Shesa's JANUARY 2023 Investment Blog

 JANUARY 2023 - INVESTMENT BLOG

By Shesa Nayak

Wishing all my blog readers a VERY HAPPY and PROSPEROUS NEW YEAR - 20223!! Let’s hope that 2023 brings a lot of jubilations to the Stock Market!!

U.S. Stock Market Commentary    

Finally, we bid farewell to a horrendous year for investors! A shy of relief!! The year 2022 was “as ugly as it gets” - the worst year since the great global financial crisis of 2008-09. From the beginning of 2022 the downturn continued all along the way till the end of the year. All stock indexes were down for the year - DOW was down 8.78%, S&P 500 lost 19.44% (-20.3%) from all time high) and NASDAQ was decimated, down 33.1% in 2022 and down 35.5% from its all time high which never managed to came out of the bear market, not only worst since 2008 financial crisis but also first four-quarter losing streak since 2000-2001 dot com burst. The bears dominated the whole year. The stock market wiped out almost $10 trillion of wealth last year. The tech titans lost nearly $5 trillion in their market capitalization - Amazon lost about $840B, AAPL $835B, Google $790B, Microsoft $760B, Tesla $715B and Meta lost about $625 billion. We encountered tons of negatives factors that impacted the stock market - higher inflation, steep interest rate increases, hawkish Federal Reserve, Geopolitical issues, Supply chain constraints, China lockdown, technology stock turmoil, huge layoffs in tech and home builders. There were a few positives - we saw overall lower unemployment, higher consumer spending and mid-term election with democrats keeping the Senate and Republicans taking the house. Other than that, there were not much good things to talk. In order to control the inflation and rectify its earlier blunder, the Federal Reserve kept raising interest rates relentlessly from almost 0% to 4.5% most in a year since 1980. The continued “FED Fear” devastated the stock market, particularly Nasdaq’s growth stocks had “nowhere to run”. So who made the money in 2022? It was a short sellers paradise and all bears must be thrilled that it was an amazing year for them!! Wall Street went ‘ga-ga” over oil, gas and some defensive stocks. There is a saying everybody has its day. And that’s exactly what we witnessed in 2022. Hence, it’s sensible to put the year 2022 in the rearview window and better to be forgotten sooner than later. As I look for the next year, I feel it challenging but exciting too! 

How many times the market is going to get hammered for the same bad news again and again???The media, analysts, economist everybody keeps beating the same drum again and again!! It has become an infinite loop..As an investor, we may experience such horrible year now and then because we can’t expect bull market every year. Whatever happened has happened, let’s not get emotional but look forward what is ahead. I am very optimistic that 2023 should be a better year for the investors. I am bullish on 2023 but let’s not forget that it’s going to be another highly volatile (rocky) year especially in the first half. I will be providing my analysis and elaborate why I think it will be a good year for investors, but before that let’s take a look to the stock market index.  

Indexes	12/31/2021 (Close)	Close FRI 12/30/22	Change in 2022	% Change in 2022	All Time High	From All Time High	% from All Time High
DOW	36,338.30	33,147.25	-3,191.05	-8.78	36,952.65	-3,805.40	-10.30%
S&P 500	4,766.18	3,839.50	-926.68	-19.44	4,818.62	-979.12	-20.32%
NASDAQ	15,644.97	10,466.48	-5,178.49	-33.10	16,212.23	-5,745.75	-35.44%
BTK	5,518.45	5,281.10	-237.35	-4.30	6,376.77	-1,095.67	-17.18%
NBI	4,728.94	4,213.13	-515.81	-10.91	5,517.77	-1,304.64	-23.64%

Economy News (U.S)

• Current Interest Rate: 4.5%. 

• Mortgage Rate: 30 years conforming loan: 7.5%, Jumbo Loan: 6.2%.

• GDP:   Q3: 3.2% revised up from 2.9% reported earlier, Q2: -0.6%, Q1: -1.6%, Annual GDP:1.8%. The GDP for 2023 is projected to be only 1.5%. China GDP projected @4.7%.

