Among the biggest losers in Monday's early trading are
Aon Corp (NYSE:
Top Percentage Losers -- Monday, July 12,
Company Name (Ticker)
*Table includes companies with minimum market
capitalizations of $200 million and three month trading
volumes of at least 100,000 shares. All percentage returns
are listed as of 11:47AM Eastern Standard Time . Click on
ticker symbols for up-to-the-minute price quotes and
percentage gain data.
Whither the Advertising Rebound?
Coming out of the recession, many advertising and marketing-related
stocks saw their shares move up sharply. That's because companies
tend to ramp up spending on products and brands as an economy
strengthens. In past cycles, this cycle has lasted for several
years, but this cycle may be moving back down prematurely,
according to analysts at Robert W. Baird. They just downgraded
Valassis Communications (NYSE:
to neutral, pushing their shares down -4% and -9%, respectively.
To be sure, ad spending will be higher in 2010. But previous
forecasts of +5% to +6% industry growth now appear too robust, and
spending may only grow at half that rate. Equally important, while
the industry is expected to grow +5% in 2011, according to
analysts' models, a weak economy may lead to flat growth for the
Action to Take -->
Advertising and marketing-related stocks were a great
post-recession play. It will be interesting to see how far these
stocks fall in this current malaise. If they fall a god bit more,
then we're set up for another strong post-recession rally as
investors start to look out to 2012 and beyond. This is an industry
worth monitoring, in case it really falls out of bed.
Aon's Unpopular Buy
Shares of insurance broker
Aon Corp. (NYSE:
are off roughly -8% as the company announced plans to acquire
Hewitt Associates (NYSE:
for a hefty $4.9 billion -- a +41% premium to Friday's close.
Generally speaking, the larger a premium in a deal, the greater the
hit to shares of the acquirer. And it doesn't help that Aon
predicts that the deal will dampen earnings in the near term.
But in this case, investors may be overlooking the long-term
benefits. The combined entity will be an industry leader in both
insurance brokerage and human resources management. And that's a
great sales pitch when the company approaches clients with a "
" of corporate services.
Action to Take -->
Aon has established a great track record in recent years by cutting
costs, streamlining global operations and boosting
free cash flow
. But in light of the current economic environment, results in the
second half of 2010 may prove disappointing. Although this deal is
a win-win over the long-term, it may take a year or two for shares
to reflect that.
VIVUS has Many Doubters
In recent weeks, we've been talking about three firms that are
hoping for FDA approval for their anti-obesity drugs.
in late June when that company released impressive clinical trial
data. And a few days later,
Arena Pharmaceuticals (Nasdaq:
after it had secured a far-reaching - and potentially lucrative -
For the third player in the space, the sentiment is not quite so
is seen as the least likely to gain approval, as it is simply
pairing a set of drugs that have previously generated safety
concerns. The company hopes that by using the drugs in a lower
dosage format, the FDA will be more tolerant. But as the FDA begins
to review VIVUS' Qnexa drug on Monday morning, shares are down -7%.
And that's an indication of the dubious view that many investors
Action to Take -->
Arena and Orexigen will go before the U.S. Food and Drug
Administration in September, and December, respectively. And their
approaches look more likely to get the FDA nod. Investors focused
on this space should probably steer toward those two names.
-- David Sterman
David Sterman has worked as an investment analyst for nearly two
decades. He started his career in equity research at Smith Barney,
culminating in a position as Senior Analyst covering European
banks. David has also served as Director of Research at Individual
Investor and has made numerous media appearances over the years,
primarily on CNBC and Bloomberg TV. David has a master's degree in
management from Georgia Tech. Read More...
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.