Author Archives: Scalper1

In A Beaten Down Biotech Group, These Names Are Holding Their Own

Biotech stocks have been taken to the woodshed in recent months, but the group still has several top-rated names strutting their stuff due to compelling growth prospects. While it’s best to focus on leading stocks in leading industry groups, there can be opportunities in lagging groups, especially in groups that house a lot of stocks. IBD’s biotech group is home to more than 400 stocks. It’s one of the larger groups in the database, and while there’s no shortage of stocks that have been hit hard by institutional selling in recent months, several other names are holding their own, showing relative strength. IBD 50 name Ligand Pharmaceuticals ( LGND ) has more than 85 partners and licensees in the pharmaceutical and biotech space. In February, the company reported revenue of $21.2 million, down 8% from a year earlier, but royalty revenue rose 22% to $11.5 million, helped by higher royalties from Promacta and multiple myeloma drug Kyprolis. Ligand is partnered with Novartis ( NVS ) on Promacta and with  Amgen ( AMGN ) on Kyprolis. Ligand also announced a license agreement with Emergent BioSolutions ( EBS ), in which Emergent will use Ligand’s OmniAb platform to discover various antibodies. Ligand recently bought the platform from OMT, a leader in the genetic engineering of animals for the generation of human therapeutic antibodies. Emergent BioSolutions is itself another name holding up well in the biotech group. The company has a portfolio of products for biological and chemical threats, as well as emerging infectious diseases. Emergent operates a biodefense division and biosciences division, with plans to spin off the latter into a separate, publicly traded company under the name Aptevo, which will continue to focus on oncology and hematology. The distribution of Aptevo shares to Emergent shareholders is expected to be completed by the middle of the this year. Emergent’s weekly chart shows a conventional entry at 40.59, but a handle area could be in place by the end of the week that could yield an earlier entry. Elsewhere, shares of Five Prime Therapeutics ( FPRX ) have been under accumulation as they sit just below a 45.82 entry. Five Prime is scheduled to present data for its FPA144 treatment for patients with gastric cancer at the 2016 American Association for Cancer Research Annual Meeting next Monday. Five Prime isn’t profitable yet, but sales soared in 2015, thanks to a license and collaboration agreement with Bristol-Myers Squibb ( BMY ) for its FPA008 antibody. It received a $350 million upfront payment in Q4. Finally, Anika Therapeutics ( ANIK ) is a small yet compelling name in the group, with a market capitalization near $650 million. It’s showing tight action as it works on a base-on-base structure with a 47.34 entry. Anika is a provider of therapeutic pain management solutions. Earnings and sales growth accelerated nicely in the latest reported quarter, up 41% and 33% respectively. Image provided by Shutterstock .

Pain Or Gain Ahead For Bank ETFs?

