Shesa's APRIL 2017 INVESTMENT BLOG

            April 16 2017

APRIL 2017 INVESTMENT BLOG

Shesa Nayak

U.S. Stock Market Commentary: After the presidential election, the stock market is finally taking a breather. As we see there are many geo-political events, which have caused the market to go south. The tension between U.S. and Russia has escalated after U.S. bombed Syria Friday, April 7^th. The U.S. – Russia relationship have further deteriorated. The tension between North Korea and U.S. has been rising consistently in last few days. All these factors are god enough for stock markets to come down. Let’s first look at the Stock Market Indexes.

U.S. Stock Market Indexes

U.S. Indexes	3-Jan-17	Friday Close	Change this Year	% Change in 2017
DOW Jones	19762.6	20,453.25	690.65	3.49
S&P 500	2238.83	2,328.95	90.12	4.03
NASDAQ	5383.12	5,805.15	422.03	7.84

Economic Reports

One of the economy report, I would like to bring the unemployment report to my reader’s notice.  The Labor Department report showed a gain of only 98,000 jobs for the month of March against the predictions of 180,000. This was a huge miss. However, please note that approx. 30,000 jobs were lost in the retail sector. We’re still seeing contraction with major retails chains like JC Penney, Sears and Macy’s are closing hundreds of stores. Also severe winter storm in different parts of the country could be another factor. Hence it may be one-time phenomena. The unemployment rate is at a 10-year low of 4.5%.

For more economy reports please visit the following link:

http://www.marketwatch.com/Economy-Politics/Calendars/Economic

Source: Marketwatch.com.

Q1FY17 Earnings Season Kicks-off

First Quarter earnings season (Q1FY17) is under way. Last week Citi Bank, JP Morgan Chase, Wells Fargo reported earnings. All of these banks beat the earning expectations. Next few weeks will be filled with earnings announcements. It would be very interesting to see how it plays. Most of the tech companies would report around 3^rd/4^th week of April. As of last Friday, 6% of the S&P 500 companies have reported earnings, 76% of those have beat the earnings estimate and 59% of the companies have beat the mean sales estimate. It can be noted that, for the current quarter, S&P 500 companies are expected to report 9% earnings growth.

Why are the stock markets going south in last few days?

(i)           Geo-Political situation: In last few days, most of the world stock markets have been going south. Why is that? As I stated in my market commentary, there are a lot of tensions rising after U.S. bombing in Syria last Friday, 4/7/17. It has escalated tension between U.S and Russia and subsequently between U.S. and North Korea. This has caused uncertainty in the stock markets. As we know stock markets do not like geo-political uncertainty. Meanwhile, the tension between U.S and North Korea further escalated on Friday as Donald Trump tweeted that "North Korea is looking for trouble. If China decides to help, that would be great. If not, we will solve the problem without them!". North Korea says “If the US does any reckless provocation, we will immediately apply a destructive strike with our revolutionary power. We're prepared to respond to an all-out war with an all-out war and we are ready to hit back with nuclear attacks of our own style against any nuclear attacks.  Source: CNN.

All these developments may further rattle the stock market. If these tensions continue, the markets are going to fall further.

(ii)        In addition, the investors are gradually realizing that the Trump euphoria is fading. Donald Trump’s promise of repealing Obama Care, tax reforms and infrastructure spending are gradually diminishing due to lack of support from the republican themselves. The budget is expected in May but it needs to be seen whether Republicans will be able to pull it through or it will be further delayed.

Going forward what can we expect for the stock market?

I am not trying to predict the market. We can simply draw some analogy visualizing current situation and economy landscape. If the geo-political uncertainty continues then stock market could have some more correction. But if these issues settles down then market may bounce back as earnings season has already started. Most likely, it will be driven by two factors (i) Geo-Political situation (ii) Corporate earnings. It can also be noted that the best 6-month for the stock market is from NOV – APRIL. Hence it may not be surprising to see some correction after that. It may also depend on the new budget which is expected in May and Tax Reforms which is expected by AUG. May be it’s time to take some chips out of table and/or eliminates some losers. There may be better buying opportunity in future.

Top 10 market performers of First Quarter 2017 (Jan – March).

