Tag - NASDAQGM:TRGT

Yesterday I alerted you to this Friday's Russell Reconstitution, and mentioned the profit opportunity. If you missed yesterday’s issue, you can click here to get caught up. But to quickly recap: once a year the Russell indexes add and subtract companies, and the event is happening this Friday. So I’ve been doing my homework to find companies that might get listed on the Russell 2000 small cap index.

Now let’s get down to business and look at some of these potential Russell 2000 additions.

I sifted through company after company that met the criteria to be included in this year’s rebalance. And I've picked out a few that I’m excited about. These companies, in most cases, have never been listed on a major index - or even a minor index for that matter - so getting listed could have a substantial positive impact on their stock prices this Friday.

The company's I’ve picked have shown strong results recently and should hold up well even if they don’t get the coveted call from 'coach' Russell on Friday.

If they do get that call, their stocks could be looking at a very nice June indeed.

Stocks jumped today after consecutively back to back good reports from Goldman Sachs (NYSE:GS) and Intel (Nasdaq:INTC) as well as a surprise from Gannett (NYSE:GCI) that it beat profit estimates by 9 cents, driving shares up 28%.

Good news kept flowing as investors were treated to revisions from the Federal Reserve Open Market Committee that the economy will shrink from 1% to 1.5% in 2009 as opposed to its earlier prognostication of 1.3% to 2%. The committee raised its inflation projection for 2010 to a range of 1.2% to 1.8%.

The Dow was up sharply by 256 points to close at 8,616, the highest its been in a month. The Nasdaq closed up 63 points to 1,863 and the S&P 500 roared to 933, up 27 points from yesterday's close at 906.

Small-cap stocks fared well with the Russell 2000 closing at 509, up 15 points. 
 

Today's volume leaders in the small-cap space include yesterday's leader, CIT Group (NYSE:CIT) with over 74 million shares traded, although trading was halted before the close on impending news concerning discussion with the federal government. Other small-cap volume leaders include Huntington Bancshares (Nasdaq:HBAN), and Sirius XM Radio (Nasdaq:SIRI).

Small-cap gainers were lead by Targacept (Nasdaq:TRGT) up 137% after news broke that its depression treatment drug candidate, currently called TC-5214, was able to significantly outperform a placebo drug in testing on patients with major depression disorders. The company announced that it expects to start late-stage trials of the drug in Q2 2010 and is in talks with several potential partners to help complete the drug's development.

Other small-cap gainers include a one-time holding with SmallCapInvestor PRO, Brigham Exploration (Nasdaq:BEXP) up 23%; Ferro Corporation (NYSE:FOE) up 35%; and beleaguered newspaper giant Gannett (NYSE:GCI) up 30%.

*****If you've ever wondered what it's like to be Warren Buffett and have more cash than you can spend or invest, just ask China. China just announced that it has over $2 trillion in foreign reserves.  

That is an unbelievable amount of cash to have accumulated. Bloomberg reports that China's reserves doubled in less than 3 years.  

This much money means two things: China can support it's GDP growth as long as it chooses to; and, China will continue to buy Treasuries. 
Sherman Chan, a Moody's economist in Australia said, "China has the strongest prospects out of all major economies, so it is not surprising that hot money is flowing back…China has certainly recovered from the downturn, and it is on a strong footing now." 

That's why we've been loading up on Chinese stocks in SmallCapInvestor Pro. It's not too late to profit from our top Chinese stocks. Click here for details.  

*****Yesterday morning it was Goldman Sachs (NYSE:GS). Then last night, it was Intel (Nasdaq:INTC). The world's biggest chip maker crushed earnings, but then did the unthinkable and offered a 3rd quarter revenue forecast that is as much as 14% higher than what analysts were expecting.  

Between Goldman and Intel, I'll take Intel. Intel is selling a product. And apparently, consumer demand for Intel's product is stronger than anyone imagined. Sure, much of the strength is coming from Asia (back to my China comment above), but, so what? Revenue is revenue. 