• Retail Sales: November retail sales and manufacturing showed its largest decline all year, -0.6% from October, worse than the -0.1% predicted by the economists. December retail sales number will be released on Jan 18, 2023.

• Unemployment rate:  3.7%, 263,000 jobs were created against estimated 200K for NOV 2022. Most jobs were in HealthCare, Leisure, Travel…

• Inflation rate:    7.7% in October, down from 8.2% in Sept. The core CPI, excluding food and energy, rose just 0.2% in November and 6.0% in the past 12 months.

• Consumer Confidence: 59.1 
• Business Confidence:    49 it has been down in last few months
• U.S Crude Oil: $73 a barrel. Oil is at lowest since last almost one year. 
• U.S Dollar Index:          Down from 111 a month ago to 105. This is good for exporters - tech stocks
• Home Sales: Pending home sales in November recorded the second-lowest monthly reading in 20 years as interest rates bumped mortgage rates went past 7.5% and home sales down -35.4% from November 2021.
• Thanksgiving Online sales: $9.2 billion, Black Friday up 12-14%, 196.7 million customer shopped during thanks giving weekend. 

A quick recap of 2022

As I said in my opening commentary 2022 was a horrible year for the investors. It was the worst  year since the great financial crisis of 2008-09. The stock market struggled through many macro/micro economic factors like higher inflation, steep interest rate hikes, Geopolitical issues, supply chain constraints, China lockdown, technology stock turmoil, huge tech layoffs and so on.. But on the positives note, we saw overall low unemployment (lowest in 40 years), higher consumer spending, divided congress but there are not much good things to talk about. Nasdaq tumbled 33.1%, S&P 500 down 19.44% and DOW down 8.78% in 2022. Even investors with well-constructed, broadly diversified portfolios had a rough year, with high volatility and below average returns. The stock market wiped out almost $10 trillion of wealth last year. We encountered tons of negatives factors that impacted the stock market - higher inflation, steep interest rate increases, hawkish Federal Reserve, Geopolitical issues, Supply chain constraints, China lockdown, technology stock turmoil, huge layoffs in tech and home builders. According to some estimates short-sellers made a humongous estimated $400 billion in 2022!! In addition, energy (oil/gas) was the only sector brought positive return last year. Apart from these, every investor lost a huge sum of money, at least on paper. It was a horrific year for the growth stocks.  The tech titans lost nearly $5 trillion in their market capitalization - Amazon lost about $840B, AAPL $835B, Google $790B, Microsoft $760B, Tesla $715B and Meta lost about $625 billion. That’s what stock market is all about. So, when there are opportunities it’s better to take some profits whenever we can, that’s a lesson I learned. Now that the catastrophic year has gone, it’s sensible to put 2022 in the rearview window. Whatever happened has happened, let’s not get emotional and look for what is ahead. Such year will come once in a while as we can’t expect bull market every year. Having said that, I am very optimistic that 2023 should be a better year for  the investors. Why do I think so? Now let me move to 2023 and put my analysis.

What can we expect in 2023? 

In my view, we may see quite the opposite in 2023. Despite the fact that inflation is still too high but it has been coming down for last several months. The American consumer remains surprisingly resilient. But the consumer spending may not be sustainable because we may see more layoffs and higher unemployment orchestrated by Federal Reserve. On the positive side, the FED is nearly done raising rates. Possibly we can see another one or two 0.25% interest rate hikes in February and March. But please remember that stock market is always forward looking at least 3-6 months ahead of time. Hence, I feel we may see some nice bounce in the stock market in January. But I do not think FED will change from Quantitative tightening to Quantitative easing. Even than market is not going to crash because most of these seems to be already factored in. Since 1939, there has been only one down year for the Dow Jones Industrial Average in the third year of a presidential term. Also, the stock market sentiment is the most bearish since the March 2009 low!

Why do I think Stock Market will be better in 2023? 

