Shesa's MAY 2018 INVESTMENT BLOG

          MAY 2018 INVESTMENT BLOG

Shesa Nayak 

Wishing all my blog readers “A very Happy Memorial Day”.

U.S. Stock Market Update: The first quarter earnings season is concluded now. Most of the companies, particularly technology companies came with excellent earnings, but the stock market had a lukewarm response. However, in last few days, stock markets have been trying to bounce back but nothing really significant to talk about. There are many risks and concerns surrounding the stock markets, but overall economy remains strong. Now we are almost at the end of MAY, will the money managers take profit and disappear? Federal Reserve meets on June 12-13 to decide about next Interest rate hike. In the latest geopolitical events, American and North Korean officials met on Sunday in preparation for a possible North Korea and U.S. Summit between Kim Jong Un and Donald Trump on June 12. Italy is in political crisis as their president faces call for impeachment. So, with all these uncertainties, question is whether the market bounce will continue? or we are going to see another stock market turmoil the same way as it happened during the month of February and March? As usual, I will discuss all these in my blog but before I do that, let’s first take a look at the stock market indexes.

U.S. STOCK MARKET INDEX

Indexes	1/2/18	Friday Close (5/25/18)	Change in 2018	% Change in 2018	All Time High
DOW Jones	24,719.22	24,753.09	33.87	0.14	26,616.71
S&P 500	2,673.61	2,721.33	47.72	1.78	2,872.87
NASDAQ	6,903.39	7,433.85	530.46	7.68	7,637.27
BTK (Biotech)	4,222.21	4,679.97	457.76	10.84	4989.66
NBI	3,356.61	3,379.42	22.81	0.68	4165.86

Key Economy news

Interest Rate: The Federal Reserve meets on June 12-13 and expected to hike another .25% interest rate. There is 95% probability that the Fed will raise interest rate from 1.75% to 2.00%. The weekly job claims increased to 234,000 and home sales was also below expectations still I feel that Fed may go ahead with its interest rate hike. Let’s wait and see..

U.S. GDP Growth: Gross domestic product increased at 2.3% vs. 2% expected.

Retail Sales: Last Tuesday the Commerce Department announced that retail sales were up 0.3% in April. This was in-line with the expectation. Previously, March retail sales were revised up to a 0.8% gain from 0.6%. 

Housing Starts:On Wednesday, the Commerce Department announced that new housing starts declined by 3.7%in April to an annual pace of 1.29 million. 

Inflation has finally reached Fed’s target 2% target

The latest data showed that wages and prices are now growing at 2%, according to the Fed’s preferred inflation measure, excluding volatile food and energy prices, the rate is 1.9%.

 

Trump says he will propose new tax cuts prior to November

Donald Trump said last Tuesday that he will propose new tax cuts before November. He said he would meet with Republican Representatives about the proposal. However, he did not provide any detail on what type of tax cut or how much.

For more U.S. Economic news and data please look at here: http://www.marketwatch.com/economy-politics/calendars/economic    

Source: Marketwatch.com

US dollar:

The US dollar has been on the run since the start of the second quarter.It rallied to a five-month high after U.S. and China called a truce over trade tariffs, prompting investors to cut back on their short positions on the dollar, and on news that an improving U.S. economy could bolster the Federal Reserve’s chances of hiking interest rate.

Why are oil prices keep going up?

As you may be observing that oil prices have been going up day-by-day. The Gas is almost approaching to $4 in California. But why are these increases in Oil price? There are a few factors contributing to the rise in oil price, let’s see those:

U.S. withdrawal from Iran Deal: US oil prices went above $70 a barrel earlier this month as President Trump announced U.S. is withdrawing from the Iran nuclear deal.

Saudis wants to improve price of Oil: The country need to increase the price of oil to improve the valuation of a historic IPO for the IPO of Saudi Aramco which is world’s largest – crude producer, Saudi Aramco. 

Production Problems:  Venezuela continues to experience a production meltdown. Due to massive loans from China, and a loss of internal energy assets to Russia. Also, the Libyan civil war is again cutting into both extraction and exports, while internal problems in Nigeria is resulting in production problem. In addition, Mexican volume projections continue to decline. And finally, Russia which is the largest oil producer of world is being hampered by rapidly aging primary fields that need to be replaced by more expensive greenfield development. Moscow may not have the capital nor technical expertise for an immediate move into any of these.

Where is the Stock Market heading?

