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NutriSystem packs it on in 2005

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  • NutriSystem packs it on in 2005

    Google, H-P, Celgene, Apple make the hot stock list
    By Ciara Linnane, MarketWatch
    Last Update: 7:10 AM ET Dec. 19, 2005


    NEW YORK (MarketWatch) -- NutriSystem Inc.'s weight-loss regime may be based on prescribed portion sizes, but its stock-market gains in 2005 were hardly enjoyed in moderation.

    The direct marketer of prepackaged diet products has gained an eye-popping 1,500% in value since the beginning of the year, making it the clear leader on the Russell 2000 and the biggest gainer on any major U.S. index.

    An investor who bought 100 shares NutriSystem (NTRI:
    nutri sys inc new com
    News, chart, profile
    Last: 37.30-2.62-6.56%

    9:10am 12/28/2005

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    FinancialsMore NTRINTRI37.30, -2.62, -6.6%) at the end of 2004 would have paid just $285. That investment is worth $4,293 today.

    Eightfold jump in revenue

    To be sure, the Horsham, Pa., company has enjoyed strong growth in the core diet product that it sells via the Internet, by telephone and on the cable-television shopping channel QVC.

    In its latest quarter, NutriSystem generated revenue of $64.5 million, up more than eightfold from $7.7 million a year ago. Earnings soared to $7.2 million, or 19 cents a share, from $121,000, or breakeven on a per-share basis, in the year-earlier period.

    "Fundamentally, we like this company because it serves a mass market (overweight Americans), and because new management has found the key to rapid growth via heavy marketing," said Timothy Lutts, editor of the Cabot Market Letter.

    Analysts at research firm Thomas Weisel are also bullish on the stock, rating it outperform on expectations of strong long-term growth, driven by increasing sales to existing and repeat customers, a more differentiated product lineup and a soon-to-be-announced price hike.

    But research company Stifel Nicolaus is more cautious, rating the stock a hold on the grounds that its business model could easily be replicated.

    The stock is currently trading at almost 65 times the consensus earnings estimate for 2005 -- "a multiple we believe is unjustified," said analyst Scott Devitt.

    Brian Shepardson, portfolio manager at the James Small Cap Fund, agreed and said he would look at scaling back a NutriSystem position at this point, noting that anyone who bought the stock before August has seen that investment at least double. He said he also recommends keeping an eye on insider selling at the company, which has stepped up of late and could gain pace in the new tax year.

    "If you own it, you had a good gain, we would look to start trimming here, and if there was a significant move we'd unload more and more," he said.

    A mixed bag

    NutriSystem's spectacular gains have come in a dreary year for the major U.S. indexes, with the Dow Jones Industrial Average ($INDU:
    Dow Jones Industrial Average
    News, chart, profile
    Last: 10,777.77-105.50-0.97%

    4:30pm 12/27/2005

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    FinancialsMore $INDU$INDU10,777.77, -105.50, -1.0%) up a meagre 0.9%, the Nasdaq Composite (COMP: Nasdaq Composite Index
    News, chart, profile
    Last: 2,226.89-22.53-1.00%

    12:19am 12/28/2005

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    FinancialsMore COMPCOMP2,226.89, -22.53, -1.0%) up just 3.5% and the S&P 500 ($SPX: S&P 500 Index
    News, chart, profile
    Last: 1,256.54-12.12-0.96%

    1:03am 12/28/2005

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    FinancialsMore $SPX$SPX1,256.54, -12.12, -1.0%) adding just 4.6%

    The Dow's lackluster performance is largely due to General Motors Corp.'s (GM:
    General Motors Corporation
    News, chart, profile
    Last: 18.99+0.16+0.85%

    8:36am 12/28/2005

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    FinancialsMore GMGM18.99, +0.16, +0.8%) lousy performance. The auto giant, hit by problems ranging from pension costs to competitive pressure, has lost more than 40% of its value.

    But there have been winners even within the Dow, notably Hewlett-Packard Co. (HPQ:
    Hewlett-Packard Co.
    News, chart, profile
    Last: 28.74-0.03-0.10%

    8:55am 12/28/2005

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    FinancialsMore HPQHPQ28.74, -0.03, -0.1%) , which has tacked on about 43% in 2005, powered by a major restructuring program that has included 14,500 layoffs and a $4 billion share buyback.