• Inflation should gradually tame: The inflation dropped from 9.1% in June to 7.1% in November less than economist expectations of 7.3%. Of course, we are re nowhere near the Fed's long-term inflation target of 2%. But evidently inflation has been in a downward movement since July 2022. Hence, I anticipate that inflation will be below 5% by March. What it means is we're seeing clear signs that the worst is behind us. Fed has been increasing the rate voraciously whose impact should be seen in coming months. So, with inflation continuing to slide, it's time for fearful investors to pay attention...The Fed won't hike rates indefinitely. It could even take a pause by early next year. And when that happens, it will act as a tailwind for the stock market.
• Interest Rate: On Wednesday, 12/14, the Federal Open Market Committee (FOMC) voted to increase interest rate by 0.5%  taking it to a targeted range between 4.25% and 4.5%. It has increased continuously 0.75% four times. This is most aggressive policy moves since the early 1980s. I don't think Fed will be increasing interest rate so voraciously in 2023. That seems to be a good news.
• Mid-Term Election Year: I already wrote in my previous blogs so won’t repeat it agin but just want to summarize in a few lines. During the mid-term election years, 23 out of 27 times or 85% of the time in the past stock market have ended the year on a higher note. But if we see the mid-term year’s low to next year’s high (in this case 2023) then the stock market have NEVER gone negative. The average return has been outstanding 46.9%. The lowest return was 14.6% in 1946 and highest return was 88.1% in 1914. Will the history repeat? Nobody knows but it repeats more than 90% of the time. 
• Stock Market return after bear market: The most important factor why the bear market has continued relentlessly in 2022 was “FED fear”. The FOMC has consistently made big hikes 0% to 4.5% in a span of 8-9 months which was NEVER seen before. But this won't go on forever. Instead, the Fed's rate hikes could end early next year, most likely by March 2023. If history is any evidence then it should kick off a two-year rally that could potentially send stocks soaring 30-40% or more. Let’s see total returns of the S&P 500 with dividends reinvested after Fed stopped hiking interest rates. This table covers all of the cycles going back to 1980 – the last time inflation growth was this high.

Peak Int Rate	3 months return	6 months return	12 months return	24 months return
5/31/1980	-5.5%	-3.4%	-11.1%	36.6%
6/30/1984	9.7%	10.7%	30.9%	77.8%
2/28/1989	11.5%	23.2%	18.9%	36.2%
3/31/1995	9.5%	18.2%	32.1%	61.7%
5/31/2000	6.1%	-5.0%	-10.6%	-22.9%
6/30/2006	5.7%	12.7%	20.6%	4.7%
12/31/2018	15%	19.4%	31.5%	54.6%
Avg. Return	7.4%	10.8%	16%	35.5%
Success % age	85.7%	71.4%	71.4%	85.7%

On the above table, please observe that on an average there is a 7.4% return 85% of the time after the pick of interest rate, in one year average return is 16% and after 2 years S&P 500 has delivered 35.5% of average return. The only exception was 1980 where there was negative return after one year of the interest rate peak. But after 2 years it roared up to +36.6% return

• Fed Pivot toward soft landing: I don’t think this will happen till later part of 2023. However, if the FED can get control of inflation and pivot towards soft landing then we may see a huge bounce in the stock market and growth stocks may see a bug bounce but do NOT expect those crazy run that we saw before..
• Lots of money in the sideline: Investors have kept pulling money out of equity markets consistently for last 40+ weeks and withdrawn over $340 billion. The cash held by institutional investors have risen to to 6.1%, the highest since October 2021. 
• Reset in valuations: Valuations of lot of popular stocks, particularly many technology stocks have dropped significantly. This brings some opportunities.

• Fear of Missing Out: The trading world has changed due to algorithm based high frequency trading (HFT) which is aggravating the situation and largely controlled by big money. However, the "FOMO" effect – the fear of missing out is much more prominent today than in the 1980s or 1990s. With information traveling so rapidly, no one wants to be late to the recovery. So, when there is a turnaround it may be very fast. However, it’s difficult to predict when that may happen. 

• Earnings: U.S. corporate profits expected to increase only 5.5% and sales are expected to grow 3.5% in 2023. We saw similar profit growth in 2022 but revenue was much higher 10.4%. So, revenues are anticipated to come down but profits may increase marginally because most companies are now trying to achieve profitability by reducing cost through layoffs and costs cutting measures. 

