Fed Cuts Rate Again—Trick or Treat?

October ended with the Federal Open Market Committee lowering the interest rates by a quarter-point and the release of a surprising economic report by the US Commerce Department showing a GDP growth rate of 3.9% for the third quarter. Evidently, a nice treat for investors as the Dow Jones, S&P 500 and NASDAQ closed 1.0%, 1.2% and 1.5% higher on October 31, respectively. While the Fed seems relentless in its efforts to calm any economic instability, investors are left deliberating the consequences of soaring oil prices, declining housing markets and a falling US dollar. Moreover, renewed concerns over inflation have minimized the chances of future rate cuts and with it, any hope that the Fed can further influence economic activity. Nevertheless, positive earnings reports, particularly in the technology sector, were compelling enough to overcome disappointing news from the housing market. For October, the Dow, S&P 500 and NASDAQ improved 0.2%, 1.5% and 5.8%, respectively. Year to date, the Dow is up 11.8%, the S&P 500 has gained 9.2% and NASDAQ has jumped 18.4%. Three of the four IBO Stock Indexes benefited from positive third quarter earnings reports, while the Process/Metrology/Motion Instrumentation Stock Index declined 2.2%. The Lab Consumables/Equipment Stock Index jumped 7.3%, while the Laboratory Instrumentation and Diversified Instrumentation Stock Indexes improved 4.7% and 3.0%, respectively. Laboratory Instrumentation Stock Index For the month, the Laboratory Instrumentation Index climbed 4.7% to close at 678.52. Sixteen companies improved, six companies declined and Affymetrix traded flat. SEQUENOM led the Index for the second consecutive month, improving 35%, while Transgenomic declined 13%. For the year, the Index has gained 25.7%, with Cepheid leading the way, up 204%, while Symyx Technologies leads all decliners, down 57%. Despite negatively weighing on the Index, Symyx climbed 38.5% in the two weeks following the purchase of MDL on October 3 (see IBO 8/15/07). However, the stock retreated 6.0% following the company’s earnings report on October 24, despite beating analysts’ EPS expectations by $0.02. On October 23, Waters reported adjusted EPS of $0.62 (see page 12), $0.02 above analysts’ expectations, and raised its 2007 earnings outlook, sending shares up 9.0%. On October 24, Luminex reported revenue growth, but a wider than expected net loss of $0.09 a share due to acquisition costs. On October 25, Thermo Fisher Scientific’s earnings of $0.49 per share (see page 12) beat estimates by $0.02, and it raised full-year adjusted EPS guidance for the second consecutive quarter; however, shares declined 2.0%. Similarly, after the market’s close, PerkinElmer reported slightly better than expected adjusted EPS of $0.33, but shares dropped 5.0% the following day. On October 29, Bruker BioSciences reported EPS of $0.08, which beat earnings estimates by $0.03, leading shares up 5.1%. After the market’s close on October 30, Varian announced quarterly EPS of $0.69 (see page 12), which beat analysts’ expectations by $0.05, and set a lofty earnings goal for fiscal 2008, helping shares climb 7.2% the following day. Other Index companies reported strong earnings, but were less optimistic about future earnings. After the market’s close on October 23, Illumina reported better than expected EPS of $0.24, but estimated that fourth quarter earnings would decline, sending shares down 7.3% the following day. Likewise, on October 30, Beckman Coulter announced adjusted EPS of $0.77, $0.02 above analysts’ expectations, but reported weaker than expected revenues (see page 12). and lowered its full-year earnings outlook, sending shares down 3.4%. The result was slightly worse for Affymetrix as it reported lower than expected EPS of $0.04 (see page 12) after the market’s close on October 24, sending shares down 7.4% the next day. This month, several analysts published recommendations either in anticipation or in response to quarterly earnings. On October 5, Bear Stearns announced a favorable report for the life sciences sector and upgraded Bruker BioSciences to “Outperform” from “Peer Perform.” On October 11, Piper Jaffray initiated