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(Best) CAAS, AGO, TSTC (Worst) ESE, GENZ, TCLP from Better Trades
November 17, 2009
Trading was sporadic last week, as investors had little economic and corporate news to influence sentiment. The falling price of the Dollar throughout the week pushed the indices to yearly highs prior to Thursday’s down day. During that stretch, the Dow was up more than 500 points, marking six consecutive days of gains, its longest stretch since late August.
Despite grim news released at the end of the week, the major indices persevered higher, as the S&P eclipsed the 1,100 mark for the first time since early October 2008. Meanwhile, the Dow briefly climbed above 10,300, the halfway point in its upturn since falling to a 12-year low of 6,574 on March 9.
The DOW closed the week higher, adding 2.5% to close at 10,270.47. The S&P also finished the week in the green, gaining 2.3% ending at 1,093.48. The NASDAQ concluded the week up, advancing 2.6% to close at 2,167.88.
Top 3 Stocks
CAAS – China Automotive Systems Inc. ($12.49 to $16.65) +33.3%
One of the biggest percentage gainers for the week ending November 13 was China Automotive Systems Inc. (CAAS), a holding company that has no significant business operations other than their interest in Genesis. Genesis is a company in which CAAS manufactures power steering systems and other component parts for use in automobiles.
The weekly gain of more than 30% in market value came primarily from news regarding the company’s earnings report, which was released on November 12. The report showed that China Automotive posted a significant increase in profits year-over-year, due in large part to improved gross margins and a surge in product sales.
For the 3Q, CAAS recorded a net profit of $8.6M, or $0.28 per share, in contrast to last year’s 3Q profit of $2.8M, or $0.09 per share. Quarterly sales led the increase in profits, as revenues jumped from $36.94M a year ago to $64.65M, a jump in sales of 75% year-over-year. On average, analysts within the industry were looking for the maker of power steering parts to post a quarterly profit of $0.15 per share based on $53.34M in total sales.
Overall revenues benefited from the company’s increase in steering gears sales, which jumped nearly 78% year-over-year to $43.8M. Meanwhile, pump sales jumped more than 79% to $6.2M, while accessories were up 66% to $14.6M.
Looking ahead, China Automotive is looking for annual revenues to jump nearly 40% over last year’s sales totals. In the meantime, analysts are projecting yearly profits to come in at $0.54 per share on annual revenues of $213.68M.
By the close of trading on November 16, shares of CAAS had fallen nearly 4%, losing $0.65 to end the session at $16.00 per share. Over the course of a year, the company’s stock has traded within a relatively wide range, reaching a low of $2.01 per share, while climbing as high as $17.33 per share, the day of their earnings announcement.
AGO – Assured Guaranty Ltd. ($17.01 to $21.66) +27.3%
Included in the list of top performers was Assured Guaranty Ltd. (AGO), a Bermuda-based holdings company that provides credit enhancement products to the municipal finance, structured finance and mortgage markets. The company’s stock jumped more than 27% during the past week, despite a projected 3Q loss and a downgrade by Moody’s on the company’s financial strength rating.
Prior to the close of the November 13 session, Moody’s Investor Services downgraded AGO’s rating from “Aa2” to “Aa3,” and warned investors that further cuts could be possible. In response to the downgrade, AGO announced that they are committed to implementing a capital plan that would help maintain their current investment-grade “double A” ratings.
The initiatives would entail external reinsurance, intercompany capital support and about $300M of additional capital in order to support Moody’s capital requirements.
In other news, AGO confirmed that the company would most likely record a loss for the upcoming 3Q, set to be announced on November 16, due to acquisition and other related costs and expenses. AGO is looking to post a 3Q loss of $35M, or $0.22 per share, compared to a loss of $63.3M, or $0.69 per share from last year’s 3Q.
Results will be affected by AGO’s July acquisition of Dexia's insurance unit Financial Security Assurance Holdings Ltd. Assured is looking to post an operating income of $70.1M, or $0.44 per share, while analysts within the industry were looking for a profit of $0.46 per share.
Although the company’s stock price faltered following these two announcement, the stock did manage to increase by more than $4 per share over last week’s trading.
With a new week of trading commencing, shares of Assured Guaranty could not maintain their upward trend and receded by the close of the November 16 session. The stock fell 2.1%, or $0.45, to end Monday’s session at $21.21 per share. During the past year, the stock has traded between $2.69 and $22.69 per share.
