Companies featured in this edition of the newsletter: ACCP, ACTC, CBAI, ITUI, SIHI, SRCO, SVUL
Markets once again displayed strength this week, spurred on by a number of better than expected earnings reports which led to gains in all of the major indices. All told, the Dow ended the week up 4.0%, gaining 349 points on the week to close above the 9000 mark at 9093, bringing it back into positive territory on the year, up 3.6%. The Nasdaq posted a 4.2% gain, closing at 1886, up 24.7% on the year while the S&P 500 and Russell 2000 gained 4.1% and 5.6% respectively on the week, bringing their yearly gains to 8.4% and 9.8%.
Earnings once again took center stage this week and for the second time in as many weeks, provided investors with all the reason that they needed to jump back into the markets. Out of 142 S&P 500 components reporting, 111 managed to beat expectations while only 21 missed estimates. The best performing sectors on the week were materials, up 8.1%, and energy and utilities, both up 5.6%. While the week’s strong performance was hailed as a sign of better things to come by many, there are still some who viewed the results with some degree of skepticism, as the majority of the consensus besting reports came as a result of strong cost cutting measures on the part of companies rather than increases in revenue.
Markets benefited further from news earlier in the week that CIT Group had reached an agreement with bond holders to secure $3 billion in rescue financing. Although this was certainly an encouraging development, there are still concerns surrounding CIT’s future solvency. Economic reports were light last week, but weekly initial jobless claims once again provided some relatively positive news as they came in at 554,000; just below consensus estimates which were calling for 557,000. The latest figure brought the four week moving average to 566,000, which is down from 585,000 but still well above normal levels.
What should investors look for this week? Earnings season continues; on Monday morning, look for reports from Honeywell (NYSE: HON), Radioshack (NYSE: RSH), and Verizon (NYSE: VZ). On Tuesday morning, expect reports from Amgen (NASDAQ: AMGN), BP (NYSE: BP), Office Depot (NYSE: ODP), Pepsi Americas (NYSE: PAS), US Steel (NYSE: X), Valero Energy (NYSE: VLO), and Viacom (NYSE: VIA). Wednesday before the bell, look for reports from Aetna (NYSE: AET), Arcelor Mittal (NYSE: MT), Coca Cola Enterprises (NYSE: CCE), Conoco Phillips (NYSE: COP), General Dynamics (NYSE: GD), Hess (NYSE: HES), Sprint Nextel (NYSE: S), Time Warner (NYSE: TWX), and Wellpoint (NYSE: WLP), with Visa (NYSE: V) reporting after the close. Thursday will be a busy day; before the bell, expect reports from AmerisourceBergen (NYSE: ABC), AstraZeneca (NYSE: AZN), Colgate-Palmolive (NYSE: CL), Dow Chemical (NYSE: DOW), Eastman Kodak (NYSE: EK), Exxon Mobil (NYSE: XOM), Goodyear Tire (NYSE: GT), Kellogg (NYSE: K), MasterCard (NYSE:MA), Motorola (NYSE:MOT), OfficeMax (NYSE: OMX), Royal Dutch Shell (NYSE: RDS), and Sony (NYSE: SNE), with First Solar (NASDAQ: FSLR), MetLife (NYSE: MET), and Walt Disney (NYSE: DIS) reporting after the close. The week wraps up with Chevron (NYSE: CVX) reporting before the bell on Friday.
Economic releases for the week begin with New Home Sales for June at 10:00am Monday, followed on Tuesday by Consumer Confidence for July and the S&P/Case-Shiller Home Price Index for May due out together at 9:00am. On Wednesday, look for Durable Orders for June due out at 8:30am, followed by weekly crude inventories at 10:30am, with the Fed’s Beige book due out at 2:00pm. On Thursday look for weekly initial jobless claims at 8:30am. The week finishes up on Friday with Advance Q2 GDP, Q2 Core PCE, Advance Q2 Chain Deflator, and Q2 Employment Cost Index, all due out together at 8:30am, followed by Chicago PMI for July at 9:45am.
There are no conferences of note scheduled once again this week due to earnings season.