• Economy Growth will slow: All the pointers are indicating to have slower growth in 2023 viz. job creation, consumer spending, real estate, retail sales etc. should come down. It’s anticipated that U.S will only have 1.5% GDP growth in 2023. In 2022, we saw 3.2% GDP growth in Q3 which was mostly attributed to export of Oil/Natural Gas to Europe and Arm Sales to Ukraine!
• The market would continue to confronts with various headwinds like inflation, FED rate hikes, supply chain constraints, Geopolitical issues, lukewarm consumer spending, higher unemployment  etc. 
• Q1 earnings: we may see stock market retreat around Q1 earnings. I do not expect Q1 earnings to be great. Because the analysts community still have not made all their earnings revisions, hence many companies may be destined to miss earnings expectations resulting in further drop of their stock prices. Secondly, consumer spending should slow as they take the hit of rising rates, increased layoff and lack of any new stimulus. This will be a key factor to watch.
• I do not expect to see a astronomical bounce for the big tech companies, cloud companies and other old high flyers but those who comes with good earnings should continue to thrive
• Investing in good companies in a favored sectors always gives better return. Some of the fundamentally good stocks beaten down last year should bounce back this year
• It would be a stock pickers market. Identifying good stocks in the right sectors would be the KEY. Buying at the dip and selling on the run up would be very helpful
• These market needs lot of emotional stability - able to take volatility, greed and fear otherwise avoid investing in stock, particularly growth stock
• For “No Risk” investors it’s not a bad idea to keep money in Savings, Money market, treasury and get 3-4% interest.
• Whenever S&P 500 fall 20%, 81% for the time it returns an average of more than 14% in the next year

My final thoughts on 2023 Stock Market

I am neither an economist nor an analyst. I do my own due diligence based on all information available to me and come to some conclusions. So, my analysis may go completely wrong!! But we also know how many economists and analysts get right in their projections!! First of all, I do not like predictions because most the stock market forecast fails!! Also, we are in an chaotic environment so it’s foolish to predict in such a horrific market environment. However, I can share my thoughts based on whatever little research that I have done. 

So, here are my thoughts: I am hoping to see a good start for the year and expect market to bounce back despite all these hue and cry about interest rate, inflation, recession etc. Because the sentiment in the stock market is depressed at this time. This may bring some rally and particularly short covering may add to the fuel before/around Q4 earnings in January. I also visualize another scenario, it may so happens that big guys (Institutions) may try to scare the retail investors in the first few days by throwing all negative sentiments to buy shares cheaper. We will know soon but let’s NOT panic, if that happens. When we approach towards next Fed Meeting on FEB 1, the stock market may show high volatility. Subsequently, we may see bumpy ride during/after Q1 earnings (March/April) because Q1 earnings may not be good due to higher interest rate, more layoffs, lack of consumer spending, missing earnings expectations and analysts revision etc. So, the stock market may get very volatile around February/March in the anticipation of a bad Q1 earning reports. However, please note that stock market always factors-in the events well ahead of time. The Fed should be done with its interest rate hike by March unless inflation picks up again which seems unlikely. So, we should start seeing the mortgage rates and interest rate starts coming down. Once Wall Street feels that Fed will pivot/pause then we may see huge bounce in the stock market. However, if there would be major layoffs, consumer spending slows down, corporate earnings falls significantly then we may get to a mild/moderate recession as orchestrated by FED. However, if the economy gets ugly then Fed may go for quantitative easing (cutting interest rate) in the later part of the year, though I don’t anticipate QE this year, but it can’t be ruled out despite tough talk from Fed officials. In the 2nd half of 2023, we may possibly see a nice bounce in the stock market. Why so?  Because most of the bad news like inflation, Federal Reserve hawkish talk, interest rate hikes, corporate profit concerns, high valuations etc. could be in the rear view mirror. That should ignite major rallies. But let’s keep in mind that first half of 2023 may be highly volatile - ROCKY ride. 

