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Five Mid-Cap Stocks Ready to Run

Fri, 27 Nov 2009 08:13:33 EST

BOSTON (TheStreet) - The Russell Mid-Cap Index is outpacing the Dow Jones Industrial Average and S&P 500 Index this year. The following mid-caps are positioned to outperform U.S. benchmarks.

5. Church & Dwight sells household products.

The numbers: Third-quarter net income soared 43% to $70 million and earnings per share climbed 42% to 98 cents. Revenue inched up 2% to $646 million. Church & Dwight's gross margin rose from 43% to 49%, and its operating margin ascended from 15% to 18%. A quick ratio of 1.1 indicates adequate liquidity. A debt-to-equity ratio of 0.5 reflects conservative leverage.

The stock: Church & Dwight has risen 6% this year, less than major U.S. indices. The stock trades at a price-to-earnings ratio of 18, reflecting a discount to the market, but parity with household products peers. The shares pay a 0.9% dividend yield. 4. Monro Muffler Brake repairs cars and sells tires.

The numbers: Fiscal second-quarter profit increased 30% to $10 million, or 49 cents a share, as revenue grew 14% to $137 million. Monro's gross margin fell from 46% to 43%, but its operating margin rose from 11% to 13%. The company holds $4 million of cash and $83 million of debt.

The stock: Monro Muffler Brake has gained 18% this year, less than major U.S. indices. The stock trades at a price-to-earnings ratio of 22, a premium to the market, but a discount to specialty retailers. The shares pay a 0.9% dividend yield. 3. Check Point Software Technologies designs internet security programs.

The numbers: Third-quarter net income increased 14% to $91 million and earnings per share jumped 16% to 43 cents. Revenue grew 17% to $234 million. Check Point's gross margin declined from 94% to 91%, but its operating margin remained steady at 45%. The company has an ideal financial position, with $957 million of cash and no debt.

The stock: Check Point has rallied 72% this year, beating major U.S. indices. The stock trades at a price-to-earnings ratio of 21, reflecting parity with the market, but a discount to systems software peers. The company doesn't pay dividends. 2. Tyler Technologies provides technology services to government agencies.

The numbers: Third-quarter net income rose 18% to $7.5 million and earnings per share climbed 25% to 20 cents, boosted by a lower share count. Revenue grew 8% to $74 million. Tyler's gross margin remained steady at 47%, and its operating margin was unchanged at 17%. The company has a strong financial position, with $7.9 million of cash and $2.1 million of debt.

The stock: Tyler Technologies has rallied 71% this year, outperforming major U.S. indices. The stock trades at a price-to-earnings ratio of 30, a premium to the market and application software peers. The company doesn't pay dividends. 1. Balchem sells specialty chemicals.

The numbers: Third-quarter net income increased 43% to $6.9 million and earnings per share climbed 44% to 36 cents. Revenue dropped 7% to $54 million. Balchem's gross margin rose from 25% to 30%, and its operating margin ascended from 12% to 19%. The company has an admirable financial position, with $39 million of cash and $6.6 million of debt.

The stock: Balchem has risen 30% this year, more than the Dow Jones Industrial Average and S&P 500 Index. The stock trades at a price-to-earnings ratio of 25, a premium to the market, but a discount to specialty chemical peers. The shares pay a 0.3% dividend yield.

Now see five large-cap stocks on the rise >>>

Biotech Stock Mailbag: Targacept

Fri, 27 Nov 2009 06:00:00 EST

BOSTON (TheStreet) -- Happy Black Friday! The Biotech Stock Mailbag comes to you today 50% off (in length) due to the holidays. I'll return in full strength next week.

Scott L. writes, "Please name one company with a drug that you think has the best chance to be partnered on great terms within the next six months. Thanks."

Tough question! You're putting me on the spot by asking for a single stock. But if I had to choose just one, I'd say Targacept and its depression drug TC-5214.

The phase II data on TC-5214 as an add-on therapy for depression were absolutely stellar. This is the type of drug and indication that sits perfectly in Big Pharma's comfort zone, so I expect Targacept to land a lucrative partnership.

Bob M. writes, "I know you've given the thumbs up to ImmunoGen in the past. How do you feel about the upcoming Dec. 12 data release on the TDM-1 phase II trial. Do the recent sales by four of the directors concern you?"

I continue to like ImmunoGen and I believe the phase II data of TDM-1 in third-line metastatic breast cancer patients will be positive. Results from the previous phase II data were strong, including in patients pretreated with Herceptin and Tykerb in the first and second lines of therapy.