Other semiconductor companies were rallying in after hours, including Texas Instruments (NYSE:TXN) and Advanced Micro Devices (NYSE:AMD).   
As for Goldman, I didn't think that stock will stay over $150. Not that it matters. TradeMaster's Jason Cimpl has made money shorting Goldman. But as for me, Goldman is on the "Never Short" list along with Google (Nasdaq:GOOG) and Apple (Nasdaq:AAPL). They may have bad days, their stocks may get a beat-down once in a while, but these are solid companies with a penchant for finding profits no matter what the economy is doing. 

*****Government actions are currently filling in for an actual economy. That's how it is in our new "Managed America." Most expect the heavy hand of government to be temporary, and that Managed America can end sooner than later. We'll see… 

I expect the conditions of Managed America - high unemployment, sluggish growth, more regulations, higher taxes, and inflation to last years instead of months. And I've outlined my expectations for investing under these conditions in my new Special Issue of Top Stock Insights. The article is titled Managed America: The New Economic Reality. It's being released this morning. You can sign up for Top Stock Insights and get my blueprint for profiting in Managed America. Click here for your copy now.  

*****Now, as you know, it's Newsletter Advisors Wednesday. And by coincidence we're going to be speaking with Andy Obermueller about profiting from government-driven investing. It's essentially the flip side of the Managed America. Enjoy.

Best regards,

Ian Wyatt
Chief Investment Strategist
SmallCapInvestor.com

Newsletter Advisors Wednesday

This week's NewsletterAdvisors.com investment expert is Andy Obermueller, Chief Investment Strategist and editor for StreetAuthority's Government-Driven Opportunities.

Andy was a journalist before joining StreetAuthority. He worked for the business desks of the Philadelphia Inquirer and the Star-Ledger, New Jersey's largest paper, before going on to lead business coverage for a Texas daily. Andy briefly left the industry to get an inside look at corporate finance as a commercial lender for Wells Fargo's business banking group. He lives in Austin.

Andy, thanks for joining us today, now let's get started.   

Can you explain your investment process and criteria for investments?

I keep a very close watch on the executive branch of the government, including each cabinet department, as well as Congressional action. This gives me a pretty good sense of what Washington is up to. I study the legislation and regulatory proposals and track all the data I can -- there's a lot of it. I then look at which companies will be affected by government action and what that's likely to mean for them.

For instance, the FDA is part of the Department of Health and Human Services. I have a database of every drug in the approval process. For some giant drugmakers -- a Merck, say, or a Pfizer -- a new drug might not have much impact on the bottom line. But when the government approves a drug for a smaller drugmaker, the effect is huge. Those small drugmakers can be extremely lucrative investments -- all because of a government action.

What do you believe gives the government-driven investment style an edge over other investment styles?

Two words: Billion and trillion. These are the dollar terms of the government programs that the newsletter deals with. The U.S. federal government is gargantuan. It's the most powerful financial force on the planet. Every time a public dollar is spent, a private sector profit is realized. That has enormous implications, especially in light of the bailout, the stimulus bill and the administration's willingness to expand the role and reach of government.

Look, I'm passionate about this topic for one reason: it works. I've personally invested using a number of strategies over the years. Like you, I've tried various combinations of value, income and growth strategies. However, I'm not sure I've ever seen anything with as much potential as the government-driven stocks I'm finding.

What sectors do you think offer the most opportunities to profit from government action today?

I like energy and finance. Mr. Obama's move toward a green-collar economy, that is, merging the environmental movement with the gross domestic product, has far-reaching implications for every industry. And the banking system offers vast possibility: Though most large banks have entered a post-bailout phase, many small and midsize financial institutions are still struggling. They will come back -- they are as vital to the national economy as the large banks are too big to fail -- and their stock will follow suit. These two areas are outstanding for investors seeking large returns over the long term.

