Seeking Alpha
Value, research analyst, author, long only
Profile| Send Message|
( followers)  

On a day-to-day basis, I receive many questions, whether it be through twitter, Facebook, my website, or on Seeking Alpha. Typically, I try and answer these questions with short answers, but every now and then I receive really good questions. I feel some of these correspondences could be of benefit to other investors, and I have decided to share a few of them.

(Questions have been shortened and edited for clarity and readability)

Q1 - What do you think is the best economic indicator?

BN - This is a really good question, and one that I hear quite often. Everyone seems to want to know, "what is the best economic indicator" or the one that has the most meaning to the economy.

Personally, I have always looked at two economic indicators, employment for long-term performance and the price of gasoline for short-term performance. To me, gasoline is the most important; it is the indicator that makes the economy operate for better or worse. The reason is because the price of gasoline price is the only thing that affects all Americans. When prices are higher we have less disposable income, take fewer vacations, drive more efficiently, etc. As a result, when prices are high other economic indicators such as consumer confidence, consumer sentiment, and employment begin to decline, which pushes the markets lower. These high prices specifically affect the transportation sector, which most economists will say is the most important sector for the sustainability of a bull market.

So how can you use this information to make a better investment decision? Consider the fact that gasoline prices have peaked on three occasions over the last three years, and are currently reaching that point yet again. Each peak is less than the previous peak, but the markets take a drastic turn for the worse after each peak has been reached. Below I have included a chart. You can see a fairly obvious relationship between the price of gasoline and market performance. As you can see, gas prices are near another peak in my opinion, possibly another $0.04-$0.10, and then this could indicate a fairly significant pullback is coming. In the past this trend has worked, I suppose the theory will once again be tested in the coming week, and we will see.

Peak Gas Date

5/8/2011

3/31/2012

9/15/2012

2/21/13

Avg Gas Price

$3.97

$3.91

$3.85

$3.73

S&P 500 at Peak Gas

1,340

1,408

1,465

1,503

S&P 500 Two Months Later

1,268

1,278

1,359

N/A

Gas Price Two Months Later

$3.60*

$3.60

$3.44

N/A

*Gas prices and S&P 500 traded lower for the remainder of 2011

Q2 - Last year you chose Sprint Nextel (NYSE:S) as your value of the year selection, this year you chose Alcatel-Lucent (NYSE:ALU). Do you still own Sprint, and do you believe the company still has upside?

BN - No, I do not own Sprint any longer. I began scaling back my position late last year, and sold my final share at $5.74. At $2.30 I was bullish, back towards the end of 2011 and the start of 2012. I had watched in 2011 as the stock traded near $5 with falling revenue, falling subscribers, and a rising debt-to-assets ratio. Then, when the company bought rights to the iPhone and it was trading at $2.30, the value was too apparent.

Far too often retail investors don't use common sense and simple logic; it's the same way with Apple (NASDAQ:AAPL), if Sprint was worth $5 without the iPhone and with declining fundamentals in 2011 than it was worth at least $5 with the iPhone and improving fundamentals. However, now that Sprint has traded back around $6 the stock is no longer presenting such clear value. The company is still not profitable, and more importantly is the fact that more carriers now have the iPhone in the U.S. It is no longer just AT&T, Verizon, and Sprint. Of course Sprint still has advantages such as unlimited data and the lowest account deposits of the major carriers, but with increased competition, a lack of profit, and a massive commitment to Apple, I think it is fairly priced and is no longer a value investment.

Q3 - What do you think about Galena Biopharma's (NASDAQ:GALE) recent rally? Do you think it is sustainable and can the stock rally higher into interim results?

BN - I first began following Galena Biopharma back in November of 2011 when the company presented positive Phase 2 data for its immunotherapy product NeuVax. I took a long hard look at the company, its valuation, and its upside then determined that it could become the next Jazz Pharmaceuticals (NASDAQ:JAZZ) in its potential returns. At the time it was just a $50 million company but has since returned gains of more than 250%.

