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(Best) VVUS, CBY, HITK (Worst) LRN, MHP, AEE from Better Trades

September 14, 2009

The trading week was shortened due to the Labor Day celebration, as well as a somber sentiment in remembrance of the victims of 9/11. Despite this, the markets concluded the week higher overall, although falling short of six consecutive up days, which would have been the longest streak since late November.

Of recent, there appears to be less selling pressure within the marketplace, which has helped propel the indices higher. Since its 12-year low closing price on March 9, the S&P is now more than 54% higher.

Top 3 Stocks

VVUS – Vivus Inc. ($6.39 to $11.06) +73.1%

One of the leading percentage gainers during the past week was Vivus Inc. (VVUS), a biopharmaceutical company developing innovative, next-generation therapies to address unmet needs in obesity, diabetes and sexual health. The company’s stock surged more than 70% last week in response to Vivus’ final two late-stage trials evaluating Qnexa, which met all primary endpoints and exceeded the FDA efficacy benchmark.

Qnexa, the company’ investigational drug for the treatment of obesity, could potentially offer patients struggling to lose weight a much needed weight loss aid. The drug combines low doses of the stimulant Phentermine and the epilepsy drug Topiramate.

Phentermine was part of the infamous fen-phen diet drug controversy where the drug was tied to cardiovascular problems in those that were taking the weight loss drug. Current side effects of Qnexa include tingling sensations, dry mouth, insomnia, altered taste and constipation.

In 1,267 morbidly obese test subjects, the average person lost 37 pounds or nearly 15% of their body mass over the course of a year. In a similar, two-year study, 2,487 patients taking Qnexa witnessed an average weight loss of 30 pounds, or 13.2% of their total body weight.

Leland Wilson, CEO at Vivus commented on the company’s recent success, "I think this is a game-changer. This will change the way people look at obesity, the way payers pay for it, and we think it will have a major impact on health."

Wilson later added, "We've had high interest from pharmaceutical companies, but we were all waiting for these results. Now serious negotiations can begin." The company is now formulating plans to begin partnerships with larger pharmaceutical companies in order to market their product.

Following the company’s announcement on the results of the test trial, shares of VVUS surged during the September 9 trading session, reaching a high of $12.49 before retreating to close at $11.80 that day. Over the next two trading days, the stock would establish a new 52-week high of $12.88 before ending the week at $11.06, up over 73% for the week.

At the start of the new trading week, shares of Vivus resumed their upward trend, adding $0.17, or 1.5%, to close the September 14 session at $11.23 per share.

CBY – Cadbury PLC ($37.46 to $51.82) +38.3%

Operating as the world's largest confectionery business with a primary position in twenty of the world's fifty largest confectionery markets, Cadbury PLC (CBY) made headlines last week as the company was the target of a takeover bid by Kraft Foods Inc. (KFT), the largest branded food and beverage company in the U.S. and the second largest in the world. Upon news of the proposed bid, shares of CBY added more than $14 per share heading into the September 8 session.

The deal, in which Kraft proposed 10.2 billion pounds (US$16B) for Cadbury, was quickly rejected by company official, stating that the offer grossly undervalued Cadbury and its future prospects. The offer price represented a 31% premium over Cadbury’s closing price of $37.46 on Friday, September 4. Kraft announced their takeover intentions on September 7.

Cadbury’s Chairman, Roger Carr, responded to the takeover bid by stating, "I would emphasize that the delivery of value to our shareholders remains at the top of our agenda. Your proposal is for Cadbury shareholders to exchange shares in a pure-play confectionery business for cash and shares in Kraft, a company with a considerably less focused business mix and historically lower growth."

Kraft Foods' Chairman and CEO Irene Rosenfeld remarked on the proposed deal, "This proposed combination is about growth. We are eager to build upon Cadbury's iconic brands and strong British heritage through increased investment and innovation. As we have done, Cadbury has built wonderful brands by focusing on quality, innovation and marketing, but we believe the next stage in Cadbury's development will be challenging, given the increased importance of scale in the industry."