Ok, let's look at energy. Tell me about a government-driven stock you've dug up in this area.

Well, everyone knows that clean energy is a major part of the Obama agenda.  He hasn't even been in office a year yet and his green initiatives are already playing out.  On June 28th the House passed the "cap-and-trade" bill - which calls for a dramatic reduction in the amount of CO2 that industry can emit. This is historic.

The problem is, 35% of America's carbon emissions come from coal-fired power plants. Why? Because coal is both abundant and cheap in the U.S. -- we're sitting on enough of the stuff to power every home in America for the next 400 years. And at the same time, these coal plants are simply too expensive to replace. It would take $672 billion and several years.

But 'cap and trade' is a major thorn in the side of coal. The only solution I see is to find a way to burn coal without producing CO2. A handful of companies have actually figured out how to do this. Their method, called oxy-coal, is recognized as being perhaps the most promising environmentally-friendly technology on the planet. My favorite pick in this area is Praxair (NYSE:PX). It owns more than 200 patents related to oxy-coal.

What are your top three stock recommendations, and what attracts you to each?
I like Verenium Corporation (Nasdaq:VRNM). It's a small company that has engineered the leading biofuel process. It can make ethanol using cellulose, which is in all plant material found on earth. The government has put a ceiling on corn-based ethanol while at the same time mandating a +15,900% increase in the production of these "advanced biofuels" by 2022. What sets this company apart is that the government just gave it the nod to build the world's first commercial-scale cellulosic ethanol plant. There's no reason the explosive growth in this biofuel won't be mirrored by Verenium's stock.

Next I like Energy Recovery (Nasdaq:ERII). It makes a device that's critical to the efficiency of large desalinization plants, which are typically owned by governments. Without its equipment, desalinization is cost-prohibitive. ERII has 70% of the worldwide market, which is expected to double in the next ten years as water becomes ever scarcer. This issue is a lot closer to home than most people realize: Water supplies aren't just critical in the Middle East, they're increasingly important in places like California.

Finally, I like several players in the digital medical records space. The stimulus bill provides for $19 billion for these companies to upgrade the way the health-case system stores patient information. Storing these files digitally will improve physician access to information and not only improve the quality of care but reduce its cost, such as by eliminating unnecessary and potentially redundant medical tests. Among my recommendations here is Quadramed (NYSE:QDHC), which helped the Veterans Administration develop its VistA Program, the first and most successful large-scale electronic medical records system.  

Andy, thanks for the insights on how to profit from government spending and for the recommendations you're following. I'm sure readers will want to follow-up on those. This is certainly an exciting time to invest in companies making billions off the federal government.

Andy Obermueller is the Chief Investment Strategist for StreetAuthority's Government-Driven Investing newsletter. Andy invites you to follow his Government-Driven Investing blog, where he publishes his investing insights for free, at http://www.Government-DrivenInvesting.com

For much of today's trading session stocks were weighed down by falling crude oil prices and an update to the IMF's expectations for the world economy.

Oil continued its six day slide dropping to barely over $60 a barrel from an eight month high of $73 just last week. The IMF announced that it expects the world economy to shrink by 1.4% in 2009, as opposed to its earlier estimate of 1.3%. Still, it did counter that by stating that growth in 2010 should be 2.5%, versus its April estimate of 1.9%.

The Dow closed up 15 points in a late move to finish at 8,178. The Nasdaq inched up just 1 point to close at 1,747 and the S&P 500 was down just slightly at 880.

The Russell 2000, an index of 2,000 small-cap companies, closed down 0.94% at 480.

Leading small-cap decliners was ARYx Therapeutics (Nasdaq:ARYX) down 43% after news was released of the failure of it's anticoagulant agent. The company announced that data from its studies of Tecarfarin did not indicate any statistically significant superiority over Warfarin, a commonly used blood-thinning drug.

