Companies featured in the current edition of the newsletter: ACTC, CETG, CNLG, GCEH, GNBT, GSIV, HYTM, ICLK, PLKH, SRRY
There was certainly no shortage of news for the financial community to digest last week and extreme volatility remained even as the VIX Index declined below 60 on Friday for the first time since October 21. The Dow gained 946 points, or 11.3%, for the week, trimming its annual loss to 29.7%. The Nasdaq added 169 points for the week and reduced its annual loss to 35.1%. The S&P rose 92 points, trimming its yearly decline to 34.0%. Meanwhile the small-cap Russell 2000 added over 66 points, or 14.1%, for the week, equating to a 29.8% year-to-date loss.
Last week, the Fed unanimously voted to cut the Fed Funds rate another 50 basis points to 1.00%, bringing rates to its lowest level since 2004. While this rate cut was widely expected, the Fed left the door open for further cuts in the future by stating that there are still risks to economic growth even as inflationary pressure has eased significantly. Investors need to look no further than the energy market in order to confirm that inflation has now taken a back seat to concerns over economic growth. Even though crude oil gained 5.7% last week, at $67.81 per barrel it is still down more than 54% from its record high of $147.27 hit in July. Meanwhile the biggest economic news last week was that real GDP declined 0.3% during Q3, pulled down by a worrisome 3.1% decline in consumer spending. Also concerning were last week’s reports that consumer confidence hit a record low in September while initial jobless claims rose to a recession-like average level of 475,500 over the past 4 weeks. The Chicago Purchasing Managers Index added to economic concerns as it fell from 56.7 in September to 37.8 in October. Some bullish news last week included a 2.7% increase in September New Home Sales and a 0.8% increase in Durable Goods Orders during September. Nevertheless, the majority of the economic news was still largely bearish. Still, the market brushed aside all the negativity and surged higher for the week, suggesting that this latest batch of bad news had already been priced into the market.
What should investors look for this week? With earnings season winding down, there are few companies reporting results that have the potential to influence the broader market. Sysco Corp (NYSE: SYY) will report before the opening bell on Monday, with Viacom (NYSE: VIA-B), ADP (NYSE: ADP), and Anadarko Petroleum (NYSE: APC) reporting after the close. Tuesday morning, expect numbers from Archer-Daniels (NYSE: ADM), Emerson Electronics (NYSE: EMR) and Talisman Energy (NYSE: TLM). Arcelor Mittal (NYSE: MT), Devon Energy (NYSE: DVN), Duke Energy (NYSE: DUK), General Motors (NYSE: GM) and Time Warner (NYSE: TWX) are expected to provide commentary before the opening bell on Wednesday; while earnings from Cisco Systems (NASDAQ: CSCO) and News Corp (NYSE: NWS-A) are expected after the closing bell. Thursday morning, DirectTV (NYSE: DTV), AES Corporation (NYSE: AES), Cablevision (NYSE: CVC), Canadian Natural Resources (NYSE: CNQ), OfficeMax (NYSE: OMX), TEVA Pharmaceutical (NASDAQ: TEVA), Toyota (NYSE: TM), and Fannie Mae (NYSE: FNM) will report results. Anheuser-Busch (NYSE: BUD) will report results during the day on Thursday; while AIG (NYSE: AIG), QUALCOMM (NASDAQ: QCOM), Fluor Corporation (NYSE: FLR), Tenaris SA (NYSE: TS), and Walt Disney (NYSE: DIS) are expected to announce earnings after the close. Friday before the bell, expect earnings releases from Ford (NYSE: F) and Sprint Nextel (NYSE: S) followed by Consolidated Edison (NYSE: ED) after the close.
The economic reports for the week begin with the ISM Index for October and September Construction Spending being released Monday morning at 10:00 a.m. Auto Sales for October will be announced early morning on Tuesday followed by Factory Orders for September at 10:00 a.m. On Wednesday, the ADP Employment Report will be released at 8:15 followed by the ISM Services Index for October at 10:00 a.m. Preliminary Productivity for Q3 and Initial Jobless Claims for the week will be announced on Thursday morning at 8:30 a.m. Friday morning at 8:30 a.m., expect Unemployment Rate, Average Workweek, Nonfarm Payrolls, and Hourly Earnings for October; followed by Wholesale Inventories and Pending Home Sales for September at 10:00, and September’s Consumer Credit at 3:00 p.m. Investors should also look out for comments from Fed President Lacker on Monday, Fed President Fisher on Tuesday, Fed Governor Warsh on Thursday, and Fed President Lockhart on Friday.