Now the question is, even if we see bounce in the stock market during January how far it can sustain remains a big question? Primarily three factors should drive the markets in 2023 - Inflation, Recession and Earnings. Fed should be controlling the first two factors and the results will be shown in corporate earnings. Potentially, we may see quantitative easing (QE) in late 2023 or most likely in 2024. But it may not be a great year for corporate earnings. That do not mean that stock market will remain terrible. Again I am reminding the readers not to forget two key influential factors as indicated before - return after mid-term election year and return after a bear market. The history may not always repeat but more than 90% chances are that it repeats. As volatility is expected to remain in the market for a foreseeable period of time, one very important strategy should be to “remain alert alert and trim some portion when opportunity arises”. Overall, I am really bullish for 2023 but let’s not forget that it’s going to be another highly volatile year especially in the first half. There's absolutely no guarantee that stocks won't fall further. That’s very much possible. But successful investing is about “putting the odds in our favor”. I won’t be surprised if we see NASDAQ bounces anywhere 20-40% from here till the end of 2023. This is not a prediction, it's just my perspective based on my own analysis. I may go completely WRONG, so causation is warranted!! I keep a long term view rather than what may happen in short-term. Because neither economy nor stock market is in our control!!

Note: One notable exception to keep in mind, hopefully Geopolitical situation don’t get too deteriorated resulting in a major war.

Sectors that may perform well in 2023

These are solely my personal view and readers must do their own due diligence.

• Semiconductor sector should see good bounce towards the second half of the year. This sector has been decimated. Every devices these days uses chips, so those are not going to disappear. In addition, the government funding (recall the Chips Act) passed by congress should help this sector. China reopening and year-over-year comparison should bolster the sector. The chip demand should have a gradual take-off.  But I expect lots of volatility.

• Biotech may see more mergers/acquisitions activities because of low valuation and high cash pile with big Pharma company. For last two years, we did not see lots of M&A activities. Hence, I feel this is a sector worth keeping a close eye particularly for promising biotech companies.

• Selected Green Energy companies (Solar, EVs, Hydrogen, Storage) may do well this year. Let’s not forget the critical Infrastructure bill and IRA (Inflation Reduction Act) passed by the Congress. Despite all these, it was another devastating year for green energy stock. Please note that government money will start rolling this year to this segment. So, I look for some good bounce in this segment. Also, let’s not forget about rising oil/gas prices and Europe energy crisis.

• Selected Technology companies may bounce but can NOT expect those lofty valuations that we saw before. Those companies with good earnings will thrive other may get hammered.

• Consumer discretionary sector are expected to have the best earnings provided there is no major recession e.g. Amazon, Tesla, HD, Lowes, Nike, MCD etc.. If we encounter a major recession then this sector may get hit hard. If there is a recession then some of the Consumer Cyclical like McDonald, TJX, COCO, Starbucks should do well. 

• Retail Sector should do well due to consumer spending but if there is recession then this sector will have tough time. So, at this time it’s a question mark??

• Financials tend to do well during rising rate environment because of higher profit margin, brokerages see increased trading activities, higher rates and profitability. I have no positions in financials. 

• Energy may continue to do well because of their high profitability and strong fundamentals but the sector has returned humongous 58.37% in 2022. Oil/Gas prices may bounce back but good days may be behind them. The companies in this space have strong balance sheets, so Wall Street may continue to go “ga-ga” for some more time. A sectorial rotation is very much on the card because year-over-year comparison will get tough for this sector. The best time may be behind them so we can expect a moderate gain.

• Home builders, Automobile, car sellers are too depressed, so watch for some bounce in 2024.

A final word: As an investor we can listen to media, analyst, economists, friends etc. but we must do our our own due diligence before buying/selling the equities. Because it’s our hard earned money, any gain/loss is ours. So, we have to live with our success(es) or failure(s)..

Is recession looming in 2023?

