Thursday, July 23, 2009

Bought 100 VIS at $42.46/ Earnings from T, MMM, KMB & BMY/ Medtronic

1. Bristol Myers (owned): Bristol-Myers released a solid earnings report for the second quarter. Excluding items, the firm earned 56 cents per share, beating expectations by 9 cents. In the 2nd quarter of 2008, earnings were 43 cents non-GAAP. GAAP earnings were reported at 49 cents compared to 36 cents in the year earlier quarter, an increase of 36%. Revenues increased 3.5%. Plavix sales increased 11%, and Ablify saw a 22% spurt in sales. Sustiva increased 11% to 312 million during the quarter. Orencia saw a 40% increase to 148 million. BMY raised its EPS guidance for its fiscal 2009 year to $1.95 to $2.05, excluding items, and the consensus forecast was at $1.92.

Last night, BMY announced an agreement to acquire Medarex (MEDX) for 2.4 billion in cash, a 90% premium to Medarex's closing price on Wednesday of $8.4. Medarex has about 300 million in cash so some news services were adjusting the price to 2.1 billion. This acquisition is anticipated by BMY to decrease its earnings by about 2 to 3 cents in 2009 and 7 to 9 cents in 2010. That dilution is included in BMY's guidance issued this morning.

Medarex has a technology to produce human protein for the production of monoclonal antibodies. The firm has not successfully launched one of its own drugs. It has licensed its technology, referred to as its UltiMAb(R) technology platform, to Johnson & Johnson and Novartis, and will receive royalties from those firms. I believe three products from those two companies have been approved using this technology, including JNJ's psoriasis drug STELARA which was just launched. The Novartis drug is called Ilaris which was recently approved by the FDA for the treatment of a rare autoimmune disorder called cryoprin-associated periodic syndrome. JNJ has another compound called Simponi. Merck has also recently sign a license agreement. Medarex and BMY were already collaborating on a cancer compound called ipilimumab. There was a recent report that two men receiving this drug in a prostrate cancer trial had their tumors shrink dramatically and experienced a reduction in PSA. Medarex has several other compounds in development which are described by Reuters in its "key developments" section. {I find that section from Reuters very helpful to obtain quickly a firm's major new events. It is just organized better than Yahoo Finance's Headlines section, and usually provides good summaries of the major events. After entering the symbol at the main Reuters page, there is a column to the left which contains several options to acquire more information about the company including one titled "key developments".}

While it is too early to tell how successful MEDX's technology will be, this acquisition looks to me like a worthwhile gamble for BMY which is facing a major patent expiration problem with Plavix.

2. Earnings Reports This Morning Were Encouraging: Kimberly-Clark(KMB) issued upside guidance and beat the consensus estimate by 22 cents. 3M beat the consensus by 26 cents and raised the lower end of its guidance range for 2009 to $4.10 from $3.9. KMB's revenues fell 5.6% and MMM had a 15.1% decline, and the bears will focus on that one point. MMM's sales did increase 12.4% on a sequential basis. Currency translation reduced MMM's sales by 5.5%. I would expect a revenue decline during the worst recession since the Great Depression. Considering what has happened, and that conditions are starting to improve, I would call those results good under the circumstances and then concentrate more on the future rather than the immediate past.

3. A T & T (owned): AT&T reported earnings of 54 cents, above the 51 cent forecast, but below the 63 cents earned in the year earlier period. Revenue fell .45%. The firm added a greater than expected 1.37 million wireless customers during the quarter and activated 2.4 million IPhones. The expectation was for 1.08 new wireless customers.

4. Medtronic (owned): An FDA panel unanimously approved Medtronic's heart valve which can be implanted without open heart surgery.

5. Bought 100 VIS at $42.46 (see disclaimer): Prior to today, I intended to buy about 6 grand of preferred securities this morning with the proceeds received from the Baby Berkshire sell yesterday. Instead, I was encouraged enough with the earnings reports this morning to increase my exposure to ETFs which contain U.S. industrial companies. Previously, I had bought XLI, which contains the industrial companies in the S & P 500. Sold out of IR and Bought XLI This morning I bought 100 shares of the Vanguard Industrial ETF, VIS at $42.46 to gain more exposure to this sector and to a larger variety of companies. The Vanguard ETF has a large selection of small and mid cap companies that are not included in XLI which includes only the large cap names. The Vanguard Industrials ETF has an expense ratio of .25% so it is an inexpensive way in my opinion to gain exposure quickly to this sector without having too focus attention on individual names which is time consuming. This ETF has 374 holdings. Vanguard - Fund Holdings This link contains the list as of 3/31/2009:Vanguard - All fund holdings I do have positions in a few of the individual names including GE, which is heavily weighted in VIS at 12% as of 3/31/09Quarter-End Holdings, and Emerson Electric.

J P Morgan predicted earlier this month an industrial intensive recovery, expecting the manufacturing sector to lead the recovery.

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