For the benefit of the readers, I have posted the best performing market/sector globally. Please see below:

Chile	14.8%
Silver	14.2%
S&P IT Sector	12.2%
Spain	11.2%
Mexico Peso	10.8%
Singapore	10.2%
NASDAQ	9.8%
Hongkong	9.6%
Russia Ruble	8.9%
Gold	8.6%

Why Gold/Gold Equities are good now?

• All the Geo-Political tensions have made investors to march towards gold. Gold was one of the best investments for first quarter of 2017. So far this year it has provided an ROI of 11.8%. If the current political tensions continues, it would further strengthen gold as it’s considered to be safe-heaven ivestment.
• Donald Trump again said last week that Dollar is strong causing USD to take a beaten. This has boosted gold.
• The gold import in Asia, particularly India has been increasing after demonetization.
• The promised fiscal stimulus by Donald Trump may arrive later than expected. It may be a bumpy ride ahead. As a matter of fact, the impatience over Trump’s fiscal stimulus is expected to keep growing, which may hamper the bullish trend in risky assets and strengthen gold.
• Last week Dubai Gold and Commodities Exchange (DGCX) announced the launch of their Shanghai Gold Futures (DSGC) trading contracts. These are futures contracts priced in Yuan, which follow the price of gold trading on the Shanghai market. This would be helpful in longer term.

This month I am going to include another biotech company, which has huge future potential. Let’s see discuss now.

KITE Pharma, Inc. (KITE)

Kite Pharma is a clinical-stage biopharmaceutical company focused on the development and commercialization of cancer immunotherapy products. Kite specializes in engineered T-cell therapy, the same way JUNO Therapeutics does. If you recall, I included JUNO in my February blog portfolio. In fact, KITE and JUNO are competitors. So, why do I include KITE, which is in the same space? KITE has produced dramatic results including complete remission in some patients who have aggressive cancers that have not responded to other therapies. The company’s strategic collaborations have enabled it to advance an industry-leading pipeline of drugs to treat both solid and blood-based cancers. Its most advanced candidate KTE-C19 is currently in a key trial for the treatment of refractory non-Hodgkin lymphoma. The firm is not yet profitable. But Kite is changing the paradigm of cancer treatment. Revenue is expected to rise from just around $20 million this year to more than $150 million next year.

And with a market cap of less than $4.5 billion, this is an attractive takeover candidate too.

Why do I like Kite Pharma? On February 28, KITE announced outstanding results or its lead candidate drug candidate KTE-C19 for aggressive B-cell non-Hodgkin lymphoma. In a phase 2/3 clinical studies, the patients with aggressive B-cell non-Hodgkin lymphoma (NHL) who took a single infusion of drug experienced an astonishing 82% objective response rate. After six months, a full 36% of patients had no signs of cancer. Obviously it was great news for the company. The results were so positive that the company has already completed the rolling submission of its application with the U.S. Food and Drug Administration (FDA) for regulatory approval. There is also higher possibility that the drug may also bode well for treating other type of cancers.  The stock is obviously not cheaper. The stock price has already gone up more than 40-50% in last couple of months but in view it’s still not too expensive. Why is so? It still has market capitalization of only $4.5 billion. This makes a great accusation target for many larger companies viz. Gilead, Pfizer, Merck etc. Novartis is the only other company in this area, which has submitted application. CAR-T is a new technological innovation and KITE has shown great potential. Hence, it would be an exceptional accusation candidate unless there is any U-turn in the final stage of its trial! Even if it’s not acquired, it’s has a great future potential. If all goes well, it should get the drug approval by end of this year.

As I say, such small biotech companies do not have any major fundamentals to talk about. One thing, the institutional investors own 68% of float, 31% of the floats are owned by the insiders. Currently, it’s trading at $82.25 and it has a 52-week high of $88.58. In last few weeks the stock has been fluctuating from $75-84. I already won some and just keep accumulating in small lot.

