The Mission Report

The MissionIR Report - September 2015

In-depth analysis, timely updates, latest market news


Market News

Company Updates


Goldman Sachs Cuts Oil Price Forecasts

Oil prices continue to sink as the market's surplus has Goldman Sachs warning of the possibility of prices as low as $20 a barrel. Adding to this pressure is news that Saudi Arabia doesn't support holding an emergency meeting of the Organization of the Petroleum Exporting Countries in order to curve the slide, as well as falling activity at U.S. refineries.

In a report issued earlier this month, analysts at Goldman Sachs stated that the global stockpile of oil is larger than originally expected, and the report had a significant impact on the market. As a result, analysts cut their 2016 Brent oil target to $49.50 a barrel, down from $62. However, falling U.S. production is expected to begin sufficiently rebalancing the market in the coming months, with oil prices likely to bottom in six to nine months.

Meanwhile, many U.S. refineries are being taken off line for seasonal maintenance, as demand for crude oil enters an annual slump. The International Energy Agency reported that the ongoing oil-price decline could force the U.S. and other non-OPEC producers to make substantial production cuts next year, potentially falling to their lowest levels since the early 1990s. These actions could lead OPEC to boost output even more.

Despite the turbulence, Saudi officials remain unconvinced that an OPEC meeting would result in concrete action toward defending oil prices. Venezuela, in particular, has pushed for the meeting to take place, as its economy continues to struggle as a result of declining oil prices. Arab oil ministers previously discussed Venezuela's suggestions in a meeting in Qatar, but no official meeting is currently planned.

Expectations for further declines in U.S. production helped offset a larger-than expected weekly increase in domestic crude supplies last week, helping WTI crude prices rally by 4 percent to close out the week. On the flipside, October natural gas prices achieved a weekly gain of roughly 1.8 percent.

Traders Cautious Ahead of Impending Fed Decision

Traders continued to tread lightly at the close of last week with a focus on cutting early losses as they continued to await this week's key decision on interest rates from the Federal Reserve. The Dow Jones industrial average was up about 0.2 percent, with the Standard & Poor 500 and Nasdaq Composite matching pace and remaining relatively flat.

The Fed is set to break from its two-day policy meeting Thursday, and traders aren't willing to make a big bet ahead of the announcement about the first interest rate hike in more than a decade. While the Fed still hasn't released any indication as to whether they will pull the trigger or not, current market conditions are adding to the confusion. Factors that favor a rate hike, such as the strengthening U.S. economy and job market, are countered by factors that argue against it, such as fears rising from the recent Chinese slowdown. All told, Wall Street seems to be at a loss as to what the Fed will decide.

For the moment, investors are firmly focused on the Fed's decision. Low rates have played a major role in the current stock market rally, which began in March 2009, and uncertainty regarding the impact of a rate hike is causing trepidation.

"We expect the focus to turn from China to the Fed next week," Barclays told clients in a research note before last Friday's opening bell on Wall Street. "[T]he Fed decision on 16-17 September looms large, when the Fed will also release updated economic projections, followed by (Fed chair Janet Yellen's) press conference."

Markets around the globe have followed Wall Street's lead, with trading displaying a cautious and weak tone. This caution will likely persist until the official announcement of the Fed's decision later this week.

China is Selling U.S. Debt

With approximately $1.3 trillion of U.S. Treasuries as of June, it's common knowledge that China is the world's largest holder of U.S. debt. However, the recent performance of China's economy has the country in dire need of cash. News recently broke that China had started dumping some of its Treasuries in an effort to support its markets and prevent its currency from a freefall.

In August, China's foreign-exchange reserves plummeted by a record $94 billion, according to the country's central bank, leaving it with a war chest of $3.6 trillion. Analysts insist that a large portion of the decline resulted from a reduction in U.S. Treasury holdings. The selling raises serious concerns about the willingness of Beijing to increase America's borrowing costs in the future.

This pattern may already be underway. While stock market turbulence normally causes investors to rush to the safety of U.S. Treasuries, causing a drop in yields, rates actually rose slightly in late August. While this can partially be attributed to the impending decision of the Federal Reserve regarding a potential interest rate hike, market participants also suspect that the unusual action was driven by China dumping Treasuries.