There are many headwinds to the stock market causing some uncertaintyand volatility. Let’s take a glance to those:

• Geopolitical events
• Tariff worries
• Strong dollar
• Stock valuation 
• Spiking oil prices, and 
• Rising interest rates 

The aforesaid facts are causing volatility in the stock market. I have written about it on my previous blogs, so I would not like to further elaborate on those. Just to remind the readers that strong dollar is a problem for multinationals who are exporting more of their goods because they get less for the same product. For oil prices, I will elaborate separately in this blog.

Positives:As I have said in several of my earlier blogs the overall economy remains strong. The S&P 500 companies have returned a record $1 trillion to shareholders over the past year. The companies paid out $428 billion in dividends and bought up $573 billions of their own shares. The unemployment rate is low, job market is good, consumer confidence is high, corporate earnings are excellent. Just before the tax cut passed, analysts were projecting S&P Earningsgrowth of 11.2% for 2018 but now they are projecting almost twice that growth, 21.3%. The sales growth is also expected to grow around 7.4% for 2018. As far as Q1 earnings were concerned, growth for S&P 500 was 24.6%which is outstanding!Q2 is expected to be even better, 78% companies have reported a positive EPS surprise and 77% have reported a positive sales surprise during Q1. The forward PE for S&P 500 companies stands at 16.4 which is fractionally higher than 5 years average of 16.2%. So, I do not buy the thesis that market is over-valued.

I believe that the market can transition through these eventualities and realize the importance of great earnings delivered by corporate America. I do not see a significant upturn in the stock market at this time, but I have a strong feeling that the stock indexes should hit new highs by end of the year. There would be some volatility along the way and it may not be surprising to see some volatility like last February and March. The investors should be prepared with a Plan B. Hence, I will look for profit taking opportunity to capitalize on such downturn. Last Tuesday president Trump said, said that he will propose new tax cuts sometime prior to November. If that happens, it may bring further impetus to the stock market. But that’s just a probability at this time. Irrespective of whether there is further tax cut or not economy remains strong. Under such volatile stock market, stock selection is very important. 

Strategies: There should be two strategies: investingand tradingbecause market could go up and come down, volatility may continue. To take advantage and get a better ROI, investors need to have both strategies in place. Otherwise, we may see that portfolio goes up some day and comes down again without making real gain.

Stock selection is always a paramount concern, and there are always some stocks available to buy at a good price. I elaborated a long list of my strategies in my April 2018 blog. If you read not get a chance to read that blog, please do so.

Biotech big event - ASCO Annul Meeting starts from June 1-5. 

As you know ASCO is one of the biggest event of biotech companies where most of the technological breakthroughs are being presented, particularly in the field of oncology. More than 30,000 attendees attend this conference. It kicks-off this Friday June 1 and will continue till June 5. Let’s wait and watch what new achievements this year will bring. You can see the presentations by participating companies inhttps://am.asco.orgor here: https://finance.yahoo.com/news/week-ahead-biotech-asco-presentations-150748557.html

Right to try legislation for unapproved drugs:

The right to try legislation was approved by Trump administration would authorize doctors to administer drugs that have cleared the first phase, but which have not yet completed these later human clinical trials. By doing so, the legislation gives terminally ill patients the right to use potentially lifesaving medications without rigorous testing from the FDA and without years of waiting for the drugs to become commercially available. This is great for the patients who are struggling to get the medication but still not FDA approved.

Should we Sell in May and Go away?

I wrote about it in my last blog but wanted to reemphasize. I will not follow this hypothesis as these are not written rules and really difficult to identify what to sell, how much to sell and when to get back into the market. Hence, I prefer to take profits as and when I feel to do so, and have some cash available to take advantage of any market correction. I do not prefer to be “100% in or 100% out”. I am very apprehensive about such practises. Now let’s take a look to my this month’s inclusion to my blog portfolio which has excellent future potential.

This month’s Blog Portfolio.

Editas Medicine, Inc.(NASDAQ: EDIT) 

Editas Medicine (EDIT), based in Cambridge, Massachusetts is engaged in discovering and developing genome editingtherapeutics that enables precise and corrective molecular modification to treat the underlying cause of a broad range of diseases at the genetic level. Those who have attended my investment meet before, I have briefly talked about EDIT and that gene editing is going to be one of hot areathis year and probably years to come in the field of biotechnology.