This doesn't mean I'm completely worry free. While I believe the response rate from the upcoming TDM-1 study will be robust, the duration of response also needs to be strong so that Roche/Genentech can make a convincing case for the drug's approval.

I'd also keep close tabs on ImmunoGen's stock price as we get closer to the Dec. 12 presentation date. If the stock runs into the data, the risk of a sell-on-the-news reaction increases, even if the data are strong.

Remember, ImmunoGen only receives a small, single-digit royalty on TDM-1 sales from Roche/Genentech and the market opportunity in third-line breast cancer isn't very substantial. ImmunoGen will have a better chance to earn larger royalties if/when T-DM1 proves to be effective as a second-line or first-line breast cancer drug.

My selection of Genzyme's Henri Termeer as Worst Biotech CEO of 2009 continues to draw praise.

Tom P. writes, "Regarding your "Worst Biotech CEO" story: The topic is like a fat pitch to a home run hitter. I hope you'll write more about the personalities in the biotech world. I'm a clinical psychologist and also do some consulting with businesses and organizations for choosing employees and dealing with problem employees. The worst CEOs among organizations seem to be narcissistic or paranoid personalities whose personality styles (which may have carried them to the top) finally fail them -- they shoot themselves in the foot. The interpersonal and organizational dynamics involved in the FDA approval process are, it seems to me, the perfect field on which such CEOs destructively play out their troubles -- for example, in conflicts with authority (the FDA) or in actions based on their narcissistic notions (common in entrepreneurial MDs) that they (and their drug candidate) are 'exceptions' and deserve special treatment."

Great insight. This means, of course, that biotech investors need to add a CEO psych profile to their normal course of due diligence.

I received a bunch of angry email on last week's takedown of BioElectronics and its ActiPatch pain-relieving electro-magnetic device.

A.B. writes, "Once again you are one cold Bleep for your comments on BioElectronics. YOU will be Bleep with at some future point. Karma is a Bleep, man.

While Paul K., a bit more politely, says, "Obviously, you know nothing of PEMF technology. You forget to mention that BioElectronics holds patent to the technology in a miniature form. The study: It was a head to head study, purpose of which was not to test efficacy (that's been proven) but to COMPARE. They've done blind studies before. When BioElectronics receives marketing clearance in the next few weeks, I expect an apology via one of your articles. Hocus Pocus? Come on. You sir, are a knucklehead."

Let me be very clear. The FDA is not going to grant BioElectronics a medical claim saying that the ActiPatch pain device provides superior pain relief compared to acetaminophen.

This. Will. Not. Happen.

Whether BioElectronics simply ignores the FDA and continues to make unapproved and unsubstantiated pain-relief claims about ActiPatch remains to be seen. Investors should stay away from this penny stock disaster in the making.

-- Reported by Adam Feuerstein in Boston

P&C Insurer Stocks Offer Value, Dividends

Fri, 27 Nov 2009 06:00:00 EST

NEW YORK (TheStreet) -- With financial stocks like Citigroup and Bank of America looking pricey these days, largely ignored property and casualty insurers seem like relative bargains.

Citigroup and Bank of America are trading at 60 and 20 times estimated 2010 earnings, respectively. Meanwhile, as the accompanying chart shows, many property and casualty insurer stocks trade below book value. The eight I've selected all trade below their historic price to book ratios of the last five years.

They look good on a price-to-earnings basis as well, with all except Chubb and Cincinnati Financial , trading below their average price-to-earnings multiples of the last five years. Allstate , ACE Ltd. and Travelers look particularly good vs. their historical multiples.

Despite the attractive valuations, not to mention some healthy dividends, investors couldn't be less interested. Chicago-based Sandler O'Neill analyst Paul Newsome was in New York Monday to talk to investors about the sector, but many wouldn't even meet with him.

"People are focused on virtually anything else but this sector," he said.

The weak economy has taken its toll on insurers like virtually everything else, but Newsome says insurance for individuals, which makes up about half the industry, has been relatively stable.

"Most people, even in a recession, are not going to give up their car, and the same is true for their home," Newsome says. By contrast, a decline in construction activity has caused commercial insurance underwriting business to take a big hit.

Newsome wrote in a report published Monday that investors he spoke with believe the sector lacks a catalyst to take it higher. Newsome believes there could be a catalyst for Allstate, however, in the form of stock buybacks. While he argues the stock looks attractive even if it doesn't buy back stock until 2011, he thinks buybacks could begin as soon as the second half of next year.