Rosenfeld later added, "Our current plans contemplate that the UK would be a net beneficiary in terms of jobs. For example, we believe we would be in a position to continue to operate the Somerdale facility, which is currently planned to be closed, and to invest in Bournville, thereby preserving UK manufacturing jobs. We believe that Cadbury's share price already reflects its prospects as a standalone entity and the benefits of VIA (Vision Into Action program). We hope to engage with the Board of Cadbury on a constructive basis with the goal of consummating a recommended transaction."

If talks do not resume in a more constructive manner, Kraft may seek to make a hostile takeover bid for Cadbury. Kraft is already in discussions with Citigroup Inc. (C) and Deutsche Bank AG (DB) in order to set up debt financing for nearly half of the 10 billion pound, or $16B offer price.

By the end of the trading week, shares of CBY jumped more than 38% on buyout talks. Heading into the September 14 session, shares of Cadbury continued with their uptick, gaining $0.34, or 0.7%, to close the day at $52.16 per share.

Over the course of a year, shares of CBY have traded as low as $27.58 and as high as $53.05, which was established the day the company rejected Kraft’s offer.

HITK – Hi Tech Pharmacal Co. Inc. ($15.79 to $20.31) +28.6%

Rounding out the list of top performing stock for the week ending September 11 was Hi Tech Pharmacal Co. Inc. (HITK), which benefited from a positive quarterly earnings report that sent the company’s shares higher by nearly 30% for the week.

Hi Tech, is a specialty pharmaceutical company that develops, manufactures and markets branded and generic products that include liquid and semi-solid dosage forms of pharmaceutical products, as well as producing a wide range of sterile ophthalmic, otic and inhalation products.

In a report released on September 9, HITK revealed that the company’s profits during the 1Q increased year-over-year, in large part due to increased sales of generic drugs. For the period, Hi Tech recorded net income of $8.7M, or $0.73 per share, compared to the prior year’s earnings of $1.5M, or $0.13 per share.

Quarterly revenues more than doubled during the period, advancing from $15.8M to $43.5M. The company witnessed a $3.25M contribution to overall sales from the company’s recently acquired ECR pharmaceuticals, which Hi Tech purchased in February.

Looking further into the company’s sales totals, Hi Tech saw generic drug sales nearly triple during the quarter, from $12.5M to $36.7M. Revenues form their health care products increased almost 11%, from $1.9M to $2.1M.

With a new trading week commencing, shares of HITK resumed their trek higher, gaining more than 2%, or $0.42, to end the September 14 session at $20.73 per share.

Over the past year, the company’s stock has traded as low as $3.46 per share, and as high as $22.65 per share on the day following the company’s earnings announcement.

Worst 3 Stocks

LRN – K12 Inc. ($19.19 to $16.16) -15.8%

In a week that saw the major indices gain more than 1.5% each, there were plenty of stocks that did not benefit from a buying mentality in investors. Included in that list is K12 Inc. (LRN), a technology-based education company, which is a leading national provider of proprietary curriculum and educational services created for online delivery to students in kindergarten through 12th grade.

K12’s stock price was greatly affected by the company’s recent quarterly performance report that was released on September 9. In it, the company posted a net loss for the 4Q, despite an increase in sales.

For the quarter, K12 booked a net loss of $666K, or $0.02 per share, in sharp contrast to the previous year’s net profit of $17.1M, or $0.59 per share. Last year’s results were bolstered by the company’s one-time tax credit that amounted to a $17.7M gain. If not for the tax benefit, K12 would have posted a loss of $0.01 per share.

Meanwhile, revenues throughout the 4Q surged year-over-year, climbing from $56.5M to $72.2M, an increase in overall sales of nearly 28%. The company’s bottom-line was greatly affected by their increase in operating costs and expenses, which surged more than 27% over last year’s tally to $72.4M.

On average, analysts within the industry were looking for the educational service provider to post a quarterly loss of $0.02 per share on overall sales figures of $76.5M.

