JPM's Tom Lee Expects a 20% Year End Market Rally

According to Tom Lee, chief equity strategist at JP Morgan, we are poised to see a huge end-of-year spike in the stock market. He's looking for a 20% year-end rally — from current levels — that would take the S&P 500 to about 1470. The last time the S&P closed at the level was December 2007.

"It's sort of hard to expect through conventional wisdom," Lee said, adding that a "20-plus-percent" rally in the next 2 1/2 months is doable. He pointed out the return of risk-taking, a trough in the trend of economic data, continued improvement out of Europe and China, and a tailwind from lower crude and commodity prices will be the main catalysts.

Lee assembled a 3-part strategy that has generated a list of 21 stock picks that he thinks are poised to ride this rocket to new heights.

Step 1 has to do with earnings revisions. Lee's team uncovered 10 sub-industries in the S&P 500 with positive estimate changes over the past month, at a time when the broader index has seen expectations taken down by about 2.5%. Tires & rubber, oil & gas refining, footwear, home furnishing retail, and specialized finance are the top 5 and they saw their estimates pushed upwards by 7 to 27%.

Step 2 is all about his observation that risk-taking is back, and to make the Lee list, you must have a "beta that is greater than 1", which means have volatility traits that are greater than those of the broader market.

Step 3 to make it in to the "elite 21 Club", you need to also be rated "overweight" by JP Morgan research.

REITs and hotels dominate the list, accounting for 11 spots or 52% of the total list. Orient Express (OEH), Starwood Hotels (HOT), Marriott International (MAR), Wyndham Worldwide (WYN), and Hyatt (H) make the cut. For REITs, SL Green (SLG), Boston Properties (BXP), Lexington Realty Trust (LXP) are a few of the list-worthy.

Lee thinks under-invested hedge funds will play a big role in the run-up saying that, historically, they get bullish when credit spreads rally and that "they will have to make a big reversal of position."

Also on his list of positive earnings revision candidates, are four so-called specialized finance companies that also hide out in the badly beaten financial sector alongside of his REIT picks. They include American Express (AXP), Moody's (MCO), and two exchanges CME Group (CME) and Intercontinental Exchange (ICE).

Taking all of this in consideration, you should be aware that as bullish as Lee is on the next couple months, he is still uncertain about the "swirling dynamics" that cloud the outlook for 2012, including the chance of a recession, the upcoming elections, further stimulus, and gains in emerging markets.

Officially, he expects the S&P 500 to earn $105 a share in earnings next year, "so the market should be modestly rising at least."

Sales Up but Consumer
Confidence Down

A strange economic trend appears to be emerging with American consumers. Retail sales have been trending higher while consumer confidence is at a 30-year low.

Retail sales grew 1.1% last month, the fastest pace since February. Even excluding strong auto purchases, the figures were better than expected. Data for earlier in the summer was also revised for the better. All this, even in the midst of stock market tumult and fears of another recession.

Meanwhile, those same economic concerns are still weighing on confidence. Consumer confidence plunged more in October than expected, according to the Thomson Reuters/University of Michigan index. It's now at the lowest measure since May 1980.

How is this contradiction possible?

Howard Davidowitz, president of Davidowitz & Associates says it's simple. "We have got a bifurcation that keeps getting bigger and bigger," he explained.

What accounts for the increase in sales is the top earners in the country are doing fine. "Ten percent of the consumers account for 40% of the spending," he says. This group is primarily made up of college graduates who are not suffering from massive unemployment. In fact, unemployment for that segment of the population is under 5%.

It's this growing gap between the haves and have-nots that is responsible for the Occupy Wall Street movement, says Davidowitz.