    Under the stewardship of Chief Executive Mark Hurd, recruited from NCR Corp. to replace Carly Fiorina in March, H-P posted better-than-expected earnings in its fiscal fourth quarter -- once $1.57 billion in restructuring charges were stripped out.

    Sales rose 7% to $22.9 billion, driven by demand for PCs, servers and storage gear.

    "H-P has definitely had to -- and still has to -- work through some issues, but things were not as bad as people thought when Hurd replaced Fiorina," said Rick Jones, portfolio manager of the BB&T Large Company Value Fund. "They have some really strong businesses."

    Jones believes the stock still has room to move higher, he said, since it's trading at a discount to its peers on most metrics.

    "On a price-to-earnings basis, it looks reasonable. We're looking for more of the same in 2006, which is strong execution, cost control and sales growth, and with new products coming out they can get decent margin expansion," he said.

    Aerospace giant Boeing Co. (BA:
    Boeing Co.
    News, chart, profile
    Last: 70.53-0.96-1.34%

    4:15am 12/28/2005

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    FinancialsMore BABA70.53, -0.96, -1.3%) was the second-biggest gainer on the Dow, ascending about 33.5%, followed by tobacco company Altria Group Inc. (MO: altria group inc com
    News, chart, profile
    Last: 75.15-0.91-1.20%

    8:55am 12/28/2005

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    FinancialsMore MOMO75.15, -0.91, -1.2%) , up 19%.

    Boeing hit a record high Dec. 14 after Australia's Qantas said it would buy up to 115 of Boeing's 787 Dreamliner jets in what is the biggest order yet for the world's largest aerospace company's newest plane model.

    Healthy gains

    The top-performing stock on the Nasdaq 100 was that of biotech company Celgene Corp. (CELG:
    Celgene Corporation
    News, chart, profile
    Last: 57.48-1.12-1.91%

    9:11am 12/28/2005

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    FinancialsMore CELGCELG57.48, -1.12, -1.9%) , up about 126% on the year amid excitement about its Revlimid drug, a treatment for blood and bone-marrow cancer.

    Revlimid has been granted fast-track status by the U.S. Food and Drug Administration, which means the regulator is speeding up its review of Celgene's application to sell the drug to the public.

    The latest data from a Phase III trial suggested the drug can help improve survival rates in patients when used in conjunction with an existing treatment, generating enthusiasm in the investment community.

    "We continue to see upside as the data continue to support the blockbuster potential of Revlimid," said Morgan Stanley analyst Sapna Srivastava.

    Express Scripts Inc. (ESRX:
    Express Scripts Inc Cl A
    News, chart, profile
    Last: 85.38-0.87-1.01%

    9:11am 12/28/2005

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    FinancialsMore ESRXESRX85.38, -0.87, -1.0%) , a provider of pharmacy benefits-management services, is the No. 2 gainer on the Nasdaq 100, adding 124% in the year. The St. Louis company has performed strongly in a sector that's been receiving a lot of attention amid soaring health-care costs.

    Apple Computer Inc. (AAPL:
    Apple Computer, Inc.
    News, chart, profile
    Last: 74.23+0.88+1.20%

    9:11am 12/28/2005

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    FinancialsMore AAPLAAPL74.23, +0.88, +1.2%) takes third place with a 111.5% gain, on excitement about the success of and prospects for the iPod music -- and now video -- player and demand for its flagship Macintosh computer line.

    Apple has been one of the best-performing tech stocks all year. The company initiated a 2-for-1 stock split in February, bringing shares down to just shy of $45, and the stock has since climbed back nearly to its pre-split level.

    Winners on the Web

    No list of hot stocks would be complete without mention of Internet search engine Google (GOOG:
    google inc cl a
    News, chart, profile
    Last: 424.54-6.29-1.46%

    9:11am 12/28/2005

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    FinancialsMore GOOGGOOG424.54, -6.29, -1.5%) , which has gained about 114% in 2005. The stock is up about 393% since its August 2004 initial public offering, which priced shares at $85 apiece.

    The stock joined the Nasdaq 100 on Dec. 19, and analysts remain bullish. CSFB was the most recent brokerage to raise its price target to $475; Pacific Crest Securities and UBS have price targets of $500.

