Ruthanne Williams Roussel submits:

On July 1 Arena Pharmaceuticals (ARNA) announced a US marketing partnership for its late-stage obesity drug candidate lorcaserin with the US arm of Japan’s Eisai, known for gastrointestinal drugs, among others. A well-attended conference call was held before market open, which will be archived on the company’s web site for 30 days.

Reasonable people may disagree whether this is the long hoped-for partnership with Big Pharma by one of the three small-pharma obesity drug developers, ARNA, Vivus Inc. (VVUS) and Orexigen Therapeutics (OREX), all of whom have drug candidates up for FDA review and approval within the next 6 months. While I personally would think of the top dozen or so companies by worldwide revenues when people say "Big Pharma" — Pfizer (PFE) , GlaxoSmithKline (GSK), Roche et al. — Eisai is certainly in or close to the top 20, depending on who’s counting and over what period, and a muscular partner.

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Nicholas Marshi submits:

Kayne Anderson Energy Development Company (KED) announced that its stockholders approved a proposal to withdraw the Company’s election to be treated as a business development company (BDC). Here are the details from the press release:

With the withdrawal of its BDC election, the Company will be treated as a non-diversified closed-end management investment company (“closed-end fund”) under the Investment Company Act of 1940. To withdraw its BDC election, the Company plans to file Form N-54C with the Securities and Exchange Commission as soon as practicable. The withdrawal will be effective immediately upon receipt by the SEC.

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Value Geek submits:

John Paulson’s recent investment in casino stocks piqued my own interest in this sector, and I started looking for value in some of the smaller-cap casino stocks. I believe that with the massive consumer retrenchment last year, 2009, should represent the generational low in casino earnings. Any casino companies that emerged from last year with a clean balance sheet and are still making some profits should be well-poised to gain from an economic recovery, and should be able to withstand even a double dip recession. I found one casino company that met these criteria, the small-cap stock Full House Resorts (FLL).

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Mark Krieger submits:

In April 2008, I featured Bridgford Foods Corporation (BRID) as a possible ten-bagger (Stock Guru’s Peter Lynch’s pseudo baseball analogy to achieving a ten-fold appreciation in a stock selection). Fast forward two years, and it appears that prognosis is turning into reality, thanks to the shares massive dip in March of 2009, to an all time low of $2.50 and then subsequent relentless price appreciation (rallying more than seven fold).The rationale for the jump- an extremely oversold value stock coupled with a tremendous string of earnings improvements.

Now, the company has just come out with impressive third quarter earnings results, with earnings nearly doubling from 10 to 18 cents, on only a 5% sales gain. Catalysts for the big earnings gain were a gross profit margin increase from 40.8% to 43.90% coupled with a 120 basis point drop in SG&A costs to 35.4%. The “cherry on top” was the snack food maker’s ability to grow its cash holdings 21% from $14 million to $17 million, while simultaneouly paying a cash dividend and buying back its own shares.

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Bradley Safalow submits:

At PAA Research, we are firm believers in Edward Leamer’s thesis that "housing is the business cycle". The findings from our most recent report, "A View from the Frontlines of Housing" backed by a survey of approximately 1,000 residential real estate brokers indicates that the housing market is unlikely to recover any time soon. The expiration of the housing tax credit and other fiscal stimulus measures are likely to result in a much slower growth trajectory for the US economy over the next 12-months, perhaps longer. Additionally, the ongoing threat of sovereign debt defaults in Europe, the prospects for slower growth in China, the absence of job growth, and spiraling municipal budget deficits imply that economic growth in the US and for the rest of the world could be below trend for the next several years.

In an environment of lackluster economic growth and capital markets uncertainty we think it is most prudent to focus on individual stocks rather than sectors or even markets. The time for "beta" plays has passed and we think those who can consistently generate "alpha" over the next several years will deliver strong returns. At PAA Research during this period of economic uncertainty we continue to focus on companies that will benefit from secular growth, operate in acyclical end-markets, or are in the midst of a turnaround. To be clear, we’re not recommending to pile into consumer staples, healthcare, and Treasuries and to turn off the lights. We still think there will be plenty of companies that deliver strong revenue, earnings, and free cash flow growth over the next several years. We’re avoiding names with significant exposure to Europe, China, and the housing market.

