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Monday Losers: Acxiom, Aon Corp and VIVUS
By: David Sterman
|Top Percentage Losers -- Monday, July 12, 2010|
|Company Name (Ticker)||Intra-Day Price||
|52-Week High||52-Week Low|
|Acxiom (Nasdaq: ACXM )||$13.28||-8.9%||$19.99||$7.76|
|AON Corp (NYSE: AON )||$35.16||-8.3%||$44.34||$35.24|
|VIVUS (Nasdaq: VVUS )||$10.73||-6.9%||$13.68||$5.56|
*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: VCI ) and Axciom (Nasdaq: AXCM ) 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 group.
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: AON ) are off roughly -8% as the company announced plans to acquire Hewitt Associates (NYSE: HEW ) 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 " one-stop shop " 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. We looked at Orexigen (Nasdaq: OREX ) in late June when that company released impressive clinical trial data. And a few days later, we profiled Arena Pharmaceuticals (Nasdaq: ARNA ) after it had secured a far-reaching - and potentially lucrative - licensing agreement.
For the third player in the space, the sentiment is not quite so positive. VIVUS (Nasdaq: VVUS ) 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 hold.
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.StreetAuthority