Shesa's February 2021 Investment Blog

 

 

FEBRUARY 2021 - INVESTMENT BLOG

By Shesa Nayak

U.S. Stock Market Update   

The stock markets have been going up after the U.S election. All the stock indexes have hit new all-time high this week. If past history is any evidence then we should see about 20% return this year because in the first year of Democratic presidency S&P 500 has gone up by 19.4% dating back to 1932. The $1.5T stimulus debates keeps going in congress and stock market continues on a track higher. The democrats have targeted to get the stimulus done by the end of February. However, the economy is still not in a great shape but it’s getting into a recovery mode. The fourth quarter earnings are in progress, most of the big technology companies like Apple, Amazon, Facebook, Microsoft, Google reported spectacular earnings. About 75% of the S&P 500 companies have already reported earnings and looked very impressive, 80% of these have reported earnings surprise and 78% reported revenue surprise. In general, February is not a great month for the investors as it has returned just about 0.3% in last 40 years or so. The Coronavirus cases have gone up to 27.39 million and deaths tool raised to 475,000 but the good news is that the number of COVID cases have been receding day-by-day and the infection rate has come to the lowest in 3 months.  Elsewhere, some stocks have gone up parabolic. So, the question that comes to mind is whether the stock market is in bubble? I will share my thoughts on this but before that let’s take a quick glance at U.S stock market indexes.

Q4 Earnings

Earnings: For Q4 2020, 74% of the S&P 500 companies have reported earnings, out of which 80% reported a positive EPS surprise and 78% have reported a positive revenue surprise. It can be noted that if 80% is the final percentage then it will mark the third-highest percentage of S&P 500 companies reporting a positive EPS surprise since 2008. The earnings growth rate for the S&P 500 during this period is 2.9%.    

Valuation: The forward 12-month P/E ratio for S&P 500 is 22.2. This P/E ratio is above the 5-year average of 17.7 and above the 10-year average (15.8).

Major News

• GDP Growth: Q4 GDP growth was 4% quarter over quarter and annual growth of -2.5%.  The economy is reflecting both the continued economic recovery from the sharp declines earlier in the year and the ongoing impact of the COVID-19 pandemic
• U.S Coronavirus Cases: Coronavirus cases have gone up to 27.39 million vs. 20.2 million, up about than 30% since my last blog, Death: 475K vs. 348K since my last blog. But the good news is that since January 8, the number of COVID cases have been receding day-by-day  
• Retail Sales: In December the retail sales decreased -0.7% after a decrease of -1.1% in November
• Unemployment rate: 6.3%
• First-time filings for unemployment benefits totaled 885,000 vs. the Wall Street estimate of 800,000.
• US Total GDP/Economy: $21.43 trillion
• US Stock Market Valuation: The total market capitalization of the U.S. stock market is $50.8 Trillion as of 12/31/20. It might have gone another couple of trillions after that
• Interest Rate: 0.25%
• Inflation rate: 1.4% (month over month 0.3%)
• Consumer Confidence: 76.2 slightly down from 80.7 since my last blog.

Stock Market keeps going up - how long?

In my last blog, I had listed many key factors which market is looking positively. If you wish to know please read my January blog. However, I want to emphasize some fey factors that is helping the current market:

Fed is standing tall: As I have said many times, the key factor is Federal Reserve’s continued stimulus program. As matter of fact, we see record low interest rates and liquidity in the market. Investors are fearless because Fed is standing. So, I always THANK FED!

Tech Earnings: Major Tech Companies Earnings were very impressive. Amazon, Apple, Facebook, Google, Microsoft, Netflix – all reported excellent Q4 earnings. The technology companies proved time and again that they can generate outstanding revenue and profits during challenging time. Unless, there is major sell-off in these stocks I do not think stock indexes may not go too low.

Stimulus Talk:  Biden administration is making all the effort to get $1.9T stimulus approved by end of February. It’s expected that stimulus bill to come for voting to congress during the week of Feb. 22, and it could become law by the first week of March. Investors will stay focused on its progress because this is expected to bolster the economy. We can see increased consumer spending, business reopening and more employment. This should be the impetus for the economy.

