06/03/2007
VOLUME 302
Companies featured in the current edition of the newsletter: ACCP, CHIP, CVM, CYTR, EEEI, ENZ, GNBT, HSOA, HYTM, LNXGF, PBIO, RTK, SCLL, USAT
Stocks continue their red-hot roll last week, as the Dow, S&P 500 and Russell 2000 all rose to record levels as favorable economic reports eased fears of inflation. Also, a stronger than expected payroll report helped many of the indices establish new highs. The Dow ended the week at 13,668, as it gained 160 points for the week, with yearly gains improving to 9.5 %. The S&P closed at 1,536, gaining 20 points for the week with annual gains rising to 8.3%. The Nasdaq rose 56 points for the week, equating year-to-date gains to 8.2 %. The Russell also closed at a record high of 853, gaining 23 points for the week with yearly gains totaling 8.2 %.
Despite strong momentum in the market, economic reports remain mixed. The disappointing first quarter Gross Domestic Report that totaled 0.6%, missing forecasts of 0.8%, had little affect on the overall market as investors chose to rally around stronger-than-expected consumer confidence of 108.0 in May that easily surpassed estimates of 104.5. With the core focus remaining on the Fed’s position on interest rates going forward, the lack of any surprising data after the latest FOMC minutes were released helped stocks rise over the holiday shortened week. The yield on the 10-year note should be watched as it approaches 5%, which could raise fears that higher borrowing costs could curb corporate profits and hamper the liquidity that has been driving the stock market higher.
What should investors look for this week? There are no major corporate earnings announcements this week, but there are a number of Analyst Meetings being held starting with Pfizer (NYSE: PFE) on Monday. Johnson Controls (NYSE: JCI) hosts analysts on Tuesday. NYSE Euronext (NYSE: NYX) meets with analysts on Wednesday, along with Norfolk Southern (NYSE: NSC) that same day. Cancer companies could be in the spotlight next week, as the 43rd Annual ASCO Conference begins today in Chicago. Special Situation stocks such as CEL-SCI Corporation (AMEX: CVM), focused on head and neck cancer, and Access Pharmaceuticals (OTCBB: ACCP), focused on head and neck cancer, could benefit from the additional exposure. Notable conferences being held this week include the two-day Deutsche Bank Securities Media & Telecommunications Conference starting Monday in New York. Also starting Monday is the two-day Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference in New York. On Tuesday, Merrill Lynch holds its Agricultural Chemical Conference in New York. Beginning Wednesday, Lehman Brothers hosts its two-day 2007 Global Services Conference in New York. That same day, Piper Jaffray begins its 27th Annual Consumer Conference in New York, along with Credit Suisse starting its two-day Engineering & Construction Conference in New York. Citigroup sponsors its two-day Power, Gas & Utilities Conference in Charleston, South Carolina beginning Thursday.
On the economic front, April Factory Orders will be released on Monday at 10:00 a.m. Shortly after the opening on Tuesday, May ISM Services will be announced. Before the opening on Wednesday, Revised Q1 Productivity will be reported with Weekly Crude Inventories being released at 10:30 a.m. Thursday morning, Weekly Initial Jobless Claims will be announced followed by April Wholesale Inventories at 10:00 a.m. Later that afternoon, April Consumer Credit will be reported. Before the opening bell on Friday, April Trade Balance figures will be reported. On Wednesday, Richmond Fed President Lacker talks on the economy and Kansas City Fed President Hoenig speaks on policy and the economy.
