

The small-cap stock bellwether index, the Russell 2000, was up 1.05% to close at 529.23.

Leading small-cap leading gainers today was KV Pharma (NYSE:KVB) which closed up 49.39% to $3.95 on news that it had settled its OxyContin dispute with Purdue Pharma. Other small-cap gainers include Spartech Corp. (NYSE:SEH), up 37.15%; Royale Energy (Nasdaq:ROYL) up 30.36% to close at $3.65; and a leader from yesterday, Corel Corp. (Nasdaq:CREL) up 22.5%.

Small-cap decliners were lead by Shanghai-based Linktone (Nasdaq:LTON) down 17.36% on unaudited Q1 results showing revenues at $14.8 million compared to $19.4 million for Q4, net income from continuing operations of $0.1 million compared to $1.1 million from Q4, net income of $0.3 million versus $0.6 in Q4.

Setting a new 52-week high today was American Dairy (NYSE:ADY), closing at $43.38. American Dairy produces and distributes milk powder, soybean milk powder, and related dairy products in China. American Dairy had been trading between $10 and $18 for much of 2009 until May 15 when it surged to $28.48 and continued on to $35.08 by May 19, pulling back, then steadily moving up again. After the closing bell on May 14 American Dairy announced Q1 2009 versus Q1 2008 sales increase of 191%, income from continuing operations increase of 523%, and net income up 282%.

*****The International Energy Agency (IEA) reported that demand for oil is picking up. Instead of the 3% drop in demand, the IEA says that it now expects demand to be off a whopping - drumroll please - 2.9%. Sheesh.

When you're talking about 83.5 million barrels a day, a one-tenth of a percent revision should not be headline news. Somebody owes me an apology.

But seriously, I think it's pretty much understood that any statistic thrown out there by some agency or department is subject to revision. In fact, I get suspicious when numbers don't get revised…

*****Economics is the study of a human system of production and consumption of goods. And because it's a human system, there must always be some margin for error.

Especially at this stage of the recession/recovery, numbers are going to swing wildly. Retail sales, foreclosures, payrolls, it doesn't matter - the headline number will get revised.

Of course, this is what makes investing interesting. The data can only take you so far. And if one relies solely on economic data for buy and sell signals, poor results are inevitable.

*****As you know, I was quick to jump on oil stocks at the start of the current rally. Oil was trading around $40 a barrel when I recommended three  small oil stocks in my SmallCapInvestor PRO advisory service and also recommended Graham Corp (AMEX:GHM) here to Daily Profit readers.

Obviously, investor sentiment toward oil has changed dramatically since I first started pushing oil stocks. That's what happens when an asset doubles in price in just a few months.

In fact, the bullish sentiment behind oil and oil stocks is so extreme that I've told SmallCapInvestor PRO to sell one oil stock and take the 142% gains we had off the table. Oil prices are due for a big correction, and there's no way I'm going to lose such a nice gain.

I'll be buying back oil stocks sometime this summer. And if you missed the big gains in oil this time around, don't worry, you'll get another chance. I'll cover oil consistently here in Daily Profit. And you can also get my stock recommendations on the next sector to run up, China, for SmallCapInvestor PRO HERE. So far this year, SmallCapInvestor PRO members are averaging 43% gains per recommendation.

*****I have one more announcement today. Jason Cimpl, the technical analyst for TradeMaster Daily Stock Alerts has graciously offered to start sharing his weekly forecasts with Daily Profit readers on Fridays. So tomorrow, you should get your first video chart analysis from Jason.

He's done a great job of keeping his readers in profitable trades during this rally. And his insights into what's driving stock prices and where they are likely to head next should prove a worthy addition to this letter.


 

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Ian Wyatt

Atlantic Tele-Network Leads Small Caps on Acquiring Verizon and Vodaphone Assets

Interest rate concerns and inflation worries put pressure on stocks today after the government's sale of $19 billion had a harder than usual time getting buyers. Investors seem concerned about the government's growing debt and that it could spur higher inflation and interest rates.

The Dow lost 24.04 points to close at 8,739.02; the Nasdaq shed 7.05 points to end the trading session at 1,853.08; and the S&P was down 3.28 points for 939.15.

Stocks comprising the Russell 2000, comprised of the 2,000 largest small-cap stocks, brought the index down to 523.41 on a loss of 4.52 points.

Today's small-cap gainers were lead by communications firm Atlantic Tele-Network (Nasdaq:ATNI) up 42.29% at $37.92. ATNI was up on news from yesterday's announcement to acquire wireless assets from Vodaphone (NYSE:VOD) and Verizon Communications (NYSE:VZ). Primarily doing business in the Caribbean, ATNI now picks up nearly a million wireless subscribers in the U.S. southeast and Illinois and Ohio. Because of regulatory requirements on Verizon to sell off some subscribers as part of its deal with Alltell, ATNI is substantially changed from a small operator overseas to a real player in the U.S. market.

