Are you ahead for the stock market ? Stocks to Watch

A Day Trader's Little Instruction Book: Wit and Wisdom for the Online InvestorMaybe not as robust as September's giddy rebound from the doldrums of August, but decent nonetheless.

by C.  Blaine


How does that feed into next week? Plenty.



There will be several reports on home sales and prices. There's a big report due Thursday on gross domestic product in the third quarter. GDP is a snapshot of economic activity.
Whats ahead for the stock market?




The market will go up.



Interest will go up.



Prices will go up.



Cost of living will go up.



Taxes will go up.



Then it will all come down like a ton of bricks. Again.

tHOUGHTS ??







StockScouter: 10 hot picks to watch

And it is one of the biggest weeks of the third-quarter earnings season, with seven members of the Dow Jones Industrial Average ($INDU) reporting, including DuPont (DD), Procter & Gamble (PG) and Microsoft (MSFT). A third of the companies in the Standard & Poor's 500 ($INX) will report. (Microsoft publishes MSN Money.

Big Oil weighs in with ConocoPhillips (COP), Exxon Mobil (XOM), Chevron (CVX) and Royal Dutch Shell (RDS.A).



And there are interesting consumer companies that will help us fill out the economic picture: Lithia Motors (LAD), Panera Bread (PNRA), Whirlpool (WHR) and Ruth's Hospitality Group (RUTH), parent of the Ruth's Chris steakhouse chain.


Corporate earnings have been better than expected and helped stocks like Google (GOOG), Monsanto (MON), Delta Air Lines (DAL), Ford Motor (F) and Dell (DELL) move 10% or more.




The economic data have been better, with the rather large exceptions of housing and jobs.



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But there was even a touch of good news for the construction industry. The Architecture Billing Index, a measure of activity in the architectural profession, crossed 50 in September -- above 50 means expansion -- for the first time in two years.



Airlines have been reporting rebounding business travel.



At the end of the week, the Dow was up 3.2% for the month, with the S&P 500 up 3.7% and the Nasdaq Composite Index ($COMPX) up 4.7%.



Markets for the week







10/22/2010



10/15/2010



% chg.



YTD chg.

Dow industrials



11,132.56



11,062.78



0.6%



6.8%

S&P 500



1,183.08



1,176.19



0.6%



6.1%

Nasdaq



2,479.39



2,468.77



0.4%



9.3%

Russell 2000



703.46



703.16



0.0%



12.5%

Crude oil



$81.69



$81.25



0.5%



2.9%

(per barrel)

























U.S. Dollar Index



77.69



77.27



0.5%



-0.7%

10-yr. Treasury



2.56%



2.58%



-0.5%



-33.3%

Gold



$1,325.10



$1,372.00



-3.4%



20.9%

(per troy ounce)



























Here's what to look for:



Housing will dominate the economic headlines

Five reports on housing will come in during the coming week, and they're not likely to offer much cheer.



Start Monday with the National Association of Realtors' September existing-home sales report. Nomura Securities is forecasting an annualized rate of 4.35 million units, up 5% from August and 13% from their recent lows.



On Tuesday, two important reports on price trends are due: the S&P/Case Shiller index for August and the Federal Housing Finance Agency's Home Price Index. Case Shiller measures prices in 20 markets. Nomura sees prices up 2.1% from a year earlier. That would feed into the theme that the economy slowed this summer.



The FHFA looks at prices nationally.



There are some who believe the Case Shiller report will paint too rosy a picture. Clear Capital, a research firm that watches real-estate trends, says prices nationally fell nearly 6% in the last two months and could be headed lower.



On Wednesday, the Commerce Department will report new-home sales for September. The consensus is for sales to come in at an annualized 300,000 rate. That's still flirting with record lows.



Elsewhere in the economy

The big report comes Friday when the Commerce Department reports on GDP in the third quarter.



Most analysts see GDP rising at maybe an annualized 1.7% as the economic recovery slowed markedly during the quarter. That's no better than the second quarter and is a reason why there's been so little job growth.



Also due in the week ahead:



Consumer Confidence Index, due Tuesday from The Conference Board. Nomura Securities sees the index rising to 51. IHS Global Insight sees it only reaching 46, with high joblessness and fear of job losses coloring confidence.



Durable-goods orders, due Wednesday from the Commerce Department. This should rise, thanks to new orders for Boeing (BA). The company booked 257 new airliner orders in the last three months, the most since April 2008. Not all of those orders have been included in the orders report.