Mark Dwelle, an analyst at RBC Capital Markets, believes investors are reluctant to look at the sector now because, having had a good 2009, they don't want to take many risks before year end. A natural catastrophe of some kind anywhere in the world could cause stocks to take a short term hit.

"Things can only go wrong for an insurer between now and the end of the year," Dwelle says.

Dwelle recommends investors looking to get into the sector before institutional money managers repositioning their portfolios for 2010 should look at ACE, Chubb and WR Berkley . He says those companies have a strong record of delivering underwriting profits regardless of how the economy is performing, but will do exceptionally well if the economy gets back to full health.

Whether or not there is an immediate catalyst to lift property and casualty insurers, history suggests investors would do well to take a close look at these names.

"This is as cheap as the sector gets," Dwelle says.

-- Written by Dan Freed in New York.

Gold Miners ETF Stands Out

Fri, 27 Nov 2009 06:00:00 EST

NEW YORK (TheStreet) -- Since its Nov. 11 debut, the Market Vectors Junior Gold Miners ETF has advanced nearly 7% and drawn significant investor interest.

Already, this addition to the gold ETF funds universe has an average daily trading volume of more than 2.8 million shares.

Its popular large-cap predecessor, the Market Vectors Gold Miners ETF, has a three-month average daily trading volume of 12.6 million shares.

GDXJ helps to provide investors exposure to junior gold miners with enormous potential for growth, while helping to minimize security-specific risk.

Because some of the companies in GDXJ's underlying portfolio companies have yet to generate material revenues and operate at a loss, trying to pick individual junior mining stocks can be like playing the lottery. GDXJ's portfolio includes 39 junior gold miners, reducing the impact that the failure of any single underlying component would have on the investment as a whole.

While the number of GDXJ's underlying components helps to temper the risk of this ETF, 46% of assets are dedicated to the fund's top 10 holdings. Investors and prospective investors should, therefore, familiarize themselves with GDXJ's top components. The performances of GDXJ's top five holdings, in particular, have a significant impact on the fund's trading.

The largest holding at 6.41% is Coeur d'Alene Mines.

In addition to being a gold producer, Couer d'Alene is one of the world's largest silver companies. CDE currently has mines in Bolivia, Mexico, Chile, Argentina and a surface mine in Nevada. In addition to owning mining operations, CDE also has non-operating interests in several mines.

New silver mines Bolivia and Mexico are expected to increase cash flow in the upcoming months. According to a recent research report from Knight Capital Group, CDE's production of silver is expected to increase to 18 million ounces in 2009, up 50% from 2008. The opening of Kensington Gold Mine in 2010 is also expected to increase gold production.

The second largest holding at 5.65% is Hecla Mining.

Hecla Mining is involved in the discovery, acquisition, development, production, and marketing of silver, gold, lead, and zinc. With mines located in Idaho, Alaska and Mexico, HL produces and sells lead, zinc and bulk concentrates for custom smelters as well as unrefined silver and gold bullion bars for precious metals traders.

The purchase of Alaska's Greens Creek mine in April 2008 has contributed to increased silver production in 2009. Cash flow from operating activities increased 62% to $32.3 million in the third quarter of 2009, compared to $20 million for the second quarter of 2009. Due to its increased cash position, HL was able to repay all outstanding debt in the fourth quarter of 2009.

Silver Standard Resources is the third largest holding at 5.38%.

SSRI focuses on the acquisition, exploration and development of mineral resource properties, primarily silver, gold, copper, lead and zinc in Argentina, Australia, Canada, Chile, Mexico, Peru and the United States. The company has interests in a number of global mining projects, including an alliance with Minco Silver to pursue silver opportunities in China.

High expenditures and uncertain cash flows make this company a high risk/reward holding. Investment in a new silver/tin mine in Argentina is expected to increase cash flows over the next year.

Rounding out GDXJ's top five holdings are Gammon Gold and New Gold, with 4.97% and 4.56% allocations, respectively. GRS focuses on gold and silver interests in Mexico, while New Gold is involved in acquisition, exploration, extraction, processing, reclamation, and production of gold, copper, and silver.

While investment in "junior" companies, like those featured in the GDXJ portfolio, is inherently more risky than owning an ETF that tracks large-cap gold miners, this fund offers leveraged-like exposure to gold prices. As gold prices continue to soar, GDXJ still looks like an attractive opportunity.