The going has been tough for bank ETFs for quite some time now mainly due to the twin attacks of a delay in further Fed rate hikes after a liftoff in December and the energy sector lull. Moreover, UBS Group AG’s (NYSE: UBS ) moderate earnings for the fourth quarter of 2015 triggered a sell-off in banking stocks because the bank pointed to several macroeconomic headwinds and geopolitical issues that will bother its operations in the near term. Not only banking stocks, broad-based risk-on sentiments took a backseat in the first quarter of 2016. Now, with the earnings season impending and the broader markets rebounding, albeit slowly, let’s catch a glimpse of the looming headwinds and tailwinds to the banking sector. Headwinds Tightening Yields: The benchmark U.S. 10-year Treasury note yield slipped to 1.76% on April 6, 2016 (down 48 since the start of the year) while the yield on the short-term Treasury note (one year of maturity) fell to 0.55% on the same day (down just 6 bps since the beginning of 2016). The narrowing gap between the short and long-term yields has been a cause of concern for the backing sector (read: Bank ETFs Hurt by the Dovish Fed ). In fact, in early March, the spread between the two-year and 10-year Treasury yields tapered the most since 2009. Narrowing spread between long- and short-term rates hurts net interest margin, which a key metric for the banking sector. Energy Sector Exposure: U.S. banks have significant exposure to the long-ailing energy sector where chances of credit default are higher. In February, the S&P cut its outlook on several regional banks with the highest energy sector exposure citing a likely increase in non-performing assets. Among the biggies, Wells Fargo (NYSE: WFC ) reported around $42 billion oil and gas credit in February. The situation is the same for JPMorgan (NYSE: JPM ), the energy loan of which accounts for 57% of the investment-grade paper. JPMorgan has ‘ set aside $600 million’ for loan losses emanating from the energy, metals and mining sectors. Panama Papers Scandal: The leaked documents from Panama Law firm Mossack Fonseca & Co. revealing global business leaders and officials moving money to international tax havens may take a toll on bank stocks. Banks may now face more stringent scrutiny and litigation issues to arrest means of evading taxes. Tailwinds Increased Activity: Having described the stress situation, we would like to note that fears of a 2008-like recession or financial market crash are perhaps exaggerated. The lower interest rates should boost capital market activities and benefit banks in other ways. After all, bank stocks have gained their lost ground in the U.S. in a rock-bottom interest rate environment (see all Financials ETFs here). Compelling Valuation: The finance sector has a current-year P/E of 12.6 times, reflecting a 27.6% discount to the S&P while its next-year P/E stands at 11.5 times, reflecting a 25.3% discount to the S&P 500. Such an intriguing valuation might also help the sector to score gains as and when favorable industry dynamics hit the space. ETF Impact All in all, bank stocks are on the fence with pain and gain on either side, though downside risks look higher at the current level. So, investors seeking a financial sector exposure can have a look at the following ETFs: The PowerShares KBW Bank Portfolio ETF (NYSEARCA: KBWB ) , with considerable exposure to Wells Fargo, JPMorgan and US Bancorp (NYSE: USB ). The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook. SPDR S&P Bank ETF (NYSEARCA: KBE ) also has similar holdings; but it holds stocks in an equal-weighted manner. No stock accounts for more than 2.19% of the fund and diversifies stock-specific risks pretty well. KBE has a Zacks ETF Rank #3 with a High risk outlook. SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) takes into account companies that do business as regional banks or thrifts. KRE also has a Zacks ETF Rank #3. iShares MSCI Europe Financials Sector Index ETF (NASDAQ: EUFN ) measures the combined equity market performance of the financial sector of developed market countries in Europe. The fund has a Zacks ETF Rank #3. Link to the original post on Zacks.com

Could $2 Bil Sway NXP Semiconductors To Curb Its Apple Exposure?

NXP Semiconductors ‘ ( NXPI ) rumored $2 billion price tag for its Apple ( AAPL )-facing standard products division is “significantly” undervalued, says Credit Suisse. A $3 billion to $3.2 billion bidding price seems more accurate, Credit Suisse analyst John Pitzer wrote in a research report Tuesday. The standard products division is expected to generate $1.54 billion in 2016 sales, about 12% of NXP’s total revenue. But the division is struggling. In 2015, sales of its standard products — signal discretes, power discretes, protection and signal conditioning — fell 3% to $1.24 billion. Q4 sales fell 18% year over year, to $271 million. For the current quarter, NXP guided $275 million to $285 million in sales, down 13% at the midpoint vs. the year-earlier period and up 3% sequentially. Chinese bidders reportedly are interested in the segment, which supplies components for handsets, computing, consumer and automotive, Pitzer wrote. Smartphone customers include Apple, Huawei and Samsung. Although China consumes roughly half of the world’s $350 billion in chips, the country’s chip companies account for just 2.5% of the sector’s revenue. The country is looking to curb its reliance on foreign chips by building its own thriving industry. But chip technology is closely guarded and a rumored $23 billion Chinese bid for U.S. memory chipmaker Micron Technology ( MU ) had analysts scoffing last year. U.S. regulators likely would have killed that deal, they said. NXP, though, wouldn’t face nearly as stringent regulatory hurdles, Pitzer wrote. NXP is based in the Netherlands and its standard products division is located outside the U.S. Also, he points out, the segment isn’t producing specialty technology. “This portfolio consists of a large variety of catalog products, using widely-known production techniques with characteristics that are largely standardized throughout the industry,” he wrote. On Monday, NXP topped the chip count in an iFixit teardown of the 9.7-inch iPad Pro . The chipmaker supplies a Touch ID sensor, a controller and a charging component. NXP also supplied a controller for the new iPhone SE . Its Freescale acquisition in December opens NXP up to the high-margin automotive industry. NXP said “90% of auto innovation” is in electronics and it plans to lead the industry in terms of infotainment, vehicle networking, body, safety and secure access. NXP stock was flat, near 83, in afternoon trading on the stock market today . Its shares are down 1.5% this year.