Markets are a discounting mechanism. In real time they discount future actions. There are very few times that events catch the market by surprise. They might catch you or me by surprise but, in most cases, markets have already moved in anticipation of events that transpire.
This week’s action by the FED is a classic example of the market at work. The fact that interest rates are going higher has been widely anticipated and markets have sold off on the expectation of higher rates. Thus, when the FED finally raises rates, we get a solid rally. Turns out that higher rates isn’t the end of the world, especially when the economy has great underlying strength.
«Buy the rumor, sell the news» is an adage that has been around longer than electronic stock quotes. It not only applies to markets but to individual stocks, which should be a welcoming thought for those holding several of the TW stocks. Stocks like INmune Bio (INMB).
This past week an investor was lamenting to me that INmune’s AD results won’t be out until 2023. «There’s no reason to own the stock here,» was the general gist of the conversation. Here’s my response:
If you think phase 2 results are going to be good, and good phase 2 results are worth at least $10B in valuation, do you think the stock goes from $120 million to $10 billion in market cap in one day?
Not gonna happen. It never works out that way. Guaranteed that, if INmune rings the bell in phase 2, the stock will have gone up many times over in anticipation of the results. That’s how markets work.
Will INmune’s rally into results start this week? I don’t know. We did see a nice 27% rally last week as they had 9 presentations at the AD/PD Summit in Barcelona, a very impressive showing for a small company. But, the markets also bounced and INMB was oversold, so perhaps this was simply a bounce.
The bottom line is I believe INmune trades higher, likely substantially so, prior to the pivotal results. Therefore, I’m content to own it in size at these valuations, knowing that the big catalyst could be a ways off.
With valuations in micro-cap growth stocks having imploded, I’m content to own my whole universe despite my ongoing worries about the global-macro environment. Do I know when TFF Pharma (TFFP) will announce a major partnership? Nope, but it’s coming. Will enVVeno (NVNO) have pivotal results this year? No, but it’s trading below cash and that will change going into the eventual data release.
I guess the bottom line is that Valuations Do Matter! I’ve been preaching caution on the market for a while but continue to find my stocks very attractive. This past week saw a classic bear market rally. Will it continue? It’s quite possible but I’m in the camp that a sustainable rally, taking us back to new highs, isn’t in the cards for 2022. Instead, I believe we continue to churn with stocks more likely testing lows again.
But, we may very well have seen the lows in several of our stocks and the whole beaten down micro-growth group. Stocks that hit lows in February, lows that were not exceeded in March, are showing good signs of relative strength. Perhaps the market knows something here? In that group from my universe are enVVeno, TFF Pharma and Quest Resource Holding (QRHC). I like all three for different reasons but one thing they share in common is a very low valuation relative to the opportunities in front of them.
The future is always uncertain. But, markets are cyclical and they always anticipate the future more consistently than you or I can. Buying quality companies that are oversold is a strategy that always works. As long as they execute, they will not be oversold forever.
With the bounce in the markets, I’m not a big buyer of the overall market. But, there’s no way I’m selling my stocks. The upside from here dwarfs the downside and I’m content to hold them and ride out the waves.
What a bounce from ParkerVision (PRKR). After getting shellacked by one of the strangest motion rulings that any expert has seen in a patent trial, the stock bounced almost 90% this past week.
Parker has more going on for it than just the Qualcomm (QCOM) case. With two possibly large trials happening in Texas later this year, the stock could still have a great year despite the Florida ruling. However, it’s the prospect of a change in the QCOM case that likely pushed shares higher.
Instead of giving up the ghost, Parker’s attorneys are continuing the fight. A battle that is all done on the lawyers’ dimes as it is a contingency case. For them to continue investing in this case demonstrates that they feel this ruling could well be changed in a positive direction. Time will tell what direction Parker decides to take things from here but, one thing is for sure, the final chapter has yet to be written.
TFF Pharma (TFFP) didn’t need another validating event, but they got one with their CRADA with USAMRIID. CRADA’s are not handed out like Halloween candy, instead requiring extensive qualification and review. The fact that TFF has won two of these is further demonstration of the unique benefits thin-film-freezing brings to drug delivery.
This CRADA, for a Covid-19 vaccine, begins with animal testing which is likely to last until the end of 2022. That might seem a ways off but CV19 isn’t going away and, more importantly, success here will position TFF’s technology to be involved in vaccines from the onset of the next pandemic. And, there’s always a next pandemic.
That said, investors are tired of validating events. When will the Company ink a deal with a major pharma partner? If I knew, I wouldn’t be writing newsletters but they are coming.
While we await a partnership, it’s important to remember that the internal programs are all advancing and these are operating on TFF’s timeframe. Niclosamide phase 1 data should be published in about 2 weeks time. We should also hear about the dosing of VORI and TAC in their respective phase 2 trials, results from which will be public late in the summer.
The value being created here is growing and the technology’s effectiveness is becoming unquestioned. Eventually, we will get our deals. Until then, be patient; giving up on them now would be a shame.
Earlier this month, Lantern Pharma (LTRN) announced that they had passed 18 billion data points in their A.I. database for developing cancer drugs. This is a massive amount of information and should really lead to more rapid development of collaborations based around the RADR system.
I have written extensively about the drugs Lantern is developing, especially the very promising LP-184. They have a very promising portfolio but the most interesting pieces are early stage and the market isn’t valuing early stage oncology very highly right now; a good part of the reason that Lantern is trading below cash value.
However, the market will sit up and notice if RADR starts enabling partnerships with major pharma. As they approach 20 billion data points, the scale of RADR «expands our ability to collaborate with additional biopharma partners. We believe that the platform is now at the stage where it can be used not only for our existing portfolio, but for many other drug development portfolios in oncology. This presents us with lots of new opportunity for value creation in the near-term,» according to CEO Panna Sharma.
Lantern raised a war chest last year in a well-timed financing. They are currently buying back stock more than 50% lower than where it was issued. The stock is off the radar screen (pun intended) of many investors but, as RADR’s capabilities increase, expect that to change.
Aren’t you glad you didn’t pay half a million for Tom Brady’s last touchdown pass the day before he unretired?
Jesse Livermore knew all about the market being a discounting mechanism. If you want the best quick read on trading, check out «Reminiscences of a Stock Operator« by Edwin Lefevre, a true classic.
* Disclaimer: DFC Advisory Services LLC, dba: Tailwinds Research, owns shares in companies mentioned in this report. For a full list of disclaimers and disclosures, please visit http://tailwindsresearch.com/disclaimer/.
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