Volume Alert: Shares of Home Solutions of America (NASDAQ: HSOA), a provider of restoration, construction and interior services to commercial and residential customers, closed at their highest level in nearly one year last year on more than twice average volume, as the company said that its Fireline Restoration Inc. unit was awarded a contract worth approximately $100 million for construction management, general contracting and development services for a 600,000 square foot retail center and corporate office site in Hillsborough County, Florida. About $10 million in work is expected to be completed this year, and has not been included in the company’s previously announced backlog. The project is expected to be completed over a 30-48 month period. The contract is the second major one the company has inked in the last two weeks. Fireline recently reported contracts totaling over $100 million in connection with the development and construction of 339 residential condominiums and 160,000 square feet of mixed use retail space located in the boroughs of Brooklyn, Manhattan and Queens, New York. While shares have gained 66% since the end of April, helped by a solid first quarter earnings report, the stock trades for less than 13 times 2007 earnings estimates, which remains substantially below historical averages, despite the fact that its backlog is the strongest in its history. There appear to be multiple near-term catalysts for the stock. Two weeks ago we reported that developer Michael Samuel, according to published reports, was on the verge of acquiring property on the waterfront in New Orleans that would result in development of a mixed-use real estate project valued at $500 million. Due to Home Solutions’ strong labor force and relationships in New Orleans and its relationship with Rick Holowchak (involved in the $100 million NYC construction project) the company could get this construction contract, which would be far larger than anything it has participated in previously. The company also said that it expected to pay off this quarter the debt it incurred ($21.6 million Seller Note) in connection with the acquisition of Fireline through the collection of a large receivable, which would improve the company’s balance sheet. Finally, June 1st marks the first day of Hurricane Season. An active storm season two years ago helped the stock triple in less than four months. Already two tropical storms have been named. Note that the stock generated one of the most bullish technical indicators last week, a “golden cross” as its 50-day EMA crossed its 200-day EMA. Also, MACD and RSI levels, key technical indicators, were the strongest since May, 2006 when the stock reached an all-time high of $14.14. Shares ended the week at $7.89, up 92 cents.
Shares of healthcare services company Hythiam, Inc. (NASDAQ: HYTM) closed at their highest level since early March, as the company disclosed in a regulatory filing that Texas has allocated $2 million of initial funding for PROMETA for use in the state’s justice system. Texas became the third state to allocate funding for PROMETA in May, following allocations from Washington and one other state ($1.1 million). According to one analyst’s report, Georgia may be the next state justice system opportunity to fund PROMETA, possibly in September upon completion of a pilot study. In addition, the Pierce County Alliance (PCA) last week reported results from its 14 month follow up on a pilot to evaluate Hythiam’s PROMETA protocol for the treatment of methamphetamine and cocaine dependence. The study indicated that 98% of aggregate urine screens tested negative for all substances, including methamphetamine and cocaine use and 86% of the 37 patients who completed the PROMETA Protocol remain drug free 14 months after pilot initiation, far surpassing the success of any other treatment model previously used. The PCA also noted that clients had a noteworthy increase in their ability to successfully engage in outpatient treatment and overall drug court compliance, and experienced a level of hope for the future that they never thought possible within days of starting the protocol. Shares ended the week at $8.02, up 29 cents.
Enzo Biochem, Inc. (NYSE: ENZ), a company engaged in the research, development and manufacture of innovative health care products, announced last week that its subsidiary, Enzo Life Sciences, Inc., has agreed to acquire Axxora Life Sciences, Inc. for approximately $16.3 million in cash. Axxora, a privately held maker of life sciences research products, operates units in the U.S., Switzerland, Germany and Britain, with branch offices and distributors in other major markets as well, with revenues of approximately $16 million in 2006, and has a history of profitability. Enzo should benefit from Axxora’s product development, production, distribution and marketing capabilities internationally, as well as revenues from Axxora’s wide range of products. The acquisition is expected to close in early June 2007, subject to customary closing conditions. The deal is consistent with the company’s stated objective of expanding the product line and distribution for its Enzo Life Sciences subsidiary and highlights the company’s ability to use its strong balance sheet for growth. Shares ended the week at $16.27, up 11 cents.
