 |
In
This Edition... |
|
-
Two Stocks Worth
a Look
-
From the Blog
-
Delayed Reaction:
H1N1 Hype Calms, H1N1 Vaccine Sales Start
With
the market unable to get any real traction over the last month, the number
of compelling trading ideas is shrinking. In early November we had no trouble
finding six
stocks we thought were solid ideas. This week, finding two worthy names
was a challenge.
Nevertheless,
quality is more important than quantity, so here are two stocks to think
about. (By the way, be sure to check out the 2010 Sector Outlook blog link
below. It explains even more of our rationale for these two picks.)
United States
Cellular Corporation (NYSE:USM)
 Last
year's results aren't much to look at with United States Cellular Corporation.
Next year's forecasts, however, paint a much prettier picture. The forward-looking
P/E of 18.9 isn't out of control, and the company has been known to beat
estimates every now and then.
That said, the
chart's subtle move higher this week may have actually done more for the
stock than any results could have. USM finally broke out of a wedge pattern,
by moving above the falling resistance line. Trading theory says to look
for more upside from here.
We'll give the
technical analysis its due respect, and agree that the shape of the chart
does indeed enhance the odds tremendously. It's not the only thing United
States Cellular shares have going for them though.
As you'll see
with the sector outlook, the winds appear to be at telecom's back now.
Moreover, United States Cellular Corporation has initiated a stock repurchase
program. Between the sector trend, the buyback, and the chart itself, USM's
simply poses a solid risk/reward scenario.
The Empire
District Electric Company (NYSE:EDE)
 A
boring utility stock? Yes, though 'boring' is a relative term. We don't
necessarily view a predictable, utility stock like EDE boring, since stability
and potential double-digit gains are things investors of all sorts should
seek out.
The bullish
prompt for Empire District Electric Company was largely a technical one.
After a painful 2007 and 2008, EDE finally started to recover in 2009.
Even then though, hitting a wall around $18.80 in August put the recovery
in question. As time went on without EDE getting over the hurdle, the skepticism
grew.
This week, however,
Empire District Electric Company finally made a move that suggests more
upside is ahead - resistance at $18.80 has been broken.
As for upside
potential, EDE has found resistance around $23.00 before. Even if that's
a lingering problem now, we're still looking at about a 20% gain on top
of any dividends (the yield is around 6.8%) paid out. If Empire District
Electric Company ends up firing on all cylinders in the coming year though,
this one could be surprisingly more productive than just the possibilities
mentioned here.
Earlier in the
week we posted a couple of new blog entries:
-
S&P
500 Index Draws Clear Lines in the Sand - Believe it or not, the
market's been stuck in the mud for a month. What's keeping it down, what
will it take to get unstuck, and where are we headed in the meantime? Here
are some answers.
-
Sector
Outlook for the First Quarter of 2010 - The party is finally over
for some of 2009's "can't miss" sectors. And, the party's just beginning
for some of 2009's biggest losers. Here are the hot and cold spots to look
for as 2010 gets rolling.
|
 |
Delayed
Reaction: H1N1 Hype Calms, H1N1 Vaccine Sales Start |
|
|
Remember the
swine flu breakout? Back in April it was all anyone could talk about. Now,
it's a discussion that's all but impossible to keep going. Gold, healthcare
reform, unemployment, and the housing market - just to name a few -
have all pushed H1N1 out of the limelight. The irony? The pandemic's vaccines
are just now starting to bear fruit for investors..... just about the time
investors lost interest. Big mistake.
Though vaccine
sales are setting up strong fourth quarters for most of the companies making
an H1N1 treatment, it's helping some considerably more than others. Compare
AstraZeneca (AZN) and GlaxoSmithKline (GSK), for instance.
AstraZeneca's
subsidiary MedImmune is the maker of the popular nasal spray vaccine -
the first one to get to the market. In fact, AstraZeneca is one of only
two companies to sell any H1N1 vaccine at all in Q3. Even then, it was
so late in the quarter that the revenue meant little then.
To date, MedImmune
has sold a reported $453 million worth of the vaccine - most of which has
been during Q4. A lot? Yes, but considering the company does more
than $30 billion in sales annually, even at its current sales pace, AstraZeneca's
H1N1 vaccine is only about a $1.2 billion opportunity per year. That's
not chump change, but it's not a winning lottery ticket either.
 GlaxoSmithKline,
on the other hand, expects to sell nearly $1.7 billion worth of swine flu
treatment during the fourth quarter. Annualizing that figure to about $6.5
billion per year and comparing it to the company's annual revenue of about
$35 billion, the impact becomes much bigger.
Baxter International
(BAX), Novartis (NVS), Sanofi-Aventis (SNY) have all received regulatory
approval for their vaccines in at least one major geopolitical location
[Baxter's H1N1 treatment is not yet FDA-approved]. Yet, total swine flu
vaccine sell-through from those companies has been as different as it has
been for Glaxo and AstraZeneca.
The disparity
underscores three points investors need to digest...
-
Being first to
the market is not necessarily best
-
The issue isn't
quality, but quantity (or production capacity)
-
The demand is still
greater than supply
MedImmune's vaccine
development process is clearly faster than the egg-based procedure most
of the other companies are still utilizing. But, that doesn't mean a whole
lot if the company can't produce much of it at a time. Now that Glaxo,
Novartis, and Baxter have a formula in production, they can crank it out
in much bigger quantities; the early revenue figures confirm that higher
capacity - no matter when the first one rolls off the line - means
stronger sales.
But what about
effectiveness? Given enough time, the best drug for any illness will tend
to capture the bulk of the market share. In the case of the swine flu pandemic
though, time isn't a luxury the medical world has - anything is better
than nothing. So, the vaccine in-hand is the best one to use, simply because
they're still so scarce. (As it turns out, they all have decent efficacy.)
 With
that in mind, a little perspective will shed some light on just how big
the opportunity is.
The United States
has ordered 250 million vaccine doses, and so far has taken delivery of
73 million of them - about 30% of the total needed. The same delivered/ordered
proportion spans the globe, where the total immediate demand is estimated
to be around 1 billion H1N1 vaccine doses. The WHO estimates that total
annual production capacity is also around 1 billion. Translation?
These companies will be making - and selling - swine flu vaccines as fast
as they can for at least six to nine more months.
The bottleneck,
as was described before, is production capacity. It's unlikely that any
of these pharmaceutical manufacturers will ever put up a 'bumper crop'
quarter thanks to swine flu sales, simply because they can't make enough
of it at a time. The demand does, however, suggest sales should be noticeably
strong for all of these manufacturers for quite some time.
Again though,
the opportunity seems to be biggest for the drug makers that can simply
make a lot of doses in the shortest period of time. The AstraZeneca/Glaxo
divergence is just one layer of evidence to that end.
Either way,
swine flu vaccine sales are finally rolling in, and they're significant.
It's time to renew the interest that was stirred up seven months ago.
|
Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