Initial jobless claims, due Thursday from the Labor Department. These will probably come in at around 450,000, frustratingly high but still off 40% from peaks reached in early 2009.



Chicago Purchasing Managers Index, due Friday from the Chicago chapter of the Institute for Supply Management. Nomura sees the index declining from 60 to 58. That still means expansion, however. Look for higher prices.



An enormous week for earnings

In all, 177 S&P 500 companies will report earnings, one of the heaviest weeks of the current earnings season.



About 83% of S&P 500 companies that issued reports through Thursday had beaten analysts' earnings estimates. About 64% had been revenue estimates.



The big question is whether the results will continue to be strong.



Here's a rundown:



Monday: Amgen (AMGN), Lorillard (LO) and Texas Instruments (TXN). The latter is the key report, offering a glimpse on growth in the mobile phone industry.



Tuesday: Bristol-Myers Squibb (BMY), Cummins (CMI), DuPont, U.S. Steel (X) and Waddell & Reed Financial (WDR).



Watch the results of Cummins, DuPont and U.S. Steel for clues on how Smokestack America is faring. Waddell & Reed may discuss how its trading may or may not have affected the May flash crash.



DuPont is the top Dow performer in 2010, up 39%. It has raised its earnings guidance three times this year.



Wednesday: Allstate (ALL), auto-parts maker Borg-Warner (BWA), cable operator Comcast (CWCSA), ConocoPhillips, Panera Bread, Martha Stewart Living Omnimedia (MSO), Procter & Gamble and Whirlpool.



Panera Bread, Martha Stewart Living Omnimedia and Whirlpool will all offer a sense of consumer confidence.



P&G has been struggling with price pressures as stores push their own store brands on many consumer products. Nonetheless, it is sporting a 3% dividend yield, which is higher than the 10-year Treasury yield. Shares are up 5% this year.



ConocoPhillips starts the big oil reports. Shares are up 20% in 2010, despite flat oil prices and falling natural-gas prices.



Thursday: 3M (MMM), Blackstone Group (BX), Dow Chemical (DOW), Lithia Motors, Exxon Mobil and Microsoft. Blackstone is up 250% since bottoming in March 2009. But it's still 61% below $35.06, its closing price on its first day as a publicly held company.



Watch Lithia Motors to gauge the strength of auto sales.



As the world's largest oil company, Exxon will offer a feel for the global energy market. Microsoft's challenge is to show that it is rebounding from the lows of 2009.



Friday: Chevron (CVX), Merck (MRK), Estee Lauder (EL), Ruth's Hospitality Group. Merck will be closely watched for what it says about growth and its drug pipeline. Chevron will sketch in the global energy market.



Ruth's Hospitality is the parent of the Ruth's Chris chain of steakhouses, which have always been popular among the expense-account crowd. The question is whether it is starting to see a rebound from the worst of the recession.


TJX (TJX, news, msgs) has prospered and grown in tough economic times as consumers shop its stores for name-brand apparel and housewares at discounted prices.




The stock hit an all-time high of $48.50 in April, but the run-up stalled as investors pondered whether the operator of the T.J. Maxx, Marshalls and HomeGoods chains would continue to take market share from full-price rivals as the economy improved.



See what's ahead for the stock market



TJX appears on a daily list created using StockScouter, an MSN Money tool that identifies stocks with strong growth prospects in the near term. All stocks with Scouter ratings of 8, 9 or 10 are considered for the list, which is then shortened to exclude any stock with a trading volume below 50,000 shares a day. The remaining stocks are ranked on the basis of market capitalization, sector membership and whether they are growth or value stocks.



Like other off-price clothing purveyors, TJX has benefited from recession-induced inventory surpluses at department stores and other full-price retailers. Manufacturers have been forced to unload excess merchandise at deep discounts, and TJX passes along a portion of those savings to shoppers.





How to pick stocks

The company, headquartered in Framingham, Mass., operates more than 900 T.J. Maxx and more than 800 Marshalls stores in the United States, where it also has about 320 HomeGoods and 150 A.J. Wright stores. It operates more than 200 Winners and about 80 HomeSense stores in Canada, as well as about 260 T.J. Maxx and 14 HomeSense stores in Europe.



TJX raised its full-year guidance in August as it reported a 17% increase in second-quarter income. Comparable-store sales rose 3%. In its fiscal year ended Jan. 30, TJX posted same-store sales growth of 6%.



Analyst Brian Tunick at JPMorgan Chase forecasts same-store sales growth slowing to between 2% and 3% this year.



