Two IBO stock indexes show impressive gains

Instrument Business Outlook, May 31, 2007

May started with upbeat earnings announcements and mergers and acquisitions news that helped sustain the strong April rally. On May 3, better than expected first quarter productivity data and lower than expected labor costs helped push the Dow Jones Index to another record close and the S&P 500 Index to cross the 1,500 mark for the first time since 2000. On May 9, the Federal Reserve announced that the target for the federal funds rate would remain at 5.25%. This reassurance helped push the Dow to a new record close of 13,362.87 and to boost the S&P, NASDAQ, and European and Asian markets as well. However, the next day, reports of weak April retail sales and guidance and a higher trade deficit led to a market pullback. The Dow, S&P and NASDAQ declined 1.1%, 1.4% and 1.65%, respectively. On May 15, the Dow regained some of its previous losses on news of soft inflationary and lower than expected Consumer Price Index data, but the rest of the market declined. Despite favorable data on new home sales and durable goods orders, the market finished in the red on May 24. Ironically, on May 31, with news that US growth slowed to 0.6% in the first quarter, the slowest in five years, the markets edged slightly higher. Mergers and acquisitions and hope that sluggish economic growth would mitigate inflation concerns led the indexes to finish May at or near new highs. For the month, the Dow and S&P 500 climbed to record highs, up 4.3% and 3.3% to 13,627.64 and 1,530.62, respectively. The NASDAQ grew 3.1% to $2,604.52. Year to date, the Dow is up 9.3%, the S&P 500 has risen 7.9% and NASDAQ has gained 7.8%.

Three of the four IBO Stock Indexes ended May in positive territory, while the Process/Metrology/Motion Instrumentation Stock Index slipped 0.1%. The Diversified Instrumentation Stock Index led the Indexes, gaining 5.5%. The Lab Consumables/Equipment Stock Index was up 4.0% and the Process/Metrology/Motion Instrumentation Stock Index gained 1.3%.

Laboratory Instrumentation Stock Index

In May, the Laboratory Instrumentation Stock Index climbed 1.3% to close at 576.11. Following its IPO, STARLIMS (see page 2) was added to the Index. Excluding STARLIMS, 11 companies climbed higher, 10 declined and one remained unchanged. CombiMatrix and X-Rite led the Index, gaining 28% and 20%, respectively, while Bruker BioSciences and Caliper Life Sciences lost the most ground, falling 26% and 19% respectively. For the year, the Index is up 6.8%, with Transgenomic leading the way, climbing 58%, while Symyx Technologies continues to show weakness, down 51%.

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In acquisition news, on May 2, Beckman Coulter increased its offer for Biosite by $5 per share to $90 for a deal valued at $1.67 billion, matching the offer by Inverness Medical. Beckman's stock declined 1.8%. The following day, Beckman announced a dividend payout of $0.16 per share and was upgraded from "Sector Perform" to "Outperform" by RBC Capital Markets, sending shares up 2.3%. However, on May 21, Biosite agreed to be acquired by Inverness after Beckman refused to increase its offer, leading Beckman shares 1.1% higher. On May 16, Bio-Rad Laboratories agreed to buy a 77.7% stake in DiaMed Holding AG for $390 million, with the remaining 12.7% to be purchased through a tender offer. Bio-Rad slipped 0.37%.

For some smaller companies, announcements had a noticable impact. On May 7, CombiMatrix received commitments to purchase $5 million of its Acacia Research-CombiMatrix common stock and warrants in a registered direct offering, sending shares up 12.3%. After the market's close on May 7, SEQUENOM reported a 43% increase in quarterly sales (see page 12), but shares fell 3.9%. However, on May 11, SEQUENOM rebounded 8.1% after Rodman & Renshaw initiated coverage with a "Market Outperform." And, on May 31, the company climbed 3.8% on news that it would provide quantitative gene expression services to the Immune Tolerance Network. Bruker BioSciences declined 28.8% over the first four trading days of the month, after releasing first quarter earnings on April 30 (see page 10). In other news, MOCON increased its quarterly dividend on May 18 by 7% to $0.08 per share, sending shares up 0.8%. On May 16, UBS reiterated its "Buy" rating on Thermo Fisher Scientific and raised the target price, sending shares up 0.8%.

Process/Metrology/Motion Instrumentation Stock Index

The Process/Metrology/Motion Instrumentation Stock Index slipped 0.1% to 486.87 in May. Four companies declined and one traded fiat, while two ended the month higher. MTS Systems recorded the only significant gain, up 3%, while RAE Systems led all decliners, dropping 8%. Year to date, the Index is up 16.2%, led by FEI and Strategic Diagnostics, up 41% and 29%, respectively. Nanometrics has led all decliners, falling 22%.

On May 24, AmTech/JSA Research initiated coverage on Veeco Instruments with a "Buy" recommendation, sending shares 0.9% higher. Near the end of the month, Strategic Diagnostics recorded a significant jump in trading volume with no news or announcements, leading investors to speculate on possible acquisition deals. The largest trading volume was recorded on May 25 when shares increased 4.7%.