TSTC – Telestone Technologies Corp. ($9.67 to $11.90) +23.1%
Rounding out the list of top percentage gainers during last week’s trading was Telestone Technologies Corp. (TSTC), a company that provides wireless communications coverage solutions primarily in the People’s Republic of China. Telestone provides products such as repeaters, antennas and radio accessories, as well as services that include project design, project management, installation, maintenance and other after-sales services.
On November 12, the company announced results from their 3Q, in which Telestone saw profits surge more than 280% over last year’s results. For the recent period, TSTC booked a net profit of $4.2M, or $0.41 per share, a far cry from last year’s earnings of $1.1M, or $0.11 per share. Quarterly sales were also robust, increasing from $8.4M a year ago to $18.9M, a jump in overall revenues of nearly 125%.
Han Daqing, CEO and Chairman of Telestone, commented on the company’s results, "We are very pleased with our third quarter results, which represents a record and key turning point for our business. We are also proud that our customer base in China, including the three major telecommunication suppliers, has accepted our WFDS(TM) technology as a viable market standard for 3G products.”
“We anticipate WFDS ™ installations will continue to accelerate as carriers come to prefer its functionality advantage over the traditional 3G network equipment. We anticipate this trend will continue throughout the balance of the year and into 2010 as we gain further market shares," Han later added.
The company’s WFDS, or Wireless Fiber Option Distribution System, provides "multi-play" capabilities for media, voice, fax, closed circuit TV, data and all three protocols of Chinese cellular signals over a fiber optic cable routed directly into an installation site.
During the past three years, Telestone has managed to increase revenues by more than 60%, from $21.7M in 2006 to $35.5M in 2008. During that same stretch, profits have grown more than 50%, from $4.6M to $7.1M. In the last year alone, revenues are up more than 44% to $12.1M, while profits are up nearly 76% to $1.97M.
Having gained more than 23% in market value in the past week, shares of TSTC continued in their upward trek. By the sound of the closing bell on November 16, Telestone’s stock was up more than 10%, adding $1.28, to conclude the day at $13.18 per share. During the past year, the stock has traded as low as $0.63 per share, while reaching an annual high of $13.19 per share, achieved on November 13.
Worst 3 Stocks
ESE – ESCO Technologies Inc. ($41.60 to $33.27) -20.0%
On the downside of the markets, one of the leading companies that had a dismal time in trading during last week’s sessions was ESCO Technologies Inc. (ESE), which witnessed their stock price fall more than $8 per share.
ESCO, through its subsidiary Nexus Energy Software, is engaged in providing software solutions that support customer interactions via self-service and a contact center, while enhancing operating functions with analytic applications that integrate meter, customer, and asset data.
The company’s downfall in price for last week came following ESCO’s release of its 4Q earnings results. For the period, ESCO recorded a net profit of $21.78M, or $0.82 per share, in contrast to last year’s net earnings of $24.51M, or $0.93 per share, a decrease in profits of more than 11% year-over-year. However, earnings from continuing operations increased year-over-year, advancing from $19.87M, or $0.75 per share from a year ago to $21.77M, or $0.82 per share, an increase of nearly 10%.
Contributing to the decrease in profits, quarterly sales faltered as well, slipping from $192.5M a year ago to $169.4M, a drop in overall revenues of 12%. On average, analysts were looking for the special purpose utility solutions provider to post a quarterly profit of $0.77 per share based on overall sales of $176.05M.
For 2009, ESCO posted a slight increase in earnings year-over-year, as net income came in at $49.91M, or $1.86 per share, up nearly 6% from last year’s tally of $46.71M, or $1.70 per share. On average, analysts were looking for an annual profit of $1.80 per share from ESCO. Yearly sales for the company came in at $619.06M, up from the previous year’s tally of $613.56M. Analysts were looking for annual revenues of $627.3M.
Investors were disappointed by the company’s quarterly performance, which led to the stock downfall throughout the week. With a new trading week starting, the company’s stock continued its freefall. By the sound of the closing bell, shares of ESCO were down $0.78, or 2.3%, to end the November 16 session at $32.49 per share.
Over the past year, ESCO’s stock has traded within a broad range, reaching a high of $46.87, while dipping as low as $24.84 per share.