• During 2023 it’s highly likely that we may see a recession purely orchestrated by Federal Reserve interest rate policy. But I expect it to be a mild/moderate one. 
• A recent Bank of America survey of fund managers revealed that 77% expected a global recession over the next 12 months.
• Wall Street Journal’s CEO Council Summit during early December revealed that many CEOs are preparing for an economic slowdown/recession.
• Job cuts were mostly restricted to Technology and Housing companies but we have started seeing layoffs in Banks & Financial institutions and other sectors as well.
• BOFA, Wellsfargo CEO says demand has been cooling and seeing a slowdown in the economy. They expect 3 quarters of negative growth next year.
• Yield Curve inverted in Aug 2019, and again in April 2022 but clear inversion happened in July 2022. This is an indicator of recession. Every yield curve inversion do not necessarily results into recession but every recession since 1955 was preceded by invasion in yield curve. Yield curve is something when the short term yields are more than long term yields. At this time 2 years treasury yield is 4.41% and 10 years 3.84% still inverted.
• Per Federal Reserve forecast, interest rate is expected to hit 5 - 5.1% next year which may further impact the interest rate sensitive sectors like home, consumer discretionary, industrial, and material. 

Some Stocks of my interest for 2023

These are some stocks of my interest at this time. This is just my opinion and not a recommendation to buy/sell. If any stock does not do well or I see red flags then I can dispose it immediately. 

NVDA: One my top pick for Semiconductor sector. Gaming, AI, Autonomous driving, Metaverse, Data Warehouse and so on.

ENPH: One my top pick for Energy storage. This was the best stock for 2022 in Nasdaq 100, returning 45% for the year. It may continue its momentum going into 2023. 

PLUG: My top pick for hydrogen. This stock was a disappointment in 2022. But I still see great potential in 2023 -2024. I still keep it as a top pick.

SAVA: This stock may get to go down  to < $5, if its Alzheimer’s drug trial fails, but if it succeeds then potential could be astronomical. We expect the open label study results this month. The phase3 result are expected in Q3 2023. I still keep it as a top pick.

AXSM: Axsome Therapeutics  - Added to my blog portfolio this month. I see a great potential for this biotech company.

Very High Risk Stock

GERN: Late-stage clinical biopharmaceutical company. Phase 3 results for Myelofibrosi (uncommon bone marrow cancer) are expected to be declared this month. If it’s good then it can go multi-fold, if it’s bad then it may go < 30 cents.

RVPH: This tiny biotech company which has an ongoing Phase III clinical trials for the treatment of schizophrenia (mental disorder), Phase I for bipolar disorder, major depressive disorder. So far till phase 2 it shows great potential.

SOXL: Semiconductor Bull 3X - VERY RISKY but I see good opportunity as the sector bounces back in the 2nd half of the year to next year.

TQQQ: Nasdaq 100 Bull 3X - VERY RISKY, so one must be extremely careful. Nasdaq will be very volatile but I see Nasdaq bounce back this year.

Carvana (CVNA): This was the WORST company of 2022 by stock performance. The risk is it may get to ZERO (if it files bankruptcy), but I see potential in the later part of 2023, once interest rate is paused or reduced and if the company can renovate. VERY RISKY.

Other Stock of my Interest
Amazon (AMZN): This gorilla has been beaten down heavily, but I think Amazon is the king of online sales and never discount this gorilla. 

Tesla (TSLA): Another gorilla which has been beaten down heavily, Tesla truck deliveries may start later next year. Elon Musk may be controversial and crazy but he is an innovator. So, any turnaround will not be surprising at all!

Fisker (FSR): The company will start delivering its Electric Vehicle (EVs) starting Q1 of 2023. I feel it has a very good long-term potential in 2023 and beyond.

STEM: This company offers energy storage systems, AI platform, hardware and software-enabled services for energy storage systems. I see a great long-term potential.

LAZR: It provides sensor technologies and software for passenger cars and commercial trucks. Production expected to kick-off early this year.  It has a great future potential.

Airbna (ABNB): It offers private rooms, primary homes, or vacation homes by connecting hosts and guests online. Refer to my Oct/Nov 2022 blog. 

Disney (DIS): A well-know brand beaten down heavily. Another gorilla. This stock has a great potential to bounce back.

Apple (AAPL): Always a tech leader and the company has wither all storm. I wish they come with EV this year but I doubt!

Metaverse (META): It’s worth looking at this stock. I think it should bounce back this year. I would like to see the Meta Quest2 (virtual reality) sales during Q4 earnings.

ChargePoint (CHPT): EV charging networks and charging solutions. It has around 210,000 charging ports across U.S and Europe. It’s beaten down heavily, watch for bounce with more EV adoptions.

