Shesa's JANUARY 2022 Investment Blog
By Shesa Nayak
U.S. Stock Market Commentary
The year 2021 was another great year for the investors. The DOW gained 18.7%, S&P 500 gained 26.9% and NASDAQ rose 21.4%. All these major indexes have hit new all-time highs multiple times during the year. The U.S. economy has grown faster during Biden's first year in office than in any president's first year since 1977 when former President Jimmy Carter was in office. Looking back into the year, it started with upward momentum and continued the whole year except some hiccups in February, May, September, later part of November and mid-December. The year dominated with some significant events that had stock market impact:
- Joe Biden was sworn in as 46th President of United States on January 20
- The mob of supporters of Trump attacked the U.S Capital in Washington, D.C on January 6th
- Continued COVID variants - Omicron virus
- Fed tapering of its Quantitative program kicked-off
- Passing of $1.9 trillion American job plan bill
- Passing of $1.2 trillion bipartisan infrastructure bill
- Inflation highest (6.8%) since June of 1982
- Failure to pass Build Back Better bill due to a couple of conservative democrats
As we embark into 2022, many experts predict various headwinds like new COVID variant threatening to slow global growth, supply chain bottlenecks, rising inflation, and expectations that the Federal Reserve will raise interest rates. However, I believe many of these warnings may turn out to be positive catalysts for the stock market. The stock market has been on its bull run for many years, can we still expect to move further up in 2022 or this will be the end of bull market? That’s a million dollar question. I will share my past view and future expectations later, but before that let’s take a quick look at the stock market indexes.
| Indexes | 1/4/21 | Close FRI 12/31/21 | Change in 2021 | % Change in 2021 | All Time High | % from All Time High |
| DOW | 30,606.48 | 36,338.30 | 5,731.82 | 18.73 | 36,679.44 | -0.93% |
| S&P 500 | 3,756.07 | 4,766.18 | 1,010.11 | 26.89 | 4,808.93 | -0.89% |
| NASDAQ | 12,888.28 | 15,644.97 | 2,756.69 | 21.39 | 16,212.23 | -3.50% |
| BTK | 5,741.55 | 5,518.45 | -223.10 | -3.89 | 6,376.77 | -13.46% |
| NBI | 4,759.14 | 4,728.94 | -30.20 | -0.63 | 5,517.77 | -14.30% |
What do I expect in 2022?
Frankly speaking, nobody can predict how the year will go. There could be many unknowns which are unpredictable. Also, many time we may think one way, but market direction may change in other way. So, the best strategy is to adapt to the market condition. However, as it stands today, here are my thoughts about 2022:
Positives
Fed will continue to be accommodative: I can expect central bank policy to remain accommodative despite Fed tapering. Fed has already indicated to increase interest rate 3 times this year. However, let’s not forget that U.S. mid-term election will be held this year and thus we may see a dovish Federal reserve and that may help the stock market. The global developed market central banks are expected to add additional $1.1 trillion to their balance sheet through the end of 2022.
Supply Chain should get better: This was one of the major impediments which pushed the inflation higher in 2021. This year, I expect that the corporations should step in addition to the government, helping limit further price increases. Also, the labor issues are impacting many sectors. We may see a turnaround and labor situation improve as the year goes by.
Build Back Better Bill: According to the market pundits it has ZERO chance to pass. However, in my view this may be renegotiated and possibly approved to some reduced amount in the first half of the year, before mid-term election. Democrats can’t afford not to pass the bill. If it gets through, it will be huge catalysts for renewable energy and some other stocks.
January effect: A lot of the move out of cash could happen in January when money managers make their initial bets of the year. January typically makes up for 134% of the yearly flows, according to Goldman, meaning the month typically sees a big inflow of funds, while the rest of the year has a net outflow. It also speaks to Wall Street’s old theory of “January effect,” which believes that there is a seasonal rally in stocks during the first month of the year. In January we will see new pension fund pouring up to the market and the volumes are expected to increase. The small caps are expected to bounce back as Tax selling gets over and many small cap stocks become bargain. So, usually the small caps tend to do well in January and this year should be no exception.
