The good news is that we saw a Monday buying interest spree after a horrible prior week. Sellers did come in late in the day after the markets traded higher earlier, putting the markets on the verge of a negative day. The bad news is that today was the end of the quarter and it looks like we have now finished down three consecutive quarters in the U.S. stock market. Whether or not it is a bear market seems to depend on whom you consult, but things are tough for the public investor right now. This morning oil was around $143.00 on fresh Iran-Israel tensions and here were the unofficial closing bell levels today:
General Electric Company (NYSE: GE) did finally see a bounce after a research analyst came out showing anecdotal evidence that the current discount to the market is very close to major inflection points. Shares of GE were up 1.7% at $26.69 in today's final minutes.
Merck & Co (NYSE: MRK) shares are falling today after the company reported that FDA approval its new cholesterol drug will likely be delayed until 2013. The FDA first rejected regulatory approval of the drug in April, and requested more information from company studies. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MRK.
After hitting a one-year high of $61.62 in December, the stock hit a one-year low of $34.49 earlier last month. This morning, MRK opened at $35.40. So far today the stock has hit a low of $35.00 and a high of $35.83. As of 12:25, MRK is trading at $35.03, down 57 cents (-1.6%). The chart for MRK looks bearish and steady, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $42.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in four months as long as MRK is below $42.50 at October expiration. Merck would have to rise by more than 21% before we would start to lose money.
MRK hasn't been above $42.50 since March and has shown resistance around $39 recently. This trade could be risky if the company's earnings (due out in mid-July) are a positive surprise, but even if that happens, this position could be protected by resistance MRK might find at its 50 day moving average, which is currently around $38 and falling.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in MRK.
There is a report out of Reuters that may get the drug sector up in a whirlwind if it comes to pass. The implications aren't just that Pfizer Inc. may want to try to counter Japanese drug maker Daiichi Sankyo's bid for a majority stake in India's largest generic drug maker Ranbaxy. Daaichi Sankyo has put in a bid of roughly $4.6 billion for that majority stake.
Pfizer is stuck along with Merck & Co. Inc. (NYSE: MRK) and other Big Pharma drug players between a rock and a hard place as it has a mountain of cash, makes money, but has a perceived weak drug pipeline. If you thought that Big Pharma drug companies were under fire because of generic drugs, the issues may get much more convoluted.
Ranbaxy is India's largest generic drug maker, and India also has some restrictions on foreign ownership of its key companies and infrastructure. Whether or not the Pfizer deal comes to pass, it is becoming more and more inevitable that the big drug companies are going to have to either make more biotech buyouts to purchase better drug pipelines or that generic makers will become targets as a way to fend off the generic pressure. No wonder the short selling is lower in major biotechs.
"You can invest for all the right reasons and still get the wrong result," notes long-standing turnaround stock expert George Putnam, referring to the poor performance of the pharmaceutical sector in recent years.
Here, in his industry-leading The Turnaround Letter, he offers a fascinating review of 10 leading drug stocks which he now believes offer a combination of growth potential at "pretty cheap" valuations. Here is his overview.
"In 2000 and 2001, when the Internet boom was becoming a bust, many smart investors turned away from technology stocks and put their money into drug stocks. How could you go wrong with the big pharmaceutical companies?
"Demand for their products was growing as the population aged. These companies had huge research and development programs that seemed to keep cranking out new blockbuster drugs. And most of them had great balance sheets, with many paying handsome dividends.
"Much of this reasoning has been borne out in the intervening years. Many large drug manufacturers have rung up substantial revenue gains over the last decade. So what's happened to the big drug stocks? With few exceptions they have gone sideways or down – in some cases down a lot.
It seems that the BCE (NYSE: BCE) buyout plan, has hit yet another bump on the road, only this one could not be as easy to overcome. A Quebec appeals court reversed a lower court and rejected the $33 billion buyout plan accepting the claim of a group of bondholders that the deal is unfair to them. BCE shares are plunging nearly 15% in premarket trading.
Earnings today are due from Barnes & Noble (NYSE: BKS) -- just after the company said it was interested in buying Borders (NYSE: BGP) -- and Gap (NYSE: GPS) -- a day after the clothing retailer announced an expansion in Russia.
Suntech Power Holdings Co. (NYSE: STP) shares are jumping over 7.5% in premarket trading after the solar energy company reported that first-quarter earnings more than doubled on 76% higher revenue. Earnings reached $55.8 million, or 33 cents an American depositary share and revenue reached $434.5. Analysts estimated 28 cents for the quarter.