For the fiscal year, K12 recorded annual profits of $12.3M, or $0.42 per share, versus the prior year’s annual earnings of $18.5M, or $1.10 per share, a decrease in net income of nearly 34%. Yearly sales, however, increased year-over-year, from $226.2M to $315.6M, a jump in annual sales of almost 40%.

Following the company’s quarterly announcement, shares of LRN dropped more than 13% during the September 9 session, and ended the week down nearly 16%. At the start of the new trading week, the company’s stock carried on with its downward trend, losing $0.56, or 3.5%, to close the September 14 session at $15.60 per share.

During the past 52 weeks, shares of LRN have traded as high as $29.10 per share and as low as $11.95 per share.

MHP – The McGraw-Hill Companies Inc. ($29.10 to $27.70) -4.8%

Although not posting losses as severe as other companies, The McGraw-Hill Companies Inc. (MHP) witnessed a nearly 5% loss in market value over the past week as the company is in the process of selling their weekly business magazine BusinessWeek.

In early July McGraw-Hill was in the process of exploring strategic options for the sale of the magazine, as a devastating slump, 34.3%, in advertising revenues continued over the past several quarters. As a direct result of the economic downturn, BusinessWeek has also been affected by a growing presence from their online counterparts.

Founded in 1929, BusinessWeek currently has about 4.8 million subscribers stretched out across 140 countries.

Recent reports revealed that at least ten companies, including Bloomberg have expressed interest in purchasing the struggling magazine. Others reported to be involved in the buying process include Morningstar founder Joe Mansueto, Bruce Wasserstein, ZelnickMedia, and private-equity firms Platinum Equity, Warburg Pincus, and OpenGate Capital.

McGraw-Hill, which also provides information services in such categories as financial services, education and business information markets, possess some of the most recognizable brands throughout the world, including J.D. Power and Associates, Standard & Poor's, McGraw-Hill Education, and of course BusinessWeek.

As it currently stands, McGraw-Hill has set a deadline for proposals that is slated to expire on September 15. What happens to the magazine after that time if not sold remains unclear.

Despite the uncertainty of BusinessWeek, shares of MHP slipped 4.8% during the past week. The start of the new trading week brought similar results to the company’s stock, as McGraw-Hill shares slipped by the close of the September 14 session, giving up $0.15, or 0.5%, to conclude at $27.55 per share.

Over the course of a year, MHP shares have traded within a broad range, reaching highs of $43.20 per share, while falling to as little as $17.15 per share.

AEE – Ameren Corp. ($26.50 to $25.45) -4.0%

Rounding out the top three percentage losers for the week ending September 11 is Ameren Corp. (AEE), a company that provides energy services to customers throughout Missouri and Illinois.

The stock’s downward move was not driven by any specific news during the past week. At the beginning of last week, the company did announce that they were planning to sell upwards of 19 million shares in order to generate capital for investments and general corporate purposes.

The offer, in which the underwriters will have the option to purchase as many as 2.9 million shares over the next month, will be offered at $25.25 per share. the monies generated from the sale will be put towards investments related to their rate-regulated utility subsidiaries in the form of equity capital contributions.

In a positive turn of events, Ameren has proposed a deal with the St. Louis County landfill authority in which garbage from the dump site could generate enough electricity to power thousands of local homes through Ameren’s “Methane to Megawatts” program. The new project is expected to be operational by 2011.

Company representatives say that the proposed project would be largest methane-to-power plant in Missouri, as well as one of the largest throughout the country. Expectations from the process have the plant producing upwards of 15 megawatts of electricity annually, enough to power 10,000 households.

By the conclusion of the trading week, shares of Ameren slipped just over $1 per share, losing 4% of their market value. By the close of the September 14 trading day, the stock began to rebound marginally, gaining $0.20, or 0.8%, to close at $25.65 per share.

Over the past year, the company’s stock has traded within a wide range, with prices reaching as high as $42.22 per share and falling as low as $19.51 per share.

2009 Better Trades Article

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