Huge pile of Cash on sidelines: A couple of weeks ago, Investors added more than $43 billion into money market funds, bringing the total amount of cash raised in the past 8-9 weeks to a massive $226 billion, according to data from Goldman Sachs. Despite the rally in stock market during 2021, the money market stockpile has not declined and the cash equivalents standing near a record $4.7 trillion.
Inflation should get better: I expect the inflation to come down as the year goes by. The main reasons are (i) Supply Chain (ii) Improved COVID situation (iii) Oil prices may rise but I do not think we may see stiff increase during 2022.
Low Interest Rate: Despite the fact that Fed may raise rate, the real rates have already built in. Because market always factors the future. The mortgage rates have already gone up. For example, 30 years fix have shoot up from 2.5% to 3.7% in last few months. Also, let’s not forget that .25% interest 3 times this year projected by Fed is not a huge move. Let’s not forget that this year U.S will have mid-term election. Hence, Fed may be very cautious to raise rates. So, we may continue to see low interest rate environment.
Strong Retail Sales: Holiday Sales increased 8.5% breaking 17 years record. As long as consumers keep spending we can expect better days for the economy. Unemployment has come down significantly standing at 4.2%. Consumer spending accounts 70% of the GDP. Hence, as long as consumers keeps spending, the corporate world will keep making profits, recruit resources and no fear of any recession. I will be highly concerned if consumers spending comes down significantly.
COVID situation should get better: COVID got better then became worse after the emergence of Omicron virus. The current worry is Omicron. But as more people get vaccinated and take booster shots the situation should get better. This should also make supply chain situation better because many manufacturing organizations are impacted by COVID. If COVID situation do not get and we keep seeing new variants then that will be a huge negative for 2022.
Negatives
COVID Variants is still a concern: COVID variants remain a concern and will remain a concern depending on how Omicron plays and whether there will be more variants in future. So, it may be positive or negative for the stock market depending on how the situation evolve.
Rising Inflation: will remain a concern but will get better as year goes by as I mentioned above. A strong U.S. dollar should help suppress inflationary pressure because stronger U.S dollar aids in making foreign imports cheaper. This helps the domestic manufacturer to manufacture goods cheaper.
Corporate Growth to slow: We may not see 70-80% earnings growth as we saw in Q2-Q3 of last year. Investors will have to accept the new reality of reasonable corporate revenue and earnings growth.
Interest Rate: Market may have factored in the interest rate hikes but obviously rise in interest rate is an impediment for small companies as they need cash to run their businesses. Also, the interest rate would make expensive for buying real estate properties. As aforesaid, the mortgage rates have already gone up.
Fed Tapering and Interest Rate: The pace of tapering would increase and at least three rate hikes are the base case for 2022. This may take away some liquidity from the stock market.
Some large Cap stocks have become expensive: Some stocks, particularly the likes of Apple, Google, Microsoft, Netflix and many other large cap stocks have gone up significantly questioning their valuations. Please note that these companies are major part of NASDAQ 100 and S&P 500. Hence, if they are beaten down then it’s going to impact the stock indexes. About 15% of the S&P 500 stocks had negative return during 2021. Despite the indexes had a nice gain, biotech and renewable energy stocks were hit the hardest. Many of those stocks lost 30-70% of their values. Hence, expect some turnaround for these stocks this year.
Bottomline:
The consumers are spending big and that was one of the biggest positive for 2021. Thus, corporate profits were at all-time highs. But those may not be rosy in 2022. So, I think the market can climb the wall of worry, but I'm cautiously optimistic. We've had some strong years of stock market performance, so I anticipate some pullbacks. Given that the valuations are historically high, it's really hard to justify another big bull market run. In the rising rate environment, usually fundamentally superior stocks with some dividends tend to do well. This year may be stock pickers years to pick the right stock. Also, I will watch for Build Back Better bill. I don’t think it’s dead yet! If it happens, it may be a booster shot for the economy. We will see how it goes.. There are times when most of the stocks rise. Then there are times when mounting headwinds makes it difficult to succeed because of a swirl of headwinds. There would be challenges of COVID variants, slow global growth, supply chain bottlenecks, rising inflation, and expectations that the Federal Reserve will raise interest rates. Having said all these, I still see moderate return this year, possibly 15-20% in 2022.