For China, however, the move is likely its only resort. Selling Treasuries allows the country to buy their own currency, which has been under intense selling pressure in recent weeks. While some are fearful of Chinese efforts to sink the U.S. economy by rapidly unloading its gigantic holdings of Treasuries, those fears don't appear to be at play here.

While not exactly a cause for panic, Beijing's moves do have the potential to make Treasury yields higher than they would normally be. Since these yields are used as a benchmark for borrowing items like credit cards and mortgages, there's some concern that China's recent actions could lead to a slowdown in the housing recovery. The key factor is the amount of cash that China will need to defend its currency and stock market, but no one knows that figure as of yet.

So far, the U.S. is taking China's moves in stride. The yield on the 10-year Treasury note remains steady from a month ago, and demand for U.S. debt remains healthy. For policymakers in Washington, this demand could prove instrumental to future borrowing efforts, as America may not be able to count on its number one lender to gobble up U.S. debt the way it has in the past.

U.S. on Track for Lowest Annual Deficit in Eight Years

The results are in, and the federal government ran a much smaller budget deficit in August that a year ago. With this performance, it remains on pace to record the smallest annual deficit in eight years.

The Treasury Department announced that the deficit in August totaled $64.4 billion, which was a drop of 50 percent from the results of the previous year. Much of this improvement can be attributed to quirks in the calendar, with some $42 billion in August benefit payments being made in July because August 1 fell on a Saturday.

Through the first 11 months of this budget year, the federal deficit remains 10 percent lower than last year's level, and the Congressional Budget Office is forecasting a full year drop of nearly 12 percent as a strong economy continues to provide more tax revenue.

These results continue to build upon what has been strong progress in recent years. For the four years before 2013, the deficit ballooned to more than $1 trillion, as the recession cut into tax revenue and forced increased expenditures on unemployment benefits and a stimulus package. In 2013, these results were cut to $679.5 billion, and, in 2014, the government recorded a similar improvement. If accurate, the CBO's forecast for the 2015 deficit would be the lowest since 2007.

Over the past eight years, huge deficits have ballooned the national debt to its current level of $18.1 trillion, which is just $25 million below the current debt limit set by Congress. While Treasury Secretary Jacob Lew has employed emergency measures to keep the government from going over the debt limit in recent years, he has urged Congress to increase the limit in order to avoid a repeat of the standoff that occurred in 2011.

In addition to facing a fall deadline for raising the debt limit, Congress also faces an October 1 deadline for approving a budget for the start of the new budget year. Without an approved budget, the government would be forced to shut down until the spending impasse is resolved. The last partial government shutdown, which occurred in October 2013, lasted for 16 days.

U.S. Dollar Recording Fastest Rise in Decades

Over the past eight months, the U.S. dollar has strengthened dramatically against all other major currencies. Since the start of 2015, the greenback has gone up about 14 percent, according to Bank of America, and struggling economies around the globe make it likely that this trend will continue moving forward.

The dollar's gains are directly correlated to the strength of the nation's economy in comparison to others around the globe. While Europe is in the midst of a new stimulus program to jumpstart its economy and Japan is following suit, the benefits of a strong dollar are becoming increasingly apparent for Americans.

Sure, the rise of the dollar makes travel a much more affordable option, but the implications don't stop there. Everything from the cost of gas at the pump to profits on American exports are impacted by the recent currency swing. For companies with international operations, such as Coke (NYSE: KO) and Boeing (NYSE: BA), the strong dollar is actually harming their bottom lines, particularly in European markets.

A lot has changed since a few years ago when there were whispers of the euro replacing the dollar as the global currency of choice. Having already fallen to its lowest level since 2003 at just $1.05, the European currency could drop to below $1 within the next year, according to a Goldman Sachs report. In one forecast, the company had one euro dropping as low as $0.80 by the end of 2017.

The domestic economy is doing its part to fuel this growth as well. The job market continues to thrive, growth is gaining steam and the Federal Reserve is currently considering the first key interest rate hike in nearly a decade. Combined with the state of the European economy, this performance is a recipe for additional gains for the dollar later this year.