Other small-cap leaders include one of yesterday's leaders, Satyam Computer Services (NYSE:SAY) up 35.7% after being rated "overweight" by an analyst from JP Morgan; American Axle & Manufacturing (NYSE:AXL), another of yesterday's leaders, up 25.7%; and Corel Corp. (Nasdaq:CREL) up 34.75%.

Decliners were lead by NCI Building Systems (NYSE:NCS) down 26.1% on worries over its reports of larger than expected Q2 losses. Shares were going for $3.16 at market close, down from an opening price of $3.80.

Other small-cap decliners include one of yesterday's leading gainers, Sequenom (Nasdaq:SQNM). Yesterday SQNM lead small-cap gainers with a 45.97% gain but today lead decliners by shedding 22.83% of its opening price to close at $4.09. And after shedding 20.17% off its price yesterday, Quiksilver (NYSE:ZQK) saw shares drop another 12.71%. So far this week investors holding shares in Quiksilver have endured a total loss of 27% since Friday's close.

*****"The worst is to come…"

That's what MetLife's (NYSE:MET) Chief Investment Officer Stephen Kandarian told Bloomberg this morning.

He was talking about commercial mortgage defaults. He notes that "[t]ypically there's a lag between when the economy softens and when the defaults actually occur."

Bloomberg also cites a study from Real Estate Econometrics LLC that forecasts default rates for commercial real estate may hit 4.1% by the end of the year.

What does commercial real estate have to do with an insurance company? Plenty…

*****Insurance companies take in cash in the form of the premiums we pay. They then invest that money in order to pay off claims down the road. As their investment returns compound, they profit.

But when their investments lose money, trouble starts. And trouble is exacerbated when insurance companies sell guaranteed returns to investors in the form of annuities.

The promise of annuities forces insurance companies to seek riskier investments to boost their returns. And many have turned to mortgage-backed securities to make more money.

Whoops.

*****MetLife has a $300 billion investment portfolio. That portfolio lost 23% in the first quarter of this year. Mr. Kandarian freely admits he's looking for higher returns to make up the losses. And he's looking at adding securities backed by commercial mortgages, in addition to continuing to originate loans to the commercial real estate sector.

It reminds me of the gambler, who after suffering a big loss, decides to start doubling down and taking more risks to win his money back. It usually doesn't end well.

Of course, what he should do is simply step away from the table. But MetLife and other insurers can't -- they have to make money to meet their obligations. It's not a sure thing, but I can imagine it ending poorly for some insurance companies.

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Jennifer Schonberger

Corel Corp. posts Q3 results above the Street

Software company Corel Corp. (Nasdaq:CREL) posted third-quarter results this morning that trumped the consensus on Wall Street. The company also issued fourth-quarter guidance lower to inline with analysts’ estimates. For the full year, Corel guided for revenues above the Street with earnings slightly lower to above the consensus.

Shares were halted in pre-market trading. For detailed price information and news stories on Corel, click CREL.   

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Mary Ann Azevedo

Corel slides in wake of buyout offer withdrawal

Canada’s Corel Corp. (Nasdaq:CREL) saw its stock fall by 4.7% after announcing before the bell this morning that Corel Holdings LP has withdrawn its offer to acquire remaining outstanding shares.

Corel Holdings — an affiliate of Vector Capital Corp. — currently owns about 69% of Corel Corp., an Ottawa, Ontario-based business software firm.

Corel Holdings originally announced the buyout proposal of $11 a share in cash on March 28. Since then, Corel’s board formed a special committee that, among other things, identified other third-party strategic alternatives.

Corel Holdings says it was withdrawing its proposal so that Corel Corp. could pursue some of those alternatives.

Corel is at $9 mid-morning, down $0.44 from Friday’s close. The stock has traded between $6.94 and $13.95 in the past 52 weeks.

For detailed price information and news stories on Corel Corp., click CREL.

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Dianna Heitz

Corel reports Q2 profit declines, offers Q3 guidance

Corel Corporation (Nasdaq:CREL) reported early Thursday its second-quarter net income was $0.93 million, or $0.04 per share, compared with $2.3 million, or $0.09 a share, for the same quarter a year ago. The Canada-based software company provided guidance for the 2008 third-quarter with revenue of $63 million to $65 million. Full-year revenues should be between $263 million and $275 million. Ahead of the bell on Thursday, shares of Corel were flat at $9.32 apiece.
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Alex Alexandrov

Russell 2000 sees green

The Russell 2000 (NYSE: IWM) and the other major U.S. indices opened in positive territory on good economic news and an upbeat forecast from Wal-Mart.

At 10:16 a.m. ET, the small-cap index had added 4.52 points, or 0.53%, to 849.71. The Dow Jones Industrial Average (INDU) had advanced 77.39 points, or 0.55%, to 14,156.08.