Growth Sector having great future potential in 2022 and Beyond
In my view, we should see solid growth in this year and in future in the following sectors or industry.
Artificial Intelligence (AI): As the industry moves forward, the use of Artificial Intelligence and Machine Learning will accelerate. As many of the readers know, these are software which can be developed but using these in the product in a wide variety to maximize revenue and profits is an extremely difficult ball game. Hence, there will be leaders, followers and losers in this space as well. In my view, the following companies are the leaders NVDA, AMZN, TSLA, FB, GOOG, MSFT, SHOP, MA, MRVL, DOCU are some key companies to lead the way.
Technology Sector: The above companies are all technology companies. But there are numerous companies in this sector. If we look to this sector, it has consistently done well. Because of new innovations to make things better and better. The sector has returned a whooping 278.17% in last 5 years. Do I need to say more? This year technology sector was 4th in sectorial return, missing the spot of top performer to energy sector.
HealthCare/Biotech: Both biotech indexes finished in red for 2021. There are two parts to healthcare stock: the drug companies better known as pharmaceutical, and another part is biotechnology who invests in innovation and research. Overall, healthcare sector did well with 24.16% ROI. But biotech stocks were hit the hardest. Many stocks lost more than 25-60% of their values. There are many reasons to this, such as drug pricing debates, FDA tightening on mergers and acquisitions (M&A) and approval process, COVID-19 and staff shortages are making elective procedures and regular health care more difficult, no major breakthrough etc. M&A activity is expected to get better. As I have said many times before, each day around 10,000 baby boomers in U.S are retiring. Around 22% of the U.S population is in this category. I expect that M&A will start picking up and biotech sector is expected to see better growth going forward. We may see innovations in the areas of Gene editing, Alzheimer and Oncology.
Green Energy: This is not a sector per se. It includes all renewable energies like solar, wind, hydrogen, electric vehicles (EVs), EV charging stations, carbon capture etc. All these can be part of green energy. As I have said before, the world is moving in that direction and it’s going to be one of the major growth areas. It does not only huge environmental benefits but also social, health and great economic benefits. It was expected that they will boom in 2021 due to infrastructure bill and build back better bill. The first one was passed but BBB bill is still struggling to get approved in Senate. Though, it’s difficult to predict the future, but in my view BBB would be renegotiated and possibly approved to some reduced amount by March – 2022. Even if it does not happen, the stock prices in the sector seems compelling for long term investors. Renewable energy stocks may not be ending 2021 on a high note, but that doesn't mean the long-term trends aren't heading in the right direction. Wind, solar, and EVs are all growing, and that should help these stocks outperform the market in the years to come. It just needs patience to buy good companies on pullbacks, take some profit and keep holding the rest. For example, today Tesla reported that it delivered a whopping 308,600 vehicles in Q4 2021 and 936,000 vehicles for the year that’s up 87% from 2020. What does it means is, lot of people are buying EVs and the trend to continue..
I expect that green Hydrogen would have phenomenal growth prospect for next few years. There is a provision for $9.5 billion federal investment to expand the hydrogen and fuel cell industry in the current Infrastructure Bill. As time goes, Hydrogen costs will come down for the industry, hence profit margin will keep expanding, the same way it happened to solar and wind power. A decade ago, solar power was very expensive but today soar is one of the cheapest sources of energy. Hydrogen is expected to be the BEST long-term investment since it’s at the inception stage. I anticipate that Plug Power (PLUG) may have the potential to be the next EXXON or TSLA of hydrogen in next few years. Watch this company for years to come. Having said that, if situation changes then I revisit my strategy and realign my portfolio.
Semiconductor: I expect that the chip shortage would get better in the later part of the year. As market factors in ahead of time we should see this sector to have a good run.
Financials: Financials tend to do well in interest rising environment. Hence, in theory this sector should do well. But one word of caution, the stock prices may have already factored in.
Energy: Energy could do well due to continued focus on renewable energy. But I do not have any investment in this sector, no plan to invest at this time.
