IBO Stock Indexes Beat Major US Indexes

Despite divergent economic data, all three major indexes managed to gain ground this month. The S&P climbed 1.0%, the Dow Jones rose 0.7% and the NASDAQ increased 0.2%.

On March 29, the Commerce Department revised the fourth quarter GDP growth rate from 2.2% to 2.5%. The change was spurred primarily by escalating inventories of unsold goods and, to some extent, by stronger federal government spending and exports.

Earlier in the month, the Federal Open Market Committee retained its anti-inflation bias and held the federal funds rate unchanged at 5.25%. Increases in food and energy prices continued to push up the Consumer Price Index. Crude oil prices jumped to $65.87 per barrel primarily due to escalating tensions between Iran and the UK. Toward the end of the month, reports showed personal income for January was much higher than anticipated, while jobless claims continued to fall, further adding to inflationary pressure.

Equity investors largely reacted to persistent housing market and inflation risks. On March 13, news of increased sub-prime mortgage defaults led the Dow to retreat 242 points. The Consumer Confidence Index fell to 107.2, from a downwardly revised 111.2 for the prior month. Adding to uncertainties, on March 30, the US government declared it would impose duties on imports of coated paper from China, triggering fears of trade restrictions.

For the quarter, the Dow is down 0.9%, while the S&P 500 and NASDAQ have gained 0.2% and 0.3%, respectively.

Relative to the major US indexes, all four IBO Indexes showed strong results. The Process/Metrology/Motion Instrumentation and Lab Consumables/Equipment Indexes posted the greatest returns, up 4.0% and 3.2%, respectively. The Instrumentation and Diversified Instrumentation Stock Indexes improved 2.9% and 2.1%, respectively.

Laboratory Instrumentation Stock Index

For the month, the Laboratory Instrumentation Index climbed 2.9% to close at 553.46. Twelve companies were in positive territory, nine companies declined and one remained flat. Cepheid experienced the biggest one-month gain, climbing 49% to $11.88, followed by Affymetrix and Bruker BioSciences, which each gained 17%. CombiMatrix and Illumina suffered the biggest losses, sliding 17% and 13%, respectively. Molecular Devices was removed from the Index following its acquisition by MDS. For the first quarter, the Index advanced 2.6%, with fourteen companies gaining and eight companies declining.

Cepheid benefited from receiving FDA clearance to market the Xpert EV test for meningitis. In addition, speculation that Cepheid could win a contract to provide staph-infection tests for the Veterans Administration hospitals helped push the stock price to a new 52-week high on March 28 of $12.27.

Transgenomic gained 14% this month after reporting a much smaller net loss for 2006. The company also reported several key patent discoveries linked to a variety of cancer types. Year to date the stock has gained 60%, but continues to trade on low volume. Affymetrix gained 6.0% on March 14 after receiving favorable judgment on its patent infringement claims against Illumina (see IBO 3/15/07). On March 14, both Robert W. Baird and Leerink Swann upgraded shares of Affymetrix to “Outperform”; concurrently, Thomas Weisel initiated coverage with an “Overweight” position. In spite of the adverse ruling, Illumina closed up 80 cents to $29.63 on March 14. Illumina declined 25% for the quarter, after revising earning projections in the prior month.

On March 8, Deutsche Bank reiterated its buy rating of Applied Biosystems, suggesting that the stock was undervalued. Similarly, on March 26, JP Morgan upgraded Applied Biosystems to “Neutral” from “Underweight.”

Bruker BioSciences continued its upward trend, gaining 17% for the month and reaching a new 52-week high of $10.90 on March 26. Beckman Coulter fell 6.8% on March 26 after announcing the purchase of Biosite for roughly $1.55 billion. The company implied that the acquisition possibly will be financed primarily through debt, and could affect its credit rating. Despite analyst criticism over the rich purchase price for Biosite, Beckman Coulter’s stock traded flat for the month and managed to climb 7% for the quarter. Piper Jaffray downgraded the stock from “Peer Perform” to “Underperform.” Prior to the acquisition, RBC Capital Markets initiated coverage on Beckman at “Sector Perform.” Shares of OI rose 5.8% on March 19 to $11.78 after it secured a contract with the US Army to design a carbon detector for water analysis. On March 12, Robert W. Baird upgraded Waters to “Outperform” from “Neutral.” In addition, this month, Waters was ranked 59th in BusinessWeek’s best performing companies. On March 20, Luminex gained 7% after Thomas Weisel initiated coverage with a “Buy” rating.