Company insiders, including CEO Carol Meyrowitz and Chief Financial Officer Jeffrey Naylor, have sold a significant number of TJX shares this year as the stock price has climbed. The executives sold 175,460 shares, or $7.8 million worth of stock, earlier this month. In addition, Naylor in February exercised options and sold 300,000 shares for more than $12 million in gross proceeds, the largest sale ever recorded by a TJX insider, The Wall Street Journal reported. Meyrowitz previously sold more than 100,000 shares.


Stock Market Trading Success Subliminal CDOf 16 analysts covering TJX, eight rate the stock a "strong buy," one has a "moderate buy" rating, six rate it a "hold," and one has a "moderate sell" rating.



The company has a StockScouter rating of 10, meaning the stock is expected to significantly outperform the market over the next six months with less-than-average risk.



StockScouter top 10 Company Sector Friday's close YTD (%) Scouter score

Xilinx (XLNX, news, msgs)

Integrated circuits

$25.20

0.6

9



Qwest Communications International (Q, news, msgs)

Telecommunications

$6.46

53.4

9



Focus Media (FMCN, news, msgs)

Advertising

$23.86

50.5

8



Altera (ALTR, news, msgs)

Semiconductors

$29.46

30.2

8



Apple (AAPL, news, msgs)

Personal computing

$307.47

45.9

10



ConocoPhillips (COP, news, msgs)

Oil and natural gas

$61.67

20.8

10



DuPont (DD, news, msgs)

Chemicals

$46.83

39.1

10



EMC (EMC, news, msgs)

Data storage

$21.44

22.7

10



Juniper Networks (JNPR, news, msgs)

Networking equipment

$31.94

19.8

10



TJX (TJX, news, msgs)

Discount retail

$44.86

22.7

10

Biotech Takeover candidates

Consolidation among biotechs will become more common as Big Pharma tries to fatten its product pipeline. Five possible takeover candidates