Crypto Currencies: BitCoin, Ethereum – It has become extremely volatile. But in next few years we could see more and more adaption of cryptocurrencies by individuals, corporations, and possibly the governments. As an investor, if we are not too concerned with the volatilities and have a long term vision then I think it may be worth putting a little bit of money in this space. I have a very small investment at this time but may have to keep adding in small amounts on any correction. There are many other new stuffs coming to the market like NTF (Non-fungible token) but this is too volatile and risky for me, so I may not venture into that area at this time.
Some STOCKS to keep eye this year: As my readers are aware, I do not go with big names unless I feel compelling to buy. I do my own due diligence and make my own growth oriented shopping list. Some time I win or win big and sometimes I may lose. I just do not want to include great companies’ names in my blog portfolio so that it looks good for the readers.
My TOP Picks for 2022
PLUG, LCID, SAVA - worst case < $10, best case could be humongous! At
The two small cap biotech stocks that I have in my blog portfolio SRNE and AGEN will either get busted or they should more than double this year. I see the later but it’s difficult to predict anything, so one must diligently determine the course of action. I will keep a close eye and determine my course of action in next few weeks/months whether to hold, accumulate or get out!
List of stock not on my Blog Portfolio but I am optimistic for 2022: NVDA, HYZN, BEAM, CHPT, BLNK, BE, SPWR, RIOT, LABU (Biotech bull 3x), SOXL (Semiconductor bull 3x), GERN, QS, FSR. Caution: 3x shares are extremely volatile and risky!
Wherever we invest, picking right stock is always critical for success. If we are not comfortable to buy stocks then investing in appropriate mutual fund or ETF could be the right approach.
Revenue & Profit growth for 2021, Forecast for 20202 (updated)
Quarter | Earnings % | Revenue % |
Q1 | 52.5 | 10.9 |
Q2 | 90.9 | 19.7 |
Q3 | 39.6 | 17.8 |
Q4 (projected) | 21.3 | 11.9 |
FY21 (projected) | 45.1 | 15.8 |
Q122 (projected) | 6.2 | 8.6 |
FY22 (projected) | 9 | 6.8 |
Sectorial Stock Market Performances (TOP 5 sectors for 2021)
Sector | YTD Performance in %age |
Energy | 46.54 (TOP) |
Real Estate | 44.31 |
Financials | 34.30 |
Information Technology | 33.75 |
HealthCare | 25.58 |
Energy was the top performer for 2021. After many years, IT sector is not on the top three performer. Please click below link to view complete sectorial performances:
Source: Fidelity.com
Now let me discuss this month’s inclusion to my Blog Portfolio.
Intellia Therapeutics, Inc. (NTLA)
Intellia Therapeutics is a clinical-stage biotech company involved in developing genome editing capabilities to cure diseases by leveraging the CRISPR/Cas9 technology. The company is located in Cambridge, Massachusetts. Let me first explain what is Genome Editing? Genome editing or Gene editing, is an area of research seeking to modify genes of living organisms to improve our understanding of gene function and develop ways to use it to treat genetic or acquired diseases. It’s applying two methodologies in its drug development. The first approach is an in-vivo program, which uses CRISPR injected to edit particular genes that are the root cause of the disease. The ex-vivo program, CRISPR is used to create the therapeutic by manipulating the human cells to aid in the cure of cancers and autoimmune diseases. Some of my blog readers may be aware that I had included a gene editing company in 2018, known as EDIT. That stock had gone up to about $100 in Dec 2020 but due to not much of success the stock is down significantly. That triggered me to add NTLA which is in the same field but so far it has produced remarkable results. Before I write about the company, let me first write about its usage. CRISPR/Cas9 is a homing device (the CRISPR part) that guides molecular scissors (the Cas9 enzyme) to a target section of DNA. Together, they work as a genetic-engineering cruise missile that disables or repairs a gene or inserts something new to the DNA where the Cas9 scissors has made some cuts. It’s a scientific revolution but the efficacy or side effects are unknow as the technology is still in evolving stage. However, if it works, it will be monumental!
Why do I like NTLA?
