Weekly Notes from Paul Resnik, CFA: Jan 4, 2016

Paul Resnik operates Resnik Asset Management Co. (RAMCO), a registered investment advisor.

Overview

Stocks moved lower last week in light holiday-week trading. The Dow Jones Industrial Average dropped 127.14 points (0.72%), the S&P 500 Index declined 17.05 points (0.83%), and the Nasdaq Composite fell 41.08 points (0.81%). For the year, the DJIA and the S&P posted losses of 2.20% and 0.73%, respectively, while the Nasdaq gained 5.73% aided by big gains for large capitalization stocks...notably Amazon, Facebook and Alphabet (formerly known as Google). The impact of handful of large capitalization stocks was evident for the S&P 500 as well where the average stock was down almost 4%. Weather continued to make headlines last week as El Nino related floods pummeled Missouri. While heavy rains in the United States will likely continue to be the focus of news reporting, drought in the tropics will raise humanitarian concerns and food shortages developing in many areas. In other news, Iraqi forces have largely retaken Ramadi in another setback for ISIS; Puerto Rico paid interest on general government obligations on January 1 but skipped some other payments that were due, and Spain's incumbent pro-austerity party has been unable to form a government following the recent election and may need to call for another election.

In the News

When it was announced on October 19 that Oprah Winfrey had taken a 10% stake in Weight Watchers and would join the board of directors and take an active role in promoting the brand the stock rallied 105% to finish the day at $13.92. Winfrey later boosted her stake to nearly15%, including options. Last week Winfrey tweeted an invitation asking her legions of Twitter followers to "come join me," just as many Americans made traditional new year resolutions to start dieting. "Are you ready?" asked Winfrey, premiering a new campaign touting the Company's efforts to help members shed unwanted pounds. "Let's do this together." The stock responded by soaring 27% to close the week up 236% from the October 16 close. The stock now sells at 30 times the consensus estimate for 2016 EPS of $0.75 (vs. an estimated $0.73 in 2015, down from $2.03 in 2014).

Chimerix said on Monday that its oral antiviral drug for the treatment of a certain kind of infection in stem cell transplant patients did not meet the main goal in a late-stage study. Patients taking the drug, brincidofovir, did not experience significant reduction in cytomegalovirus (CMV) infection through week 24 after transplant. CMV is a member of the herpes virus family and remains a significant cause of viral infections in transplant recipients. The Company's CEO stated that "While we are clearly disappointed in the top-line results from SUPPRESS, we remain committed to better understanding the full data set as we consider potential paths forward for brincidofovir." The stock dropped 81% on Monday to $6.62. The stock recovered somewhat later in the week with news that Point72 Asset Management had taken a 5.3% stake in the Company.

The Week Ahead

The economics data releases scheduled for this week include December employment figures which are expected to show the gain in nonfarm payrolls continuing at a rate of about 200,000 with the unemployment rate remaining at 5.0%. The slim earnings calendar includes reports from Monsanto, Bed Bath & Beyond, and Walgreens. Of particular note this week will be the release of the minutes of the Federal Open Market Committee's December 15-16 meeting at which it was decided to increase interest rates. The Treasury auctions scheduled for this week are on: Monday: $28 billion three-month bills and $26 billion six-month bills; and Tuesday: $16 billion one-year notes. The when-issued yields as of Friday afternoon were higher than the last auctions for each of the three issues.

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