Last week was Nasdaq’s moment. The index climbed almost 2%, and the Nasdaq 100 index by 2.4%, while the other indices fell slightly. Standard & Poor's technical analyst Mark Arbeter wrote this morning that Nasdaq had crossed an important resistance level last week. What is even more encouraging is the fact that it did so on large trading volumes, which means that the investment institutions are returning to the market. Before Nasdaq reaches its peak of last year, 2,154 points, Arbeter says it must first make it over to records from April: 2,050 points and 2,080 points. He also sees potential for a rather drastic fall in ten-year bond yields, which can only be good for shares. Yield closed at 4.645% on Friday, and Arbeter believes that breaking downward through the 4.59% level will bring yields to 4.3-4.4%.
Among last week’s outstanding rises on Nasdaq was the share of handheld computer and smart telephone manufacturer palmOne (Nasdaq: PLMO), which reporting stunning results that far outstripped the forecasts: $0.32 profit per share, compared with a $0.13 forecast, propelling the share in a 54% orbit. It seems that the digital devices market for private consumers is showing no signs of slowing down quite the contrary. Those benefiting are not only the manufacturers, such as palmOne and Research in Motion (Nasdaq: RIMM), which will publish its results today. The chip manufacturers are also prospering.
Stun gun manufacturer Taser International (Nasdaq: TASR) zoomed 63% last week, which has been raining blows by the day on its many short sellers. On Friday, the share shot up by no less than 19%, after an analyst’s report asserted that starting this summer, the company’s stun gun would be sold to private individuals at the large retail chains.
One of the most prominent manufacturers of chips for the consumer electronic sector is Marvell Technology Group (Nasdaq: MRVL), whose share last week rose above $50 for the first time since 2000, when the company held its IPO, and the share shortly afterwards soared to over $50. The share of Marvell’s rival, Broadcom (Nasdaq: BRCM) also reached its highest level in the past 30 months, rising above $45. Keep in mind that Marvell will carry out a two-for-one split tomorrow, as will Lipman Electronics Engineering (Nasdaq: LPMA; TASE: LPMA) this Friday. I have both shares in my portfolio. Teva, which is not in my portfolio, will hold a two-for-one split on Thursday.
A split has no economic significance; it is designed to increase trading in the share, by doubling the number of shares (in a two-for-one split), and attract new investors with prices that seem lower. In Teva’s case, the split has some economic significance, because in contrast to most Israeli companies traded in New York, Teva customarily distributes dividends, although low ones. If Teva distributes the same per share dividend after the split as before, its dividend, which was $0.10 per share dividend in the past two quarters and $0.075 per share in the two quarters before that, will be doubled.
One event that affected last week’s trading was annual revision of the Russell 3000 Index, which includes the 3,000 largest publicly traded US companies. The nine million Pharmos (Nasdaq: PARS) shares traded on during and after Friday’s trading were a results of the company’s inclusion in the index after trading, which should also affect the share in the coming days. Trading volume in Keryx Biopharmaceuticals (Nasdaq: KERX;; LSE: KRX) was a very heavy two million shares, for exactly the same reason inclusion in the Russell 3000. Savient Pharmaceuticals (Nasdaq: SVNT), on the other hand, which was removed from the index, had an prodigious trading volume of 5.5 million shares. These three companies are registered as American, not Israeli, companies, and the fact that all three deal in biotechnology is a coincidence.
It is estimated that there are index mutual funds with a total of $365 billion that must move in step with the 21 different revised Russell indices, of which the Russell 3000 is the largest. The companies on the Russell 3000 account for 98% of the aggregate value of all public companies in the US. Pharmos and Keryx’s market caps have grown greatly over the past year, and they were therefore added to the index, while the plummet in Savient’s market value led to the share being removed from the index. It’s logical therefore that the Pharmos share rose 9% on Friday, and the Keryx share by 10% for the week. Savient lost 12% on the week, but someone apparently very much wanted to buy the huge share blocs being dumped on Friday, and the share finished the day unchanged.
Next week, on July 6, two other indices will be derived from the Russell 3000. The Russell 1000 includes the companies with the 1,000 highest market caps, while the Russell 2000 is a very popular index, with 2,000 small shares. Either Pharmos or Keryx, or both, may also make the Russell 2000, which will give an even bigger boost to the purchases of these shares by investment institutions. On Friday, the Pharmos share reached its highest point since March 2004. Interest in the share is increasing as publication of the results of the final trial of its Dexanabinol drug for head trauma at the end of this year approaches. Last week, “Forbes” magazine included the drug for the first time on its list of most promising neurological drugs undergoing advanced trials. “Forbes” monitors the drugs on the list on a monthly basis.
”Forbes” says that the brain and all the body systems in the head are a gold mine for pharmaceutical companies, with antidepressants heading the list. 20 million Americans suffer from depression. “Forbes” believes that the annual potential market for Dexanabinol is up to $500 million, if and when the drug is approved. The magazine gives the drug its highest rating for innovation, because as of now, there is no market, and as far as is known, no other drug for head trauma is being developed. Pharmos is holding its annual shareholders meeting tomorrow in its New Jersey offices. Among other things, the meeting will approve increasing the number of certified shares in the company to 150 million. There are currently almost 88 million registered shares. Increasing the number of certified shares will enable management to implement strategic measures in the coming months, such as acquiring companies and/or drugs in development with the company’s $60 million cash reserves, and with the help of the higher share price anticipated once news of a successful trial is published.
Investors should be reminded that nothing about Pharmos is guaranteed. There is also a chance that the trial will fail, in which case the Pharmos share will go a-tumbling. Wall Street recently established an unwritten rule that biotechnology companies like Pharmos, which rest on a single drug undergoing advanced trials, and then announced that the drug was a failure, lose 70% of their value. For example, on Tuesday last week, IntraBiotics Pharmaceuticals (Nasdaq: IBPI) announced that it was halting last-stage trials of its drug. The share plummeted 71%, from $13.68 to $3.95, on Friday. The company called off the trial because of the death of patients, in contrast to a previous trial, in which not one of 800 patients died. Pharmos does not anticipate any such event in its trial, since the trial has already been completed, and only the results are being awaited. Negative results in the trial, however, could cause the same thing to happen to the Pharmos share. Another example is Genta (Nasdaq: GNTA), which Keryx chairman and CEO Michael Weiss managed several years ago. At the end of April, Genta announced that a trial of its anti-cancer drug had failed, and the share has lost 85% of its value since then.
Published by Globes [online] - www.globes.co.il - on June 29, 2004