On 6/26/21, the company reported first-ever clinical phase-1 data supporting safety and efficacy of in vivo CRISPR genome editing in humans. The interim data showed that a small dose of NTLA-2001 (Transthyretin (ATTR) Amyloidosis) led to 87% mean reduction in serum TTR, with a maximum 96% serum TTR reduction by day 28 without any serious adverse events observed in the first six patients where it was tested. That was phenomenal!! The data was published in “The New England Journal of Medicine”. This spectacular result was actually rocket fuel for NTLA stock blasting almost 70% following the announcement. The company CEO said that “the advancement unlocks the door to treating a wide array of other genetic diseases with our modular platform, and we intend to move quickly to advance and expand our pipeline. With these data, we believe we are truly opening a new era of medicine." The stock went as high as $202 in the last week of August before the biotech sector got hammered!
The above medication NTLA-2001 has received orphan drug status from the US Food and Drug Administration (FDA). In addition, the UK Medicines and Healthcare products Regulatory Agency (MHRA) has given the go-ahead to expand to bring in more ATTR-CM patients. This is really a very positive development because 200,000 to 500,000 patients are suffering from ATTR-CM as opposed to only 50,000 patients suffering from ATTR. Furthermore, NTLA has also received approval from the New Zeeland and the UK regulatory authorities regarding the first-in-human trial of another drug NTLA-2002 which is an in-vivo therapeutic targeted towards the treatment of hereditary angioedema. Meanwhile, the drug (NTLA-2001) is in the dose-escalation and expansion stage of the Phase I/II trial in U.S to induct 55 patients into the study.
On 12/13/21: The company announced that the first patient has been dosed with NTLA-2002, the company’s in vivo CRISPR/Cas9 genome editing candidate being developed as a single-dose therapy to prevent attacks in people living with hereditary angioedema (HAE).
Collaborations
NTLA has license and collaboration agreements with Novartis Institutes for Biomedical Research, to engineer hematopoietic stem cells for the treatment of sickle cell disease; Regeneron Pharmaceuticals to co-develop potential products for the treatment of hemophilia A and hemophilia B; Ospedale San Raffaele; and a strategic collaboration with SparingVision to develop novel genomic medicines utilizing CRISPR/Cas9 technology for the treatment of ocular diseases.
My thoughts
The company has successfully demonstrated a "one-and-done" procedure to treat and even cure some deadly genetic diseases. During last quarter’s earnings call, the management committed to sharing interim clinical data from NTLA-2001 in the first quarter of 2022. It means any time between Jan 1 – March 31, 2022. These updates could provide a catalyst for the stock to rebound from its recent losses and more if results in larger populations mirror the results of last year’s June announcement. Based on the earlier spectacular results, this company seems to have a great start. If it can prove further than the share price can go significantly higher. If gene editing works proved to work then the market can be astronomical because this can treat many incurable diseases in possibly single dose of medication. Because the use of gene editing is not limited to human but also any living creature.
My View and Strategy
I started buying this stock when it was trading in its $30s and kept accumulating to around $140s. I also sent a message to my WhatsApp group on during the last week of June after the phases-1 results were declared by the company. I have been accumulating this stock in small quantities over a period of time. Currently the stock is trading at $118.24 with amarket capitalization of $8.8 billion. Last year, biotech stocks had a terrible year. NTLA has lost 42% from its 52-weeks high. So, I feel this may be the right time to keep taking a new position or accumulating slowly. I mostly take a combined approach of trading and investing strategy because I believe that’s a good strategy for such highly volatile stock – buying a in a phased manner when it comes down, taking some profit when there is a good run and leaving remaining for long term. The share price that I may have in my own portfolio could be much different than what’s there in the blog portfolio. Because usually I put the share price on my blog what was prevailing on the day of publishing my blog. Many investors may be asking themselves if this is the right time to invest to catch a potential 1x, 2x or 3x return. The answer is “possibly Yes”. The CRISPR revolution is in the early stage, NTLA is a market leader, and there will likely be many $100 billion companies in this space. Early investing is highly risky but highly rewarding as well. It depends on each individual’s investment approach and risk taking capabilities.
