After a head-fake rally heading into Chairman Powell’s long-awaited annual FEC policy speech in Jackson Hole, markets came to the realization that the FED is on an anti-inflation crusade and rates are going higher, quickly, until we see that inflation is under control.
Which likely means rates are going higher for quite some time as the recent policy moves out of Washington, the poorly named “Inflation Reduction Act” and Student Loan Forgiveness, being quite simply fuel for the inflation fire. Without trying to be political here, it feels like DC is out of touch with reality and the FED somehow seems to continually be behind the curve and struggling to catch up.
Eventually, rates will peak and start heading down. Before that happens, however, I fully expect the FED to have driven us into a full-blown recession. It’s coming folks and you need to position yourselves for this.
What to do? Judging from the performance of the TW portfolio, which is having a great month despite the market, I remain convinced that my micro-cap universe was recently at trough valuations and it’s safe to own these stocks. They will be volatile and go down in a selloff, but valuation does matter and, for those companies that are executing, you’ll be fine owning them here.
Their larger brethren, however, are about to take another trip behind the woodshed for a beatdown. Rates are moving the wrong way and inflation is a real bugaboo for many companies. Profit margins were recently at 50-year highs for the S&P stocks. They are very vulnerable to an earnings slowdown and, while they are not at all-time highs, large cap stocks are still far from cheap.
So, I would avoid large cap stocks and have a large portion of my money in cash or short-term investments. Safety first. The market is not about to get away from you on the upside but the downside risk is very real. I think the broader market has an asymmetric risk to the downside and one should be quite cautious overall.
There are, however, several stocks in my universe that are prime to buy right now. These stocks are likely not heading dramatically lower despite the overall market and have a lot of upside potential. If you’re committing new funds to micro, here are my suggestions for where to allocate funds in the coming days.
enVVeno (NVNO) continues to act great. The stock as up over 11% last week and has a major catalyst coming in a new product announcement. What could that be? My best guess is that we can expect to see an improved version of the VenoValve that will be more easily inserted, likely via a stent or something along those lines. With their recent hire of a Medtronic executive (MDT is the leading stent company out there), it makes sense that this is the direction NVNO is headed.
What would this product do? It would lower the cost and simplify the implantation cost. In doing so, you dramatically increase the potential market for the product. If you don’t require a specialized surgeon for implantation, one could see the new VenoValve gaining much broader adoption. With the unveiling of this new product expected in September, and with enVVEno still trading at a modest premium to cash value, I expect the tailwinds to propel NVNO for a lot longer regardless of the market.
Speaking of tailwinds, Spectra7 (SPVNF) has had massive tailwinds driving their growth over the last year. That growth has been restrained by a combination of supply chain issues and a weak balance sheet. With their recent financing, and with the supply shortage in semiconductors easing up, SPVNF should be able to start growing rapidly again. This stock is ripe for buying ahead of, and into, earnings.
I also would be a buyer of Quest Resource Holding (QRHC), which had an expected pullback after the big move of two weeks ago. It is now technically primed for the next move up. And, it’s important to remember that Quest benefits from inflation. As the world sees higher rates for longer, this plays into their hands.
Finally, consider adding to Anixa (ANIX). We know the breast cancer vaccine trial is going well and, frankly, the stock is a buy based on this alone. But, throw in the CAR-T program and things look super interesting. They have dosed their first patient and are expecting some results in Sept. With the first dosage being sub-therapeutic, the odds of efficacy are not high. But, the odds of an adverse event are also lower and adverse events have been the issue with all the solid-tumor CAR-T programs. Good safety data should help ANIX; and, if we’re lucky, we just might get that efficacy. If that happens, Katy bar the doors!
The four stocks mentioned are not the only ones with catalysts, but are the companies that seem to be the most well-situated for the coming tough market. Valuations on all of these are low and good news lies ahead. If i’m putting more money to work on Monday, this is where I’d start the buying.
Someone accused me of losing confidence in INmune Bio (INMB) this past week since I’ve not written too much about them. Nothing could be further from the truth. INMB remains my largest holding and a very high-confidence stock.
But, INmune shares are likely going to trend with the market for a while. Until there is some clarity on the FDA hold on XPro, the stock probably just treads water. In the current market, the uncertainty of an FDA delay likely pushes out buying.
But, it’s coming. I’m optimistic we’ll see the FDA hold removed in the next few moths and that’ll be a major catalyst for INMB. In the meantime, as the Company sits and waits for the FDA response, investors are likely doing the same thing.
