3 Winners That Trounced Market "Eur-phoria"

The market went bananas yesterday, jumping 245 points or almost 2%, after Europe's finance minister Mario Draghi promised to fix everything wrong with the eurozone through an unlimited bond-buying program. Or, as the folks at Zero Hedge inform us, Pierpont Securities has termed it "classic banana republic banking." So don't expect the good times to last.

Yet some stocks were even more "eur-phoric" than the market, rising by double-digit percentages. But resist the urge to high-five everyone in the cubicles next to you. Smart investors won't celebrate until they know why their stock surged, because without a fundamental basis for the bounce, these stocks could just as quickly make the return trip down.

A house divided
I'll admit to being one of those who believes the giddiness in the housing sector is premature, that there are still far too many houses in inventory that will keep it depressed for some time to come. But mortgage insurer Radian Group (NYSE: RDN  ) published delinquency data suggesting that the situation is on the mend. While its delinquent loans did drop more than 2% in August, falling to less than 95,000 loans from 97,000 at the start of the month, I'm not convinced the data was enough to warrant a 22% spike in its stock yesterday.

Mortgage insurers like Radian, MGIC Investment, and Genworth Financial are still struggling to recover from the housing debacle and both MGIC and Genworth have risk-to-capital ratios in excess of the statutory maximum 25-to-1 ratio. Radian says that while its ratio declined to 21-to-1 as of June 30, it expects to exceed the cap later this year, so even though its delinquent loan numbers are improving, it's not going to be enough to salvage the situation.

Moreover, the number of delinquencies being solved through cures is on the rise again. A cure is when a loan returns to on-time payment status, and Radian recently admitted that many of its cures are achieved through loan modification programs. Loan mods tend to have large numbers of redefaults occur, and according to the latest data, 9% of all homeowners redefaulted on their loans in July -- only slightly better than the 10% that did so in June.

Radian's stock is up 73% in 2012 and has more than doubled from its lows. Considering that the industry is still weaker than it appears and that the gains it's made are based on ephemeral support, I'm rating Radian Group to underperform the market on Motley Fool CAPS, but you can tell me in the comments section below if you think the mortgage insurer has a firm foundation to build upon.

Big wheels keep on turning
Having capitulated to the EPA's demands over its emissions technology, trucking giant Navistar International (NYSE: NAV  ) said it's back on the road to profitability and is conducting a strategic review of all its non-core operations to better sustain its business. Its shares soared 17% on the improved performance.

Unlike PACCAR and OshKosh -- which use EPA-approved technology to get past tough, new air quality regulations -- Navistar had long challenged the agency that its cheaper alternative should be accepted, but it was forced to cave in as sales plummeted as it became apparent truckers didn't want non-compliant vehicles.

Although GAAP earnings were $84 million, or $1.22 per share, adjusted results showed losses of $1.63 per share, worse than the year-ago period and below analyst expectations. Still the hope is that with a new management team, a new focus on improving sales, and Carl Icahn still buying company stock, it's believed the trucker can turn this big rig around. Let me know in the comments section below if you think Navistar International will end up jack-knifing on the road to recovery.

Because I said so
An analyst at Credit Suisse says investors are too enthusiastic in their belief the anti-obesity market will enjoy multiple winners, but if there is going to be one, Orexigen Therapeutics (Nasdaq: OREX  ) has to be considered. When and if its fat-fighting drug Contrave is approved and brought to market sometime in 2014, it should grab a good portion of what's estimated to grow to a $3.5 billion industry by 2020. On such lofty expectations, that market sent Orexigen's stock almost 17% higher.

No doubt that comes as a big shock to investors at Arena Pharmaceuticals (Nasdaq: ARNA  ) , which already gained FDA approval for its weight-loss therapy Belviq, particularly as Credit Suisse rated it to underperform.

The analyst says the market can barely sustain one blockbuster treatment, let alone three (VIVUS (Nasdaq: VVUS  ) also made it through the regulatory labyrinth with Qsymia, and Credit Suisse gives it the thumbs-up). Yet it is curious that a drug that hasn't been approved and won't be for at least two years gets a better profile than a pharmaceutical with a therapy already hitting the market. I still think Arena is the better bet here, but explain to me below in the comments box why Orexigen Therapeutics will come out on top despite being late to the race.

Whoa, Nelly!
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Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of PACCAR. 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.


Read/Post Comments (3) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 07, 2012, at 3:04 PM, uropa1 wrote:

    All I can say is you and your other dweeb fools keep pushing a placebo drug, Belviq, and are suprised when the truth comes out. It will not sell and if it does, not for long. The other drugs, OREX and VVUS, are more effective and all three have equally bad side effects, from increased heart rate, to tumors, to cleft lip and pallat.

    Good luck to you and keep writing.

  • Report this Comment On September 07, 2012, at 5:34 PM, jenna173 wrote:

    Daniel

    UCLA MD

    I have been in this stock now for three years. We have gone through the battlefield since the announcement of the CRL. Everytime Arena management discussed progress with the CRL issues there was always negativity, ie 'the FDA recommended 12 month proloactin study, so Arena better do it' but Arena's response was that it was recommended that they do and therefore chose to only address what was recommended. The bashers and journalists jumped all over this. This continued with every issue that they addressed. But management remained steadfast on their responsibilities and got the approval that they so quietly and diligently worked towards. All the time they never defended themselves because they knew what they were doing. And they attained the goal and the prize of FDA approval.

    Now we see the same old naysayers and bashers. There is no end to it on this board. I spend as little time as possible because of all the speculation and nonsense that is spewed out every 2 minutes. I am focused on what Arena managment is doing and just as they set themselves on the goal of obtaining FDA approval they are committed and working diligently to get Belviq to market. And this is my point.

    It is not a matter IF they will get DEA labelling, they WILL.

    It is not a matter IF they will get EMEA approval, they WILL.

    It is not a matter IF they will get a partnership or a buyer, they WILL.

    It is not a matter IF they will be successful, they WILL be.

    I am already planning some studies in other uses for Belviq - prevention of gestational diabetes, treatment of infertility,anovulation, and abnormal uterine bleeding in obese women. I am sure there will be studies performed in the future in the prevention of various cancers, ie endometrial cancer and other cancers that have been associated with obesity.

    And they will be the primary player in a multibillion dollar market. It will not matter if Qysemia will get to market first or later, Belviq will be the treatment of choice with Qysemia as a second line treatment if Belviq does not get combined with that amphetamine.

    The difference is that the uncertainty that was present for the two years prior to approval is no longer present. They will accomplish all the binary events that are anticipated. Whether it is 1 month or 6 months it is going to happen. There is no UNCERTAINTY - they are going to happen.

    I will add a speculative thought though - if Arena wanted to get even with all the journalists and bashers and wall street crooks wouldn't it be nice if they surprised them all with buyout as they manipulate the stock in this dead period. JUST A THOUGHT!!!

    The science did prevail and now the scientists will do the same. It's only a matter of time - and not that much time.

    The greatest accomplishment was approval with a very favorable prescribing label the rest is icing on the cake and we will finally have the treatment that is so desperately needed in this very diabetic and obese society.

  • Report this Comment On September 07, 2012, at 6:00 PM, helpmesav wrote:

    Dr Dan thanks so much for all the information! Looking forward to great future.

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