Since November 2011, Galena has announced clinical results for using NeuVax both alone and in conjunction with Herceptin. The company has received patents and intellectual property, has partnered with Leica Biosystems and Teva Pharmaceuticals (NYSE:TEVA), and has begun a Phase 3 trial that is built around the strengths of the vaccine.

While Galena Biopharma does have risk, I think its sustainability despite financing has been a result of its likelihood of success. In the company's Phase 2 trial there were very few patients who were optimally dosed and who received booster doses. Yet in the vaccinated group only 5.6% of patients had a recurrence of breast cancer, while 25.9% had a recurrence in the control group. In its Phase 3 study, ALL patients will be optimally dosed, ALL patients will receive boosters, and ALL of the patients in the trial will meet the qualifications of effective treatment (low and medium expressions of HER2 in the cancer tumors).

Back to the question, can it or will it trade higher into interim data? I believe it will for the reasons above and because the company will not need additional financing through 2013. The situation with Galena reminds me so much of ACADIA Pharmaceuticals (NASDAQ:ACAD). ACADIA recently showed good results for its candidate Pimavanserin after its study met both primary and secondary endpoints. However, in a previous trial the product showed mixed results, which were good with a higher dose and bad with a lower dose. Therefore, the company tested the higher dose, which is exactly what Galena has done. The company has taken what works and has built a Phase 3 trial around the vaccine's strengths. As a result, I think it could trade higher into interim results and I think that because it trades in such a tight range, the stock will continue to have support.

Q4 - What are your thoughts about Novogen Limited (NASDAQ:NVGN)

BN - Novogen Limited is a small $36 million company and was an even smaller $8 million company back on February 15. The company rose to current levels after a lab study showed that its CS-6 compound killed ovarian cancer stem cells at low concentrations, and then destroyed regular cancer cells. These cancer stem cells are cells that are resistant to conventional forms of treatment and are highly connected to death in patients.

While the lab results do have certain points of advantage, investors must remind themselves that this is a lab test, this is nowhere near an FDA approval, or a late phase clinical trial. At this point it is still an idea, and investors must be careful and remember that most of its gains have occurred as a result of traders, not investors. These traders will most likely leave just as fast as they arrived.

I'll be the first to say that I love a good underdog story or the emergence of a microcap biotechnology stock. However, an $8 million market cap that rises this fast is presenting way too much risk. I ask that investors perform excessive due diligence and try to avoid chasing gains, because you could wake with losses of 15-30% with a company this small, with this much volume, and that is this volatile. My final advice is to be very careful with this stock.

Q5 - ImmunoCellular Therapeutics (NYSEMKT:IMUC) is expected to release Phase 2 interim data for ICT-107 in Q1 2013 after reaching 32 events. Since we are in the later half of the quarter, does it make you more optimistic?

BN- Theoretically, when a company announces that it will present data after a certain number of events, investors view delayed results as a positive. The company is attempting to treat one of the most aggressive forms of cancer known to man, a disease where success can be measured in weeks, glioblastoma multiforme. This cancer is a particularly deadly disease in which only 26.5% of patients live beyond 24 months after being diagnosed.

Back on July 2 the company issued an update announcing that 105 patients, out of 231, had either been treated or were scheduled to be randomized and treated. Therefore, it has been almost seven months since the update, almost six months since enrollment was complete, and everyone is now awaiting safety analysis and any other information that the company might want to share with investors.

Back to the question, am I more optimistic that data will be towards the end of Q1? Honestly, I expected it. In the Phase 1 trial, 80% of those vaccinated survived two years, and 55% survived three years. When you consider that 26% of patients survived two years with standard-of-care, it's hard to imagine that 32 events would have occurred within seven months. Personally, I wouldn't be surprised if results are delayed into the second quarter, and if so, then I think it would be positive, a sign that the vaccine is working. At this point, longer may be the better, and with each passing day, I expect to see momentum in the stock and excitement grow.

Conclusion

If you have a question about any of the stocks I follow, a market-related question, or would like my opinion on a specific topic, please feel free to send me an email. The goal of this series will be to provide analysis from the previous week, or to talk about market-related events that might change the direction of the market. I hope you enjoyed the first part and that you will keep the questions coming.

Source: The Monday Morning Quarterback