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Top 10 Medical Stocks To Own Right Now

Yesterday, our Under the Radar Moversnewsletter suggested small cap Viveve Medical Inc (NASDAQ: VIVE) as a short/bearish trade:

This downtrend just firmed up with the “second wind” effort evidenced in just the past couple of trading days. After finding support for the better part of September and October, the floor finally broker in late October. A bounce started to take shape in early November, but all it took was a bump into the 20-day moving average line to put the pullback back into motion. Today’s and yesterday’s bar we’ve seen opens and closes at the lower end of the trading range, and so far today we’ve seen a lower low and lower high on very strong selling volume. Let’s just take the hint at face value.

Our Under the Radar Moversnewsletter has a more detailed discussion about Viveve Medicals technical chart along with a potential short/bearish trading strategy:

Top 10 Medical Stocks To Own Right Now: KongZhong Corporation(KZ)

Advisors’ Opinion:

  • [By Monica Gerson]

    The list of below stocks is notable as the shares have traded on sequentially increasing volume spanning the trading days from September 16 to September 20:

Top 10 Medical Stocks To Own Right Now: Best Buy Co., Inc.(BBY)

Advisors’ Opinion:

  • [By WWW.THESTREET.COM]

    Then there was Best Buy (BBY) with a surprisingly strong quarter.

    Many of the losers can be found at the mall, with Gap Stores (GPS) and Abercrombie & Fitch (ANF) continuing to disappoint. The only winner at the mall was Childrens’ Place (PLCE) , but Cramer said he’s not counting out a turnaround at L Brands (LB) .

  • [By Peter Graham]

    The Q3 2017 earnings report for large cap consumer electronics retail stock Best Buy Co Inc (NYSE: BBY) is scheduled before the market opens onThursday (November 17th) as a technical chart shows shares still in an apparent uptrend albeit also appearing to have leveled off or be range bound since mid-August:

  • [By Ben Levisohn]

    The folks at Bespoke Investment Group note that its “Death By Amazon” index, which includesBest Buy (BBY), Barnes & Noble (BKS), Wal-Mart Stores (WMT), and Macy’s (M), among other traditional retailers that have been hurt by Amazon.com’s (AMZN) dominance, has been outperforming since Donald Trump’s election victory:

Top 10 Medical Stocks To Own Right Now: BlackRock, Inc.(BLK)

Advisors’ Opinion:

  • [By Shauna O’Brien]

    UBS announced on Wednesday that it has cut its rating on investment management firm BlackRock, Inc. (BLK).

    The firm has downgraded BlackRock from “Buy” to “Neutral” due to expenses, which are putting pressure on margins. UBS also lowered its price target on BLK to $280, which suggests a 5% upside from the stock’s current price of $266.51.

    BlackRock shares were down $2.51, or 0.94%, during pre-market trading Wednesday. The stock is up 29% YTD.

  • [By Tom Aspray, Senior Editor, MoneyShow.com]

    Some of the emerging market ETFs are already up 7%, so far, this month, as it seems like others are drawing the same conclusions. Robert Kapito, co-founder of BackRock, Inc. (BLK), which has assets of $3.9 trillion, said that “The emerging markets are going to account for about 60 to 65% of the world’s growth over the next 20 years.”

Top 10 Medical Stocks To Own Right Now: Vical Incorporated(VICL)

Advisors’ Opinion:

  • [By Lisa Levin]

    Vical Incorporated (NASDAQ: VICL) shares dropped 22 percent to $3.01 after the company disclosed that its Phase 2 trial did not meet primary endpoint.

Top 10 Medical Stocks To Own Right Now: Brown(n)

Advisors’ Opinion:

  • [By Alex Jordon]

    He already owns a good chunk of NetSuite (N), whose revenue grew 35% last quarter, beating earnings estimates by $0.03 a share. Ellison’s been profiting from the cloud while dismissing its significance. With the Salesforce agreement his company is, too. (Fool)

  • [By Arie Goren]

    On November 5, Oracle (NYSE:ORCL)confirmed that it has finally completed the acquisition of Netsuite (NYSE:N) for $9.3 billion in cash, or $109 per share that the company had initially offered. In my previous article about Oracle, I had suggested that the acquisition of NetSuite, the cloud business application software company, is a smart move by Oracle. What’s more, it is not paying an excessive price for the deal. In fact, Oracle insisted that it will not pay more than what it had first offered despite the resistance from T Rowe Price (NSDQ:TROW)which demanded $133 per share.