Strong Housing Market: Housing Market which is another key component of the economy remains strong due to low interest rate. According to Redfin survey 56% of the homes are seeing bidding war and are getting sold in less than 2 weeks. Please note that housing generates a lot of consumer spending because the home buyers also spend money on other stuff like repairs, furniture, fixtures and other home improvements. All these contributes to the economy. ­­­­

Corona Virus Cases have been going down: With Biden administration in place, now vaccination is in progress and people are taking precautions like wearing masks. Hence Coronavirus infections have come down to 4 months low. We may see various impacted business get back to action. This is a very positive news.

Economy Concerns: But all the economy is not that rosy. In January, the economy added only 49K jobs and the unemployment rate fell to 6.3%. There are about 10.1 million Americans still unemployed. Pandemic death rates are near its pick. Many businesses and schools are still closed. The pace of recovery has slowed each month since June. And some of the improvement is coming from people dropping out of the labor force and they are not counted as unemployed though they don’t have a job. More than 2.3 million women and 1.8 million men have dropped out of the labor force since February 2020. The women’s labor force participation is at its lowest level since 1988 probably because of child care need due to pandemic.

Is there bubble in the stock market?

Well, if we see some category of stocks then “yes” there are bubbles. For example, what happened with GameStop, AMC and few other stocks a couple of weeks ago was absolutely bubble. But those were primarily due to short squeeze. In fact, I will say that the short squeeze was one of the best things happened because many institutions were short selling stocks like crazy. When 130% of the float is shorted for a company, it’s like killing the company for their (short sellers) own benefits. That’s insane! In fact, short squeeze also benefited to many small biotech companies. Biotech companies try to do better for the mankind but many small biotech companies are sent to the death bed by short sellers. Off late, we are also seeing bubble in many SPAC companies in EV and some other sectors which hardly have any revenue but those went up like crazy.  There were many IPOs went parabolic. Though, the Cannabis sectors went up significantly last weeks but I feel that many of those have potential as democrats are expected to be liberal which may contribute to their top and bottom lines. But we must remember that hypes do not last long and they fall to the earth sooner or later. However, fundamentally superior stocks or stocks having great future potential deserve some premium because they are expected to deliver. We keep seeing technology companies continue to deliver and hence usually NASDAQ does better than all other indexes. Evidently, there are some bubbles in the market but I will disagree to the fact that there are bubbles in the stock market like we saw during .com boom.

Some quick Tips

One thing that I would like to reemphasize, investor must not get into irrational exuberance and take some chips out of table from time to time. Taking some profit always helps not only to generate some cash but also mitigating some risks in case the stock falls because of any reason. Taking profit does not mean that we will not buy the same stock again when there is opportunity or further chances of growth. Taking profit does not mean that we are completely out of the stock and we will never buy it again. Many times, I do see that the retail investors buy or sell at the wrong time. We need to sell when the stock achieved our goals. Some stocks can be left for years or may be for our next generation, once profit is taken. However, sometime we may have to take a quick decision to sell the stock depending on new development. So, one has to study not only the stock market but the stock in our portfolio and take the right decision in a timely manner.

Chasing a stock and entering or buying at a very high price is the first mistake investor do, but if you panic sell, is another mistake. However, if we sell too low, that is a third mistake. I have seen many folks commit these errors. As an investor, it’s of paramount importance to cut down such mistakes. We may do mistakes but those should be used as a learning experience and not to keep repeating same mistakes time and again.

Some Stock Market Facts during Democrat and Republican Presidency

• In first Year of Democratic presidency, the S&P 500 has gone up on average by 19.4% dating back to 1932. Last 10 Years the Stock Market returns has returned about 14%
• Democratic presidents held the reins for 336 months and during that period only 4% of time were in recession
• Republicans controlled the White House for 480 months, about 23% of which were spent in recession
• The 2020 recession that began in March 2020 has not been officially declared over as yet, which means officially we are still in recession
• The recession that began in 1980 under President Jimmy Carter was the only recession that started under democratic president

My Current Sectors in Focus

As I have said, I am a growth investor. Hence, I try to keep a future vision and try to identify the areas where there could be significant opportunities. Indicated below are some of the areas I visualize having great future potential for patient and risk-taking investors. As we know, change does not happen overnight. Thus, I do not expect immediate turnaround and expect my money to generate significant ROI immediately.