Other decliners include Southern Community Financial (Nasdaq:SCMFO) down 23%; American Axle & Manufacturing Holding (NYSE:AXL) down 23%; Atlantic Southern Financial Group (Nasdaq:ASFN) down 17%; and YRC Worldwide (Nasdaq:YRCW) down 24%.

YRC was down yesterday on news that management and Teamsters union officials had still not found an agreeable resolution to YRC's continuing financial worries. Today the stock tumbled further as talks appeared to go nowhere on Wednesday. In addition to a slowing economy calling for less trucking, YRC has been hampered with integration costs from its Yellow and Roadway operations as well as picking up the tab on multi-employer pension plans. YRC participates in the Central States multi-employer pension fund and as other trucking companies have disappeared over the years YRC's responsibilities within the fund have grown. As with many other large industries, YRC is facing mounting pension liabilities that are hampering its ability to weather the recession.

Small-cap gainers were lead by Novogen Limited (Nasdaq:NVGN) up 31%. This is on top of Tuesday's 37% gain on news that the Novogen-licensed oncology drug Phenoxodiol showed great promise in treating acute lymphoid leukemia and may have applications treating autoimmune disease as well.

Other small-cap gainers include fellow pharmaceutical Targacept (Nasdaq:TRGT) up 28% on news that development of its ADHD drug will move forward in studies. The company will receive a $10 million payment from development partner AstraZeneca (NYSE:AZN) and remains eligible to receive an additional $100 million. Leaders also include Internet Initiative Japan (Nasdaq:IIJI) up 23% and biotech firm Amgen (Nasdaq:AMGN) up 14%.

*****Yesterday, Reuters reported that the delinquency rate on credit card debt hit 6.6% in the first quarter of 2009. On mortgage loans, delinquencies hit 3.5%.  
I can virtually guarantee both numbers were higher in the second quarter. And I expect them to move still higher in the future.  

Unemployment will continue to rise. And even when it stops rising, it's not going to magically reverse course, not when the U.S. economy is only growing 1% or 2% a year.  
The recession we're possibly on the verge of exiting has been unique. It wasn't a consumer-led recession. Rather, it was a fundamental recession brought on by weakness in the very foundations of the U.S. economy.  

You don't wake up from this with just a hangover. You wake up without your car because you just wrecked it and your driver's license has been suspended and you now have to take a bus wherever you want to go.  

*****That's why the IMF and the G-8 is now calling for more stimulus packages and funds. The G-8 is meeting in Italy. The U.S. appears to be in "wait and see" mode, despite some calls for more stimulus programs. And rightfully so. The U.S. done a lot, maybe more than it should, to throw money into the system. It's time for some others to step up and do what they can do. 

At the same time the G-8 is talking stimulus, it's also talking about how to reign in stimulative monetary policy. This undoubtedly a good thing. We're all well aware that if rates don't rise, and liquidity gets sopped up, then inflation could run rampant.  
Of course, inflation is not much of a threat now. But once the global economy starts growing again, central banks will have to respond with higher rates, even though growth won't be robust. (If you're interested in loading up on the stocks that will outperform once inflation hits click here for my Inflation Busters report.) 

*****This is a very interesting time for investors. It's going to be critical to be in the right stocks, and in the right sectors. Equally important will be avoiding sectors that are facing significant headwinds. Financials still seem to be among the most vulnerable sectors, while technology and healthcare are demonstrating a lot of promise.  
Investing in this new economic paradigm (which I haven't come up with a name for yet) is going to be a common theme for us here in SCI Daily.

Small-cap stocks pushed higher Thursday, bolstered by reports that the $700-billion financial market rescue plan appears ready for approval through government channels. Optimism that quick passage of a rescue deal could free up clogged credit lines and spur economic recovery helped investors look right past a spate of dreadful economic reports that came out today. The Russell 2000 (NYSE:IWM) closed up 7.97, or 1.14%, at 705.74. The Russell is now down 7.8% for the year, compared with a loss of 16.9% for the Dow and 17.6% for the S&P 500.