Agilent Technologies (NYSE: A) provides electronic measurement and bio-analytical solutions to the communications, electronics, life sciences and chemical analysis industries. Its Electronic Measurement segment offers such instruments as data generators, multimeters, and oscilloscopes. The Bio-Analytical Measurement unit sells instruments, software, consumables and services for quantifying the physical and biological properties of substances. Customers include Cisco Systems (NASDAQ: CSCO) and Merck (NYSE: MRK). The firm was a 1999 spin-off of Hewlett-Packard (NYSE: HPQ).
Agilent pleased investors last week, when it announced fiscal Q2 EPS of 51 cents and revenues of $1.46 billion. Analysts had been looking for 48 cents and $1.43 billion. Management also guided Q3 EPS to 52-56 cents (55 cent consensus), Q3 revenues to $1.44-$1.49 billion ($1.46B consensus), FY08 EPS to $2.07-$2.15 ($2.08 consensus) and FY08 revenues to $5.82-$5.93 billion ($5.83B consensus). Needham subsequently reiterated its "buy" recommendation and boosted its price target to $42. Standard & Poor's raised its Agilent outlook from "stable" to "positive".
Reverse Mortgages: Beware the Come-Ons The loans can help you tap the equity in your house. Just don't get tripped up by greedy salespeople. Reverse mortgages: Beware the come-ons - MONEY
Almost everyone these days has encountered cancer in one way or another. While the rate of cancer incidence has stabilized to declined since the early 1990s and, with newer and better treatments as well as early detection, cancer death rates have also declined, the war on cancer is still far from won.
It is no surprise, then, that a few days ago, IMS Health (NYSE: RX) -- a provider of market intelligence to the pharmaceutical and healthcare industries -- said that cancer drugs sales will nearly double by the year 2012. Assuming a compound growth rate of 12-15% a year, sales will grow from $48 billion in 2008 to $80 billion by 2012.
The main contributors to growth, according to the study, are an increasing number of patients on chemotherapy, not just in major markets but in emerging markets, too, as well as longer treatment periods for growing numbers of patients. Also fueling growth are the increased use of targeted therapeutic agents, along with first-time innovations coming to the market. Expensive new biotechnology drugs, and the increasing use of combination therapies that contribute to the exploding cost of treatment will also fuel cancer drugs sales growth.
The overall pharmaceutical market grew at a 6.4% pace in 2007, meaning that with its double-digit growth rate, the cancer drug market -- today contributing 17% to global pharmaceutical sales -- will only represent a greater proportion and emphasis. Of course, there will be factors moderating growth, such as drugs losing exclusivity and financial constraints of payers.
Cancer-fighting drugs can reach the market twice as fast as the average medicine, and companies can charge as much as $50,000 for a single course of treatment. It is no surprise then that with more and more drugs coming off patent many pharma companies are turning their attention to cancer. But can it save them?
Charlotte, NC Named Best Place to Live Apparently, there's just something about North Carolina. For the second year in a row, America's best city in which to live lies within its borders, according to Relocate-America.com's annual list. This year, Charlotte, N.C., is in the top spot, the site announced this week. Last year's winner was Asheville, N.C., which slipped to No. 7 on this year's list. Other top places are runner-up San Antonio, TX, Chattanooga, TN, Greenville, SC and Tulsa, OK. Charlotte dethrones Asheville, N.C., as best place to live - MarketWatch
Jumbo Loan Rates Finally Decline The interest rates for jumbo mortgage loans are coming down, but standards for qualifying are much tighter. Jumbo loan rates finally decline - Bankrate.com
In a move to help turnaround its troubled business, General Electric Company (NYSE: GE) will sell or divest its appliance division, and could expect to receive between $5B and $8B for the unit, according to the Wall Street Journal. Potential buyers appliance makers BSH Bosch & Siemens Hausger of Germany and Haier Group of China, as well as private equity firms and Controladora Mabe, GE's partner in Mexico.
The Wall Street Journal also reported that Comcast Corporation (NASDAQ: CMCSA) will acquire Plaxo, a networking Web site, in an effort to increase its range of services. Terms of the deal were not disclosed.
To help improve its Ask.com search engine, the Wall Street Journal reported that IAC/InterActiveCorp (NASDAQ: IACI) will buy the Lexico Publishing Group, which owns Dictionary.com, Thesaurus.com and Reference.com.
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Citing the New England Journal of Medicine, Bloomberg reported that migraine headache medicines, including Merck & Co Inc's (NYSE: MRK) Maxalt and GlaxoSmithKline Plc's (NYSE: GSK) Imitrex caused potentially fatal reactions in at least 11 people. The Journal said people using "triptans," an older class of migraine drugs, could develop serotonin syndrome, which may cause fever, shock, vomiting and rapid heartbeat.
