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Thursday Winners: Neurocrine Biosciences, Pier One and Winnebago
By: David Sterman
|Top Percentage Gainers -- Thursday, June 17, 2010|
|Company Name (Ticker)||Intra-Day Price||
|52-Week High||52-Week Low|
|Winnebago (NYSE: WGO )||$12.34||+9.7%||$17.43||$6.01|
|Pier One (NYSE: PIR )||$8.24||+2.4%||$9.81||$1.65|
|Neurocrine Biosciences (Nasdaq: NBIX )||$5.49||+1.5%||$5.79||$1.94|
*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 11:00AM Eastern Standard Time . Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.
A Key Positive for Consumer Spending
Raise your hand if you thought demand for mobile homes would snap back very quickly while unemployment remains so high. Me neither. Winnebago (NYSE: WGO ) just announced that it doubled the amount of mobile homes and campers it made in its fiscal third quarter compared with a year earlier. Results were especially lousy last year, but this business is clearly rebounding faster than most expected. Sales of its most expensive "Class A" motor homes were notably robust. That's in keeping with positive retail reports from firms like Saks (NYSE: SKS ) that also cater to the well-heeled set. Winnebago is up +16% on the bullish news.
This marks the second straight quarter that Winnebago has made money, after a six-quarter losing streak. Can it be sustained? Management says that inventories are fairly lean, down -14% from a year ago, and it's increasingly clear that spending has returned among upper income consumers.
What's not clear is how strong a rebound Winnebago can expect. The company routinely earned $1 to $2 a share from 2001 through 2007. To get back to that level, the company needs to hope that the expanded pool of aging baby boomers likes to drive the blue highways. Yet as long as unemployment stays high, customers of more marginal financial means probably need to hold off on such an expensive purchase.
Action to Take --> Look for analysts to raise their 2011 fiscal forecasts from the current $0.54 per share to around $1. Shares appear reasonably priced at around 13 times that figure. It may take several years for per-share profits to move past the $1.50 mark, but long-term investors should find this stock to be a bargain in that context. Shares rose sharply after the last quarterly report, and then fell sharply. This time around, shares should hold their gains -- and then some.
Pier One Follow-up
In early June, we noted that retailer Pier One (NYSE: PIR ) posted impressive sales results, and we anticipated a fairly robust profit report when the company ultimately released quarterly results. The news is in, and it's good: Instead of an anticipated minor loss, Pier One eked out a profit, which is atypical for the retailer in this seasonally slow quarter.
Sales at stores open more than one year rose +14% from a year ago. That's what reduced competition can do for you. And fewer rivals means fewer price wars: gross margins rose a hefty 700 basis points to 37.4%.
Action to Take --> As we noted a few weeks ago, earnings estimates are likely to rise, and shares, even after this morning's 5% gain, are still quite attractive. We stand by our earlier sentiment that "with less competition to worry about, this retailer could keep rising from the ashes, and shares could move into the low teens." That's a +30% to +40% gain from current levels.
A Key Endorsement for Neurocrine Biosciences
For the second day in a row, we're highlighting robust gains for Neurocrine Biosciences (Nasdaq: NBIX ) . On Wednesday, the company secured an impressive agreement with Abbott Labs (NYSE: ABT ) .
A mere day later, Neurocrine has signed another partner to help develop and market a separate promising drug. Germany's Boehringer Ingelheim will pay $10 million now, and up to $225 million later, to help bring Neurocrine's diabetes-fighting molecular research to fruition. This effort is not as far along as the drug being jointly developed with Abbott Labs, so shares are posting a more muted 5% gain, after rising 14% on Wednesday. Yet you can argue that two partners and two promising research efforts make shares even more appealing, as it reduces the odds that the company will strike out as it wends further into clinical trials. A two-trick pony is better than one.
Action to Take --> We suggested Wednesday that "the near-term gains have been made in the stock, and you couldn't be faulted for taking profits." And we were wrong. We added that investors may be able to get in on a share price pullback. Now, such a pullback looks less likely. We're hesitant to place a value on these shares, but this week's flurry of deal-making is pretty darn impressive, and should make Neurocrine a household name among biotech investors.
-- David Sterman
Disclosure: David Sterman owns shares of Neither StreetAuthority and LCC nor the editor hold positions in any securities mentioned in this report..