While there was little news from large cap names this week, President Trump managed to keep things interesting with his New Years eve tweet that he expected to sign a Phase 1 trade agreement with China in the next couple of weeks. That sent Chinese stocks, along with US companies that import and use Chinese products, higher on Thursday. Then on Friday, oil and defense stocks, along with gold and Bitcoin, received a boost (for the want of a better word) from the US airstrike that killed Iranian Major General Qasem Soleimani. Airline stocks fell as oil reached a seven month high.
In Japan, Carlos Ghosn, the 5 foot 6 inch ex CEO of Renault and Nissan who was facing charges of financial misconduct charges, provided a great story that seems more appropriate for Hollywood than Wall Street. Despite being held under strict bail conditions including constant surveillance, Mr Ghosn apparently climbed into a case for musical instruments on Sunday evening before being whisked off to a local Japanese airport and flown to Turkey and then on to the Lebanon.
Back home, Barron’s ran a worrying story about Canada Goose’s ($GOOS) $1,000 signature parkas and how they are stuffed with goose down and trimmed with coyote fur. That’s a dangerous product to be associated with in the age of the anti-fur movement and social media. The Daily Beast has already run a story claiming that owning a Canada Goose parka may even put off potential dating partners. Canada Goose’s stock price has fallen 50% from 2018 highs and its valuation at 35x earnings would normally be reasonable for a company growing at around 30% p.a. However the risk of being outed for the use of fur in the fickle fashion industry means I would avoid.
Cassave Science Inc’s ($SAVA) stock price almost doubled after CEO Remi Barbier bought 100,000 of stock on New Years eve. The purchase follows positive data from a mid stage trial for one of its experimental Alzheimer’s disease drugs. There is still a way to go before approval, meaning the stock may yet have to give up all the recent gains (and more), but with a market cap of just $166 million the potential upside from an approved Alzheimer’s drug would be huge. The purchase by the CEO is a big vote of confidence from those in the know and sends out a strong signal to the market.
On Monday, Sol-Gel ($SLGL) jumped 90% after reporting positive phase 3 trial results for its acne treatment drug Twyneo. Sol-Gel now plans to file a new drug application (NDA) in the second half of 2020. It is more good news for the company which was already planning to file an NDA for its rosacea drug Epsolay and potentially going from zero to two commercial stage drugs in one year. The company’s valuation has jumped to $320 million, but that looks reasonable given its two drugs that are close to approval with a combined total addressable market of $10 billion.
Otherwise the news was largely confined to analyst upgrades and downgrades. A couple that caught my eye were Goodyear Tire and Axsome Therapeutics.
Goodyear Tire ($GT) is a cyclical stock that will never trade at a premium but with the stock down 55% over the past two years and trading on 7x 2020 consensus earnings its valuation is looking cheap. Nomura Instinet analyst Anindya Das agrees with a target price 33% above Fridays close. Das says GT has a strong earnings outlook having largely completed its restructuring. I would agree, auto sales have slumped since 2015 but, with the average auto age at an all time high of 12 years (and in the absence of a recession), it’s likely that the renewal cycle will begin in the near term. GT’s forward PE looks cheap compared to peers such as Cooper Tires (10x 2020 earnings). The 4.2% dividend also looks attractive.
Axsome’s ($AXSM) was up on Monday after reporting positive results from a late-stage study to evaluate, AXS-07, its drug for the acute treatment of migraine. Good news for Axsome and 37 million Americans suffer from migraine. Axsome said it plans to file an NDA in the second half of 2020.
It follows news earlier in December regarding Axsome’s new clinical drug the blockbuster, AXS-05, which reported significant improvements in patients with major depressive disorder (MDD). 47% of patients with MDD achieve complete remission, as opposed to the 16% of patients taking the placebo. Depression treatments are one of the largest healthcare markets in the U.S., with around 7.1% of adults — or 17.3 million — Americans affected each year. Estimated at USD 15.60 Billion in 2018. And there’s not a lot of competition.
Axsome’s stock has surged by almost 4,000% since the beginning of 2019, pushing the stock from a $93 million market cap into the $3.5 billion range. But it could have further upside potential due to AXS-05 and AXS-05 and the large addressable market. Priced at $95.20 at Fridays close Cantor Fitzgerald raised their price target to $125 and HC Wainwright increased theirs from $170 to $200.
This is not a recommendation to buy or sell. Stocks are not suitable for everyone. Some of the stocks mentioned are risky small cap and/or highly speculative. Please do your own research.