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The Dow's Response to These 3 Stocks: Get a Job!

Monday - 12/10/2012, 12:00am  ET

Despite some backsliding, the Dow Jones Industrial Average put together enough up days to notch a 1% gain on the week, rising almost 130 points to end nicely above the 13,000 threshold. It jumped 81 points on Friday alone as the headline unemployment numbers showed gains, with 146,000 jobs added in November, sending the unemployment rate down to 7.7%.

If you pay attention only to the headline numbers, though, as the market clearly did, you realize the drop was merely a chimera: The only reason it fell was because the labor force participation rate dropped to 63.6%, as 350,000 people simply gave up looking for a job. The Bureau of Labor Statistics also sharply revised lower its September and October number. Folks, this is not a healthy sign.

While Dow components like JPMorgan Chase and IBM joined in the celebratory mood, rising 2% and 1%, respectively, on Friday, the three following companies fell hard, reflecting the more somber reality of what the job market was even though their moves were unrelated to it.

Company

% Change

Geron

(24.8%)

Amarin

(21.9%)

Glu Mobile

(14.7%)

Now, don't go running over the cliff with them like a bunch of lemmings: It could just be a temporary situation. Let's first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.

Brain freeze
Having ceded the field of stem cell research to the likes of Cytori Therapeutics and Pluristem Therapeutics for the greener pastures of oncology, biotech Geron has found itself waist-deep in the weeds. What it hoped would prove a more lucrative endeavor is quickly leading it to financial ruin.

Geron started the week off announcing that it's killing off research into its brain cancer therapy GRN1005 after phase 2 studies found it didn't work as hoped. That was the second failure for the treatment, after trials for using it to treat lung cancer couldn't find enough patients to enroll in a clinical trial. It ended the week by announcing that it's exiting a licensing deal with an Asian partner that was using the key ingredient in its hoped-for wonder drug imetelstat to develop dietary supplements and cosmetic treatments. 

Geron is putting all its eggs in the imetelstat basket, but investors ought to be wary of this Hail Mary pass and should simply ignore this stock.

Hook, line, and sinker
There are a lot of sayings that urge immediate action. "He who hesitates is lost." "Strike while the iron's hot." Amarin says it's gotta get going while the getting's good, so it's moving forward on its own to bring the triglyceride-lowering fish oil therapy Vascepa to market.

But that's not what investors wanted to hear. They were looking for the biotech to find a partner to pay for the commercialization of the drug, or, barring that, to find someone to buy out the company. But neither seems to be happening, and that has some worried about its ability to take on GlaxoSmithKline's Lovaza. It also seems to be a previously unmentioned fourth path to market.

Amarin had said there were three ways Vascepa would make it to market: with a partner, by getting bought out, or on its own but still with a third party's involvement. Its announcement the other day suggests no one wants to be added to its dance card.

Because of Amarin's prior insistence that this wouldn't be a solo project, I had maintained my outperform rating on Motley Fool CAPS, but as that now seems not to be the case, I'll be closing out that rating, though I don't think it will necessarily underperform because of it.

Gambling with its future
If online gaming leader Zynga is struggling for relevance, there's no doubt the also-rans will, too. After getting unfriended by Facebook , Zynga is now turning to gambling to try to win back its revenues. No wonder it won the distinction of having the Worst CEO of the Year. Next thing you know, we'll find it homeless on a corner somewhere, smelling all boozy and washing windows with a squeegee.

Glu Mobile had no company-specific news to send it down, but when the niche's prospects for further growth seem muted, each of the players in it will feel the effects. I've never been a fan of its "freemium" business model -- free to play, pay to play more. No one likes being nickeled-and-dimed to death, so I've been rating it to underperform the market for some time. With the stock down 49% since I first weighed in compared with a 1% rise in the S&P 500, I see no reason to change that outlook.

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