Volume Alert: Shares of Access Pharmaceuticals, Inc. (OTCBB: ACCP), an emerging biopharmaceutical company that develops and commercializes propriety products for the treatment and supportive care of cancer patients, rocketed 83% on 5 times average volume last week, following the announcement that its European partner, SpePharm, is collecting data from a post approval study of MuGard in head and neck cancer patients undergoing radiation treatment in the UK showing prevention of oral mucositis. Out of 280 total patients expected to participate in the study, the first 140 enrolled have shown no signs of oral mucositis following treatment with MuGuard; the results are extremely encouraging considering that the typical rate for mucositis in patients undergoing radiation treatment for head and neck cancer is roughly 100%. The condition ranges from moderate discomfort up to Levels 3 and 4, where symptoms are typically so debilitating that patients have to discontinue radiation treatment. MuGard forms a protective coating over the oral mucosa when swirled gently around the mouth, providing protection against the discomforting blisters and sores that form as a result of the condition. In a comparison of cancer patients receiving standard mucositis care with those patients receiving MuGard, the incidence and severity of mucositis was significantly lower in the MuGard treated group using a validated scale for the assessment of oral mucositis. Shares gained $1.75 on the week to close at $3.85.
Volume Alert: Shares of Chinese supply chain management company SinoHub (OTCBB: SIHI) surged 55% on almost twice average volume last week, as investors have become increasingly aware of the strong fundamentals and robust market that the company serves. The company posted impressive Q1 results for the period ended March 31, 2009, with revenue and net income up 56% and 83%, respectively, over the three months ended March 31, 2008. Total revenues for the 2009 first quarter rose to $18.1 million from $11.6 million in the first quarter of 2008. Net income for the 2009 first quarter advanced to $2.0 million, or $0.08 per fully diluted share, from $1.1 million, or $0.06 per fully diluted share, in the year earlier period. Shares ended the week at $4.25, up $1.51.
Steel Vault (OTCBB: SVUL) an emerging provider of identity security products and services, announced preliminary results for its fiscal quarter ended June 30, 2009 last week. During the period, SVUL managed to generate revenues of over $350,000, representing an increase of over 500% from the prior quarter. The company also highlighted some of its achievements over the quarter, among them; subscriber receipts for the month of June exceeded $200,000 -the highest in the company’s history, successful completion of a private placement totaling $500,000, and strong customer retention as SVUL ended the quarter with 15,564, active subscribers, a sequential increase of 53% from May, and an increase of 253% from 4,415 subscribers at the end of March 2009. The company attributes this solid performance to the marketing campaign which it implemented in February which has seen significant traction since its inception. Shares gained five cents on the week to close at $0.32.
Advanced Cell Technologies (OTC: ACTC), a company engaged in the development of regenerative therapies utilizing stem cells, announced last week that it filed results for its 2009 first quarter for the period ended March 31, 2009. As a result of the filing, the company become current in its filings, which could allow it to file for relisting on the Over-the-Counter Bulletin Board. A listing on the Bulletin Board could increase investor interest in the company’s science. ACTC plans to file an IND for its retinal pigment epithelium cell therapeutic program for treatment of diseases of the eye with the FDA in the second half of this year. Shares lost half a penny on the week to close just above $0.16.
Cord Blood America, Inc. (OTCBB: CBAI), an umbilical cord blood stem cell preservation company focused on bringing the life saving potential of stem cells to families nationwide and internationally, provided an update on its accomplishments over the first half of 2009, which have been the most significant in the company’s history. The company has managed to significantly improve their balance sheet through a number of debt reduction measures, in addition to expanding sales into Europe, Central America and the Caribbean, in addition to obtaining a new laboratory facility which was recently the topic of an interview on a local Fox affiliate in Las Vegas. CBAI’s CEO, Matthew Schissler, was featured last week in a television interview on KVVU Fox News Las Vegas, in which he discusses the 17,000 square foot facility in Las Vegas, Nevada that it recently leased to develop a state-of-the-art laboratory for the storage of multiple stem cell products including umbilical cord blood stem cells. CBAI has seen significant interest from companies wishing to partner with the company since announcing that it has obtained the laboratory space last month. Shares remained unchanged at less than a penny on the week.
i2Telecom (OTCBB: ITUI), a leading developer of patented and innovative mobile applications and services, announced last week that it has entered into an agreement with Ztar Mobile, a leading Mobile Network Enabler (MNE), to become the company’s preferred international long-distance discount provider. Ztar offers global wireless solutions that enable retailers, affinity groups and brand name labels to deliver private brand wireless services to their customers. Under the terms of the agreement with Ztar Mobile, all international calls will be powered by i2Telecom’s MyGlobalTalk™ network. ITUI expects to benefit greatly from the arrangement by capitalizing on Ztar’s existing market penetration which it feels will further enhance consumer awareness as to the features and significant value offered by its MyGlobalTalk™ application. Shares remained unchanged at $0.05 on the week.