Renewable Energy/EV:  Solar, Hydrogen, EV and Wind stocks. As I have said before, Joe Biden has a big emphasis on renewable energy. In addition, many countries in Europe, China, Japan, many other countries and corporates are emphasizing heavily on renewable energy. Hence, future looks brighter for long term investors. We may see huge growth is in renewable energy and Electric Vehicle (EV). Once we drive a good EV, we may not like to drive a diesel car. We may see a significant change in this area in next few years.

Cannabis: Having democrats in power has the best thing that happened for Cannabis. We may see many positive developments in the market for next few years. And that may help cannabis stocks. Few years down the line, we may find marijuana will be used like alcohol today. But its usage is enormous as it can be used in smoking, vaping, medical use, cakes, cookies, gummy bears, cereal, granola bars, edible oil, cream, chewing gum and so on. So, opportunity is vast once it’s legalized.

HealthCare: The current administration’s emphasis will revolve around affordable care or better known as Obama Care. So, insurance companies may do better. Biotech may have a good year. The aging populations will keep growing needing more medical attention and spending. So, this sector may be competitive but will continue to do well for decades to come. In biotech I like opportunity in genome editing, oncology, vaccines.

Technology: Should continue to do well. We saw explosive earnings from AMZN, AAPL, FB, NFLX, MSFT, GOOG etc. Good technology companies will continue to do well because tech is inevitable for any company to generate revenue and profitability.

Semiconductor: 5g Revolution. We may see many companies to do well in next months and year

Digital Currency: This is another space that I see significant growth in future. These digital currencies include Bitcoin, Ethereum, Litecoin, and Ripple. I do not have a very significant position in these but I have started adding in small quantities.

Major Stock Market Performances in 2020

Indexes	52 weeks (% change)	YTD % (last blog)	YTD % Change (current)
DOW	7.01%	7.25%	2.78%
S&P 500	16.41%	16.26%	4.76%
NASDAQ	41.75%	43.48%	7.13%
China Shanghai Index	24.88%	13.87%	5.24%
India BSE Sensex	24.93%	0.25%	8.45%
Japan Nikki	23.89%	7.91%	7.56%
Hongkong Hang Seng	8.81%	-6.17%	10.81

Source: Wall Street Journal

Sectorial Performances 1 Year % Change (U.S Stocks)

Sectors	Last Blog	1 Yr. % Change
IT (Best sector YTD)	42.75%	37.83% (TOP)
Consumer Discretionary	32.26%	32.02%
Communication and Services	22.42%	25.5%
Materials	18.99%	23.15%
Health Care	11.76%	12.62%
Industrials	9.04%	7.17%
Consumer Staples	7.69%	2.29%
Financials	-3.82%	1.41%
Real Estate	-4.56%	-5.91%
Utilities	-2.33%	-9.42%
Energy	-36.89%	-18.19%

Source: Fidelity.com

Now let me discuss my February Blog addition. 

Sorrento Therapeutics, Inc. (SRNE)

Sorrento Therapeutics is a clinical stage and commercial biopharma company located in San Diego, California. The company has a wide range of therapeutics products under development. But it primarily the focus in three areas: Non-opioid pain management, immuno-oncology, and COVID-19. Sorrento already has one FDA approved drug known as ZTildo, that treats severe pain associated with advanced cancer. The stock was hit hard last year by the short-sellers. However, since January this year the stock has more than doubled. Thanks to a series good news from the company followed by short squeeze that ignited from the GameStop stock. That was a blessing in disguise not only for the biotech sector but also for the whole stock market.

Digging deeper into SRNE potential

Evidently SRNE is small cap biotech company which has only one product ZTildo approved for commercial sale. As such, it does not have huge revenue at this time. However, the company has robust pipeline of possible new drugs which I am going to discuss. Any breakthrough in these drugs could be major catalyst for the company to generate substantial revenue.

 

Before I discuss the pipelines, let’s see few of the key news that moved the stock higher in last couple of weeks. On January 26, 2021, Sorrento announced positive results from its Phase 1b study of human allogeneic adipose which is COVID-19 related respiratory distress. There were four patients in trail and all those were relieved from hospital within a week and 4^th patient also recovered pretty fast and all were discharged from the hospital. On Monday, February 8, the company said that its subsidiary company - ADNAB, Inc. is to develop and commercialize ADNAB™ Platform Products for Hematological Malignancies and Solid Tumors based on an exclusive technology License from the Mayo Clinic and the stock went up almost 19%. Well, what we have seen so far is just the prototype. Because the company has a huge pipeline of products under development in various phases. The company has one of the most active and promising pipelines in the COVID space with a potentially transformative non-opioid pain pipeline, and adds in a deep oncology pipeline.