Risk: Biotech companies are always high risk and high reward. It may explode or it may bust. KITE is no different. In case, the drug does not get approved for some unknown reason or there are a few deaths than it may fall heavily. However, looking to the current response rate of the drug and possibility of its huge potential to be acquired, investors who take some calculated risk would be benefited in long run. I follow my framework and never go heavily loaded, rather 2-3% of portfolio could be acceptable. Because we never know the future…

Shesa’s Blog Portfolio (updated: 4/16/17):

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Change	My View (see disclaimer).
STOCK
AAPL	54.09	141.05	1/25/13	161%	HOLD
BIDU	86.43	172.61	4/18/13	100%	HOLD
SLW	21.8	21.44	10/1/13	-2%	BUY below 18.
FB	47	139.39	11/13/13	197%	HOLD
TSLA	135	304	11/13/13	125%	HOLD
MA	78.06	111.22	12/12/13	42%	HOLD
AMZN	311.73	884.67	4/12/14	184%	HOLD
MO	52.03	71.3	9/13/15	37%	HOLD
BABA	67.28	110.21	2/21/16	64%	BUY
JBLU	20.44	20.73	4/24/16	1%	HOLD
JD	23.45	32.47	5/22/16	38%	BUY
ABX	22.21	19.83	7/4/16	-11%	Buy below $18.
XON	26.37	19.67	7/4/16	-25%	BUY
LUV	36.89	54.31	9/5/16	47%	HOLD
RIO	38.76	38.94	12/18/16	0%	BUY
PVH	92.82	99.81	1/22/17	8%	BUY
JUNO	23.13	24.01	2/19/17	4%	BUY
KITE	82.25	82.2.5	4/16/17	0%	NEW BUY
ETF
GDX	26.88	24.54	4/1/13	-9%	BUY below $20.
INDA	31.94	31.42	3/15/15	-2%	BUY
INCO	34.46	38.83	5/15/15	13%	BUY
IHF	139.1	134.01	8/16/15	-4%	HOLD
XLY	77.76	86.55	8/16/15	11%	HOLD
PJP	69.43	59.92	10/18/15	-14%	HOLD - Ready to Sell
EEM	32.5	39.14	11/15/15	20%	BUY
IYG	112.83	104.98	3/19/16	-7%	BUY
MUTUAL FUND
FBIOX	117.73	197.3	3/1/13	68%	Accumulate
PRHSX *	52.48	65.17	2/2/14	24%	HOLD
FSCHX *	128.91	153.36	4/12/14	19%	HOLD
FSCRX *	27.17	31.13	10/25/14	15%	HOLD
GASFX *	28.19	29.91	12/20/14	6%	HOLD
PRMTX *	61.72	83.01	12/20/14	34%	Accumulate
MINDX *	26.48	30.32	6/14/15	15%	Accumulate
MCDFX *	13.84	15.42	12/9/15	11%	Accumulate
FSRPX *	95.32	115.88	1/15/16	22%	Accumulate
FBSOX *	38.65	43.89	3/20/16	14%	Accumulate
TGLDX	33.73	39.39	11/20/16	17%	BUY

Positions closed since last Blog:

Equity	Sales Price	Buy Price	Date Sold	Gain / Loss
FSLR	27.83	37.58	3/31	-25%

Why did I get out of FSLR?

I decided to get out of First Solar (FSLR) with 25% trailing stop. I think it may be worth putting the money somewhere else.  First Solar has been losing revenue and profit since past few quarters. Going forward, it does not look too sunny from the earnings and revenue forecast. Gross margin for the company is also expected to decline 11-13%. The major negative catalyst is Donald Trump’s policy emphasis on coal and other stuff rather than solar system. As a matter of fact, FSLR and the whole solar sector are struggling. Note: I may have few call options.

That’s all for today. Wish you good investing! Stay tuned for my MAY 2017 blog. Thanks for your time. If you want to get alert on my action then please subscribe to shesagroup_invest@googlegroups.com. Also, feel free to send me your comments and suggestions or alert request to shesa.nayak@gmail.com

Disclaimer: This blog is meant to provide my personal opinion rather than professional recommendation to buy/sell any stock, ETF, mutual fund or any other security(s). As an investor, it’s your hard earned money and you decide what is best for you. The above are merely my own opinions and some of the information provided may not be correct. Please contact a professional money manager to buy/sell any security. I do not earn any commission by writing the blog. I have position(s) on whatever security I write on my blog and avoid recommending any security that I do not own or follow.

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