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Inside Wall Street


Climbing Back at Office Depot

Office supply distributors have been battered as job losses and spending cutbacks continue to mount. So the Street has kept away from Office Depot (ODP), one of the world's largest office-products suppliers, whose shares dropped from 39 in 2007 all the way to 1.57 in 2008 before perking up earlier this year.

The stock, trading at 6.28 on Nov. 24, "is a turnaround play in the rebounding retail sector, which has caught many analysts off guard," says Bernie Schaeffer, CEO of Schaeffer Investment Research, which acquired shares on their way down. According to Bloomberg, 3 analysts rate it a sell, 12 a hold, and only 2 a buy. Yet the stock has made good progress this year, says Schaeffer. Its steady rise in recent weeks is continuing the uptrend, he says. The third-quarter loss Office Depot posted was less than analysts had feared, indicating a turnaround, he adds.

"The macro environment is in the early stages of a slow recovery," says Christopher Horvers of JPMorgan (JPM), who rates Office Depot overweight, with a 12-month price target of 8. The company's revenues are correlated with gross domestic product, payroll, and industrial production growth, he adds. "The stock requires only a modest recovery for our rating to work," says Horvers. "Stay tuned."

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Acacia Is Having Its Days in Court

Tiny Acacia Technologies (ACTG) has crossed swords with tech giants over patent infringement. In some cases—IBM (IBM), ConocoPhillips (COP), and SAP (SAP)—licensing pacts have resulted.

Acacia, which acquires and licenses patented wireless and Web technologies, moves in part on the fate of its lawsuits. Now at 7.58, it could get a lift on a pending case with Yahoo! (YHOO) On May 15, a U.S. District Court in Tyler, Tex., awarded Acacia $6.6 million in damages for its net-related patent suit against Yahoo. Acacia then appealed to increase the damages. If Yahoo settles, Acacia will get a boost.

"Our fourth-quarter sales estimate of $13.5 million and earnings of 1 cents a share could be low if the Yahoo case goes well," says Jonathan Skeels of investment outfit Davenport, who rates Acacia a buy. Acacia has a slew of lawsuits against other biggies,including Oracle (ORCL), AT&T (T), and Google (GOOG), he notes.

New Drugs from Achillion

At cash-strapped biotechs, funding is as important as coming up with effective new cures. The $27 million cash stash at Achillion Pharmaceuticals (ACHN) is a needed cushion for its development of treatments for HIV and hepatitis C.

"Achillion has the potential to become a strong anti-infection player in biotech," says Edward Nash of investment firm Merriman Curhan Ford, who rates it a buy. The shares, now at 1.88, should hit 7 to 10 in a year, he says, based on the product pipeline. Achillion's elvucitabine for HIV has finished phase II clinical trials. Achillion hopes to team up with a big drugmaker to develop the drug further, says Nash.

Its hepatitis drug ACH-1625 is set for its first human clinical trials. "This is a positive step to unlocking Achillion's depressed value ," says Jason Kolbert of ThinkEquity, who rates it a buy, with a target of 4.50.


Steve Ballmer, Power Forward
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