3 Stocks Laboring to Survive
The market had two ways to view Friday's employment numbers. They could go with the "glass half full" and say the private sector added 157,000 more jobs, upward revisions were made to the number of jobs created in November and December, and the Institute for Supply Management's manufacturing index jumped to 53.1, well ahead of expectations.
Or they could have chosen the "glass half empty" outlook and note the unemployment rate ticked up to 7.9% while the number of people considered not in the labor force anymore rose to a staggering 89.9 million people. These are people that have given up looking for work and aren't included in unemployment rate calculations, thus masking the real level of joblessness.
The Dow Jones Industrial Average went with the former observation, however, and jumped 147 points for a 1.1% gain, crossing the 14,000 threshold for the first time since 2007. Still, some 40% of the listed stocks across all the major exchanges didn't join the party the Dow was having, and these three were among the notable exceptions.
Now don't go running over the cliff with them like a lemming: it could just be a temporary situation. Let's first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.
Temporarily forgotten in the tumult caused by the failure of its experimental colorectal cancer drug perifosine to meet its primary endpoint in clinical trials a year ago was Keryx Biopharmaceutical's other iron it has in the fire: Zerenex, a treatment for patients with end-stage renal disease who suffer from high serum phosphorus levels. That iron suddenly flared anew last week when the biotech reported the drug met not only its primary endpoints in late-stage trials, but also all of its key secondary ones, too, sending the stock soaring more than 75% in just one day. The results mean if Zerenex is approved, it would have a good chance of successfully taking on already approved therapies from Sanofi and Shire.
With the stock continuing to climb to record heights of almost $10 a share last week -- a substantial gain resulting from the announcement of the Zerenex phase 3 results -- Keryx thought it was a good time to strike and said it would raise capital by offering 8.2 million new shares for $8.49 each. As regularly happens when such below-market dilutive plans are made public, the stock tumbled in part to reflect the changed landscape.
Yet now that it has a promising drug on its hands, investors will have a better entry point if Keryx can successfully navigate the FDA's regulatory labyrinth with its New Drug Application. The money it raises gives it the financial footing it needs to go this last round and investors may look back and thank the biotech for giving them a chance to get in at a new, lower price if they believe in the long-term potential of the drug.
Disconnected from growth
Telecom gear maker Tellabs performed better than expected in the fourth quarter, but weak guidance for the coming quarter doomed its stock. The core mobile backhaul business has been in a secular decline for several years now after its one-time top customer AT&T moved to Ethernet-based solutions provided by Cisco.
That forced the equipment maker to introduce its own Ethernet products, like the 9200 network routing platform it developed in 2011, but it didn't go as planned and Tellabs says it is abandoning the platform along with 300 jobsto cut expenses. As analysts had expected the product to contribute as much as $20 million to the top line this year, its elimination changes their outlook.
While I wouldn't dive in here, Tellabs will be introducing new products and its expense containment initiatives give it an excellent shot at bouncing back because telecoms still need to upgrade their networks. Of course, there's stiff competition for the work and the stock has been on a long, slow decline, so now is the time to prove its mettle. Plans are wonderful -- the 9200 platform, for example, was also going to be a revolutionary product -- but it's results that investors need to see, and Tellabs seems a risky bet.
For mobile game maker Glu Mobile, it was an analyst downgrade by that sent its shares lower, though as fellow Fool Rich Smith points out, the target price is actually above where it currently trades. The more worrisome issue for investors is the amount of cash it's burning through as losses continue to mount, and Rich suspects the analyst simply wanted to correct his previous buy rating before the game maker reports earning next week.
I've never been much of a fan of Glu's "freemium" business model and have had a long-running underperform rating on the company in Motley Fool CAPS. I surmised the stock would come unglued as players resisted the "free to play, pay to play more" model that's undone a number of game makers in the past, and Glu's lost half its value since I first weighed in. But you can tell me in the comment box below if you think it can get back in the game and record some profits to turn things around.
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The article 3 Stocks Laboring to Survive originally appeared on Fool.com.Fool contributor Rich Duprey owns shares of Cisco Systems. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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