Sectorial Stock Market Performances (TOP  sectors for 2022)

Sector	YTD Performance in %age
Energy (Oil/Gas etc.)	58.37% (only sector green in 2022)
Utilities	-0.78
Consumer Staples	-2.80
Health Care	-3.78
Industrials	-7.06
Financials	-12.69
IT	-29.73 (botom 3 sectors)

Please click below link to view complete sectorial performances:

https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/si_performance.jhtml?tab=siperformance

Source: fidelity.com

Now let me discuss this month’s stock of my Blog Portfolio.

Axsome Therapeutics, Inc (AXSM)

Axsome Therapeutics is a biopharmaceutical company, engages in the development of novel therapies for central nervous system (CNS) disorders in the U.S. The company was incorporated in 2012 and is based in New York, USA.

In 2023, I am anticipating some momentum in the biotech sector. This sector has not done much in last couple of years. There were mergers and acquisitions but much below expectations. Hence I am anticipating that we may see some good traction in this sector and possibly more mergers and acquisitions. Particularly, those companies promising which have promising drugs in the pipeline.  Axsome Therapeutics has a large number of products in the pipeline which I will discuss later.

Why do I like AXSM?

In my view, the company has a great future potential. Let me explain:

On 19 August, the US Food and Drug Administration (FDA) approved the company’s drug Auvelity for the treatment of major depressive disorder (MDD) in adults. Despite the fact that there are many competitors in this market, Auvelity has a great competitive advantage. The drug results in significant improvement after just one week medication, whereas the competitors’ drug takes several weeks for the effectiveness. Thus, analysts are projecting that it can reach $1.3 billion in revenue by 2029 potentially a blockbuster drug. 

Recently the company said that its candidate AXS-05 for Alzheimer's disease agitation met its primary endpoint in a phase 3 trial. This could be big because there aren't any treatments currently approved for this indication. The share prices zoomed after this news. We should expect to keep hearing more on this in 2023.

It’s developing AXS-07 that has completed two Phase 3 trials for the acute treatment of migraine. The company is expected to submit for NDA to FDA in the third quarter of next year.

The company has also completed phase II clinical trial for the treatment of smoking cessation.

Another drug AXS-12 is being developed to treat narcolepsy (a disease of chronic sleep disorder)  which is in phase 3 trial.

On May 9, 2022 the company acquired Sunosi for sleeping disorder from another company known as Jazz Pharmaceuticals and started selling this drug a few months ago. Sunosi generated $16.8 million in revenue and prescriptions climbed 15% last year. We can expect to start seeing the revenue potential of Sunosi and Auvelity in the next few earnings reports. Any signs of strength could further ignite Axsome shares.

There is no guarantee that all the above product will succeed. But even if some of these products become successful then share values can increase substantially.  If anyone would like to see pipelines detail then please click here: https://www.axsome.com/axs-portfolio/pipeline

Financials

This is small biotech company who achieved its first FDA approval recently. The only revenue that the company recorded is mostly through sales of Sunosi for sleeping disorder. However, after the recent FDA approval of Auvelity, the company should be increasing its revenue from current quarter. At present, the company has a market capitalization of $3.35 Billion. It has $227.5 million in cash.  This is a small biotech company who recently got approval for Auvelity so we can’t expect too much of revenue. Hence nothing much to discuss. But the future potential is looking great. We may start seeing it from this quarter. If the revenue comes below the street’s expectations then share may get hammered temporarily.

Based on the forecast from Wall Street analysts expects Axsome shares to rise nearly 80% within the coming 12 months. If the current pipelines are successful then it can be a huge winner.

My View and Strategy

In my view, Axsome Therapeutics  has a great long-term potential. Currently the stock is trading at $77.13. It had a 52-week high of $82, so there is hardly much discount from its 52 weeks high. However, I have been buying and accumulating this stock since $40 or so. I still keep adding in small quantities whenever there is an opportunity because I feel that it has a great future potential and this is just the beginning. It does not necessarily mean that every drug in the pipeline can be a blockbuster or all pipeline of drugs will be successful. But even if some of its drug pipelines are successful then the company can makes billions in revenue. However, so far the company has shown very good trial results. I am optimistic that this company would be successful. We may see many mergers and acquisitions because many good biotech stocks are trading cheaply. In fact, we have already seen a few mergers in last few months. And the trend should gain further momentum this year. I will not be surprised if this company is acquired in a foreseeable period of time.

