UnitedHealth Group (NYSE: UNH ) was yesterday's big winner among the Dow Jones Industrial Average components, which itself jumped 90 points yesterday. The managed care provider continues to ride higher the news that the Centers for Medicare and Medicaid Services will likely increase premiums 3.4% instead of decreasing them as previously expected. The sector in general continues to outperform the index, with Humana, WellCare Health Plans, and Aetna all rising by 3% or more.
Even though the Dow moved higher, less than half of the stocks listed on the major exchanges followed suit, though there were some stocks that did even better than the managed care companies and surged by double-digit percentages. But you should still 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.
Going in reverse
If you forgot about the reverse stock split wireless broadband specialist Alvarion (NASDAQ: ALVR ) was effecting, then when you looked at the 900% jump in its stock yesterday you might have clutched your chest for a moment at the stunning return. In reality, it just gave investors one share for every 10 they owned, which increased the share price from $0.36 to $3.60 a stub. While it did close out the day at $3.75, a nice 4% increase, reverse splits are signs of financially troubled companies, and investors would be wise to use caution here.
Brokerage house BGC Partners (NASDAQ: BGCP ) may not have had such a tremendous run-up when compared to Alvarion, but the 49% gain it recorded yesterday was impressive nonetheless as it sold its electronic bond trading platform to Nasdaq OMX Group for $750 million.
The eSpeed division had accounted for around 6% of BGC's revenues last year, so the fact that the selling price was equal to its market cap before the trade is a huge premium for the company. More important, however, is if the Nasdaq exchange can generate $25 million in revenues annually from eSpeed, BGC will receive additional consideration for it that could bring the total transaction value to $1.2 billion .
The brokerage house generated about $3.1 billion last year, according to Bloomberg, which would put revenues from eSpeed at about $18 million or so. Regardless, it got a nice payday as it was so any additional compensation would just be gravy.
An offer you can't refuse
Suddenly everyone wants to buy Obagi Medical Products (NASDAQ: OMPI ) , a maker of skin care products. Two weeks ago Valeant Pharmaceuticals (NYSE: VRX ) made an offer of $19.75 per share, or $344 million, for the company -- a near 30% premium for the stock -- but yesterday privately held German firm Merz Pharma Group upped the ante and made a bid to buy the company for $380 million, or $22 a share.
With interest in the company getting frothy now, investors pushed the stock price above the bid, believing Valeant may come back with an improved offer or a third suitor may yet emerge. Obagi generated just $120 million in revenues in 2012, with about half of it coming from its anti-aging cream Nu-Derm, so the bidders are counting on getting more bang for their buck if they're successful.
Yet the offer by Valeant and acceptance by Obagi surprised and disappointed Merz, and it scolded management in a letter it filed with the SEC. It had been in the middle of negotiations with the skin care products manufacturer at the time, but preferred to negotiate in private. Now that Obagi's management did an end run around them, they have to take a different route.
Investors haven't been happy with Obagi's management, either, with one of its biggest, Voce Capital, calling for the board of directors to be "cleansed" of its conflicts of interest, and it looks like sooner or later they'll all get their wish of dealing with someone new in the executive suite.
A closer look at UnitedHealth
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