    Google's gains are impressive, yet two other U.S.-listed Internet stocks have actually outperformed it in 2005: India's Rediff.com (REDF:
    rediff com india ltd sponsored adr
    News, chart, profile
    Last: 18.81-0.46-2.39%

    9:11am 12/28/2005

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    FinancialsMore REDFREDF18.81, -0.46, -2.4%) is up about 156% on the year, benefiting from the strong flow of funds into emerging markets, and Internet Initiative Japan (IIJI: internet initiative japan inc sponsored adr
    News, chart, profile
    Last: 11.15-0.40-3.46%

    9:10am 12/28/2005

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    FinancialsMore IIJIIIJI11.15, -0.40, -3.5%) also has outperformed, gaining about 124% on the year.

    Energy boost

    Natural-resources stocks had a stellar year, as underlying commodity prices have surged to multidecade highs if not all-time-high levels.

    The Amex Gold Bugs index (HUI:
    amex gold bugs index equal-$ weight
    News, chart, profile
    Last: 268.54-2.34-0.86%

    9:26am 12/28/2005

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    FinancialsMore HUIHUI268.54, -2.34, -0.9%) struck its highest level ever on Dec. 12, while the Philadelphia Gold and Silver index (XAU: phlx gold silver index capital-weight
    News, chart, profile
    Last: 124.36-0.66-0.53%

    12:06am 12/28/2005

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    FinancialsMore XAUXAU124.36, -0.66, -0.5%) and CBOE Gold index (GOX: CBOE Gold Index
    News, chart, profile
    Last: 115.94-0.47-0.40%

    1:03am 12/28/2005

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    FinancialsMore GOXGOX115.94, -0.47, -0.4%) notched nine-year highs.

    Among the biggest gainers in metals and mining is Denver, Colo.-based Titanium Metals Corp. (TIE:
    titanium metals corp com new
    News, chart, profile
    Last: 65.21-1.88-2.80%

    4:15am 12/28/2005

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    FinancialsMore TIETIE65.21, -1.88, -2.8%) , which makes a range of, well, titanium products. The stock has gained 431% so far in 2005.

    Then there's Tenaris SA (TS:
    tenaris s a sponsored adr
    News, chart, profile
    Last: 113.27-3.87-3.30%

    7:00am 12/28/2005

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    FinancialsMore TSTS113.27, -3.87, -3.3%) , a maker of steel-pipe products for the oil and gas industry, which is up about 153% to date this year.

    Gold-mining stock Gammon Lakes Resources (GRS:
    gammon lake res inc com
    News, chart, profile
    Last: 11.56-0.45-3.75%

    4:15am 12/28/2005

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    FinancialsMore GRSGRS11.56, -0.45, -3.7%) , meanwhile, has added about 93%.

    Among the integrated oil and gas companies, Encana Corp. (ECA:
    encana corp com
    News, chart, profile
    Last: 44.00-1.67-3.66%

    4:15am 12/28/2005

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    FinancialsMore ECAECA44.00, -1.67, -3.7%) is a standout, adding about 80% this year. Imperial Oil Ltd. (IMO: Imperial Oil Limited
    News, chart, profile
    Last: 96.02-3.59-3.60%

    4:15am 12/28/2005

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    FinancialsMore IMOIMO96.02, -3.59, -3.6%) is up 72%, and Marathon Oil (MRO: marathon oil corp com
    News, chart, profile
    Last: 59.96-2.20-3.54%

    4:15am 12/28/2005

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    FinancialsMore MROMRO59.96, -2.20, -3.5%) has gained 65%.

    Among oil-equipment and oil-services companies, the small-cap Mitcham Industries Inc. (MIND:
    Mitcham Industries Inc
    News, chart, profile
    Last: 17.46-0.15-0.85%

    8:35am 12/28/2005

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    FinancialsMore MINDMIND17.46, -0.15, -0.9%) , a Texas-based company that leases geophysical equipment to oil companies, has gained 80% this year.

    Then there's Atlanta-based RPC Inc. (RES:
    RPC, Inc.
    News, chart, profile
    Last: 25.04-1.49-5.62%

    8:55am 12/28/2005

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    FinancialsMore RESRES25.04, -1.49, -5.6%) , which provides oil-field services for exploration and production, and has added 70% this year.

    Sulphco (SUF:
    sulphco inc com
    News, chart, profile
    Last: 9.90+0.34+3.56%

    4:15am 12/28/2005

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    FinancialsMore SUFSUF9.90, +0.34, +3.6%) , a Nevada company that licenses technology aimed at reducing the sulfur content of crude oil and petroleum products, is also up 70% .


    Ciara Linnane is markets editor for MarketWatch in New York.
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