Top 10 Medical Stocks To Own Right Now: Rite Aid Corporation(RAD)

Advisors’ Opinion:

  • [By Matthew Smith]

    Speaking of subsectors in the retailing industry we are bullish on, how about the drugstores? They all seem to be running on all cylinders and yesterday Rite-Aid (RAD) had a tremendous day. It was the heaviest traded stock on all of the exchanges and saw its shares rise $0.87 (23.45%) to close at $4.58/share. Rite-Aid is the first among the ‘Big Three’ to report quarterly results so we find it interesting that they saw an increase in same store sales and saw profits driven by generic drugs. We have been told that this is going to be the bottom line driver for the industry via nearly everyone and that it would impact the top line as generics replaced the more expensive branded drugs. We care about earnings growth more than revenue growth, especially when the stall in revenues is due to switching to higher margin product which is purchased for a lower price. The market gets this and is pushing all of these names higher. In hindsight we wish we had been more bullish of Rite-A id earlier, but hindsight is always perfect.

  • [By Benzinga News Desk]

    Shares of Rite Aid (NYSE: RAD) surged to a high of $7.89 following a DealReporter story that Walgreens (NASDAQ: WBA) is close to reaching a deal to satisfy the US FTC, which would involve divestiture of up to 1,000 stores. Companies interested in the Walgreen's assets are said to include Kroger, Albertsons, CVS Health, Kinney Drugs and Fred's.

  • [By Teresa Rivas]

    Rite Aid (RAD) was up more than 15% at recent check, near six-year highs, as its second quarter surprised investors with an unexpected profit.

    The drugstore said it earned $32.8 million, or three cents a share, compared with a year-earlier loss of $38.8 million, or a nickel a share. Analysts were looking for a per-share loss of four cents for the period ended August 31.

    Rite Aids total sales climbed 0.8% to $$6.28 billion, while same-store sales rose 1%, as a 0.3% decline in front-end sales was more than offset by a 1.7% increase in pharmacy sales.

    In addition, Rite Aid also increased its forecast, saying it now expects to earn to between 18 cents and 27 cents a share on sales of $25.1 billion to $25.3 billion and same-store sales of plus or minus 0.5%. The companys EPS estimate is above expectations, while the revenue guidance is in-line with current forecasts.

    At recent check, rival Walgreen (WAG), the nations largest chain, was up 0.5%, while CVS Caremark (CVS), the second-largest drugstore operator, was down 0.1%.

  • [By Ben Levisohn]

    Chase announced that the company will process payments for Wal-Mart on the companys closed-loop network, ChaseNet. We would expect the economics of the deal to benefit Wal-Mart and thus the signing of the agreement and onboarding of another payment processor. The real takeaway for us is that today’s announcement adds one of the largest US retailers by revenues to the growing list of merchants that already accept ChaseNet including: Starbucks (SBUX), Marriott (MAR), United (UAL), Rite Aid (RAD), and Chevron (CVX). Thus, JPMorgan is building scale on the company’s platform and that needs to continue longer term.

  • [By Monica Gerson]

    Analysts expect Rite Aid Corporation (NYSE: RAD) to report its quarterly earnings at $0.06 per share on revenue of $8.40 billion. Rite Aid shares gained 0.25 percent to $8.15 in after-hours trading.

Top 10 Medical Stocks To Own Right Now: Citrix Systems Inc.(CTXS)

Advisors’ Opinion:

  • [By Monica Gerson]

    Benzinga's newsdesk monitors options activity to notice unusual patterns. These large volume (and often out of the money) trades were initially published intraday in Benzinga Professional . These trades were placed during Thursday’s regular session.

Top 10 Medical Stocks To Own Right Now: Liberty Global plc(LBTYA)

Advisors’ Opinion:

  • [By Alex Webb]

    Kabel Deutschland is a key part of Vodafones expansion strategy as the carrier looks for ways to boost revenue and lock in customers with Internet and television offers in addition to wireless service. Kabel Deutschland is the biggest cable company in Germany, Vodafones largest market, and had drawn a rival bid from John Malones Liberty Global Plc. (LBTYA)

Top 10 Medical Stocks To Own Right Now: Silver Bay Realty Trust Corp.(SBY)

Advisors’ Opinion:

  • [By Mark Holder]

    Instead of competing in one-off auctions, the traditional method of acquiring homes and the one preferred by Silver Bay Realty Trust (NYSE: SBY  ) (NYSE: SBY  ) (NYSE: SBY  ) and American Homes 4 Rent (NYSE: AMH  ) (NYSE: AMH  ) (NYSE: AMH  ) , the company is obtaining non-performing loans in pools that include thousands of loans. The ultimate outcome of these different models is unknown, but the market hasso far supported Altisource Residential.

