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Standing in the Valley of the Shadow of Death...
Dear American Capitalist Reader,
When a billionaire like Carl Icahn discloses a stake in a company, it’s no surprise when the stock launches. That’s what happened to Cyberonics. Icahn disclosed a 2.4% stake and the stock launched by 20% last week. It’s also no surprise that he’ll shake up bad management teams like the one at Cyberonics.
In fact, it may have been Icahn’s presence that forced Cyberonic’s CEO and CFO to resign after an investigation “found that unnamed insiders had incorrectly reported the dates of company stock options for years,” according to USAToday.com. And, according to the company’s general counsel, “the company had under-reported its executive compensation expense by about $10 million and would have to restate its financial statements going back to 1999.” It was only right that the CEO and CFO step down. The action on the part of management was inexcusable.
But when a CEO and CFO leave so quickly, it’s no surprise to hear chatter of a possible buyout scenario, which is just what happened here. While we can’t validate the rumor, there is chatter that Boston Scientific, Abbott Labs or even Medtronic could be interested in buying the company. I wouldn’t hold my breath, though, and would use the recent run-up as an exit point. The good times aren’t likely to last. This is a company that, according to Chron.com, still hasn’t “reported earnings for the quarter that ended July 28, or for the fiscal year that ended April 28.”
Elsewhere, the Street has its version of the “death cross” (the 50-day MA crosses under the 200-day MA). And we have ours, which, for example, called the top of Cummins Inc. (CMI: NYSE) in the early trading hours of Tuesday, October 10, 2006. Here’s how: Shares of Cummins ran north of $137, a $3+ gain after five straight days of gains. But, system in place, we knew the turnaround was coming, given the overbought W%R and Bollinger Band readers. At exactly 10:30 a.m., we issued a buy on December 120 puts. By 2 p.m. the same day, shares of CMI gave back most of its intra day gains plus another $1.80, giving us an overall gain of 45% in just hours.
Have a wonderful holiday weekend.
Ian L. Cooper
Editor, EVS / Early Alert Trader