Rentech, Inc. (AMEX: RTK), a developer of technologies that transform under-utilized energy resources into valuable and clean alternative fuels, announced last week that it has signed agreements with Peabody Energy in which Peabody will fund up to $10 million of the engineering and development costs for Rentech’s planned coal-to-liquids project in Illinois, and will supply the facility with nearly 1 million tons of coal annually. Peabody also obtained the right to purchase a 20% equity interest in the project. This project will be the first commercial coal-to-liquids facility developed in the United States, and is expected to produce approximately 400,000 barrels per year of clean Fischer-Tropsch fuels. The facility also would continue to produce nitrogen fertilizer products, and is expected to produce approximately 545,000 tons of nitrogen fertilizer products annually. As oil prices remain near the $60/bbl level, any technology reducing the country’s dependence on foreign energy suppliers becomes more and more invaluable, with some studies calling for production of 5.6 million barrels of diesel per day from coal to achieve energy independence. This would require about 1 billion tons of U.S. coal annually. Peabody Energy is the world’s largest private-sector coal company, with 2006 sales of 248 million tons of coal and $5.3 billion in revenues, fueling approximately 10 percent of domestic electricity, and approximately 2 percent of worldwide electricity. Shares ended the week at $2.64, up 15 cents.
Volume Alert: Shares of VeriChip Corporation (NASDAQ: CHIP), a leading provider of identification and security technology, reached a new all-time high of $8.73, gaining 14% on Friday on more than five times average volume as the stock continues to generate robust gains since its May 16th low ($4.28). In little more than two weeks since then, the stock has doubled. The company announced last week that it has now installed more than 1,300 RFID-based systems for the protection of newborn infants and pediatric patients in hospitals, led by systems sold under the HUGS brand. The main component of the systems is a wearable, matching RFID tag that is assigned to child and mother. Monitors positioned throughout the hospital detect the integrity of the tags and location of the child. If a newborn is removed from the ward, if the tag is lifted from the baby’s skin or if the ankle strap is compromised, or if the mother is given the wrong child, the system immediately triggers an alarm, alerting hospital security to the situation. The number of infant protection systems sold to new customers increased 28 percent in the first quarter of 2007, compared with the first quarter of 2006, indicating very strong growth for the company in this sector, and investors should look for this momentum to continue in the future. Shares gained 38.9% for the week, making it the fourth highest percentage gainer among all stocks over $5, and closed at $8.67, up $2.43.
CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical research and development company, last week announced that its drug candidate iroxanadine has demonstrated the ability to dramatically and reproducibly accelerate the healing of skin wounds in diabetic animals. Diabetes affects approximately 20.8 million Americans, or about 7% of the population, with about 15% experiencing a foot ulcer in their lifetime. Complications from diabetic foot ulcers one of the most common causes of lower extremity amputations, with over 82,000 amputations performed on diabetics in the U.S. annually. Costs for the care of ulcerated wounds in the U.S. have been estimated at $5 billion, highlighting the need for drugs of this nature. CytRx plans to move into a Phase II clinical trial with iroxanadine for the treatment of diabetic foot ulcers in the first half of 2008, subject to FDA clearance, while continuing to pursue clinical programs with small molecule drug candidate arimoclomol for the treatment of ALS in the second half of this year and for stroke recovery in the first half of 2008. In addition, the biotechnology analyst at Natexis Bleichroeder initiated coverage of CytRx last week with a 12-month fair value estimate of $8.50. He cited the fact that “CytRx is the leading biotechnology company investigating small molecule chaperone technology. Chaperone amplification offers a completely new way to target central nervous system disorders such as amyotrophic lateral sclerosis and damage from strokes. CytRx’s lead investigational compound, arimoclomol, is about to enter Phase llb for the treatment for amyotrophic lateral sclerosis (ALS) and could enter Phase II as a stroke treatment in 2008. While ALS is a small market, an efficacious product could have significant pricing power, leading to substantial sales. Stroke is an extremely large market with no real treatment options once damage from a stroke is done. A new treatment for stroke could be a multi-billion dollar opportunity. We see multiple catalysts in 2007 and 2008 for CytRx, including data from two clinical trials, the spin-off of RXi, and the initiation of two additional trials. Our $8.50 fair value estimate for CytRx shares is based on a sum-of-the-parts valuation using discounted estimated revenue estimates for products, pipeline value, and cash as of March 31, 2007.” Shares ended the week at $4.18, up $0.29.