Retailers posted generally weak same-store results for September due to unusually warm weather that stalled sales of cold-weather merchandise. Among small-cap retailers, Gottschalks Inc. (NYSE: GOT) and department store chain The Bon-Ton Stores, Inc. (Nasdaq: BONT) reported same-store sales declines of 3.9% and 6.5%, respectively. Meanwhile, home accessories retailer Tuesday Morning Corp. (Nasdaq: TUES) missed analysts’ projected first-quarter sales forecast.

However, the bulls seized on news that Wal-Mart Stores Inc. (NYSE: WMT) raised its third-quarter profit outlook despite second-quarter results that came in at the low end of its expectations.

In economic news, jobless claims for the week ended Oct. 6 fell by 12,000 to a level of 308,000, according to the U.S. Labor Department.

Elsewhere, U.S. import prices rose in September due to more expensive oil and food, but August U.S. exports increased 0.4% to $138.34 billion, while imports fell 0.4% to $195.92 billion. The Commerce Department also reported that the U.S. trade deficit contracted 2.4% to $57.59 billion in August, from $59.00 billion a month earlier.

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Will Atkinson

Corel down after swinging to Q3 loss

Corel Corp. (Nasdaq: CREL) shares are down in after-hours trading after the Canadian software maker announced it swung to a third-quarter loss, after a one-time charge associated with its acquisition of InterVideo Inc. weighed down earnings.

Revenue for the three months ended Aug. 31 totaled $60.4 million, below analyst estimates of $61.2 million but up 46% from $41.3 million a year earlier. Corel posted a net loss of $6.8 million, or $0.27 per share, below Wall Street projections of $0.30 per share and compared with net income of $5.5 million, or $0.22 per share, in the year-ago quarter.

“Corel delivered another solid financial quarter, driven by our ability to successfully identify, acquire and integrate complementary companies and products,” CEO David Dobson said in a statement. “We were especially pleased with the performance of our Graphics and Productivity products where we experienced double digit year-over-year growth for CorelDraw Graphics Suite, WinZip, Painter, Designer and iGrafx. These results demonstrate the strong foundation that we derive from our diverse revenue mix across product categories, distribution channels and geographies.”

For the fourth quarter ending Nov. 30, Corel said it expects revenue in the range of $66 million to $70 million, compared with $47.4 million during the same period of 2006. The firm expects income in the range of $3 million to $5 million and earning between $0.12 and $0.19 per share, below income of $9.4 million, or $0.38 per share, during fourth-quarter 2006. Analysts expect earnings of $0.30 per share and $61.2 million in revenue for the fourth quarter.

For the fiscal year ending Nov. 30, Corel said it expects revenue in the range of $244 million to $248 million, from $177.2 million in fiscal 2006. The firm expects a net loss in the range of $13.3 million to $11.3 million and an earnings loss in the range of $0.51 to $0.44 per share, compared with net income of $9.3 million, or $0.66 per share, in fiscal 2006. Analysts expect earnings of $1.72 per share on $273.5 million in revenue.

In after-hours trading, CREL shares are down 4.65%, or $0.61, at $12.50. Over the last 52 weeks, shares have ranged from $11.90 to $14.51.

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Peter Morton

Canada Connection: Software? In Canada?

The last thing most small cap investors think of when they look north of the border is for opportunities is Canada’s emerging software industry.

Other than Corel Corp. (Nasdaq: CREL), once a titan in Canada’s equivalent of Silicon Valley outside the country’s capital Ottawa, Canada is not seen as a hotbed of high-technology. But oddly, it is becoming increasingly so. Since the famous worldwide high-tech meltdown in 2001, Canada’s industry has been struggling to recover. And, in recent years, it has recovered considerably. The Conference Board of Canada, the Ottawa-based equivalent of the New York-based board, said just recently in its review of the software industry that nearly two-thirds of emerging software companies reported profits last year, while computer and other technology hardware makers saw their profits soar.

"Profit levels for Canadian computer and electronic product manufacturers nearly doubled last year," it said. Profits hit C$2.1 billion in 2006, with the surge due primarily to dropping capital and material costs. This year, profit margins are forecast to reach 6%, which is just below where they stood during the tech boom (although in real dollar terms, far short of the C$4.3 billion the Canadians profited in 2001).

"This industry is smaller and leaner than it was at the height of the tech boom," says Louis Theriault, director of the Conference Board’s industrial outlook division.

Meanwhile, PricewaterhouseCoopers in Toronto said in a similar review of the fledgling industry that 63% of emerging Canadian software firms were profitable last year, adding that's "good news" and in line with the 65% in 2005, and 56% in 2004.

The report, based on its fourth annual survey of software firms, found that as in past surveys, chief executives officers of these firms continued to predict significant revenue increases for the year ahead.

"However, while the majority of CEOs reported revenue increases of at least 10%, many fell short of their forecast," they found. 

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