Top 10 Medical Stocks To Own Right Now: Potash Corporation of Saskatchewan Inc.(POT)

Advisors’ Opinion:

  • [By Daniela Pylypczak]

    Morgan Stanley announced on Monday that it has resumed coverage on Potash Corp (POT).

    Morgan Stanley analyst Vincent Andrews stated that the company has assigned the fertilizer stock an “Equal Weight” rating, warning “We remain cautious on the overall potash market, though more because of loose supply/demand fundamentals than because of dynamics in Russia/Belorussia. Potash prices have been moving lower for 8 quarters in a row now (7 of which BPC was fully functioning) and prices were continuing to drift lower in the weeks preceding the BPC break-up (recall Mosaic’s disclosure about lower prices in the Brazilian market on its July 16th earnings call.”

    Potash shares popped 1.55% during Monday’s session. Year-to-date, the stock has fallen 21.35%.

  • [By Cameron Swinehart]

    A diversified agriculture ETF with holdings in a variety of the largest agribusiness companies globally. Holdings include Bunge (BG), Archer Daniel Midland (AMD), PotashCorp (POT) and Deere (DE).

  • [By Jon C. Ogg]

    Potash Corp. of Saskatchewan Inc. (NYSE: POT) was up 25 at $33.12 in Monday afternoon trading. Monday’s gain puts shares up within striking distance of its breakout point from the aftermath this summer that took shares from $38 to $31 and ultimately back under $30 before recovering.

  • [By Chad Fraser]

    The agriculture ETF is heavily weighted toward the U.S., with 45.8% of its assets there, but it is geographically diverse, with exposure to countries such as Canada (9.9%), Switzerland (8.5%), Japan (6.7%) and Singapore (5.1%).

    Potash Cartel Breakup Has Weighed on This Agriculture ETF

    The ETF’s unit price declined in the first half of 2013, partly because of the breakup of the Belarusian Potash Company (BPC), through which Russia’s Uralkali, the world’s No. 1 potash producer, and Belaruskali of Belarus distribute their potash. The market is dominated by BPC and Canpotex, owned by Potash Corp. of Saskatchewan (NYSE: POT), Mosaic and Agrium Inc. (NYSE: AGU).

    Together, the two cartels control 70% of global potash exports, so the breakup of BPC will result in a more fractured market, which seems likely to push potash prices lower. Shares of major potash producers fell sharply on the news, as did Market Vectors Agribusiness ETF due to its potash stock holdings, which include Agrium, Potash Corp. and Mosaic.

Lazard Sees Top Software Stocks That Can Beat Analysts’ Third-Quarter Estimates

With over a month left in the third quarter of 2013, there is still plenty of time for anything to happen. However, the software analysts at Lazard are starting to feel pretty good that some of the top software companies they cover can beat current top-line revenue estimates.

They caution that while the macroeconomic environment is still a cause for concern, those concerns seem to be waning as conditions, especially in North America, continue to improve. They also see U.S. federal spending as on track to be on par with 2012 spending. This may bode extremely well for strong government spending in the third and possibly fourth quarter.

Here are the top software stocks to buy at Lazard that may just top earnings estimates.

Citrix Systems Inc. (NASDAQ: CTXS) is a name that is showing up on top lists around Wall Street. The company is seeing extremely strong cloud software sales growth and recently expanded its strategic alliance with Cisco Systems Inc. (NASDAQ: CSCO) to support data centers. The Thomson/First Call price target for the stock is $80.

CommVault Systems Inc. (NASDAQ: CVLT) announced last week the industry’s first virtual machine (VM) intelligent archiving capability to help enterprises and service providers eliminate VM sprawl and regain control of virtual infrastructure resources. VM sprawl results from pervasive deployment and growth of virtual machines, some of which then sit unutilized long after their useful lives. The consensus price target for this intriguing mid cap name is $88.50.