The conference schedule will be light this week. The 3-day Goldman Sachs Software and IT Services Retreat 2008 will kick off on Monday in New York. Also on Monday, Oppenheimer & co. will host its 2-day Annual Healthcare Conference in New York. On Tuesday, Goldman will also start its 2-day Global Industrials Conference in New York while Keefe, Bruyette & Woods will host its 2-day Securities brokerage Conference. Finally on Thursday, Barclays Capital is scheduled to host a 1-day Small and Mid-Cap Healthcare Conference in New York.
Capital City Energy Group, Inc. (OTCBB: CETG), a diversified oil and natural gas company with three separate divisions, entered into a 50-50 joint venture with an undisclosed regional energy company under which the parties will drill and complete 20 wells in the Allegheny National Forest, a prolific area for oil and natural gas approximately 150 miles north of Pittsburg. The wells are expected to be completed within the next 30 days, with initial oil and natural gas production to begin by the end of the year. Based upon current energy prices, Capital City expects its 50% share of the production will generate revenue in excess of $2 million during the next 12 months. Additionally, Capital City’s management believes that this initial joint venture arrangement will lead to a 60 well drilling program in 2009 as the relationship is expanded. The stock ended the week at $2.20, down 35 cents.
Conolog Corporation (NASDAQ: CNLG), an engineering and design company that provides digital signal processing solutions to global electric utilities, announced its financial results for the fiscal year ended July 31, 2008 with product revenues growing 136% over last fiscal year to $1.2 million. This growth was primarily attributed to the fulfillment of orders from existing, long-term contracts. Conolog also lowered its product costs as a percentage of revenues to 38% in fiscal 2008 from 73% in fiscal 2007 as a result of outsourcing its assemblies, standardizing the costs for product build out and adhering to ISO-9000 practices. The company heads into fiscal 2009 with strong sales momentum and anticipates continued top-line growth from new orders for accelerated deliveries and the upcoming launch of the CM-100 product by calendar year’s end. Conolog appears well-positioned to narrow its net losses and the company maintains the goal of achieving profitability in fiscal 2009. Towards this end, Conolog has revised from $668,000 to $778,000 the previously-announced amount of new orders the company booked during the months of August and September 2008. This revision once again demonstrates that Conolog’s products continue to gain market acceptance and should result in exponential revenue growth when the company reports results for its fiscal Q1 of 2009, which ended October 31, 2008. Shares ended the week at $0.40, down 9 cents.
Global Clean Energy Holdings, Inc. (OTCBB: GCEH), a renewable energy company in the biofuels industry, announced a strategic acquisition of Technology Alternatives Ltd. (TAL), a Belize-based producer of Jatropha, a non-food based feedstock used for the production of biofuels. TAL owns and operates a 400 acre farm in subtropical Belize where it actively produces Jatropha. Because the personnel at TAL is highly knowledgeable and experienced in growing, harvesting and selling Jatropha throughout Central America, an important advantage of this acquisition is TAL’s close proximity to Mexico to support GCEH’s existing Jatropha Energy Farms. Additionally, it is expected that the acquisition of TAL will immediately start generating revenue for GCEH. Shares were up 0.5 cents last week, closing at $0.04.
Volume Alert: Shares of drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT) surged 31% last week on twice average volume. The company said it hosted a satellite symposium last week at the 2nd World Congress on Controversies to Consensus in Diabetes, Obesity and Hypertension held in Barcelona, Spain. This symposium, entitled Innovations in Insulin Delivery for Postprandial Glucose Control, focused on the company’s on-going global Phase III trial of Generex Oral-Lyn. To date, 260 subjects have been enrolled in the Phase III trial at 69 sites in seven countries comparing the safety and efficacy of Generex Oral-lyn, delivered into the mouth using the company’s proprietary RapidMist drug delivery system with no pulmonary deposition, to standard regular injectable insulin therapy in subjects with Type 1 diabetes. Preliminary indications are that Generex Oral-lyn is at least as effective as standard regular injectable insulin therapy and that the product may offer a new paradigm for the treatment of diabetes which may delay the progression of the disease and the onset of its myriad complications. Separately, Generex continues to expand its intellectual property portfolio as the company received a new patent in Australia relating to buccal delivery of a macromolecular pharmaceutical agent via a metered dose device. The company currently holds an aggregate of 128 patents worldwide and has another 134 patent applications pending. The stock gained 9 cents last week to close at $0.38.
