Transocean gains on Gulf progress; Human Genome, Microsoft up with market; Alcoa moves higher

By Kenneth Lim

Boston, July 12 - Transocean Ltd. convertibles gained on Monday as crews made progress in trying to capture more leaking oil in the Gulf of Mexico and the government prepared to revise its offshore drilling ban.

Human Genome Sciences Inc. continued to improve despite some weakness in its stock, as its convertible remained buoyed by a positive research report from before the weekend.

Alcoa Inc. gained ahead of its second-quarter results on expectations of a positive quarter for the aluminum producer.

The convertible market in general had a positive day as investors returned from the weekend. Trading volumes were robust across a broad range of names ahead of earnings season, one desk analyst said.

"Not a horrible day in terms of volumes," the analyst said. "It was pretty active."

The biggest theme in the market was corporate earnings, and some of the trading may have been in anticipation of results. Beyond that, the market had no major driving force.

"There's nothing overriding," the analyst said. "Maybe people just getting set up ahead of earnings, which are expected in the next couple of days. And no more World Cup."

Other names seen trading included Microsoft Corp.'s zero-coupon convertibles due 2013, which improved slightly with its stock at 101 versus a stock price of $24.70. The Redmond, Wash.-based software giant saw its common stock improve by 2.31% or $0.56 to close at $24.83 per share.

Transocean gains

Transocean's 1.625% series A convertibles due 2037 added about a point outright to trade at 98.25, while the 1.5% series C convertibles due 2037 also gained a point to change hands at 88.75.

Transocean's common stock closed at $54.06 apiece, up by 4.3% or $2.23.

The company is a Vernier, Switzerland-registered offshore drilling contractor.

"All those names continue to move up," the analyst said.

Transocean was trading in line with its underlying equity, a sellside trader said. The stock benefited from two potentially positive pieces of news on Monday.

Crews working on the oil leak in the Gulf tried to install a new containment cap over the well during the weekend. On Monday, the work appeared to be progressing smoothly, and BP plc said it planned to test the system to see if it could totally stop the flow of oil.

"RIG's outlook depends on how soon they can stop this leak," the trader said. "Any good news on the leak is good news for RIG, so this was definitely positive for the stock."

The White House also announced on Monday that it planned to announce a revised moratorium on offshore drilling later in the evening. The previous ban was recently rejected by the courts.

"I think there's a bit of optimism there," the trader said. "The previous ban was too restrictive, so now they have to change it a little, so there's a small possibility that they could loosen the rules a little."

Investors may feel that they have nothing to lose with a new ban, the trader added.

"Look, right now basically there's no drilling at all, period," the trader said. "There's nothing but upside on this issue. They can't stop even more drilling when there's no drilling going on."

Human Genome gains

Human Genome continued to benefit from a positive research report issued before the weekend.

Its 2.25% convertible due 2011 gained about 3 points to change hands at 173.5 versus a common stock price of $25.25.

Common shares of Human Genome, a Rockville, Md.-based biopharmaceutical company, lost 4.36% or $1.10 on Monday to close at $24.13 per share.

On Friday, Citi Investment Research analyst Yarron Werber reaffirmed a "buy" rating on the common stock and named it a top pick. The analyst said an overly depressed share price and a positive outlook on the company's lupus drug candidate make the equity a bargain. The company could also be an attractive takeover target.

A convertible trader said the name had benefited from the report and added that the convertible was an attractive if uninteresting piece of paper.

"It's in the money, so you're capturing all the upside," the trader said.

"The only problem is that it's not very interesting right now, although some might say that's a good thing."

Alcoa rises with eye on earnings

Alcoa's 5.25% convertible due 2014 rose by about 2 points outright to 183 against a common stock price of $10.95.

The stock slipped 0.64% or $0.07 to close the day at $10.87 a share.

Pittsburgh, Pa.-based Alcoa is an aluminum producer.

"I think people are setting up for their results later today," one sellside analyst said Monday before earnings were released.

"I would say expectations are for a decent quarter, but nothing spectacular."

Alcoa said after the market closed that it earned $136 million, or 13 cents per share, in the second quarter. The company lost $454 million, or 47 cents per share, in the year-ago period.

Street expectations were for earnings of 11 cents per share.

The company cited improved industrial demand and raised its estimate for aluminum use for the year.

Alcoa's growth came despite a drop in aluminum prices that had created concern among investors.

"Aluminum prices took a pretty big hit in the second quarter, so a lot of people are expecting some disappointment in their numbers," the analyst said.

"It's not going to be as bad as last year when the crisis was at its worst, and I do think they're going to return to profitability, but it probably won't be great numbers."

Mentioned in this article

Alcoa Inc. NYSE: AA

Human Genome Sciences Inc. Nasdaq: HGSI

Microsoft Corp. Nasdaq: MSFT

Transocean Ltd. NYSE: RIG

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