Why do I like SRNE?

There are reasons to like many things for this small biotech company as it has great potential to succeed. Let’s see those catalysts.

COVID Space: As we know, COVID is slowing down but it may remain forever at a small pace. SRNE has 12 potential Covid Emergency Use Authorization candidates and each of these has huge potential. I have listed a few of them below. Note: Below info is from SRNE web site.

COVI-TRACE™ (Diagnostic Test for the Detection of SARS-CoV-2 in Nasal Swab and Saliva)

COVI-STIX™ (Antigen Test for the Detection of SARS-CoV-2 Virus in Nasal Swab)

COVI-TRACK™ Platinum (Antibody Test for the Detection of Antibodies to SARS-CoV-2 in Blood)

COVI-GUARD™ (Neutralizing Antibody – STI 1499)

COVI-AMG™ (Affinity Matured COVI-GUARD Neutralizing Antibody – STI 2020)

COVI-DROPS™ (Intranasal COVI-AMG Neutralizing Antibody – STI 2099)

COVI-SHIELD™ (Neutralizing Antibody Cocktail)

COVIDTRAP™ (ACE2 Receptor Decoy – STI 4398)

ABIVERTINIB (Cytokine Storm – STI 5656)

SALICYN-30 (Anti-viral – STI 2030)

COVI-MSC (Acute Respiratory Distress Syndrome – STI 8282)

Each of the above could qualify for emergency use authorization or so called EUA and potentially generate million/billion dollar of international sales. There is nothing guaranteed but some of these may come in weeks and some others may take several months. I do not know the exact timeline. In addition to above COVID candidates, SRNE has other potential multi-Billion dollar opportunities in other two segments i.e Non-Opioid pain and Cancer.

NON-OPIOID PAIN Management

• FDA already approved drug ZTildo => This is already generating revenue
• SP-102 is for lumbar/sciatic pain. As far as I know, it’s in phase 3 trial, more than 90% patients are enrolled and it has got fast track designation from FDA
• RTX intractable cancer, knee and arthritic pain

CANCER/Oncology

The below immuno-oncology unit focuses on treatments that use the body’s immune system to fight cancer.

• Non-small cell lung cancer: Abivirtinib is in phase 3 trial
• Lymphomas treatment is in phase 2 trial. It also has test going on for prostate and lupus
• Products for Hematological Malignancies and Solid Tumors with Mayo clinic

There are about 4 products with revenue potential in 2021. If the company can hit at least one or two of those then also its share prices could go up significantly. Hence, this year is anticipated to be a key year for the company to make some potential breakthroughs.

My View

First of all, the information presented above may not be 100% correct. I have done my due diligence to find whatever best I could do. As such, readers should do their due diligence. As I said earlier, the company currently has only one product available commercially. It has revenue of revenue of only $41.5 million. But the major opportunities can be seen in its pipeline of possible new drugs, providing plenty of potential for breakthroughs over the next 12-18 months. The stock is currently trading at $14.39 and had a 52-week high of $19.39. Since the beginning of the year the shares have gone up significantly. Probably, it was doomed by the short-sellers but GameStop short squeeze opened the flood gates. Moreover, let’s not forget the fact that the company came with a series of good news on COVID space in last few weeks resulting in the spike of its share price. I have been accumulating this stock since around $7. I have/had told to my WhatsApp group members a few times. I also wrote a small paragraph a few months ago in my blog. The strong pipeline of drugs in different phases can provide some potential blockbusters. However, nothing is bullet proof and hence one must be cautious while making an investment decision.

My Strategy

I have already taken some positions at different price levels. As a strategy, I do not buy everything at once, rather I prefer to buy in a phased manner and keep doing dollar cost average. The primary reason is that nobody knows the TOP or Bottom of an equity.  It’s better to have some long-term investment (core position) and some shares to trade, as this is a volatile stock. Stocks can go in either directions (Up/Down). So, having a trading strategy, one can keep making some money having to wait for a longer-term investment reward. As a process, I keep doing this for most of my investment with few exceptions here and there. Once I do my research and buy a stock, I don’t get panicked with some pull back or not thrilled when it goes up few points. Well, we can only research from existing information available to us at the time of buying it. Moreover, there could be many unknowns which is always a risk and have to be mitigated or re-evaluated based on the demand of the situation. If a stock comes down then I visualize it as a buying opportunity rather than getting too emotional. I try not to invest more than 5-6% of my portfolio irrespective of how great the stock may be and how great potential it may have!!