THE OUTCOME OF Bristol-Myers Squibb's $4.5 billion bid for the portion of ImClone Systems that it doesn't already own remains uncertain. So is the conclusion of Roche Holding 's $44 billion offer for the shares of Genentech that it doesn't possess. Both targets want the bids raised.
But one thing is certain: Mergers, buyouts and takeovers involving biotech outfits will become more common as Big Pharma increasingly tries to fatten its product pipeline by acquiring proven, as well as promising, bioengineered drugs.
Table: In the Pipeline
For Bristol (ticker: BMY), the big prize is Erbitux, an ImClone (IMCL) cancer treatment. For Roche (RO.Switzerland), the lure is a raft of Genentech (DNA) products, ranging from Activase, a heart-attack treatment, to Avastin, a cancer drug, to Nutropin, a growth-hormone product.
DRIVING THE NEED FOR new products are the coming expirations of patents on several important drugs owned by Big Pharma. The end of patent protection, of course, opens the market to cheaper generic versions of the drugs.
In the not-very-distant future, the mother of all expirations will hit Lipitor, Pfizer 's (PFE) wildly successful cholesterol drug, which had more than $12 billion in annual global sales last year. Lipitor goes off-patent in 2011. Other blockbuster drugs that are losing their patent protection include Wyeth 's (WYE) Effexor (depression and anxiety), 2010; Merck 's (MRK) Singulair (allergies), 2012; and Eli Lilly 's (LLY) Zyprexa (schizophrenia), 2011.
Many of the large drug manufacturers "have three or four products accounting for the bulk of earnings," notes Christopher Schott, a pharmaceutical analyst at JPMorgan.
At the same time, these companies' costly research-and-development efforts have had mixed results. Despite Big Pharma's spending billions and billions, says Jay Markowitz, a T. Rowe Price health-care analyst, "a number of companies are facing a significant patent cliff, where billions in revenues are going to disappear."
Many large pharmaceutical outfits, however, have a lot of cash on their balance sheets to make acquisitions. Factor in the dollar's weakness, which makes U.S. companies look particularly enticing to foreigners, and the biotechnology/pharmaceuticals market looks particularly ripe for merger-and-acquisition deals.
"The natural synergy is for a company to acquire a company they already know well and have a partnership with on a key drug," says Steven Silver, an analyst at Standard & Poor's.
For example, Genentech, which last week rejected Roche's $89-a-share proposal as too low, has a long history of dealings with the Swiss pharmaceutical giant, which has about a 56% stake in the San Francisco biotech firm and markets some of its products.
"The larger pharma companies want to have total control over the drugs in the pipelines," says Frank Sustersic, a portfolio manager at Turner Investment Partners. In 2007, for example, Eli Lilly acquired Icos, with which it had a joint venture on Cialis, an erectile-dysfunction drug. It paid $2.3 billion for the acquisition.
"It looks as if pharma is going after the companies that have existing products," which by definition have obtained regulatory approval, says Vinay Thapar, a senior investment analyst at American Century Investments. (Larger companies will continue to do licensing agreements in which they pay a smaller company to help develop a drug, in exchange for a cut of future profits, says Thapar. In such cases, the larger entity doesn't typically acquire the smaller one.)
Thapar and other analysts point to Onyx Pharmaceuticals (ONXX) as a potential target of Bayer (BAY. Germany). Onyx has a joint venture with the German pharmaceutical giant for Nexavar, which is used to treat kidney and liver cancers.
"At some point, you could see Bayer wanting to control 100% of the assets," says Sustersic, who thinks that Bayer might pay as much as $65 per share. Nexavar is believed to have more upside, especially as it secures approval in other markets (it was recently given the green light by China as a liver-cancer treatment), and even more if it can be used for other cancers, including those of the breast, lungs and skin.
One argument for buying existing drugs -- rather than developing new ones -- is the grueling U.S. Food and Drug Administration testing that new products face.
"The FDA is perceived to have swung more to the safety side in the balance between safety and efficacy," says Markowitz. That means that getting drugs through the regulatory process is taking longer, although it's probably good for consumers. Adds Thapar: "The FDA is becoming increasingly difficult to handicap."
Big Pharma's hunger for new products could be good news for investors in some biotech firms, say Barron's Rich Rescigno and Lawrence Strauss. (Aug. 18)
NOT ALL OF THE FOCUS is on products already in the market, however. Vertex Pharmaceuticals (VRTX), another company that some investors view as an eventual takeover candidate, is developing Telaprevir, a substance that promises to reduce the time needed to treat hepatitis-C, a potentially fatal liver ailment. Telaprevir is currently in stage III testing, the last phase of the clinical- trial process. Vertex has worked with Johnson & Johnson (JNJ) in developing that drug.
Vertex's shares sold off recently after Schering-Plough (SGP) announced that it had good results with a possible competitor to Telaprevir. Still, some analysts think that the Vertex drug shouldn't be underestimated. "In my opinion, it will be the first direct antiviral drug for hepatitis-C to hit the market and meaningfully improve patient outcomes," says T. Rowe Price's Markowitz.
Another company that could spark an acquirer's interest is Amylin Pharmaceuticals (AMLN). It's working on a Type 2 diabetes drug that could be injected once a week instead of daily. Amylin has several development partners, including Eli Lilly, on the drug. It already markets two diabetes drugs, Symlin and Byetta. But some analysts say the product under development could boast major advantages. "A once-weekly drug that lowers glucose substantially, induces weight loss, isn't associated with hypoglycemia, and lacks a cardiovascular safety signal has multibillion-dollar potential," says Markowitz.
The Bottom Line:
With patents on some major products expiring over the next few years, large pharmaceutical companies will be on the prowl for biotech outfits with promising drugs.
Anyone scanning the biotech ranks for potential acquisition targets shouldn't overlook United Therapeutics (UTHR). It has one characteristic that lots of other small biotechs would envy: It's in the black. One of its most promising products is Remodulin, which is used to treat hypertension in the blood vessels of the lungs. Although there are other PAH drugs, Turner Investment Partners' Sustersic says that United Therapeutics is "one of the clear leaders, and they potentially could have a big blockbuster."
American Century's Thapar is similarly impressed by Alexion Pharmaceuticals (ALXN), which earned six cents a share in its most recent quarter, versus a loss of 75 cents a share a year earlier. Its drugs include Soliris, which treats a rare disorder called paroxysmal nocturnal hemoglobinuria, which destroys red blood cells.
At $389,000 a year per patient, Soliris is hugely expensive -- but it targets a clearly defined patient base.
The drug had net sales of nearly $60 million in the second quarter, up from $45.5 million in the first quarter and $9.8 million a year earlier. Regulators have approved its use in the U.S. and Europe, and it's expected to be introduced in Japan toward the end of next year. Alexion retains distribution rights in the U.S. and overseas, says Sustersic, who maintains that Soliris sales could reach at least $500 million a year.
Sounds like a decent prescription for a bigger company seeking a revenue boost.

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