Risks

The stock market has been in a horrible state for almost a year and volatility will remain for foreseeable future. However, good companies with successful products and pipeline will succeed and earn premium. We have been seeing that the biotech companies who are coming with good trial results are thriving even in such a terrible market environment. Biotechs are extremely risky and extremely rewarding. So, anybody willing to invest in this sector must be willing to take higher risk. In fact, there is a saying “only invest that much in biotech which you are willing to lose..”. So, only those investors who are willing to take risk should put money in biotech. Risk averse investors should avoid it. Because nobody knows or can guarantee the future. 

My final thoughts

Biotech investment can be very risky and very rewarding depending on how company is able to deliver. I see a strong pipeline of drugs for Axsome Therapeutics. One of the drug Auvelity for the treatment of major depressive disorder recently got the FDA approval and many more drugs could be strong contenders. The company plans to submit New Drug Application (NDA) to FDA for migraine in next few months. Also, the Alzheimer's disease agitation met its primary endpoint in a phase 3 trial. There are many more in pipelines. So, there is risk but also rewards. As aforesaid, nobody knows or guarantee the future.  But whatever the company has delivered so far shows lots of promises for future. Hence, I am very optimistic about this company and its pipeline. Thus, I am willing to take risk and invest for future. If I see any red flags in future then I will revisit and take appropriate action without delay. I do not get emotional with stock, so if something is not working the it’s better to get out. At this time, I believe that this company has great potential, hence I am invested.

Shesa’s Blog Portfolio (As of JAN 1, 2023)

Equity	Suggested Price	Current Price	Suggested Date	% Change	My View  (see disclaimer)
STOCK (All prices are in USD)
AAPL	12.9	129.93	1/25/13	907%	BUY around $120
META	47	120.72	11/13/13	157%	BUY
MA	77.18	347.73	12/12/13	351%	HOLD
AMZN	15.58	84	4/12/14	439%	BUY/ Accumulate
SHOP	13.48	34.71	11/25/18	157%	HOLD
SPG	54.59	117.48	5/25/20	115%	HOLD
ENPH	45.3	264.96	6/28/20	485%	Accumulate
PLUG	27.98	12.37	4/25/21	-56%	BUY/Accumulate
CLNE	8.11	6.59	8/27/21	-19%	SOLD @5.65 on 12/16
SAVA	51.49	29.48	10/10/21	-43%	BUY/Accumulate
NTLA	118.24	54.03	1/2/22	-54%	SOLD @35.43 on 12/16
NVDA	239.49	146.14	2/13/22	-39%	BUY/Accumulate
CHPT	18.44	9.53	3/20/22	-48%	BUY/Accumulate
TSLA	290.25	123.18	5/1/22	-58%	BUY/Accumulate
ZIM **	52.40	17.18	6/5/22	-67%	BUY/Accumulate (DIV 152%)
DIS	106.1	86.88	7/31/22	-18%	BUY/ Accumulate
FSR	8.95	7.27	9/18/22	-19%	BUY / Accumulate
ABNB	115.21	85.48	10/31/22	-26%	BUY/Accumulate
AXSM	77.13	77.13	1/1/23	0%	NEW ADDITION
ETF
IHF	139.1	267.69	8/16/15	92%	HOLD
QCLN	70.23	47.19	1/3/21	-33%	BUY/ Accumulate
MUTUAL FUND
PRMTX	59.45	92.54	12/20/14	56%	HOLD
FSRPX	9.05	15.89	1/15/16	76%	HOLD
FSMEX	43.66	61.58	9/24/17	41%	HOLD
** Note: Dividends Adjusted

Stock Sold since my Last Blog

NTLA: SOLD @35.43 on 12/16

CLNE: SOLD @5.65 on 12/16

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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