Process/Metrology/Motion Instrumentation Stock Index

The Process/Metrology/Motion Instrumentation Stock Index climbed 4.0% in February to 483.63, primarily due to the 10% jump in shares of FEI Company. The remaining six companies were paired with two gaining, two losing and two unchanged. Nanometrics and RAE Systems were the two worst performers, falling 12% and 11%, respectively.

For the quarter, the Index soared 13.1%, led by FEI and Strategic Diagnostics, up 37% and 35%, respectively. Nanometrics led all decliners, falling 15%.

Lab Consumables/Equipment Stock Index

The Laboratory Consumables/Equipment Stock Index rose 3.2% in March to 415.69. Seven of the nine companies experienced share price gains, while two declined. Pall experienced the largest gain, up 10%, while New Brunswick Scientific dropped 9%. For the year, the Index is up 8.9%, with all nine companies increasing. Kewaunee Scientific and Stratagene lead the Index, up 23% and 13%, respectively.

Pall reported better than expected second quarter adjusted earnings of $53.4 million or $0.43 per share (see page 12). On March 2, Pall climbed 7% after increasing its earnings forecast from $1.45 to $1.60 a share.

On March 6, the company announced restructuring plans to close 12 of its 35 plants. Management anticipates operating savings of $40 million by the end of 2008. Pall traded at a new 52-week high of $39.45 on March 23 before ending the quarter at $38.00, up 10%. On March 22, Deutsche Securities upgraded QIAGEN to a “Buy” from a “Hold,” helping the stock climb 5% for the month and 13% for the quarter. New Brunswick Scientific fell 9.4% on March 29 behind lower fourth-quarter earnings.

Diversified Instrumentation Stock Index

The Diversified Instrumentation Stock Index gained 2.9% for the month, with four companies gaining, one declining and Danaher unchanged. Agilent and Mettler-Toledo improved 6% and 4%, respectively, while Teledyne Technologies lost 2%. For the year, the Index remains unchanged, with half the companies improving and the other half losing ground. Mettler-Toledo leads the Index, up an impressive 14%, while Teledyne and Agilent lag, dropping 7% and 3%, respectively.

This month, Agilent announced the acceleration of its existing $2 billion buyback. Notwithstanding a lowered outlook by Moody’s Investor Service to “Stable” from “Positive,” Agilent closed up 50 cents to $32.59 on March 22. On March 2, Friedman Billings upgraded Roper to “Outperform” from “Market Perform.”

International Shares

This month, among the Pacific Region companies, one gained ground, one declined and Shimadzu was unchanged. Techcomp led the Index, soaring 58%, while Hitachi High-Technologies fell 3%. For the year, only Techcomp and JEOL have posted gains, up 44% and 8%, respectively. The other three companies have traded in negative territory. On March 14, Techcomp reported year-end revenue growth of 22.9% (see page 12). Subsequently, gross profits increased to $18.5 from $15.9 million, a jump of 23.7%.

The European companies in IBO’s stock table gained momentum this month, with eight companies showing improvement and six declining. Analytik Jena rebounded 19% this month. Conversely, shares of Robotic Technology Systems retreated 13%. For the first quarter, ten European companies ended with positive returns and four with negative returns. Genetix and Biohit led the way, up 39% and 31%, respectively, while Millbrook and Biotage posted the biggest loss, down 14% and 10%, respectively.

On March 13, Tecan gained 6.6% after reporting strong fourth-quarter profits. On March 12, Whatman announced a dividend of 3.48 pence.

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