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Technical Check: Evergreen Solar at $12
Evergreen Solar (ESLR) is close to $12, an important technical point that has been firmly established as resistance with the stock unable to break above that level the last two times the price spiked in early April and then again in mid-May. Inspiring the 15.6% move today are two long term sales contracts worth about $600 million with solar product companies GroSolar and Wagner & Co which brings Evergreen’s total contractual backlog to $1.7 billion. In the news release, CEO Ricard Feldt hinted of potentially more deals saying that there are continued “discussions with other potential customers as we look to commit up to 75% of Devens capacity to long term contracts.” What’s also helping the rally is that Evergreen was initiated with a “buy” rating at Stanford Research and during a conference call with analysts this morning, though it remains to be seen, the CFO seemed to rule out straight equity dilution – the company needs to raise up to $2.2 billion in funding through 2012, something that’s acted as an overhang on the stock. That last item might have given shorts a scare as nearly 20.4% of the 102.4 million share float is held short.
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It’s now apparent why RadNet Inc. (RDNT) has been creeping up the past few days. The diagnostic imaging services company is set to join the broad-market Russell 3000 Index when Russell Investments reconstitutes its comprehensive set of U.S. and global equity indexes on June 27, according to a preliminary list of additions posted on the Russell website. Among some interesting and obscure small cap names also on the list are; Ener 1 Inc. (HEV) Zhongpin (HOGS) and Wonder Auto Tech (WATG). The reconstitution represents a positive catalyst for each of the stocks. As one of the company’s cleverly summed up in a public release this morning, implicitly saying such and at the same time highlighting the rationale behind the Russell reconstitution trade, the notion to get long before it happens; “the reconstitution is usually one of the most highly-anticipated and heaviest trading days in the US equity markets, since buying and selling activities of asset managers are influenced by index component changes. As a result, being added to or deleted from the Russell Indexes, as well as variations in the weightings in the indexes, affect the market demand for the stocks of component companies.”
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A look at some unusual options activity in this afternoon’s screener. We’ll let the numbers speak for themselves.
BJ Services (BJS) - not the wholesale chain but the oilfield services company where 14,582 contracts have traded in the July call with a $35 strike price. Open interest yesterday was less than 2k. The stock has been recently hovering close to its 52-week high of $33.33.
Monsanto (MON) - looks like a potential bull call spread trade with a 10k contract block at the $155 and $170 July strike. The agricultural stock is currently trading at $141.
Regions Financial (RF) - put volume continues to explode with 30,452 contracts traded so far today. Schaeffer’s puts the daily average at 2,249. Two thirds of today’s volume is concentrated in the July puts with a strike of $10 where 19,175 contracts have traded. Open interest was previously at 725.
There’s more brutal action in other banks as well, most notably Wells Fargo (WFC) where options traders are stockpiling the July puts at the $25 and $22.50 strike price; 11,286 and 17,842 contracts have traded respectively. Stock currently trading at $25.35.
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Pfizer Inc. (PFE) settled some litigation with generic drug manufacturer Ranbaxy, landing a pretty major victory in that it is now able to prevent competition for its cholesterol drug Lipitor until November 2011. The majority of analysts believed that Lipitor’s monopoly would crumble some time in 2010. It’s a big boon for the drug maker because Lipitor represents about $12 billion, or 25% of annual revenue. Fears of Lipitor coming under generic pressure and having to make up the lost sales elsewhere have contributed to a decline to the tune of 23.5% year to date in the stock which is fresh off a new 52-week low of $17.50. For a change, Pfizer is having a good day – it’s one of only two Dow 30 components in the green, though can’t believe the stock is managing just a 1.8% gain on this news. Not only does Pfizer have Lipitor for another year, but it assures the dividend (an ever attractive yield now at 7.1%) stays intact and buys management time to fix the company’s dreadful pipeline.
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Interactive Brokers Group Inc. (IBKR) is trying to hold above an important psychological barrier at $34. It’s only the second time in its history trading as a public company, the first being the period from mid-January and early February, that the options broker has flirted with this price level. For obvious reasons, this technical area is significant because it marks the high point of its initial public offering that took place on May 7 last year. Though the stock is lower today by 2.1% to $34.12 - earlier selling off by as much as 5% to hit an intra-day low of $33.30, only a third of the daily average volume has traded and the weakness is market oriented. Interactive still looks well positioned to challenge and break above its 52-week high of $35.93 in the coming weeks.