The travel sector is set to benefit immensely from this performance. In addition to improved exchange rates for U.S. travelers, the strong dollar, coupled with an over-supply of oil, will likely keep gas prices low for the foreseeable future. The drawback of the dollar's rise will be for America's big businesses, which will struggle to sell products abroad because they will become more expensive for foreign buyers. If the dollar continues to appreciate on its current course, this disparity could prove to be an issue in the months to come.

Broader Market Stabilizing Following August Slowdown

The S&P 500 has exited its correction period, and it's currently down about 8 percent from its all-time high. Likewise, many of its market leaders – including Google (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Facebook (NASDAQ: FB), Pepsi (NYSE: PEP), Nike (NYSE: NKE) and Starbucks (NASDAQ: SBUX) – have bounced back to within 10 percent of their 52-week highs. However, some newly public companies are struggling to replicate this recovery.

Former Wall Street darlings, such as GoPro (NASDAQ: GPRO), Fitbit (NYSE: FIT), Alibaba (NYSE: BABA) and Shake Shack (NYSE: SHAK), have recorded significant drops since their initial public offerings. In particular, GoPro, despite recording strong sales figures over recent months, has seen its stock plunge by 45 percent in 2015, down 65 percent from its all-time high.

The lasting impact of last month's meltdown hasn't been constrained to newly public companies. Netflix (NASDAQ: NFLX), American Airlines (NASDAQ: AAL), Macy's (NYSE: M) and Chinese search engine Baidu (NASDAQ: BIDU) are all in bear markets, with each down more than 20 percent from their 52-week highs. These results seem to indicate that investors are unwilling to embrace stocks that were big winners before markets began convulsing earlier this summer.

The Federal Reserve's impending decision on a potential interest rate hike has investors flocking to safer investment options, which has some of the sell-offs cooling down from what were extremely expensive valuations. GoPro, for example, is now valued at 16 times its 2016 earnings forecasts with a long-term estimated earnings growth rate of 15 percent, meaning that the stock seems fairly priced.

While it's true that not every stock that's taken a hit recently is suddenly a bargain, a report by CNN Money indicates that it may be a good time for investors to take a closer look at some fallen angels. With fair pricing in place, the stage may be set for big gains in the coming months.

International Stem Cell Corp. (ISCO)

ISCO recently entered into the second phase of its existing research agreement with Rohto Pharmaceuticals Co., Ltd., a global Japanese pharmaceutical firm. Following the completion of preliminary studies of ISCO's human parthenogenetic neural stem cells (hpNSCs), Rohto acknowledged the consistently high quality of the company's cells and proclaimed them suitable for further use in Rohto's ongoing research. If Rohto successfully demonstrates the efficacy of hpNSCs in rodent models, which could lead to a possible treatment for a variety of degenerative eye disorders, Rohto will enter into negotiations for a definitive license agreement with ISCO to license its proprietary technology for therapeutic and commercial use.

"Based on hpNSCs' known performance in various animal models, we expect that, in the next four months, Rohto will be able to demonstrate the efficacy of these stem cells in treating retinal degenerative disorders," Dr. Ruslan Semechkin, chief science officer of ISCO, stated in a news release.

About International Stem Cell Corp.

ISCO specializes in the therapeutic applications of human stem cells and the development and commercialization of cell-based biomedical products. The company was the first to develop and perfect a new class of human stem cells called parthenogenetic stem cells, created from unfertilized human eggs. ISCO has a strong patent portfolio offering clean intellectual property and freedom to operate. The company's stem cells present superior immune matching capabilities and can be used in millions of people regardless of sex or racial background, with minimal expectation of immune rejection after transplantation.

The company's human stem cells have been shown to be as pluripotent as embryonic stem cells, however their creation does not involve the destruction of a viable human embryo, which effectively sidesteps the controversy and ethical dilemmas associated with the use of human embryonic stem cells. In contrast to induced pluripotent stem cells, ISCO's stem cells do not involve manipulation of cells' genome thereby avoiding potential safety and regulatory obstacles in clinical applications.