SPECIAL SITUATIONS:
SpartaCommercial Services (OTCBB: SRCO) $0.08
The global economic crisis has left indelible marks on the way the world does business, and will continue to do so as we progress down the road to recovery. Lending requirements have been forever altered which will have lasting effects on not only businesses, but the way in which consumers obtain the goods and services that they require on a daily basis. Sparta Commercial Services is a company operating largely under the radar that provides financing to consumers and municipalities seeking motorbikes and other alternative forms of conveyance that is poised to capitalize on two increasingly secular trends brought about by the global slowdown; the shift away from automobiles in response to rising energy prices, and the tightening of lending standards in the wake of the sub-prime melt down.
Sparta is currently the only nationwide full-service, independent web based finance company offering lease solutions in combination with traditional loans to the Powersports industry. The industry itself has been growing rapidly, with sales of scooters and dual sport bikes up 50% and 30% respectively in 2008 alone, largely in response to the record run up of energy prices last summer as consumers have shifted preferences away from gas guzzling automobiles and towards more economical modes of transportation. The combination of its significant dealer network and proprietary web based application processing platform that allows dealers to instantly approve or deny financing on the spot, provides Sparta with significant advantages over competitors in the space, who typically do not offer the breadth of services that Sparta does to its customers.
Sparta’s full spectrum of direct and indirect leasing and financing products include programs for all major brands of motorcycles 550cc and up, virtually all semi customs, most utility ATV’ , and select scooters, financing as many as 30 different brands with a dealer base of over 2300 nationwide, in sharp contrast to their competitors who typically specialize in one brand or category of bike. SRCO has been benefiting further as a result of tightened lending restrictions and other adverse effects of the global financial meltdown, which have led to competitors either significantly tightening their underwriting criteria, or exiting the space entirely, as many of the company’s closest competitors, such as Capital One, HSBC and GE Capital, have chosen to refocus their efforts towards enterprises that are more in line with their core businesses, leaving significant market share in the Powersports financing space for the taking.
The strength of Sparta’s business model lies in the demographics behind the variety of machines that they finance; they tend to target brands which are sought after by stable consumers -typically homeowners- with substantial positive credit histories. By choosing to serve individuals with less likelihood of defaulting on their obligations, Sparta is able to almost halve the delinquency rates on payments typical of the industry, boasting a percentage of outstanding balances over 30 days of 3.10% in FY ’08 versus a major competitor who reported delinquencies of almost double that rate in the same period. In addition to their strong consumer portfolio performance, they have also chosen to serve an almost recession proof market which further strengthens their balance sheet and has helped the company grow revenues by 258% in the four years ended April of ‘08.
In addition to their consumer financing operations, the company also offers Municipal Leasing and Commercial Fleet Leasing services which further extend Sparta’s breadth of service offerings. Originally designed to facilitate the leasing of fleets of police motorcycles, the Municipal Leasing services arm has been extended to include all types of police and emergency vehicles and has served 72 jurisdictions in 16 states in its first 14 months in operation. The Commercial Fleet Leasing product provides commercial, non-governmental, non-consumer leases, rentals and other customized financing arrangements, and recently completed its first commercial fleet leasing transaction with a major Harley dealer. Sparta expects that this business will add significant value to shareholders as more dealers become aware of the option which will enable them to increase inventories without affecting existing credit arrangements with suppliers.
With a sound business model serving a robust industry poised for continued growth in response to the shift in consumer preferences towards more fuel efficient modes of transportation, Sparta Commercial Services seems extremely well positioned to capitalize on the credit crunch which has left the vast majority of its competitors essentially unable, or unwilling, to lend. Add to this the fact that Sparta was recently approved for an expandable $25 million revolving credit facility with a large German bank, and it appears that the company is poised to continue the impressive growth which it has demonstrated over the past four years. As both the private sector and municipalities continue to demand alternative forms of transportation, yet are unable to procure the necessary financing, companies such as Sparta will surely grow along with that increased demand as they fill the void left in the wake of the credit freeze and enable consumers to finance their growing needs.