Right now, the market appears to be of a one-track mind, with the immediate hopes rising and falling with the momentum of the Paulson Plan. This afternoon, key Senators said that the plan was progressing nicely, with Senator Chris Dodd, who is chairman of the Senate Banking Committee, saying that a “fundamental agreement” was in place. Meanwhile, Bob Bennett, a Republican senator from Utah, said “I expect we will have a plan that can pass the House, pass the Senate, be signed by the President and bring a sense of certainty to this crisis that is still roiling in the market.”

“Certainty” or the lack thereof clearly is the key. When it appeared Wednesday that political wrangling in an election year over rescue plan details could stall progress on a quick passage, the market made no bones about recoiling from those concerns. Conversely, when the stock market rallied today on hopes the bill could fly through the lawmaking process, investors made another statement by buying up stocks even in the face of slumping economic reports.

Speaking of those economic numbers, the market received bearish data on durable goods, a bearish surprise on weekly claims and yet another bearish report on new home sales. Usually, two out of three would be really bad for this trio, but with all the attention focused on the rescue plan, the market skated right by this terrible trifecta seemingly without worry. For the record, durable goods came in at minus 4.5%, well below the forecast for a dip of 1.9% (and last month was revised downward as well). Meanwhile, weekly unemployment claims shot to 493,000, compared with the consensus forecast of 450,000. Even if the report was “goosed” by . . .

Small-cap stocks fell hard Wednesday, pulled down by safe haven flight away from anything perceived as “risky” in the wake of steep money market fund erosion, persistent fear about the health of financial stocks and worries that the government can only go so far to bail out this latest mess. The Russell 2000 (NYSE:IWM) closed down 34.27, or 4.82%, at 676.38, the lowest daily close since July 15. The small-cap benchmark is now down 12% for the year, while the Dow is off 20% in 2008 after sinking 4.06% Wednesday. Meanwhile, the S&P 500 unraveled 4.71% today and is down 21% for the year. The Russell closed below the 685 line, which marks a 20% decline off record highs that is considered an official bear market.

“There is dramatic concern over the health of the money market industry with the Reserve Primary Fund breaking $1 in NAV,” said Nick Kalivas, vice president of financial research with MF Global.

For years, investors have had a perception that there is absolutely no risk in money market funds. As one trader put it, “when the average Joe is all of a sudden worried about his savings, that’s when it’s Katie Bar the Door time.”

The Reserve Primary Fund had commercial paper exposure to Lehman, and if money market funds do not buy commercial paper for fear of default, it will be difficult for all companies to obtain financing, Kalivas said. “This would lead to slower economic growth, higher interest expense and weaker profits. The banking system is stressed, which will also make it difficult for companies to get credit,” he said.

The market is also in an agonizing position of trying to root out the next casualty of the credit crisis. American International Group (NYSE:AIG) was the latest in line after Bear Stearns, Fannie Mae, Freddie Mac and Lehman Brothers Holdings Inc. and now that AIG has been taken over by the government, investors aren’t that eager to wait for the next shoe to drop. Uncertainty and market stability have never been comfortable together. AIG was off another 45% today, and even stocks with positive earnings stories like Goldman Sachs Group Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS) were unable to escape the wrath of the bears, sinking . . .

The Russell 2000 (NYSE: IWM) fell today following news of a decline in U.S. manufacturing in November. The small-cap index lost 7.80 points, or 1.02%, to 759.97. The Dow Jones Industrial Average (INDU) stumbled 57.15 points, or 0.43%, to 13,314.57.

On a year-to-date basis, the Russell 2000 is off 3.49%, while the Dow has added 6.73% and the S&P 500 is up 3.94%.

The futures were pointing north and the major U.S. indices opened in the green but immediately fell as investors anticipated a decline in November manufacturing activity.