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Robert Weinstein submits:

Affymax Inc. (AFFY) traded 16 million shares on June 21st, which in itself is not that many for any given stock, but when the whole float is about 20 million shares that is a lot of shares being traded back and forth. Can anyone say HFT (high frequency trading)… ?

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As previously reported in mid-May, movie exhibitor and real estate developer Reading International (NASDAQ: RDI) announced what should be a major near-term catalyst for unlocking substantial embedded value in one of its most highly appreciated real estate development projects, Burwood Square, located in Melbourne, Australia. A unique major liquidity opportunity for buyers is being presented over the next week as substantial RDI shares (approx 1.3 million) are to be sold by Russell index funds. Such funds are completely indifferent to Reading’s value-unlocking activity, but are forced to sell at the end of this week when RDI is deleted from the Russell 2000 index, because it missed this year’s market capitalization cut-off.

Burwood Sale is a Catalyst
A May 16, 2010 article on SeekingAlpha.com, discusses the property and provides URL links to the parcel’s up-zoning and present development plans. A follow-up SeekingAlpha article on May 27, 2010 makes the argument that Burwood’s sale would convert difficult-to-value real estate and sizable hidden unrealized appreciation into easily valued cash, and that if Reading’s real estate value were removed from Reading’s present enterprise valuation, investors get a large geographically diverse movie exhibition business for “free”. (Note, alternatively, monetizing the movie theater business would create long-held and highly appreciated real estate for “free” as well.) That article concludes that, as Reading monetizes Burwood, investors ought to more easily price, via a higher stock price, the intrinsic value of both of Reading’s cinema and real estate segments.

Catalyst realization is in the Near term
A detailed Information Memorandum (a sales “teaser”) on the Burwood Square parcel posted on Reading’s website not only includes some some compelling photos and information illustrating the parcel’s substantial value, but it also sets a near term timeline for the sales process. Submissions of expression of interest and buyer qualifications are due next week on June 28th. Selection of short-listed candidates to participate in the next round of bidding will take place July 5th.

RDI being deleted from Russell 2000 Index on Friday June, 25
On Friday, June 25th, the Russell indices will be recomposed for the coming June 2010-June 2011 year with new members added and some old members deleted. The composition of the Russell 2000 index (a subset of the Russell 3000E) is purely based on market capitalization size on Russell’s cut-off date (May 28, 2010), not any fundamental business assessment of value or prospects. Reading’s closing market capitalization on May 28 placed the company about 40-60 slots below the 3000th ranking company, and thus, Reading has been listed by Russell as one of over 200 companies being deleted from the Russell 2000 index. Note, RDI will remain in the less followed Russell Micro Cap index.

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Graham Summers submits:

On April 27, 2010, I published an article titled, The Small Cap Bubble Is About to Burst. As the below chart attests, I was only off by a few days in nailing the top with that piece. In terms of calling a top while maintaining a publishing schedule, this is about as close to perfection as you can get.

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Nicholas Marshi submits:

The most recently minted Business Development Company (BDC), THL Credit (TCRD), announced its second investment since the April 2010 initial public offering. Today’s deal was unusually secretive, as the quote from the press release below shows, but at least we know that the transaction involved was a recapitalization rather than a buy-out. (The number of true Leveraged Buy Outs going on in this unsettled marketplace is still relatively low, but that’s another subject altogether.)

[THL Credit] announced that it participated in a recapitalization of a leading Midwest-based industrial products company sponsored by a West Coast-based private equity firm. At the request of the company and its sponsor, the terms of the recapitalization and the identities of the parties involved remain confidential.

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Frank Berry submits:

Extreme Networks (EXTR) is a company with a history of delivering high-performance, high-availability Ethernet switching technology. The company’s very first product won Best of Show award at Networld+Interop, and by 2001 Extreme had won the award five consecutive years with one innovative 1 gigabit product after another.

In 2002, the company introduced its BlackDiamond modular switches, which featured leading-edge 10 gigabit technology. By 2002, annual revenues for Extreme rocketed to over $400 million. Between 2002 and 2009 the competition for gigabit Ethernet stiffened as the technology commoditized and a mass migration to 10 gigabit never materialized. Then, after being stuck in neutral between $300 and $400 million, the company underwent an extreme makeover in 2009.

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