Wednesday Winners: Neurocrine Biosciences, Sunoco and Ener1

David Sterman's picture

Wednesday, June 16, 2010 - 12:16pm

by David Sterman

Among the biggest winners in Wednesday's early trading are Neurocrine Biosciences (Nasdaq: NBIX), Sunoco (NYSE: SUN) and Ener1 (NYSE: HEV).

Top Percentage Gainers -- Wednesday, June 16, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Gain
52-Week High 52-Week Low
Neurocrine Biosciences (Nasdaq: NBIX) $5.37 +14.7% $5.60 $1.94
Energ1 (NYSE: HEV) $3.66 +7.2% $7.90 $2.75
Sunoco (NYSE: SUN) $34.19 +6.5% $34.97 $21.45

*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 Endorsement

Small biotech firms have two goals: prove that their drugs are effective and safe, and find a large partner to help bring the drugs to market. Neurocrine Biosciences (Nasdaq: NBIX) has met both of those goals in just three weeks. We told you on May 25 that the company’s drug that boosts fertility of otherwise infertile women showed very strong results in Phase II clinical testing. We concluded our assessment by noting that, “A large partnership agreement stands as the next near-term catalyst. Shares should be bought in advance of such an agreement.”

That window has just closed. Abbott Labs (NYSE: ABT) has announced a wide-ranging partnership that will net Neurocrine $75 million now, and up to $500 million more down the road. Neurocrine still must complete Phase III trials, which is often the hardest hurdle to pass. But if successful, this drug should find a fairly large potential market, as no competing approaches exist. The Abbott imprimatur is pushing shares up +10% today.

Action to Take --> The near-term gains have been made in the stock, and you couldn’t be faulted for taking profits if you followed our advice. As time passes, shares may pull back in the face of market weakness, which would create a better entry point.


Sunoco Unlocks Value

Over the last few decades, a wide range of conglomerates sought to break themselves into smaller pieces as they realized that investors failed to fully grasp the value of disparate businesses. This was known as “the conglomerate discount.” Sunoco (NYSE: SUN) has belatedly realized that breaking up is the path to a higher stock price. Shares have fallen sharply from their 2006 peak of $95. But they’re up +8% in Wednesday trading to a two-year high as Sunoco announced plans to spin off its coking business. Coke is a high-grade form of coal used to generate intense heat at steel-making plants.

The coking business was one of the few bright spots on Sunoco’s income statement. It’s oil refinery and gas station businesses have been in the midst of a tough slog, though management notes that operation are improving their as well.

Action to Take --> Sunoco will be increasingly reliant on its oil refinery activities. And that industry has been characterized by very low profit margins thanks to weakening demand for gasoline. As cars and trucks are expected to get even more efficient in coming years, demand for gasoline is unlikely to sharply rebound, making this a fairly unappealing investment.


Good Call, Bad Timing

In late May, we suggested that investors had been too harsh in dumping shares of advanced battery makers A123 Systems (Nasdaq: AONE) and Ener1 (NYSE: HEV).

Shares slumped further from there, but have bounced back nicely this week. Shares of Ener1 are up nearly +5% to $3.60 on Wednesday after a +12% gain on Tuesday. Analysts at Needham & Co. initiated coverage of the stock on Monday with a $6 price target, noting that “the company is positioned to become a major supplier of lithium-ion (li-ion) battery systems into a growing passenger vehicle market.”

Ener1 already has key relationships with Norwegian electric car maker THINK, Volvo and China’s largest battery manufacturer. As production volumes ramp up to support those relationships, Needham’s Michael Lew thinks other auto makers will sign on as customers as well.

Action to Take --> These stocks have taken quite a drubbing and remain close to their 52-week lows. Their outlooks are quite bright, and if you stay focused on the long-term, you may see considerable upside as the electric and hybrid car markets take off.

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of Neither StreetAuthority, LCC nor the editor hold positions in any securities mentioned in this report. in one or more of its “real money” portfolios.