EDIT uses Genome Editing or Gene Editing for the treatment of disease. Let’s first talk what is Gene editing? It involves inserting, deleting, or replacing the DNA base pairs within a gene. The way we write computer programs to insert, update, delete some content in a file, but same can be done with human DNA. Does not it sound amazing? I guess so. However, please note that this is different from another technology called gene therapy. With gene therapy, a new gene is inserted into a cell to replace or inactivate another gene. This insertion is usually accomplished through a virus that delivers the new gene. Gene editing holds the promise of being more precise and flexible than gene therapy.

How is EDIT different than other biotech?

EDIT develops a proprietary genome editing platform based on CRISPR technology to target genetically defined diseases with an initial focus on illnesses where there are no approved treatments. CRISPR (Clustered Regularly Interspaced Short Palindromic Repeats) is a gene-editing technology that target the cure most catastrophic diseases like cancer, HIV, Huntington disease, Sickle Cell, Alzheimer, blindness, hepatitis, and many more diseases. To make it easy for my blog readers, CRISPER can be defined as a pair of scissors which can identify the “bad” genes in your body… snip them out… and insert “good” genes in their place. Moreover, what makes it so amazing is that it’s incredibly accurate. They cut exactly where doctors tell them to cut, within 1,000,000th of a millimeter. And more importantly it can be done in a much cheaper and faster way. This is a potentially a game-changing method of genetic editing. According to Wall Street Journal the first planned clinical trials of CRISPR gene editing in people are about to kick off,whereas China has already used the gene-altering tool to change the DNA of dozens of people in several clinical trials. The report said, at least 86 people have had their genes edited, and at least 11 Chinese clinical trials using CRISPR. Also, other research suggests that China has long set its heart on building an expertise in genomics and the government is pouring funds Crispr, encouraging its researchers to advance the technology. There are reports that Chinahas been testing cervical cancer using the CRISPR technology with about 60 patients and the results are expected to come sometime around November time frame. There are also reports that scientists in Polandare closer to treatment of Huntington disease using CRISPR technology. Yesterday, there was a news that a team of scientists in Japanhave successfully deleted human immunodeficiency virus-1 (HIV-1) genes from infected cells using the CRISPR/Cas9 gene editing system. They published their work in Scientific Reports. 

In U.S.the human trials are yet to begin but expected to happen very soon and most likely it will be EDIT who may kick-off the trial soon. EDIT was co-founded by CRISPR pioneer, Dr. Feng Zhang who is a core member of the Broad Institute, which owns key patents to use of CRISPR in eukaryotic cells (cells that have a nucleus, including all human and animal cells). EDIT holds an exclusive license to these patents. So, as I understand, whichever companies uses this technology to treat patient should pay royalties to EDIT.

Why invest in Editas?EDIT is one of the leader in the field of Gene editing using CRISPR technology. The company's lead candidate is EDIT-101, which edits a gene in retinal tissue to treat LCA10 (Leber Congenital Amaurosis type 10), which is the most common genetic cause of blindness in children. Editas plans to file for FDA approval to begin phase 1 clinical testing of EDIT-101 in humans within the next few months, possibly mid-2018, which is getting very close. In addition, EDIT has many other pre-clinical pipelines which includes genetic eye disease, Usher syndrome type 2a, alpha-I antitrypsin deficiency (AATD), beta-thalassemia, cystic fibrosis, Duchenne muscular dystrophy, and sickle cell disease. 

Company Fundamentals and investment

As I keep saying, for such innovative biotech company fundamentals have nothing to do in such an early stage. The real parameter is “how successful will be there research and innovations?”. EDIT has promising investments from other companies’ like Allergan (AGN), Juno Therapeutics, which was acquired earlier this year by Celgene (CELG).  Juno has partnered with EDIT to use CRISPR in genetically engineering T cells for cancer therapies.  The financial institutions hold 87% of the shares of EDIT. The top being Fidelity, Vanguard, Blackrock, State Street corporation, Capital World etc. The billionaires like Bill Gates and Vinod Khosla have also invested in the company. It has a market cap of $1.7 Billion. At present, the stock is trading at $36.53 and had a 52-week high of 45.02, which means about 19% discount from its 52-week high.

Risks and Rewards: The technology is still in a discovery phase and do not know how far it will work with humans, though it’s working well with animals. It's still early for EDIT-101 whose human trial will begin in next few months. The anticipation is that, it could be a game changer in the field of biotechnology, not only in human but also in other fields like agriculture and other fields although EDIT focuses only on humans. However, no body know how successful it will be! Going forward, Gene editing market is expected to be humongous and EDIT is one of the leaders. Since the stock is highly volatile, I have two strategies, certain %age of my holding is long-term investment and a small %age as trading. As a matter of fact, one can take advantage of short term fluctuation while waiting for long term result and return on investment. One should not invest too much, possibly 2-3% could be good depending on willingness to take risk. Risk averse investors who can’t take volatility should avoid such stock. If the technology works, even a $1000 investment could have astronomical gains! I have invested over a period of time and will keep doing so. It’s not at all advisable to buy such stock at once because of high volatility. Hence accumulating over a period of time is the right way to go. 

