Market holds firm against dip in stocks as more buyers emerge

By Ronda Fears

Nashville, Tenn., July 11 - Convertibles activity remained moderately busy as buyers continued to troll the market for bargains, largely in the biotech and drug areas but also in a few telecom names.

"We've seen quite a lot of activity. Some of the more contrarian investors have been quite active recently," said Jeremy Howard, head of U.S. convertible research at Deutsche Bank Securities.

"We're just sort of holding people's hands, trying to find companies that have been beaten down but have solid balance sheets."

The pickings, as for the down-trodden, were broader Friday as stocks were hit again amid worries about corporate profits.

Despite good retail figures for June, up 1.1% and better-than-expected, consumer sentiment data put a drag on the stock market. The Michigan Sentiment reading for July came in at 86.5, down from 92.4 in June and below the consensus estimate for a reading of 93.0.

The Dow Jones Industrial Average ended down 1.33% while the Nasdaq closed off 0.06%, but it was the worst week for stocks since September when the terrorist attacks on the U.S. rattled the markets.

A convertible trader at a hedge fund in New York said that while the segment of the market with more solid balance sheets are rich right now there also seems to be more interest in higher yielding converts.

"If we can get set up [to hedge the stock], we're looking to boost our yields," the trader said.

"We like a lot of the mandatories because the premiums are lower but we've been looking at some of the busted names, too. Some of the yields are just unbelievable and we really need that right now. It's a matter of getting set up, though."

Several buyside sources have said that investors are looking to get involved with issues that have lower premiums, particularly those who believe that stocks are going to be heading north sometime soon.

Sources said there was notable buying interest in many of the biotech and biopharma names, which are mostly busted.

Inhale Pharmaceuticals, Cephalon, ResMed and Human Genome were among those mentioned.

Inhale's 6.75% due 2006 was quoted up 0.125 point to 61.75 bid, 62.75 asked. The 5% due 2007 was quoted down 1.625 points to 52.875 bid, 54.875 asked. The 3.5% due 2007 was quoted down 1.625 to 45.875 bid, 47.875 asked. The shares ended up 4c to $6.86.

Cephalon's 5.25% due 2006 gained 1.25 points to 87.125 bid, 87.875 asked. The 2.5% due 2006 added 1.125 to 78 bid, 78.875 asked. The stock closed up $1.28 to $40.66.

ResMed's 4% due 2005 were quoted up 0.5 point to 81.375 bid, 81.625 asked as the stock gained 60c to $26.20.

ICN also gained as the stock rebounded from a fall on the company's warning about second quarter results on Thursday. The 6.5% due 2008 added 2 points to 61.5 bid, 62.5 asked with the stock closing up 50c to $9.80.

But Deutsche's Howard said he would be a bit nervous about the ICN situation due to the new management and some uncertainty about what was going on at the company with the old management.

Milan Panic, founder and longtime chairman and CEO of ICN, said he would retire earlier this month following a proxy battle that shifted control of the board to a dissident shareholder group.

ICN Pharma said Thursday it expects second quarter earnings per share of 15c to 20c, well below the analyst consensus for 44c. The company puts revenues at $236 million, versus the consensus $259.17 million, blaming lower sales.

"The bonds look attractive but at this point I would want some more disclosure about the new management versus the old management and what's going on there," Howard said.

"I'm a bit nervous on that one. But, we had lots of inquiries and trades."

Dealers also saw some nibbling in telecom names like Lucent and Nextel.

Lucent's 8% due 2031 was quoted up 3.625 points to 64.125 bid, 64.25 asked with the stock up 21c to $2.56.

Nextel's 4.75% due 2007 was quoted up 1.75 point to 55 bid, 56 asked. The 5.25% due 2010 was up 0.75 point to 49.125 bid, 50.625 asked. The 6% due 2011 gained 2.75 points to 42.875 bid, 43.875 asked. Nextel shares closed up $1.08 to $4.40.

There also was an uptick in Charter Communications as the cable name reaped some benefit to the slight improvement of sentiment late in the week.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.