VistaGen Therapeutics (VSTA) Presents Highlights of Its "Micro-Heart" Cardiotoxicity Assay

VistaGen Therapeutics, Inc. announced a poster presentation of its research and development activities leading to validation of its human stem cell-derived "Micro-Heart" cardiotoxicity bioassay system, CardioSafe 3D™, at the fourth Symposium on Cardiovascular Regenerative Medicine hosted by the National Institutes of Health's ("NIH") National Heart, Lung and Blood Institute. The poster was presented by Dr. Ralph Snodgrass, VistaGen's President and Chief Scientific Officer, at the NIH symposium held in Bethesda, Maryland on October 4 - 5, 2011.

The research and development work presented by Dr. Snodgrass underscores the advances VistaGen's versatile pluripotent stem cell technology platform, Human Clinical Trials in a Test Tube™, is driving in the areas of predictive toxicology and drug safety screening. Screening methods currently employed by the pharmaceutical industry to measure the potential toxicity of drug candidates do not accurately predict the cardiac effects of many new drug candidates. There is a growing recognition in the field that existing methods suffer from the use of either animal models, which respond differently than humans to many drugs, or cell lines that are engineered, transformed, non-human and/or of non-cardiac lineage and are typically focused on the effects of the drug candidate on a single cardiac ion channel. These methods yield both false positive and false negative results leading to important implications for patient safety and costly project terminations during clinical development. Human pluripotent stem cells have the potential to address these limitations by permitting the generation of functional human cardiac cells that express ion channels and auxiliary proteins relevant to the accurate measurement of cardiac function and evaluation of the possibility of long-term cardiac abnormalities.

"Cardiotoxicity has been implicated in almost 30% of drug withdrawals in the United States over the last 30 years," said Dr. Ralph Snodgrass, President and Chief Scientific Officer of VistaGen. "Our human stem cell-derived 'Micro-Heart' cardiotoxicity assay, CardioSafe 3D™, will contribute to the efficient and rapid identification of safer drugs before valuable resources are lost developing drug candidates with toxicity issues that are undetected until human clinical trials are in progress or even after FDA approval resulting in withdrawal from the market."

The poster describes work conducted by VistaGen's scientists in collaboration with scientists at ChanTest Corporation in Cleveland, Capsant Neurotechnologies in Southampton (in the UK), and the laboratory of Dr. Gordon Keller at the University Health Network's McEwen Centre for Regenerative Medicine in Toronto. The research described combines optimized stem cell cardiac differentiation protocols, a novel 3-dimensional culture system, and traditional electrophysiological measurements to assess drug-related safety data. The system, called a "Micro-Heart" Cardiotoxicity Assay, was validated by measuring the dose-dependent effects on cardiomyocyte cell viability and electrophysiological responses, as measured by patch clamp and field potential assays, of twelve compounds with known cardiac cytotoxicity or electrophysiology effects.

These drugs included Class III antiarrhythmic compounds, mixed ion channel compounds, antihistamines, sodium and calcium channel blockers, as well as antineoplastic agents. The observed action potential Vmax values of these highly enriched cardiomyocytes was approximately 3-6x higher than values reported in the literature, suggesting a more normal high-level sodium channel density in these cardiomocytes. Expected dose-dependent effects of typical hERG channel blockers on QT interval were observed, as well as dose-dependent effects of mixed ion channel drugs. In addition, direct dose-dependent drug cytotoxicity could also be measured.

dependent drug cytotoxicity could also be measured. The data described in the poster presentation have demonstrated that VistaGen's human stem cell-derived "Micro-Heart" cardiotoxicity bioassay system is highly reproducible with very strong concordance with the in vivo cardiac effects of multiple classes of compounds. This work further supports VistaGen's Human Clinical Trials in a Test Tube™ platform by demonstrating its strong applicability for preclinical cardiac safety screening, with greater sensitivity and predictive power than conventional animal models for compounds known to induce lethal arrhythmias. VistaGen is developing this platform for proprietary applications in drug rescue screening, cell therapy and regenerative medicine, and the validation of its stem cell-derived human cardiac cell-based assays represents another major step forward in demonstrating the clinical relevance and power of the platform.