My final thoughts:For early investors there is a major risk but investors who are willing to take some risk without worrying about high volatility and can wait a few years for the technology to advance, I think EDIT can be a huge winner in long run.Only time will tell how successful the investment will be, but I am invested and believe that this company has an amazing future potential.

Shesa’s Blog Portfolio (As of 6/24/18).

Equity	Suggested Price	Current Price	Suggested Date	% Change	My View (see disclaimer)
STOCK (All prices are in USD)
AAPL	51.63	188.58	1/25/13	265%	BUY
BIDU	86.43	243.8	4/18/13	182%	HOLD
FB	47	184.92	11/13/13	293%	HOLD
TSLA	135	278.85	11/13/13	107%	HOLD
MA	77.18	191.17	12/12/13	148%	HOLD
AMZN	311.73	1610.15	4/12/14	417%	BUY on dip
MO	50.05	57.23	9/13/15	14%	SOLD @55.47 on 5/30.
BABA	67.28	199.2	2/21/16	196%	BUY on dip
JD	23.45	36.87	5/22/16	57%	HOLD
XON	26.37	15.66	7/4/16	-41%	HOLD
LUV	36.89	52.86	9/5/16	43%	Sold @50.70 on 6/5.
RIO	36.41	56.98	12/18/16	56%	HOLD
PVH	92.82	157.82	1/22/17	70%	HOLD
EXEL	26.33	20.84	8/20/17	-21%	BUY
MOMO	32.14	38.95	11/25/17	21%	Earnings on 5/29.
CELG	104.36	78.63	1/1/18	-25%	Sold @78.46 on 6/19.
BRK-B	206.96	194.15	3/18/18	-6%	HOLD
NVDA	228.71	249.28	4/22/18	9%	BUY on dip
EDIT	36.53	36.53	5/28/18	0%	NEW
ETF
GDX	26.88	22.31	4/1/13	-17%	Sold @22.20 on 6/15.
INDA	31.94	33.44	3/15/15	5%	HOLD
INCO	34.46	46.37	5/15/15	35%	Accumulate
IHF	139.1	172.92	8/16/15	24%	HOLD
XLY	77.76	106.13	8/16/15	36%	HOLD
EEM	32.3	46.42	11/15/15	44%	Accumulate
IYG	112.03	134.87	3/19/16	20%	HOLD
EMQQ	32.65	37.37	5/21/17	14%	Accumulate
KWEB	58.52	60.26	2/11/18	3%	BUY
MUTUAL FUND
FBIOX	114.64	226.25	3/1/13	97%	Accumulate
PRHSX *	47.25	74.7	2/2/14	58%	Accumulate
FSCHX *	120.74	146.76	4/12/14	22%	Accumulate
FSCRX *	24.3	30.64	10/25/14	26%	HOLD
PRMTX *	59.45	102.36	12/20/14	72%	Accumulate
MINDX *	26	33.36	6/14/15	28%	HOLD
MCDFX *	12.37	18.78	12/9/15	52%	Accumulate
FSRPX *	9.05	14.8	1/15/16	64%	10:1 Split adjusted
FBSOX *	37.32	59.74	3/20/16	60%	Accumulate
FSMEX	43.66	48.18	9/24/17	10%	Accumulate
* Indicates dividend adjusted

Positions closed in April 2017: MO 

Equity	Sales Price	Buy Price	Date Sold	Gain / Loss (%)
MO	57.23	50.05	25-May	10.34%

MO: Off late, MO has been coming down and have lost lot of its value. Hence, thought of disposing it.

Update on EXEL:Earlier, I posted my update on EXEL and my view has not change. It had an excellent first quarter on sales as well as profit. I still think that it’s a good stock for long run and possibly can be bought on any day. 

That’s all for today. Wish you great investing! Stay tuned for my next 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.You can also join my WhatsAppgroup, if interested. 

Disclaimer: This blog is meant to provide my opinion only. The information provided is to the best of my knowledge but may not be accurate. I do not provide any 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 accurate. 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. Anybody buying or selling the equities mentioned here would do it on their own risk.

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