The company's scientists are currently focused on using its stem cells to treat severe unmet medical needs of the central nervous system (Parkinson's disease), the liver and the eye, where cell therapy has been clinically proven but is limited due to the unavailability of safe human cells. Once the technology has been clinically validated there are an essentially unlimited number of potential applications. Because of their immune-matching ability, a relatively small number of these stem cell lines could offer the potential of producing the first true stem cell bank as a means of serving populations of different immune types across the globe.

In addition to its therapeutic focus, ISCO also provides a growing revenue stream through two wholly owned subsidiaries. Lifeline Cell Technology specializes in producing primary human cells and growth media for biological research, and Lifeline Skin Care manufactures and markets advanced anti-aging skincare products utilizing the company's expertise in stem cell biology.

Latitude 360, Inc. (LATX)

Just in time for football season, Latitude 360, Inc. recently announced the launch of its highly anticipated daily fantasy football contests through 360 Fantasy Live. Players are able to make their own game plan while choosing from free entry games and wagered game contests as they line up against other players and have the chance to win big money every day. The 360 Fantasy Live platform also includes other exciting sports competitions – including daily Major League Baseball contests, which are currently available for play. Along with the website launch, 360 Fantasy Live was activated in all of Latitude 360's cutting-edge dining and entertainment venues, allowing guests to participate in daily fantasy contests while watching their players perform on huge HD screens.

"We're excited to enhance our current line of offerings with the launch of 360 Fantasy Live, building on the months-long excitement and competitiveness of the NFL season," Brent Brown, chief executive officer of Latitude 360, stated in a news release. "Our mission is to continually evolve the Latitude 360 brand to reach more consumers and build customer loyalty once they step into our venues – all part of an overarching vision to empower our brand and exponentially grow shareholder value."

About Latitude 360, Inc.

Latitude 360, Inc. (LATX) is an award-winning pioneer of dining and entertainment venues that combine premier upscale casual dining with numerous state-of-the-art entertainment choices. The company develops, constructs and operates cutting-edge Latitude 360 venues ranging from 35,000-85,000 sq. ft., packed full of eating and entertainment options that appeal to a broad base of guests, private events and corporate clients.

Through its three current award-winning locations in Jacksonville, Florida, Pittsburgh, Pennsylvania, and Indianapolis, Indiana, Latitude 360 employs roughly 500 talented individuals working to deliver the brand's unique "360 EXPERIENCE" which fuses the magic of exceptional food and beverage with multiple entertainment options in upscale, contemporary-designed venues. Key offerings at each 360 location include a Las Vegas-style live performance showroom, a feature bar featuring the area's top musicians and/or DJs, luxury bowling, dine-in movies, a high-definition sports theatre, a game arcade and luxury cigar lounge and many choices of private meeting space.

In 2014, Latitude 360 launched the first-of-its-kind monthly club membership program, which provides guests with a cache of monthly entertainment assets at a value price as well as exclusive access to a 360 Club Concierge service – all for a monthly fee. The program has quickly grown to more than 5,000 monthly paying members.

Latitude 360 recently expanded its entertainment offerings when it acquired Major League Fantasy (MLF), a leader in the daily fantasy sports industry. By implementing "360 Fantasy Live" into is existing locations, Latitude 360 is making a strong entrance into a rapidly growing market expected to reach $6 billion-$10 billion by year-end 2016. The acquisition of MLF allows Latitude 360 to position itself as one of the first live, multimedia venues to offer in-house, high-stakes, competitive daily fantasy events.

Led by an experienced and visionary management team, Latitude 360 is focused on further expanding its brick and mortar locations and anticipates opening additional 360 venues overseas and domestically in major cities like New York, Boston, Atlantic City and Chicago.

MannKind Corporation (MNKD)

MannKind recently expanded upon its industry-leading management team through the appointment of Dr. Raymond Urbanski as its chief medical officer. Urbanski brings more than 25 years of research, clinical and pharmaceutical industry experience to the MannKind team, having developed numerous new drugs and indications across the fields of oncology, rheumatology, cardiology, endocrinology and immunology. Urbanski will lead the company's overall drug development activities moving forward.

