Up-Trend Outlook: ARNA, LMNX, PAET

Trends, Charts and Exclusive Opinion

Three ‘Watch Closely’ Stocks for a ‘Buy on the Dips’ Opportunity

ARNA: Analyst Says ‘Don’t Short’ While Drug is Under Review

LMNX: Posts Record Consolidated Revenues for a Quarter

PAET: First in a Series of New Data Centers to open in June 2010

Gaining 2.56% this morning is Arena Pharmaceuticals Inc., (ARNA) http://www.arenapharm.com/ currently trading in the $3.06 range. A SmallCap, ARNA trades like a Mid-Cap with a 3-Month average daily trading volume of 1,720,970 shares. That’s a lot of interest on a $290 million market-cap. ARNA has a 52-week high of $7.42 set on 02-12-09. ARNA was a $7+ stock a year ago, but by May had fallen to $3. ARNA had a nice summer rally with a 4-Month floor of $5, but in Oct, once again began a steady decline down to $3. This stock likes $3, but it has shown very strong support at $5 and a propensity for spiking into the $6-7 range.

ARNA is a near-term (3 Mo) ‘Watch Closely’ consideration for me. At its current price, I’m very tempted to say a ‘buy’ consideration outright, but I think following it closely for a month –or three- would be prudent. I would also like to see some more of the short-sellers get out to their release downward pressure. Here’s what I mean...

Late Wednesday, a Rodman & Renshaw analyst upgraded shares of ARNA saying investors should not take short positions on the stock while regulators review its obesity drug candidate Lorcaserin. Elemer Piros raised his rating on the shares to “Market Perform” from “Market Underperform.” Investors who short a stock are betting the shares will fall, but Piros thinks ARNA shares could trade higher as the FDA prepares to make a ruling on Lorcaserin. I think Piros is absolutely right. The pitfalls of investing in Pharmaceuticals before a ‘green light’ on a drug candidate are well known.

On a public float of approximately 86+ million shares, ARNA has a short percentage ratio (as of 01-15-10) of over 34%. That’s huge. From December to January the number of shares short did decline; which is encouraging and like I said is what I would watch before making a ‘buy’ consideration. The trick of the tale is that if an approval comes, the stock will find that $5 level again and believers will be rewarded and shorters will be buying up everything to cover their loss. The stock could top 2 million shares traded in a day.

ARNA is one of three companies seeking FDA approval for a new type of obesity drug. While ARNAs Lorcaserin appears to be the least effective; it is also appears to be the safest. When it comes to the FDA, I’m anecdotally going with ‘safety’ and it may be the precedent choice. But all things at ARNA are not Lorcaserin... the pipeline at ARNA (available at their web site) is full of drug candidates in all various trial phases that are aimed at: insomnia, diabetes, pulmonary hypertension and narcolepsy. Shorters beware.

Gaining 6.17% this morning is Luminex Corporation (LMNX) http://www.luminexcorp.com/ currently trading in the $14.61 range. LMNX has a 3-Month average daily trading volume of 336,421 shares. LMNX has a 52-week high of $22.83 set on 02-05-09 (one year ago today). LMNX has trailing twelve month revenues of $110+ million and it lost a penny in diluted EPS during that corresponding period. LMNX, on a public float of 37+ million shares also has a lot of short-sellers, but insiders are heavily vested in the stock and so are institutions to counter the balance. LMNX fell off its high to $15 in March before establishing a $16 range floor with 3 substantial spikes into the $18 range In Oct, LMNX dipped to $13 where it has made a slow climb upward to its current level. LMNX is a near-term ‘Watch Closely’ consideration for me with a strong leaning toward ‘buy’ at this price level.  

Yesterday, LMNX reported its Q4 2009 results and posted a revenue growth of 35% y-o-y for the quarter ended December 31, 2009, (a record) and a FYE 16% growth rate; very impressive in the midst of the ‘great recession’. LMNX makes and sells biological testing technologies and delivered record system revenue of $9.3 million for Q4 09, an increase of 26% y-o-y. LMNX posted FYE results for system revenues at $30.7 million, a 9% increase over FY 2008. GAAP net income for Q4 09 was $20.0 million or, $0.49 per share, basic. For the year, GAAP net income for 2009 was $17.7 million or $0.44 per share, basic, vs. 2008 net income of $3.1 million or $0.08 per share, basic. What a jump! ‘Watch Closely’.

Gaining 5.46% this morning is PAETEC Holding Corporation (PAET) http://www.paetec.com/ currently trading in the $3.09 range. PAET has a 3-Month average daily trading volume of 620,514 shares. PAET has a 52-week high of $4.52 set on 10-08-09. PAET is widely held by insiders and institutions. PAET was trading below $1.50 a year ago, but a strong summer rally brought the stock into the 3.50 range before leveling out for 4-Months at a $2.50 floor. In Sept PAET shot up to the $4.50 range and kept that support (with one significant) until it fell to $3 in Jan. PAET is a short-term (6 Mo) ‘Watch Closely’ consideration for me as I do believe the Company is in a ‘growth stage’ and can reclaim the level of its high in the next 3-Months.  

PAET said yesterday it will open a new data center in Andover, MA, approximately 24 miles north of Boston. In addition to the existing PAET data centers in Bethlehem and Conshohocken, PA, this is the first in a series of new centers the Company is planning to open nationwide over the next 5 years. An analyst recently downgraded the stock on concerns about sluggish growth and debt. I’m not clear about PAETs immediate debt concerns (PAET will release its Q4 FYE 2009 results on Tuesday, February 16, 2010) but new data centers and the Company’s recent sale of its award-winning PINNACLE Communication Management Suite of software to the University of Pennsylvania (New Revenues) suggest a different view of PAET; which I hold. I think PAET is growing.   

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