Last week's "Blitz" created great discussions as each week the number of questions submitted grow. This week I am looking at the best stock-specific questions. I will continue to take questions through Seeking Alpha, NicholsToday.com, or through Twitter in the week prior to future postings. This week's questions cover broad topics. Therefore, I hope you enjoy, learn, and at the end feel free to chime in.
ValueSeeker2013 asks, "Technically, Sprint (S) looks as though it could break out from an ascending triangle. The volume and Bollinger bands have also expanded, but my question is if you are fundamentally bullish? I am not a fundamental investor and I know that last year you were bullish on the stock.
While you are not a fundamental investor, I am in no way a technical trader. I was bullish on Sprint, but not anymore. However, I cannot speak to whether or not it will break out and trade higher technically; yet I do believe that it is no longer presenting clear value.
Back when I said it was a "buy", Sprint had begun selling the iPhone and had been fundamentally beaten down by AT&T (T) and Verizon (VZ) due to it not being able to sell the iPhone in years prior. Therefore, when Sprint gained rights to the iPhone, and was priced at $2.30 versus $5.00 in the year prior, I viewed it as a value too strong to ignore.
Now, fast forward. Is the stock good now? My answer is no. It has appreciated to the level in which I predicted and the landscape has changed. There are now more than 10 carriers with the iPhone, versus only three when Sprint began selling it. At this point of the investment it becomes a question of efficiency, and whether or not the company can achieve profitability. In my opinion, it won't happen anytime soon. The company, with a $4.3 billion net loss, has too large of a hole - and with it trading at a 50% discount to Verizon on a price/sales basis I think it is fairly valued. Like I said, you may be able ride it higher-however I think there is better value elsewhere.
NicholsToday user, skelton asks, "You called OncoSec Medical (OTCQB:ONCS) your next GALE, but what is that you think can propel this stock higher by 200-300%?"
First off, I didn't say that it was the next GALE; I said that it was sparking my interest as a company with a lot of catalysts. Although it may not be a favorable comparison, Celsion Corporation (CLSN) went from a $70 million market cap to a near $300 million cap on data that appeared good, but that had lingering questions. For example, there were real concerns that ThermoDox did not treat distant tumors, and some worried that because cancer does not always regrow in the same area that it would prove ineffective in a larger trial. Turns out, these concerns were right, but where I find OncoSec interesting is with distant response, as more than 50% of patients treated with ImmunoPulse had a distant response.
Obviously, what drives a biotechnology stock is catalysts/data, and OncoSec has perhaps the most data-packed year of any company in the space. So far the company has had no negative data, but has not appreciated due to the fact that investors are unaware of its existence. I think that will change, as the company announces data for three Phase 2 programs, advances into later trials, and gains a possible Orphan status for its Merkel Cell Carcinoma (MCC) treatment, due to there being no other studies on the disease. In addition to data also comes meetings with the FDA, enrollment news, patents news, etc., which are all catalysts in biotech. Finally, I think that as investors assess the company, and if it can continue to show a distant response (along with a local response), investors will become interested. Although there is not enough information to know if the product will see an eventual approval, I think that this collection of events could come together to create very nice gains.
Sabron asks, "What is your short term price target after Arena Pharmaceuticals' (ARNA) Belviq launch?"
Americans love the idea of losing weight, but more importantly, we love the idea of losing weight without having to work too hard. Currently, in Amazon's bestselling books, two of the top five are weight-loss related. Thus, Americans are open to the idea of losing weight, but often begin and end diets quite rapidly.
In my opinion, there are a few factors that make Belviq an "immediate" success: It has no side effects, it has a great safety review, it will have flexible marketing abilities, and it is being launched on someone else's dime. Hence, I expect to see billboards, commercials, samples, etc. and for consumers to respond favorably to the prospects of losing weight by taking a pill.