Earnings Preview: Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that provides behavioral health management services to health plans, employers, criminal justice, and government agencies, is scheduled to report results for its third quarter ended September 30, 2008 on Thursday after the market closes. For the 2008 second quarter, the company reported consolidated revenue of $11.6 million, which includes $2.0 million in revenue from Hythiam’s healthcare services business and $9.6 million in revenue from CompCare’s operations, compared to consolidated revenue of $11.3 million in the second quarter of 2007. Investors will likely focus on the company’s cash burn rate during Q3 and any indication as to when results of Dr. Walter Ling’s randomized, double-blind, placebo-controlled study at UCLA of PROMETA’s effectiveness in treating methamphetamine addiction will be released. Additional studies on PROMTETA’s efficacy in treating alcohol addiction could also be released. Investors will also awaiat any news on potential licensing deals with managed care providers. As of the end of Q2, the company had a consolidated cash position of approximately $26.6 million. The stock fell by 16 cents last week to finish at $0.64.
While the Internet marketing sector remains challenging (see ValueClick warning last week), interCLICK, Inc. (OTCBB: ICLK), the fastest growing advertising network in the US according to comScore, provided guidance for its Q4 of 2008 bucking that trend, as it said it expected revenue of approximately $6.5 million with at least 31% gross margin. The investments made in sales and marketing should continue to drive growth as interCLICK moves into 2009. Recently, interCLICK announced preliminary results for the 2008 third quarter with revenue expected to exceed $5.7 million, representing a 23% sequential quarterly increase, and gross margin exceeding 30%, compared to 27% in the 2008 second quarter. Shares ended the week at $1.05, down 55 cents.
ProLink Holdings Corp. (OTCBB: PLKH), the world’s leading provider of Global Positioning Satellite golf course management systems and digital out-of-home on-course advertising, entered into an agreement with Neo Advertising, Europe’s leading provider of digital media solutions, under which Neo will represent and sell ProLink’s GPS media inventory in the United Kingdom and Spain. The agreement focuses on integrated advertising campaigns and is expected to significantly expand ProLink’s advertising presence in Europe while allowing European advertisers to reach a highly attractive audience of affluent individuals. ProLink anticipates that this relationship will significantly drive new adoptions of the company’s systems in Europe in 2009 as it provides golf course partners with potentially significant incremental revenue. Shares ended the week at $0.12, down 5 cents.
Sancon Resources Recovery, Inc. (OTCBB: SRRY), a rapidly growing Chinese environmental services and waste recycling company, announced preliminary results for its 2008 Q3 ended September 30, 2008. This was the company’s third consecutive quarter of profitability as the Sancon reported record quarterly revenue of $3.86 million, a 204% increase from a year earlier period. The company also reported improved gross margins of 47.4% for the quarter versus 32.6% a year ago, reflecting a more favorable mix of business. Furthermore, Sancon reported 2008 third quarter net income of $0.46 million, or $0.02 per share, compared to $0.08 million, or $0.00 per share in the year ago quarter. The company continues to grow its business in 2008 as revenue for the first nine months of the year now stands at $9.75 million, a 134% increase compared to the first nine months of 2007. Similarly, gross margins were improved from 18.7% to 48.2% and the company earned $1.45 million, or $0.06 per share, during the last three quarters compared to a loss of $0.1 million during the first nine months of 2007. Sancon continues to invest in infrastructure to capitalize on the many new opportunities being created due to China beginning to recycle more. Management believes that these investments in technology and recycling plants will support the company’s growth during the fourth quarter and throughout 2009. Shares ended the week at $0.29, up 1 cent.
Advanced Cell Technology, Inc. (OTC: ACTC), a developer of stem cell-based treatments, reported that the recently-announced funding commitment from Transition Holdings Ltd, an Irish institutional investor, has been doubled to $1 million. Transition Holdings will now purchase a total of $1 million of one-year 7% convertible debentures over the next six months with ACTC using the proceeds for working capital, general corporate purposes and to continue the development of its most advanced clinical programs. The company continues to negotiate with partners to jointly develop its pre-clinical and certain clinical programs in heart failure, retinal disease and the production of red blood cells. Meanwhile, ACTC’s management expects a more supportive political environment for stem cell companies as a result of the upcoming Presidential Election in the U.S. and renewed governmental support for the stem cell industry. Shares gained 1 cent last week to close at $0.03.