Merger Monday Confirms An Active Stock Market - Buy Under-Appreciated Biotech

Sep. 15, 2020 1:15 PM ETGILD, ABBV, AMZN, BMY, BMYMP, IMMU, INCY, LLY, NVDA, ORCL, RKT, SGEN, VRM, ZM22 Comments

Summary

  • I was very pleasantly surprised by the $70 billion worth of M&A announced yesterday. It confirmed that the stock market is alive and well.
  • I'm particularly focused on the biotech news, that it has been overlooked and that it could have a sustained rally.
  • Looking for alpha in this space is beyond my ken, so I invest in biotech "consolidators" like Bristol-Myers, AbbVie, and Gilead.
  • With Gilead's astoundingly intrepid gambit to acquire Immunomedics, I think it qualifies as a speculation as well, and so I added it to my trading account.
  • I take a look at the other M&A news items and I'm less than sanguine for Oracle and Nvidia.

Mergers have been lagging

Mergers for 2020 have vastly lagged last year. This has been a cause of concern for me in judging the health of the stock market. For the raison d'etres of Wall Street is not to make us rich, it's to create a source of equity capital to build companies. Our role can be compared to the remora fish that secure themselves to the leviathans and eat the rich remainder that they leave behind. Though our role is a bit more symbiotic as we do supply liquidity, price discovery and through the blessings of the short seller we present a level of policing to prevent the occasional "Theranos" that happens now and again. The stock market did not come about for our amusement or enrichment. If it's not creating true transactions like M&A and public offerings it's sickly and that does not portend well for us remoras or the greater economy.

So I heartily accepted yesterday's "Merger Monday" news. The torrent and size of the deals give me optimism that despite government intervention into our economy and markets, the underlying mechanism is returning to life. There's a very real possibility that there will be a rush of mergers before the close of the year either because of feared tax changes or the economy is returning to a bustling boil. Why do I say that? Well, this coming quarter is very likely to display the fastest growth the economy ever measured. Also, you may not have noticed but profit estimates are going up rather nicely, thank you very much. So with interest rates at zero for as far as the eye can see, biotech, which bases its value way out in the future, as the promised stream of profits are often on the come, low interest rates are more welcome to this sector than the cloud software world. I believe that with the evidence of

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I have been writing about stocks for about a decade. I take a multi-disciplined approach but I am not doctrinaire. I come from a technology background having a software consulting business for a number of decades and also took part in business development for tech media startups. I employ technical analysis when it's called for. I believe that market psychology plays a huge role. My favorite explanation for charting is that charts are essentially a psychograph of sentiment about a stock. Market participants rely on narratives to explain a stock's appeal. If you can identify a narrative or trend as it is forming that can pay outsized rewards. I have an eclectic style and it might take you a few articles to "get" me. We now offer a subscription service: Dual Minds Research. I am partnering with Serop Elmayan, a quantitatively oriented trader that takes an engineer's approach to setting up trades. The chat room opens at 5 am. I have already been up since 4 am scouring the news feeds, commodities, and futures to suss out how the day will start,  I provide live minute-by-minute updates on the standard indicators and a few that we surface on our own. The chat officially closes at 430 pm, but I will often check at around 8 pm to post updates. Our Community utilizes the Cash Management Discipline, a simple trading style that we use as a discipline to counter the wild volatility we have to deal with today. Trading ideas will be surfaced almost daily. Serop will only provide trades that he has determined to have a high probability of success. Check us out.

Disclosure: I am/we are long VRM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I started a position in VRM, RKT, and GILD. I also rolled my DKNG position up and out to February and re-spread with short calls and an Oct 2 expiry

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