My concerns with Belviq are if it will be a six-month wonder or if it will transcend the space and spend many years as a global growth drug. I think the potential is present with over 500 million people obese around the globe, with a large percentage being in the U.S. and in Europe. However, we must also fear that the weight loss craze will die down, and that sales will not sustain. The best example is GlaxoSmithKline's (GSK) Alli, and the craze that it created when it was FDA approved. In the first three days, Alli posted sales of $12 million, and then $247.2 million in the first year. However, in 2008 (one-year after its launch), sales fell to $131 million as consumers left for the next best thing. This is the problem with weight loss products. Accordingly, I expect solid performance and sales during the first year (with no price target), but then I am not so certain about the year that follows.
Seeking Alpha user, Kamiason, asks "Is Zillow the Best Investment for the Housing Market?"
Anyone who has ever read my articles, comments, or tweets about Zillow (Z) is aware that it is not my favorite stock. While I do admit that the company's growth is amazing, its services are tremendous, and its margins are relatively low to the competition (Trulia), my concern remains with valuation. This is a company that lists homes on a great platform, and then Realtors® pay the company to be advertised on the site, next to homes-also called Marketplace revenues.
Zillow has managed to grow rapidly in a depressed housing market, and there is a belief that, as the housing market continues to rise, its fundamentals will boom as well. This may be true, but I am curious to see if agents determine that such advertising is necessary in a growing market. Currently, my wife and I are looking at new houses, and have found it more useful to drive to the houses for sale and then take the flyers inside of the Realtor's sign. We can then look at pictures on Zillow and use it as a line of research. However, we find the old school method of house hunting to be highly important. With that being said, I am curious how many people view "house hunting" like my wife and I, and I am curious to see if a new market will change the demand for Zillow's Marketplace. Perhaps it grows, but with a price/sales ratio of 16.00 and a forward P/E ratio of 68.40, I believe the risk is too high for such an uncertainty.
My favorite play for the housing market is banks. I think Zillow is too expensive with too many questions and the Home Depot (HD) continues to be a company with fundamental growth that underperforms its stock. I prefer a stock such as Bank of America (BAC). Besides trading at just 65% of its book value per share, the company just announced a massive buyback program of up to $5 billion worth of common stock, and the redemption of up to $5.5 billion in preferred stock. Furthermore, the company has seen a much more aggressive level of institutional buying over the last six months as it continues to clean up its "toxic" assets. I know that banks are a touchy subject, but even after large gains the stock still looks to be one of the cheapest and most ready for a significant breakout due to a rise in the housing market.
Seeking Alpha user, Cjhulin85, asks, "As of 2/12 Spectrum Pharmaceuticals (SPPI) had short interest of 27,231,000, after its drop; do you think the short interest covered or do you think that shorts will hang around?
Over the last two weeks, I have received countless questions and comments regarding Spectrum, and this is what I consider the best of those questions. As of 2/28 more than 55% of its float was short, but seeing as how the stock fell it makes sense that shorts would move on to a better opportunity, right? To answer this question, take a look at the most shorted stocks in the S&P 500 as of 2/28, and the performance of each, courtesy of Bespoke Investment Group.
Short-Interest vs Float %
Forward P/E Ratio
As you can see, the most shorted stocks are not those such as Amazon (AMZN), Netflix (NFLX), or LinkedIn (LNKD), but rather companies with questionable operations that are by most accounts, undervalued. The reason that these stocks maintain high short interest is because most are highly profitable and trendy for shorts. So to answer your question, no, I do not think the losses will rid the stock of shorts. I think in order to eliminate the short interest the company must regain the trust of investors and produce significant growth with one of its three FDA-approved drugs. Other than that, I would consider the fact that at $7.00 Spectrum trades with the same price/sales ratio that it did at $12.00 before it lowered guidance. As a result, the stock is not really that cheap, and I'd be very careful investing at this point in time.
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 or provide feedback in the comments section below. 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 this, found it beneficial, and that you will keep the questions coming.