GENZ – Genzyme Corp. ($52.28 to $49.28) -5.7%
Operating as one of the world’s largest biotechnology companies, Genzyme Corp. (GENZ) provides products that are focused on rare genetic disorders, renal disease, and osteoarthritis, as well as an industry-leading array of diagnostic products and services.
The news that moved the company’s stock price lower for the week came on November 13, in which Genzyme was informed that federal health regulators found foreign particles in drugs made by the company. The FDA said that bits of steel, rubber and fibers were found in vials of drugs that were used to treat rare enzyme disorders.
The FDA announcement marks the second time this year that Genzyme has been reprimanded for instances involving contamination. Genzyme was forced to shut down a key production facility due to viral contamination. In June, Genzyme’s Allston Landing Facility was shut down for a contamination in one of their six bioreactors used to develop Cerezyme and Fabrazyme, Genzyme’s two top-selling drugs.
Cerezyme, the company's best-selling drug, treats Gaucher disease, an enzyme disorder that can result in liver and neurological problems. Meanwhile, Fabrazyme, the company’s second-best seller, treats an inherited disorder known as Fabry disease, which is caused by the buildup of a particular type of fat in the body's cells. Last year, the two drugs attributed to more than $1.7B in total sales.
Henri Termeer, CEO of Genzyme, remarked, "We have made significant progress in bringing the Allston plant back in operation, and we will continue to work closely with the FDA to resolve these issues."
Commenting on Genzyme’s misfortune was Dr. Jason Woo, FDA's associate director of medical affairs, "We have worked continuously with Genzyme to ensure the continued availability of safe and effective products to meet the medical needs of patients with rare medical disorders."
The FDA estimates that the contamination will most likely only affect 1% of Genzyme’s products.
Prior to the November 13 session, shares of Genzyme had advanced by nearly 2% leading into the final day of the week. However, after the FDA’s announcement, shares of GENZ slipped more than 7% that day, thus pushing the shares down nearly 6% on the week.
Once news about the foreign objects in the company’s drugs settled, investors jumped back into the stock, pushing shares up 0.4%, or $0.20, by the close of the November 16 session. The stock closed the day at $49.48 per share.
Monday’s closing price sits a little more than 6% above the company’s yearly low of $47.09 per share. While currently trading near its 52-week low, shares of Genzyme have also managed to reach an annual high of $73.75 per share.
TCLP – TC Pipeline LP ($38.79 to $37.75) -2.7%
Included in the list of top percentage losers for the week ending November 13 was TC Pipeline LP (TCLP), a United States growth-oriented Master Limited Partnership (MLP). The company was formed by TransCanada PipeLines Limited to acquire, own and actively participate in the management of United States based natural gas pipelines and related assets.
The company’s downfall stemmed from an earnings report that was released on November 6, in which the company’s profits declined year-over-year, despite an overall increase in revenues. For the company’s most recent period, the 3Q, TCLP recorded a net profit of $27.4M, or $0.65 per share, compared to the previous year’s earnings of $28.3M, or $0.72 per share.
Results were affected by their recent acquisition of North Baja from a wholly owned subsidiary of TransCanada Corp. (TRP). The purchase of North Baja resulted in an earnings adjustment of $5.6M. Analysts, on average, were anticipating a net profit of $0.52 per share from TC Pipeline.
Looking further inside the numbers, TCLP saw transmission sales jump form $8.2M to $17.5M during the quarter. In the meantime, equity income from investments in Northern Border slipped more than 47%, from $19.9M to $10.5M, while income from investments in Great Lakes Gas Transmission Limited Partnership jumped from $12M to $13.2M, an increase of 10%.
Through the first nine months of the year, TC Pipeline posted a net profit of $72.9M, compared to the same period a year ago, in which the company posted earnings of $81.1M.
In a recent development, TC Pipelines announced on November 13 that the company was publicly offering 5 million shares at $38 apiece. The offering, in which proceeds are expected to come in around $185.4M, is slated to be used to reduce debt under the company’s revolving credit facility, as well as for other general corporate purposes.
Despite the more than $1 per share loss during last week’s trading, shares of TCLP rebounded by the close of the November 16 trading session. At the conclusion, the company’s stock added $0.13, or 0.3%, to end the day’s trading at $37.88 per share.
During the past year, the stock has traded within a wide range, reaching a low of $18.11 per share, while climbing as high as $41.54 per share.
2009 Better Trades Article
brought to you by
BRIAN MULLIN