"Dr. Urbanski is a terrific addition to our team and I am very pleased to have a person of his caliber as part of the organization," Hakan Edstrom, chief executive officer of MannKind, stated in a news release. "Ray's experience in drug development across multiple therapeutic areas, combined with his proven leadership capabilities, will be invaluable to us as we drive growth through our product technology platforms."

About MannKind Corporation

MannKind Corporation is a biopharmaceutical company focused on the discovery, development and commercialization of therapeutic products for patients. The company's lead product, AFREZZA®, is a rapid-acting inhaled insulin indication designed to improve glycemic control in adults with diabetes. AFREZZA was approved by the FDA in 2013, and it is currently being commercialized through a global licensing agreement with Sanofi.

Since releasing Afrezza in February, MannKind, along with licensing partner Sanofi, has focused on expanding the marketability of its innovative product and streamlining adoption by securing a spot on insurance formulary lists. Moving forward, this progress will likely greatly improve upon the availability of Afrezza for patients throughout the country. The company has supplemented these efforts with a direct-to-consumer advertising campaign, with featured print ads in high-circulation media publications that reach its target audience.

AFREZZA is built upon MannKind's proprietary Technosphere® formulation technology, which is based on a class of organic molecules that are designed to self-assemble into small particles onto which drug molecules can be loaded. MannKind expects to further utilize this groundbreaking technology in the development of certain drugs that currently require administration by injection, such as GLP-1.

In addition to providing added convenience for patients, MannKind's pulmonary administration platform have been shown to promote rapid absorption into the arterial circulation. As a result, the company is developing a range of other inhalation technologies, including an innovative line of patient-focused, breath-activated, dry powder inhalers and inhalation profiling to characterize patient inhalation.

OurPet's Company (OPCO)

OurPet's Company recently received the "Best New Cat Product" award for its innovative Catty Whack® toy at the pet supply industry trade show, SuperZoo. The Catty Whack is an unpredictable game of hide and seek designed for cats of all ages. Cats love the electronic RealMouse® sound, and the toy's carpeted scratching area allows feline friends to groom their claws in a thoroughly satisfying way. The new toy is expected to be available to the pet specialty market in October.

"The Catty Whack allows for pet parents to nurture their cats' natural instincts and combine interactive play with independent play so your cat never feels alone," Gabriella DeSantis, vice president of marketing at OurPet's, stated in a news release. "Everyone knows cats love to play with feathers, but the Catty Whack takes the cat and feather experience to a whole new level."

About OurPet's Company

OurPet's Company develops, produces and markets various accessory and consumable pet products designed to awaken pets' natural instincts. Sold exclusively through pet specialty retailers, the company's products are marketed under a collection of industry-leading brand names – including OurPets®, Pet Zone®, Play-N-Squeak™, Cosmic Catnip™, Go! Cat! Go!® and Clipnosis. In total, OurPet's has an intellectual property portfolio featuring more than 225 individual patents, giving the company sustainable access to the pet products industry for the foreseeable future.

In recent years, the U.S. pet products and services market has experienced strong growth, with total sales accounting for approximately $73 billion in 2014, according to a report by Packaged Facts. In 2015, this strong performance is expected to continue, building on the recent rise in related ecommerce purchases, as well as an uptick in dog and cat ownership throughout the country. In order to capitalize on this market performance, OurPet's has continued to expand upon its product line in recent months, introducing both the Catty Whack® and the Zoom Plume™ products at the Las Vegas SuperZoo convention for pet retailers.

In the second quarter of 2015, OurPet's successfully leveraged the strong performance of the pet products and services market to record promising financial results. The company achieved record net revenue, increased margins and made considerable progress toward implementing its dual-brand strategy during the period. Additionally, OurPet's achieved a 77 percent year-over-year increase in net income, recording more than $262,000 for the quarter.

OurPet's, through its innovative and extensive line of popular pet products, is in a favorable strategic position to continue building upon its recent market growth. For prospective shareholders, this positioning makes the company an intriguing investment opportunity in the months to come. Look for OurPet's to capitalize on steady market performance moving forward, providing an opportunity for the company to realize strong investor returns in the future.


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