USA Technologies, Inc. (NASDAQ: USAT), a developer of cashless vending and energy management products, is on track to report record growth again this quarter, after announcing a three year supply and licensing agreement with Coca-Cola Enterprises, Inc., the world’s largest marketer, producer and distributor of Coca-Cola products. The agreement calls for USA Technologies to install up to 7500 G6 e-Ports in CCE’s beverage vending machines by August 31, 2007, for approximately $3.2 million. USA Tech will receive $433 per installed unit, 5% of the cashless revenues from the vending machine as a processing fee, and a monthly payment of $9.95 per unit if the company acts as the transaction processor. USA Technologies recently reported third quarter e-Port revenue of $1.8 million, up 511% from a year earlier. Shares ended the week at $10.40, down 25 cents.
Electro Energy, Inc. (NASDAQ: EEEI), a developer and manufacturer of high-powered, rechargeable bipolar nickel-metal hydride batteries, reported last week it has been awarded a new contract from Universal Technology Corporation for development of an advanced nickel metal hydride aircraft battery for use by the U.S. Air Force. Development will be centered on developing a cell stack battery module with improved low temperature performance utilizing the company’s patented bipolar wafer cell design. Successful development could lead to broad implementation within the USAF, providing Electro Energy with further DoD funding to continue development its patented technology for stationary energy storage applications and laying the groundwork for the technology that could be the technical and economic choice for plug-in hybrid vehicles. Shares ended the week at $1.12, up 9 cents.
Pressure BioSciences, Inc. (NASDAQ: PBIO), a developer of enabling technology called Pressure Cycling Technology (PCT) for sample preparation and other life sciences applications, reported last week it has received approximately $1.8 million from the sale of Source Scientific LLC. This transaction should simplify Pressure Bio’s financial statements and strengthens its balance sheet, as well as providing additional cash resources to support the recently announced commercialization plan for PCT. The company will continue to work closely with Source Scientific and its working partner BIT Analytical Instruments, Inc., a well known and highly respected contract manufacturer located in Frankfurt, Germany, to further development of its Pressure Cycling Technology product line. Shares ended the week at $4.67, up 16 cents.
Junior mining company Linux Gold Corp. (OTCBB: LNXGF), last week announced a private placement of stock and warrants for gross proceeds of $565,000. What should be of interest to investors was the participation of Linux Corp’s President John Robertson, who invested approximately $500,000 in the offering. Mr. Robertson owns over 10 million shares of stock, either directly or through affiliated companies. He also purchased 100,000 shares in the open market within the past 30 days. Shares remained unchanged for the week to close at $0.19.
Cell biology company Stem Cell Innovations, Inc., (OTCBB: SCLL), last week reported that it has entered a collaboration with Holland-based TNO, sponsored by a Dutch government EZ-Co-financing grant, to explore new strategies to control human stem cell differentiation into cartilage and cardiomyocytes. Stem Cell Innovations has produced seventeen lines of human pluripotent stem cells, called PluriCells, that have the potential to aid in drug discovery, toxicology, and cell therapy. TNO is an independent research technology organization, employing over 4300 professionals. Successful collaboration and research results should strengthen Stem Cell’s tailored drug discovery offerings, and open more doors for the use of PluriCells worldwide. Stem Cell Innovations is in the process of making PluriCells widely available to universities and other not-for-profit institutions to rapidly advance stem cell research. Shares remained unchanged for the week to close at $0.03.
On the Wires: Electro Energy, Inc. (NASDAQ: EEEI), a developer and manufacturer of high-powered, rechargeable bipolar nickel-metal hydride batteries, continues to build brand awareness for its products and services to a diverse audience. Last week the company presented at CleanBusiness2007 in the Kingdom of Bahrain, the first event in the Middle East that is dedicated solely to connecting worldwide companies involved in clean technology with regional investment groups, entrepreneurs, environmental businesses, major developers, and governmental officials. Drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT) announced it will be making five poster presentations at The Endocrine Society’s 89th Annual Meeting in Toronto, Canada June 2 – 5, 2007, featuring the company’s proprietary Glucose RapidSpray and Oral-lyn products