RISKS: The stock has tremendous potential in the long run as long as the company keeps producing such phenomenal results. Having said that, the company has a market capitalization of about $8.8 billion with ZERO revenue till date. In general biotech stock are very volatile and that too this is in its early stage, hence risk could be even more. It’s a highly volatile growth stock. Nothing is guaranteed in the stock market and that too in biotech investing! Any major setback(s), this stock can be decimated by institutions and short sellers. So, conservative or risk averse investors or anybody who can’t take volatility should stay away from such stock. Managing risks and controlling emotions are extremely critical in investing. Every investor must determine based on what is best for him/her.
My final thoughts
As I have said many times, I am a growth investor, so I do my due diligence and try to find good stock with solid future potential. I am not too concerned about short term volatility and showing some paper losses/gains. NTLA keeps fluctuating heavily but I see strong future potential in the long run, at least based on the current data that the company has demonstrated so far. If situation changes then I can take quick decision and get out. So, it’s not written on the stone that long term investment means I won’t get out. I always try to determine based on the facts available at the time of making my decision rather than emotions. At this time, I visualize NTLA has a great future potential. I am keeping it as a long term investment but will not hesitate to take some chips whenever there is a big run in the stock price.
Shesa’s Blog Portfolio (As of JAN 2, 2022)
Equity | Suggested Price | Current Price | Suggested Date | % Change | My View |
STOCK (All prices are in USD) | |||||
12.9 | 177.61 | 1/25/13 | 1277% | Buy on Dip | |
47 | 336.35 | 11/13/13 | 616% | HOLD | |
77.18 | 359.37 | 12/12/13 | 366% | HOLD | |
311.73 | 3335.58 | 4/12/14 | 970% | HOLD | |
134.81 | 1377.95 | 11/25/18 | 922% | HOLD | |
297.57 | 602.68 | 1/6/19 | 103% | HOLD | |
4.27 | 31.68 | 1/29/20 | 642% | HOLD | |
12 | 20.12 | 3/22/20 | 68% | HOLD | |
54.59 | 159.78 | 5/25/20 | 193% | HOLD | |
45.3 | 182.93 | 6/28/20 | 304% | Accumulate | |
19.58 | 19.03 | 8/2/20 | -3% | HOLD - I may Sell | |
62.71 | 45.91 | 11/21/20 | -27% | HOLD (Trimmed) | |
14.39 | 4.66 | 2/14/21 | -68% | HOLD | |
27.98 | 28.23 | 4/25/21 | 1% | Accumulate | |
5.39 | 3.22 | 7/18/21 | -40% | Accumulate | |
8.11 | 6.14 | 8/27/21 | -24% | HOLD | |
51.49 | 43.66 | 10/10/21 | -15% | Accumulate | |
55.21 | 38.04 | 11/21/21 | -31% | Accumulate | |
118.24 | 118.24 | 1/2/22 | 0% | NEW ADDITION | |
ETF | |||||
139.1 | 290.28 | 8/16/15 | 109% | HOLD | |
70.23 | 67.79 | 1/3/21 | -3% | Accumulate | |
MUTUAL FUND | |||||
59.45 | 182.6 | 12/20/14 | 207% | HOLD | |
9.05 | 23.07 | 1/15/16 | 155% | HOLD | |
43.66 | 83.18 | 9/24/17 | 91% | HOLD | |
Positions CLOSED in 2021
2021 SALE | Buy Price | Sold Price | Date Sold | Gain/Loss |
17.66 | 4.51 | 5/6/21 | -74% | |
SDC | 8.74 | 9.81 | 4/20/21 | 12% |
67.28 | 153.86 | 8/23/21 | 129% | |
52.96 | 26.2 | 3/21/21 | -51% | |
12.03 | 17.85 | 9/13/20 | 48% | |
20.16 | 13.3 | 12/10/19 | -34% | |
51.61 | 66.55 | 10/18/20 | 29% | |
87.53 | 104.33 | 9/1/19 | 19% | |
76.91 | 81.63 | 4/19/20 | 6% | |
36.53 | 28.9 | 5/28/18 | -21% | |
44.41 | 13.38 | 5/31/21 | -70% | |
11.46 | 19.76 | 3/1/13 | 72% | |
37.32 | 90.16 | 3/20/16 | 142% |
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 on what I do. 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 put on my blog portfolio and avoid including any security that I do not own or follow. Anybody buying or selling the equities mentioned here is their own risk.
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