-- Written by Don Dion in Williamstown, Mass.

Yuhe International: China Watch

Fri, 27 Nov 2009 05:00:00 EST

NEW YORK (TheStreet) -- Jason Wang, director of investor relations for Yuhe International, explains the company's process of day-old broiler breeding, what the competitive landscape is like in the industry and what sort of impact the bird flu has on the company's business.

Cramer Responds to Trading Tax Critics

Tue, 24 Nov 2009 17:32:26 EST

The proposed financial transaction tax is generating a heated debate among traders, especially retail investors who fear it will push them out of the market by eroding the often-thin margins they make on their trades.

Much of the heat is being directed at Jim Cramer, who voiced his reluctant support if the tax revenue is used to create jobs in America.

In his response to those who disagree with his position, Cramer provided the following commentary today on RealMoney:

"To those who now despise me for saying that I could live with a transfer tax, understand, I do not want one. I do not favor higher taxes. Taxing trading would be bad for business.
But I am a believer that if we do not create jobs in this country we will fall horribly behind all others in the world. I think we will be doomed to permanently low growth, if no growth at all. I believe that it is incumbent upon everyone to sacrifice at this time.
I repeat, I am not so stupid as to want taxes to cut into profits.
However, for those who are not willing to sacrifice in order to create employment in this country, I say to you that you do not recognize what goes wrong if we don't get employment going in this country.
For those of you who say that I stabbed you in the back by saying that I could live with this tax, let me remind you of something: I can live with any tax IF it helps create jobs.

As part of TheStreet's mission to provide a variety of perspectives on topics important to the trading community, we are also including the following sampling of the emails and comments received about the transaction tax and invite our readers to post additional comments.

Most traders would feel a huge impact from even a tiny tax on trades, so it would increase volatility in the markets by reducing participation by traders. Increasing the capital gains tax, on the other hand, would have only a small effect, because stocks held for the long term don't get turned over frequently -- and if held until death, get their basis stepped up so there's no capital gains tax.

Jim - You have a lot of bashers especially when your calls go bad. I believe you TRY to do your best in providing analysis. As such, I don't place any blame on you since it is up to us to follow it. BUT your position on Transaction Tax is absolutely WRONG. Taking away small profit margins will negatively affect the majority of retail investors. You need to explain to your TV and RM audience why you are a proponent of such an idiotic idea.

If it goes thru it makes the USD stronger so I am totally for it.....makes sense too cuz the tax should be focused not on the small retail investor but all those QUANT FUNDS and FLASH TRADERS that have blew all of us one time or another out of a trade.....so JIM you may want to caveat that concept for Tax Specific Language to protect the small fish but go after the Big Ones...with Europe doing the same thing we could actually pick up some $$ to pay back the Chinese....ouch

People in this country are furious with Wall Street, this tax has a better chance of passing than most people realize. If it were named it the Goldman Sachs Tax. It would then sail through congress.

Jim -- enough is enough with this spending and taxes We elected a boy to be president who never held a job...What jobs did 760 billion dollars create??????

Jim, What if the tax just goes to extend unemployment benefits or the roles of a federal, state or local agency. Doesn't sound like job creation to me and sounds very much like the first so called "stimulus". Chairman Mao would be very sad at this weak attempt at explaining the heart of a democrat.

Why a transactions tax? Why not increase the tax on gains? I don't want to be taxed for taking losses! We are all in favor of sacrificing to create jobs, but this Transactions Tax won't do it. You are wrong this time!

This is one of the dumbest taxes I have ever heard of. I get that we will have to pay higher taxes, but I'd rather pay that from income or sales. Most of the people who pay this tax had nothing to do with the financial crisis. Dumb, dumb, dumb, dumb.

Unfortunately, you are incorrect. I have studied market history to a point where I can see price quotes from 1802, 1826, etc. In each and every instance, the increase in volume caused prices between the bid and ask to shrink and price stability. In many instances where there is low volume, the bid / ask spread could result in a differential of 5%. This was not limited to small cap stocks. Last year when the market collapsed, liquidity dried up and volume was actually abnormally low considering the volatility. What occurred was spread expansion and rapid increases or decreases to a point where a market order or a stop loss on supposedly liquid, large ETFs was catastrophic to the buyer / seller. Any tax will actually create a massive liquidity drain and cause prices to fall and bid / ask spreads to widen. Watch and see!