Stocks Shaking Off Europe's Malaise

Despite the doom and gloom still present in European finances, the markets decided to focus, instead, on better-than-expected domestic economic news, and posted its second day of gains. The Dow Jones Industrial Average rose 92 points or almost 1% yesterday, after the durable goods report bounced back, showing gains in May after two straight months of decline, and pending home sales rose 6%.

Yet, some companies managed to do even better, jumping higher by double-digit rates. Resist the urge to high-five everyone in the cubicles next to you, though, because smart investors won't celebrate until they know why their stock surged. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.

Company

% Chg.

Price

CAPS Rating (out of 5)

Arena Pharmaceuticals (Nasdaq: ARNA  )

28.7%

$11.39

**

Entropic Communications (Nasdaq: ENTR  )

28.4%

$5.24

***

Lincare Holdings (Nasdaq: LNCR  )

23.4%

$31.17

***

Orexigen Therapeutics (Nasdaq: OREX  )

20.3%

$4.92

*

Patriot Coal (NYSE: PCX  )

17.8%

$1.26

***


On the up and up
Peabody Energy
has long said that they're still in the midst of a coal supercycle, and though that's hard to see these days, at least in the U.S., where the guns are trained on this "dirty" form of fuel, a case can be made internationally that coal isn't being abandoned. So Peabody's comments yesterday that demand in China is picking up again lifted shares of Patriot Coal, along with other miners who have seen their shares crushed. China's economy is still landing harder than analysts expected, so whether such demand can be maintained will still need time to play out.

Demand of another sort led Lincare Holdings to suck all the oxygen out of the room, as its shares took off. It was reported that German industrial gas producer Linde AG was readying a $3.4 billion bid for the make of oxygen, respiratory, and other chronic therapy services to patients in the home. Linde has been on a buying binge lately, having purchased Air Products & Chemicals earlier this year. With a possible competing offer from French outfit Air Liquide SA waiting in the wings, Lincare won't be sucking wind for some time.

The "connected living room" hasn't played out as anticipated, but it's not going away either, and chipmaker Entropic Communications now sees better sales than it did previously, which helped its stock bounce higher. Last year, its largest customer Verizon adjusted its inventories to reflect lower demand for its FiOS network, which impacted sales of Entropic's MoCA chips, which let devices use coaxial TV cables for high-quality networking purposes. But connectivity product sales have been strong, and Entropic said it now expects adjusted profits of $0.08 per share, and as much as $82 million in revenue, up from previous forecasts of just $0.03 per share and $77 million in revenue. Gather 'round the computer and start streaming movies!

Fit or fat?
The big news yesterday was the FDA's approval of Arena Pharmaceuticals' fat-fighting drug lorcaserin, which will now be called Belviq. That will teach me to try and guess which way the regulatory agency will rule. Just the other day, I said that I thought it would punt its decision down the road a few months like it did with VIVUS, which is also trying to get an anti-obesity drug on the market. I was (rightly) excoriated by CAPS member clawmann, who noted that the FDA doesn't punt just to punt, and actually has a goal of meeting 90% of their PDUFA dates.

As he also noted, there was a world of difference between lorcaserin and VIVUS's Qnexa, and the better profile made approval likely. How right he was! With obesity a growing problem in the U.S., the FDA is obviously taking the threat to the nation's health seriously, and it marks the first time in 13 years that it has approved a fat-fighting drug.

The approval, though, also boosted shares of Orexigen Therapeutics, which is the third biotech with an anti-obesity drug in front of the regulators. Interestingly, though, VIVUS's shares only rose 7% on the news.

As the Fool's Brian Orelli points out, Belviq won't make it to market immediately, because Arena's partner in this, Japanese pharmaceutical Eisai, has to wait for the DEA to decide whether it should be classified as a scheduled drug because of the potential for abuse. Considering the ponderous nature of regulatory decision making, VIVUS may actually be first to market should the FDA give Qnexa its stamp of approval and not make it jump through a similar hoop. But with obesity the big problem that it is, there's likely to be plenty of market to go around.

Now that the hard part is over, tell me in the comments section below, or on the Arena Pharmaceuticals CAPS page, how much market share you think it can capture.

Going into orbit
If healthcare stocks like Arena and Orexigen are your bag, check out the Motley Fool's free report on a novel breakthrough in surgery that can change the landscape forever and allow investors to come along for the ride. "Discover the Next Rule-Breaking Multibagger" is available to download right away -- for free! But hurry, because it won't be around forever.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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