Among the biggest winners in Thursday’s early trading are Arena Pharma (Nasdaq: ARNA), Christopher & Banks (NYSE: CBK) and BJ’s Wholesale (NYSE: BJS).

Welcome to the third quarter. The second quarter brought little cheer, with the major indices falling roughly -10%, and many individual stocks falling by -20% to -30%. Earnings season will start in a few weeks, and could set the stage for a rebound.

Arena’s Big Contract

For many biotech investors, any drugs that can help reduce the incidence of obesity are seen as a potential home run. And we appear to be on the cusp of several promising new drugs hitting the market. But investors may feel a sense of deja vu. A decade ago, promising obesity drugs proved disappointing once outside of the clinical trials environment, and some, such as the Phen-Fen combo, proved outright dangerous. Earlier this week, we noted the promising clinical trail data for Orexigen’s (Nasdaq: OREX) obesity drug.

Another obesity-focused biotech, Arena Pharmaceuticals (Nasdaq: ARNA) is a big gainer today. Arena just signed a far-reaching licensing agreement with the U.S. arm of Japan-based Easai Pharma. Easai has brought out a very big checkbook. It will give Arena $50 million right away, another $90 million in milestone payments, and more than 30% royalties on all related revenues. The full scope of payments could eventually top $1 billion. That’s more than three times Arena’s market value, even after Thursday’s +7.5% gain. Analysts had been expecting a somewhat larger upfront payment, but the back-end is surely impressive. Eisai will have exclusive U.S. sales rights, while Arena could sell its drug directly or through a licensee elsewhere in the world.

Arena’s drug is known as lorcaserin, and a recent trial with 6,000 patients found that 47 percent lost at least 5 percent of their body weight, compared with 23 percent who lost that much in a comparison group taking dummy pills. The FDA will review the final clinical trial data in September, and could give the green light a month later.

Action to Take –> As noted, Arena has company. In addition to Orexigen, Vivus (Nasdaq: VVUS) is also expected to get FDA approval for its weight-loss drug. That may be why shares are only up +7.5%, and still trade well below the 52-week high. Of the three entrants, the drug with the most effectiveness and the fewest side effects could come to dominate the market.

Arena’s lorcaserin has shown to be a little less effective in terms of the pounds lost, but also appears to be very safe. Although hurdles remain, today’s stock price gain doesn’t nearly account for the long-term value being created by such a drug. Shares are likely to spike once again if the FDA grants approval later this year.

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Oversold in Retail

Investors have been selling off retail stocks for several months on fears that the consumer remains under duress. But as we’ll soon see, some retailers are faring quite well, even in this challenging economy. Christopher & Banks (NYSE: CBK) serves as a prime example. The women’s apparel-focused retailer saw its shares fall from above $10 in mid-May to a recent $6.19. In fact, it had fallen in 11 of the last 12 sessions. That was a seller’s mistake.

The retailer announced Wednesday evening that business is doing just fine. Same store sales rose +5% from a year ago, gross margins are some 500 basis points higher than last year, thanks to better merchandising, and operating income quadrupled in its fiscal first quarter. Per share profits led forecasts by +50%, giving shares a +16.5% boost in Thursday trading. An early read on the second quarter leads management to predict more of the same.

Action to Take –> A +5% sales gain is not especially impressive, but this retailer is making all the right moves, and should see profits really take off once consumer spending starts to strengthen. Shares may be fairly priced at around 15 times (likely upwardly revised) projected 2011 per share profits of $0.50. But earnings appear set to grow at a fast pace in coming years. Shares may find little follow-through support in the near-term as investors remain cautious, but this is a solid long-term growth story.

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BJ’s Finds a Possible Suitor

The financial press has been focusing on a potential surge of deal-making activity from Private Equity (PE) funds. Many of these funds are sitting on lots of cash and are coming up against deadlines that compel them to either spend that money or return it to investors. All kinds of companies have been speculated as PE targets, but the likely candidates need to be the right-size. Really big deals are hard to pull off, especially is external financing is needed. And smaller deals simply are not worth their time. That’s why the rumor that a PE firm may buy retail discounter BJ’s Wholesale (NYSE: BJ) makes plenty of sense. The company’s $2 billion market value is quite manageable (though a deal would need to be closer to $2.5 billion), and BJ’s throws off a consistent $300 million in cash flow every year. PE firms like cash-flow generators, as they can use that cash flow to line up bank borrowings.

Action to Take –>This is more than just a rumor. Barron’s notes that a recent filing by PE firm Green Equity Investors has acknowledged discussions have taken place between the two parties. It’s hard to place a potential value on any deal, though it may not be much higher than the current 52-week high, which was reached today. The +13.5% one-day gain is the largest in BJ’s history. If shares pull back on an absence of further news, shares would be more attractive. Think of $45 or $50 as the highest this PE firm would likely go.