The Institute for Supply Management’s manufacturing index, released at 10 a.m. ET, showed a reading of 50.8, below October’s level of 50.9 but above economists’ projections of 50.5. A reading above 50 is an expansion.

“While other segments of the economy are struggling, manufacturing continues to grow due to continuing strength in new orders and a recovery in production from last month,” said Norbert Ore, chair of the ISM’s Manufacturing Business Survey Committee, in a statement.

Exports, production and new orders increased, while employment declined 4.2% compared with the level in October.

Small-cap stocks fell despite news of the smaller-than-expected decline.

The Russell 2000 (NYSE: IWM) is down despite a brief climb into positive territory on news of a plan to bring relief to struggling homeowners. At 2:43 p.m. ET, the small-cap index had lost 3.89 points, or 0.51%, to 763.88. The Dow Jones Industrial Average (INDU) had retreated 43.74 points, or 0.33%, to 13,327.98.

The U.S. Treasury Department is working on a plan to ease the pain of borrowers with subprime adjustable-rate mortgages, Treasury Secretary Henry Paulson said in a speech after the start of trading.

Paulson has been working with members of the mortgage industry on a plan that would help borrowers by freezing their introductory interest rates instead of having them reset to higher rates after a certain period of time, the way it is now. One of the issues currently in discussion is the length of the freeze.

A complete relief package has not yet been hammered out, while Paulson, who was speaking at an event organized by the Treasury Department’s Office of Thrift Supervision, did not give specifics on when a final agreement would be reached.

However, some observers expect a deal to be reached later this week.

Stocks reacted positively to the news, with the Russell 2000 posting gains shortly before 1 p.m. ET, only to fall down again. The Dow stayed in the green for longer before also succumbing to the bearish pull.

In other news, U.S. manufacturing continued to expand in November, but at a slower pace. The Institute for Supply Management’s manufacturing index fell to 50.8 from 50.9 in October. A reading above 50 indicates an expansion.

Targacept , Inc. (Nasdaq: TRGT), Covenant Transportation Group, Inc. (Nasdaq: CVTI) and Building Materials Holding Corp. (NYSE: BLG) are among the biggest percentage gainers in Friday's trading among companies with market capitalizations under $500 million.

Here are today's biggest percentage gainers:

Biopharmaceutical company Targacept, Inc. (Nasdaq:TRGT) announced this morning it made a drug development deal potentially worth more than $1.5 billion with GlaxoSmithKline Plc (NYSE:GSK).

Targacept will host a conference call to discuss its latest deal today at 10 a.m. ET.

Shares of Targacept jumped 32.11%, or $2.89, to $11.89 in pre-market trading.

Having followed the newsletter advisory industry for some 25 years, I’ve found that often the most successful advisors are those who develop a career-long reputation and expertise within a specific sector. (Along these lines, I previously featured an article on Josh Wolfe discussing his industry-expertise in nanotechnology. See Big potential from TINY, May 11.)

Within the biotechnology sector, one clear standout among newsletter advisors is Michael Shulman, editor of the Changewave Biotech Investor. Although he generally follows larger and more diversified biotech companies, Shulman does maintain a highly speculative portfolio, which often includes small-cap issues.

Indeed, one small cap recently added to his buy list is Targacept, Inc.
(Nasdaq: TRGT). “I’ve been following the stock for quite awhile,” he says, noting that the company has just passed the one-year anniversary of its IPO.

With the caveat that this is a volatile and speculative play, Shulman says, “Although the stock has been a roller coaster over this past year, the company has made so much progress that now is the time to jump on it.”

Unlike many development stage biotechs with a short history, Targacept, he points out, is a 10-year-old company that was spun-off from Reynolds Tobacco to “commercialize compounds that were derived from some very serious research.” Shulman explains, “It’s the company’s heritage that is the key differentiator between Targacept and other biotech start-ups.”