Red Hat Inc. (NYSE: RHT) is another top stock to buy that may exceed third-quarter estimates. The company provides open source software solutions, primarily to enterprise customers worldwide. With 15.4% earnings growth reported in their fiscal first quarter, sales are booming as its Jboss middleware business drives revenue. The consensus price target for this fast growing company is $58.

NetSuite Inc. (NYSE: N) is the industry’s leading provider of cloud-based financials and omnichannel commerce suites. The company drives earnings growth with a subscription-based business model gives businesses a new way to sell services and products that can result in more predictable revenue streams. The consensus price target for the stock is $91.

Synchronoss Technologies Inc. (NASDAQ: SNCR) may not only beat earnings, but CNBC’s Jim Cramer is touting it as a breakout stock that may be ready to explode for investors. The company provides software-based activation and personal cloud solutions for connected devices. The consensus price target for the stock is $38.

Service Source International Inc. (NASDAQ: SREV) is a small cap name with big possibilities. The company provides recurring revenue management contracts maintenance, support and subscription for technology and technology-enabled health care and life sciences companies. The consensus price objective for the stock is $14.

The Lazard trading desk said that active traders may want to look at software stocks that still had unusually high short interest. Those included Concur Technologies (NASDAQ: CNQR), Tangoe Inc. (NASDAQ: TNGO), Jive Software (NASDAQ: JIVE), Marketo Inc. (NASDAQ: MKTO), VeriSign Inc. (NASDAQ: VRSN) and VMware Inc. (NYSE: VMW). Stocks with high short interest can explode to the upside if the company gets back on track and short sellers are forced to cover.

While the market might be in for some rough weather the next four to six weeks, most firms on Wall Street are positive about the balance of 2013. Investors and traders may want to use any market weakness to add some of the top Lazard stocks to buy to their portfolio. That may prove a winning hand when earnings for the third quarter start to roll in.

Danger Zone: Callidus Software (CALD)

Related CALD Benzinga's Top Initiations UPDATE: Credit Suisse Initiates Coverage on Callidus Software

 

Check out this week’s Danger Zone Interview with Chuck Jaffe of Money Life and MarketWatch.com.

Cloud software provider Callidus (NASDAQ: CALD) is in the Danger Zone this week. We’ve recently highlighted two other Software as a Service (SaaS) companies in Netsuite (NYSE: N) andSalesforce.com (NYSE: CRM), and CALD is a classic story of a bad company riding the coattail of the popularity of cloud computing and SaaS companies. SaaS stocks surged in 2013, and CALD followed the trend, gaining 166% over the past year.

Compared to its competitors, CALD has less scale, inferior profitability metrics, and fishy accounting to boot. The  stock’s valuation is so high that our DCF model can hardly make sense of it. The stock seems to be trading largely on the hopes of an acquisition.

Poor Profitability

CALD has never earned a profit, nor has it ever even come close. 2008 was its best year, when it earned over $100 million in revenue and had profit (NOPAT) margins of -11%. In terms of return on invested capital (ROIC), CALD’s best year was 2011, when it was -25%. In its most profitable year of operation, CALD lost 25 cents for every dollar invested.

CALD looks bad on a cash flow basis as well. The company has had negative free cash flow in five out of the past six years, and it has burned through roughly $75 million in the past two years. CALD has reported positive cash flows in 2013, but that’s due to the $17.5 million in deferred revenue at year-end, a fourfold increase from the year before.

CALD started 2013 with $67 million in adjusted total debt. It managed to reduce that debt by $31 million in 2013 by issuing another 4 million shares, further diluting its stock. The fact that CALD had to resort to issuing further shares to pay back its debt should concern investors. The positive cash flow from deferred revenues is only a short-term patch on what appears to be a very leaky business.

Fishy Accounting

CALD employs multiple accounting tricks to give the illusion of profitability.

Like many unprofitable companies, CALD likes to highlight its “non-GAAP” results, which exclude items like stock-based compensation, restructuring expense, and other non-cash or non-recurring expenses. While I am in support of using non-GAAP measures to analyze profitability (our NOPAT metric makes several adjustments to GAAP net income) investors should be very wary of non-GAAP measures provided by companies. Typically, when companies make up their own profit metrics, they tend to find ways to boost profitability.