Well, one step at a time, Merck & Co. (NYSE: MRK) is trying to get past the Vioxx saga. Back in 2004, after over 20 million Americans had used the painkiller drug, Merck pulled it from the market following a study that found that Vioxx doubled the risk of heart attack and stroke in patients who took it for at least 18 months.
Immediately, Merck was hit with nearly 27,000 lawsuits. In November 2006, the company agreed to a $4.85 billion settlement. Merck now says that about 94% of the plaintiffs have chosen to participate in the settlement. I'm not sure the Garza family could have chosen to be part of the settlement or not (as the case was decided before the settlement was agreed), but if they family could, they might be sorry today they didn't do so.
A Texas appeals court overturned a multimillion-dollar verdict against Merck Wednesday. In April 2006, a jury awarded 71-year-old Leonel Garza's widow $32 million (which were later cut to about $7.75 million). The reason cited by the court was that Garza's family failed to provide evidence that Garza's long-standing heart disease could not have been the cause of his fatal heart attack in 2001.
Financial Stocks to Love The subprime mortgage meltdown and resulting credit crisis have slammed financial stocks recently. But there are still some diamonds in the rough. They include Berkshire Hathaway, RBS, AFLAC, Raymond James and BOK. Financial stocks we love - CNNMoney.com
Big Mac's Local Flavor Once vilified for pushing America on the world, McDonald's lets countries invent their own buns, bags, and business practices. Now some ideas are making their way back home. Big Mac's local flavor - FORTUNE
The third-largest U.S. drugmaker has cut 8,100 jobs globally since the beginning of its restructuring plan, Plan to Win, in late 2005. But as Cordaptive, which was supposed to offset some of the losses Merck is expecting from generics coming into the market, fell through, the cost cutting side of the plan took on an added urgency.
Cordaptive and generics aren't Merck's only problem. The FDA also recently suggested its other cholesterol pills, Zetia and Vytorin, aren't any better than an older, cheaper treatment. Merck said it expects to lose as much as 61% of sales for these drugs.
So none of this comes as no surprise really; not in light of Merck's problems, and not in light of the industry's. Other drugmakers, including Pfizer Inc. (NYSE: PFE), Bristol-Myers Squibb Co. (NYSE: BMY), Wyeth (NYSE: WYE) and Johnson & Johnson (NYSE: JNJ) have announced job cuts as they face more competition from generic substitutions. Merck is also planning some plant closures.
Merck's shares lost nearly 33% of their value year-to-date, as it was partly down with the overall market and partly due to the string of bad news that seemed to have hit most hard recently. It is trading not far from its 52-week low.
While Merck is saying it will still fight the FDA decision on Cordaptive and try to convince doctors about Vytorin, the actions it is taking seem reactive, not proactive. Without much to offer in its arsenal of upcoming possibilities, Merck, at least for now, seems to have lost the potential for meaningful growth.
Stock futures were lower early Tuesday morning as oil prices remained high offsetting any recent optimism about the economy in light of Monday's surprise expansion in the service sector. Several companies are also reporting earnings today and will be in focus.
U.S. stocks dropped on Monday after Microsoft withdrew its takeover bid for Yahoo and as commodity prices once again spiked. The Dow industrials lost 88 points, or 0.68%, the Nasdaq Composite fell 12 points, or 0.52%, and the S&P 500 lost 6 points, or 0.45%.
Without much economic news today, no doubt investors will have no choice but to focus on the high oil prices. After setting a record close Monday and hitting a new trading high of $120.93 a barrel Tuesday, crude retreated to $119.88, down 9 cents from Monday's close. It is interesting that just as hopes were growing the slowdown of the US economy may not be as deep and long as originally thought, crude prices surge again, concerning investors about inflation and profits once again.
Despite today's major markets showing a drop, this would really look like another mixed day on fairly light trading volume as profits fight economic numbers. Oil fell more than $3.00 per barrel and consumer confidence came in at a 5-Year low. Foreclosures also have risen by more than 100% with what now appears to be 1 home per 194 that are in foreclosure. All this is one day ahead of the FOMC meeting with the decision to raise rates, and one day after Warren Buffett called a recession already here. Below are the unofficial closing prices for major US index averages:
Almost everyone these days has encountered cancer in one way or another. While the 
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Stock futures were lower early Tuesday morning as oil prices remained high offsetting any recent optimism about the economy in light of Monday's surprise expansion in the service sector. Several companies are also reporting earnings today and will be in focus.
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