coverage of Cepheid with a “Market Perform” rating, but news that AXA lowered its stake in the company led shares down 5.5%. On October 29, Pacific Growth Equities downgraded Luminex to “Neutral” from “Buy.” On October 31, RBC Capital Markets downgraded Beckman Coulter to “Sector Perform” from “Outperform.” Process/Metrology/Motion Instrumentation Stock Index The Process/Metrology/Motion Instrumentation Stock Index declined 2.2% in October to 458.24, with three companies improving and four companies declining. Strategic Diagnostics advanced 25% to lead the Index, while Zygo declined 10%. Year to date, the Index is up 7.2%, led by Strategic Diagnostics, which has climbed 69%. The only positive earnings report for the Index came from Nanometrics, after the market’s close on October 30. The company reported adjusted EPS of $0.11, $0.04 above analysts’ expectations. On October 19, Zygo warned that it would record a loss for its fiscal first quarter, sending shares down 10.8%. After the market close on October 25, the company officially announced a net loss of $0.05 per shares. On October 30, FEI Company reported EPS of $0.31 (see page 12), $0.03 ahead of analysts’ expectations, but lowered earnings and revenue estimates for the fourth quarter, sending shares down 5.8%. After the market’s close on October 22, Veeco Instruments posted a net loss of $0.05 and a decline in revenues (see page 12). On October 23 FTN Midwest downgraded shares of Veeco to “Neutral” from “Buy,” leading shares down 3.7%. Lab Consumables/Equipment Stock Index For October, the Laboratory Consumables/Equipment Stock Index improved 7.3% to 504.76, with six of the seven companies improving and Kewaunee Scientific falling 12%. For the year, the Lab Consumables/Equipment Index continues to lead all IBO Indexes, improving 32.3%, with all seven companies up in double digits. After the market close on October 30, Invitrogen reported adjusted EPS of $1.02 (see page 12), $0.20 ahead of analysts’ expectations, sending shares up 9.4% to a new 52-week high the next day. On October 4, Pall released preliminary fiscal fourth quarter and full-year results, leading Lehman Brothers to upgrade shares to “Overweight” from “Equal-weight.” Likewise, on October 23, Robert W. Baird upgraded Pall to “Outperform” from “Neutral,” sending shares up 6.3%. On October 11, Piper Jaffray initiated coverage of QIAGEN NV with an “Outperform” rating. Diversified Instrumentation Stock Index The Diversified Instrumentation Stock Index grew 3% for the month to 118.61, with four companies improving, Agilent Technologies trading flat and Teledyne Technologies declined 2%. AMETEK led the Index for both the month and year, climbing 9% and 48%, respectively. Year to date, the Index is up 18.6%, with all companies in positive territory. On October 18, both Danaher and AMETEK reported better than expected earnings of $1.01 and $0.53, respectively, and raised their 2007 outlooks. On October 25, Teledyne beat earnings estimates by $0.04 with EPS of $0.75 and boosted its full-year forecast, yet shares declined 4.5%. The following day, Roper Industries traded lower after it announced adjusted EPS of $0.70, $0.01 above analysts’ expectations, and increased its full-year guidance. On October 10, prior to the company’s earnings release, Friedman Billings downgraded AMETEK to “Market Perform” from “Outperform.” Conversely, on October 16, JP Morgan upgraded Agilent to “Overweight” from “Neutral.” International In October, three Pacific Region companies declined, while two companies improved. Following a sharp decline in September, JEOL rebounded 14% to lead these companies, while Techcomp slipped 3%. However, for the year, Techcomp, the best performing company, has jumped 116%, while JEOL has fallen 31%. It was another poor showing for the European companies this month as 10 companies declined and five companies improved. Biotage AG and Millbrook Scientific Instruments declined 23% and 22%, respectively, while Whatman rose 14%. For the year, five firms are in the positive and 10 firms are down. Millbrook has lost over half its value, while Spectris is the only company up in double digits.

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