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Hoku Scientific Inc. (HOKU) recently announced an equity distribution agreement with UBS Securities to sell up to $54 million worth of common stock by means of ordinary brokers’ transactions on the NASDAQ Global Market at market prices. The deal also calls for an additional $56 million in calendar year 2009 to complete the construction and engineering of its polysilicon production facility. At current prices, that would mean in the intermediate term about a little under 10 million shares hitting the market. Needless to say, that’s pretty significant considering that there are only 19.79 million shares outstanding and average daily trading volume has dipped to 438,922 shares. Traditionally that does not mix well with a hefty round of dilution, but this is might actually be worth a look from a contrarian investor point of view. Here’s why: from its mid-May high of $8.77, the stock was already down 33% in anticipation of the offering and it failed to break below the November 2007 low in the $5.80’s in the wake of the news, and given this solar name’s history, it has a tendency to spike up on some big contract news that could clean up on that equity offering pretty quickly.
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Wachovia Inc. (WB) share price woes worsen as the days go on as dividend cut fears continue to run rampant. The stock is breaking below its Jun. 13 52-week intra-day low of $17.34 to trade off by $.92, or 5.07%, to $17.21. The options market is predicting more of the same to happen with bearish deep out of the money put action prevalent yet again as it was yesterday in the $15 and $12.50 strikes. It’s noteworthy to point out that the activity is concentrated in the options expiring in the month of October. There’s about 6,271 contract volume at the $15 strike and 5,471 contracts having traded thus far today at the $12.50 strike, and with a premium of about $2 there would have to be significant downside for those options just to break even. The options volume is on top of Friday’s explosion in the $17.50 and $15 June puts where volume was in excess of 20,000 contracts. Open interest had previously been only a couple thousand and a few hundred contracts respectively.
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The much anticipated analyst meeting came and went. Last week, True Religion Inc.’s (TRLG) CEO and CFO presented at the Piper Jaffray Consumer Conference, providing a business overview and discussing historical financial performance as well introducing the company’s long-term financial plan and growth objectives. And it did not go unnoticed. Yesterday, Brean Murray analyst Eric Beder upped his earnings estimate for the current year to $1.62 from $1.57, implying a multiple of just 16 times earnings which becomes even cheaper on a forward looking basis using 2009 estimates, making his new price target of $30 look conservative. He cited the solid growth thesis that is being driven by new products and categories and a rollout of new stores. It’s the third analyst price target boost in three months – a record for the small cap jeans maker that is still relatively under covered. It wouldn’t be a surprise to see more of the analyst community get firmly behind the company after the recent conference.
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eResearch Technology Inc. (ERES) is up $1.22, or 7.73%, to $17 in heavy afternoon trading, marking its highest level since early 2006. Friedman Billings reiterated an “outperform” rating on the stock and upped the firm’s price target to $19.50. It’s probably not a coincidence that eResearch’s CEO and CFO just recently presented at the FBR 12th Annual Spring Investor Conference on May 28. The small cap cardiac safety company with a market cap of just $863 million rarely gets much attention so this is a big deal - there were only three analysts on the latest conference call; FBR, Leerink Swann and Sidoti & Company, thus any positive commentary is a plus. Still lacking exposure, a major brokerage firm starting coverage would be extremely bullish and do a great deal in increasing the visibility of this under the radar stock.
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After seven trading sessions of triple digit losses for the Dow Jones Industrial Average since a high of 13,170 on May 19, the major U.S. financial benchmark was looking for its second triple digit gain in about a month’s time, yet it was denied that honor yesterday, closing up just slightly after trading into positive territory by more than 150 points. With an hour to go until the close, today has seen much more of the same action with the Dow early on rising by 165 points before falling back. The give and take in back to back sessions is frustrating, especially for the bulls as the Dow is ever so close to its early March and January lows. It’s also discouraging because there has been a reason to rally from the lows – yesterday brought news of May retail sales that increased 1%, the largest jump since November, and today’s news that the Consumer Price Index rose moderately, was in-line with expectations.
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