Risk(s): As I keep saying, no equity is immune to stock market decline. Small biotech stocks are prone to high volatility by nature. So, one must invest cautiously and diligently. One should only invest that much what one can to lose in case something goes wrong. One should not get into irrational exuberance and put a huge money to any specific stock as that could be damaging to the portfolio. One has to diligently decide when to buy, when to accumulate and when to sell.

My Final thoughts

SRNE stock was doomed a few months ago. The stock was trading at $6.83 on December 31^st and as I pen this blog it closed last Friday at $14.39. The stock is up 110% last few weeks and 450% in last one year. So, by all means it’s not a cheap stock. Having said that, let’s also not forget that COVID vaccine stock NVAX has gone up 3783% for the year. It does not mean that SRNE can go parabolic like that. However, for a biotech stock sky is the limit if they can make some major breakthrough. Coincidentally, biotech stocks have also enormous risk and can go to ZERO. But I do my due diligence and take a long-term approach. There could be some failures but so far so good. I do see enormous long-term opportunity with SRNE and willing to take some calculated risk. As I say, I am a growth-oriented investor, hence I take some calculated risks. Whether I can succeed or fail, only time will tell..

Other Stocks of my interest: FSLR, PLUG, DQ, APHA, EQOS, BMRN, CVM, INO, RUN, SAVA.

Shesa’s Blog Portfolio (As of February 14, 2021)

Equity	Suggested Price	Current Price	Suggested Date	% Change	My View (see disclaimer)
STOCK (All prices are in USD)
AAPL	12.9	135.37	1/25/2013	949%	HOLD
FB	47	270.5	11/13/2013	476%	BUY
MA	77.18	341	12/12/2013	342%	HOLD
AMZN	311.73	3277.71	4/12/2014	951%	Buy on Dip
BABA	67.28	267.85	2/21/2016	298%	Accumulate
EDIT	36.53	57.94	5/28/2018	59%	Accumulate
SHOP	134.81	1455.49	11/25/2018	980%	Buy on Dip
NFLX	297.57	556.52	1/6/2019	87%	HOLD
AMRN	17.66	7.82	2/17/2019	-56%	Accumulate
CGC	20.16	40.31	12/10/2019	100%	Accumulate
GH	87.53	179.1	9/1/2019	105%	Buy on Dip
SDC	8.74	12.73	1/1/2020	46%	Accumulate
NIO	4.27	59.85	1/29/2020	1302%	Buy on Dip
CCL	12	20.6	3/22/2020	72%	Accumulate
BYND	76.91	175.45	4/19/2020	128%	Buy on Dip
SPG	54.59	109.26	5/25/2020	100%	Buy on Dip
ENPH	45.3	206.51	6/28/2020	356%	BUY - long term
TGTX	19.58	47.95	8/2/2020	145%	Accumulate
BBBY	12.03	28.15	9/13/2020	134%	HOLD
MU	51.61	88.01	10/18/2020	71%	Accumulate
JKS	62.71	65.35	11/21/2020	4%	BUY
SRNE	14.39	14.39	2/14/2021	0%	NEW ADDITION
ETF
IHF	139.1	245.46	8/16/2015	76%	HOLD
QCLN	70.23	87.02	1/3/2021	24%	Accumulate
MUTUAL FUND
FBIOX	11.46	26.9	3/1/2013	135%	HOLD
PRMTX	59.45	196.13	12/20/2014	230%	HOLD
FSRPX	9.05	24.41	1/15/2016	170%	HOLD
FBSOX	37.32	98.44	3/20/2016	164%	HOLD
FSMEX	43.66	80.96	9/24/2017	85%	Accumulate
Note: Dividends are not adjusted on the price.

Positions CLOSED since last Blog

None.

That’s all for today. Wish you great investing! Stay tuned for my next blog. Thanks for your time.

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. Please contact a professional money manager to buy/sell any security. I do not charge any fees or commission by writing the blog except anything from Google AdSense. 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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