CALD uses two main techniques to boost its “non-GAAP” earnings. The first, stock-based compensation, is a widespread practice, especially in the tech industry. While GAAP rules changed to require companies to include stock-based compensation expense in 2005, many companies like CALD continue to exclude stock-based compensation in non-GAAP results. Excluding stock-based compensation expense allowed CALD to boost non-GAAP income by $13.7 million (14% of revenue) in 2012 and $10.4 million (9% of revenue) in 2013. All these outstanding employee stock options constitute a $25 million (6% of market cap) liability for CALD.

The other, more unusual technique CALD employs involves restructuring expense. CALD has incurred restructuring expenses in each of the past seven years with an average expense of $1.6 million a year. According to its filings, CALD has been undergoing restructuring for more than half of its life as a publicly traded company. This typically ‘unusual’ charge for CALD has become usual. Perhaps, they like classifying expenses as “restructuring” because they exclude those costs from their “non-GAAP” income metric.

The surge in CALD’s stock price last year came in part from its return to “non-GAAP” profitability in 2013. CALD reported a “non-GAAP” profit of $1.8 million, most of which is made up of the $1.7 million in restructuring expenses that the “non-GAAP” metric excludes. CALD might classify these expenses as “non-recurring”, but their history suggests otherwise.

Competitive Position

While we’ve compared CALD’s profitability to CRM and N, it actually has set itself up to avoid direct competition with those firms as much as possible. Its Learning, Hiring, Marketing, and Selling clouds aim to fill in the gaps between the enterprise resource planning and customer relationship management solutions marketed by larger companies.

Unfortunately for CALD, it’s not the only company filing those gaps. Numerous small companies compete with CALD as does Oracle (NYSE: ORCL). In fact, ORCL is making a big push into the cloud software space and it seems to view CALD as a less formidable adversary than CRM or N.

Obviously, ORCL has a massive scale advantage over CALD. ORCL spent almost $5 billion on research and development in 2013 while CALD spent just $17 million. Of course ORCL is not spending its entire R&D budget on cloud products, but there’s no question it can outspend CALD by a huge amount.

We’re seeing a growing level of commoditization in the software industry, and CALD looks like a prime candidate to fall victim to this trend. As more firms try to occupy its niche, CALD will struggle to differentiate its product, and it should have real trouble competing with a firm like ORCL on price.

Valuation in the Clouds

CALD pulled back over 20% at the end of last week due to lower guidance, but it remains significantly overvalued. If we assume CALD can achieve profitability next year and reach 20% pre-tax margins by 2019 (same level as IBM), it would still have togrow revenue by 8% compounded annually for 25 years to justify its valuation of ~$11.50/share.

Both the margin assumptions and the revenue growth horizon seem overly optimistic to me. CALD faces too much competition going forward to assume 20% margins, while 25 years is too long of a growth appreciation period for a company in a rapidly changing industry like cloud software.

Figure 1 shows how CALD’s stock price and profitability have reached an unprecedented level of divergence recently.

Figure 1: Stock Price vs Economic Book Value (Zero Growth Value)

CALD_PEBV

Sources:   New Constructs, LLC and company filings

Despite the 20% drop, CALD is still near its all-time high, while economic book value is near its all time low. There has never been a worse time to buy.

Insider Selling Signals a Top

The recent decline is not just a blip for CALD, it’s the start of a long-term downtrend. A look at the insider trading activity for CALD bears out this thesis. Over the past six months, insiders have sold over 200 thousand shares, about 12% of their holdings. Such a large amount of selling does not signal strong confidence in the company’s future.

Shorting a high momentum stock is always a dangerous proposition, but the recent reversal of momentum makes CALD an appealing short candidate. Any further slowdown in revenue growth or profitability, or success from competitors like ORCL, could send the stock tanking.

The only possibility for price appreciation at this point seems to be an acquisition. Rumors have been spreading that CALD could be an acquisition target, but no offers have been made as of yet. I don’t see any company wanting to give CALD much of a premium to its current valuation, but acquisitions are not always rational, so I can’t rule out the possibility. Still, the downside risk in this stock is much greater than the slim chance of a lucrative buyout.

CALD is a great example of the sector trap. When a high growth industry, like cloud computing, catches the market’s eye, the flood of investors sends all stocks higher, even those like CALD that can’t justify their valuations. Look for an even bigger drop in the future as the market value adjusts back to the reality of CALD’s fundamentals.

Sam McBride contributed to this report.

Disclosure: David Trainer and Sam McBride receive no compensation to write about any specific stock, sector, or theme.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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