Dear New World Investor:
The economy is slowing faster than the Fed is (publicly) acknowledging. December retail sales decreased -1.15% versus the consensus expectation for -0.9%. Gas stations, car and auto parts dealers, restaurants, and online sales were especially weak. We are seeing a sequential deceleration in the quarterly trend relative to the yearly trend. This is the monthly evolution of the data relative to its 12-month trend and consensus expectations:
Inflation also is coming down rapidly. Ignore the misleading, lagging housing numbers. Inflation is flattening in services:
(h/t @PrometheusMacro) Click for larger graphic
and we have disinflation in goods:
(h/t @PrometheusMacro) Click for larger graphic
Some say “inflation is the only thing that matters,” but @jfahmy says it better: “How the Fed sees inflation is the only thing that matters.”
Fed Chairman Powell highlighted core services ex-housing as an important subset of inflation because it is a proxy for wage-price pass-through. In December it increased 0.28% from November, just a +2.9% three-month annual rate compared to +5.0% in November. But Powell cited core Personal Consumption Expenditures services ex-housing. The December PCE will be out on January 27.
The leading indicators suggest the year-over-year CPI will normalize quickly in the coming months and get close to 3% in June.
Next week’s first estimate of December quarter real GDP is likely to be well above the consensus estimate. Although the Atlanta Fed’s GDPNow model estimate dropped to +3.5%, it still is well above the +1.8% consensus.
The stock market may say: “Oh, good, the economy is stronger than we thought so any recession will be mild.” Or it might say: “Uh-oh, the Fed has to push rates higher and faster than we thought to slow the economy down.” I think the Fed is trapped by the gigantic budget deficit they have to finance, but we will see how this plays out.
The S&P 500 lost 2.1% since last Thursday but still is up 1.5% year-to-date. The Nasdaq Composite lost 1.6% and is up 3.7% for the year. The small-cap Russell 2000 dropped 2.0% but is starting strongest, up 4.4% in 2023.
The fractal dimension still is very consolidated and not near to signaling a new trend. It will come.
According to Goldman Sachs, the buyback blackout due to earnings reports ends on January 27.
Changes this week: Added BLPH for midyear Phase 3 results
Near-Term – chronological order
INO Inovio – VGX-3100 HPV Phase 3 results any day
OIL iPath Pure Beta Crude Oil Exchange-Traded Note – crude should rise quickly
GBTC Grayscale Bitcoin Trust – Bitcoin is coming out of one of its periodic sharp drops
BLPH Bellerophon Therapeutics – Phase 3 results midyear
META Meta – Bounce from overdone selloff
VLD Velo3D – Rapid revenue growth; low market cap
Long-Term – alphabetical order
EQT EQT – largest US natural gas company
NVTA Invitae – the winner-take-most of genetic testing
META Meta – a (the?) leader in the metaverse
RKLB Rocket Lab – #2 to SpaceX in space
VLD Velo3D – Return manufacturing to the US
In July 2009 I wrote an article for SeekingAlpha titled: Why the Recession Is Over. (Don’t miss the comments like “Let’s just chalk this entire post up to…an early morning sniff of ye olde crack pipe. Way to go, Mike!” and “With a post like this, your career should be over.”) My point was that dividing the Conference Board’s Leading Indicators by their Coincident Indicators gives a useful ratio that leads both the Leading Indicators and the stock market.
I also look at the Leading Indicators divided by Lagging Indicators. All eight times it fell 10.6% or more, which is the current decline, we were in a recession at that very moment.
S&P earnings are certain to fall this year, but stocks bottom six to nine months before earnings.
Hedge funds continue to increase their shorts against the dollar. That probably means the dollar will strengthen soon, which isn’t good for precious metals.
All times below are ET, and most presentations and slides are archived on the companies’ websites so you can listen to them.
Wednesday, January 25
AG – First Majestic – Through 1/27 – TD Securities Mining Conference
Short Interest – After the close
Thursday, January 26
December quarter GDP – 8:30am
Friday, January 27
December Personal Consumption Expenditures – 8:30am
The $20-For-$1 Stocks
Say you put $2,000 into a stock that goes from 50¢ a share to $10. The $2,000 turns into $40,000. Then you put the $40,000 into another stock that goes from 50¢ to $10. That turns the $40,000 into $800,000. You did it with two stocks, and never risked going negative more than $2,000. (Not that you won’t be mad at me if the first one works and then the second one doesn’t, taking your $40,000 to Money Heaven.)
If you can afford it – and it would not be too big a position in your portfolio – putting $2,000 into each of these 10 speculative biotechs might be a good way to start. Buying these out-of-favor, fallen, or forgotten companies that can get important products through the FDA at very low market capitalizations seems like a good strategy to me.
Development-stage biotechs are subject to investor sentiment swings from wildly optimistic to excessively pessimistic – mostly the latter recently. After the Primary Risk for each company, I’ve added the clinical stage of their lead product, the probable time of their first FDA approval, and the probable time of their next financing.
As always, you need to think about an appropriate position size. You could buy a full position upfront and then just hold on, or buy some upfront and leave room to add more on the inevitable financings, transient clinical trial setbacks, and the like.
Algernon Pharmaceuticals (AGNPF – $1.62) dosed the first patient in their Phase 1 stroke trial of intravenous AP-188 (N,N-Dimethyltryptamine or DMT) in the Netherlands.
Algernon’s consultant, Dr. David Nutt, is a Professor of Neuropsychopharmacology in the Division of Brain Science, Department of Medicine, Hammersmith Hospital, Imperial College London. He said: “A significant number of promising stroke drugs have failed because they were focused on trying to be neuroprotective of the brain during a stroke. It appears from the pre-clinical data that DMT is promoting neuroplasticity, a key mechanism in recovery once the stroke has occurred, which is a new and exciting approach to stroke treatment.”
Neuroplasticity is the ability of neural networks in the brain to rewire to function in some way that differs from how they did previously. I have been dealing with this for almost eight years, and I’m convinced that neuroplasticity is the only way to recover from a stroke. If AP-188 can do this, it will be a huge winner. AGNPF is a Hold for the Phase 2b IPF/chronic cough results.
Primary Risk: Ifenprodil fails in clinical trials.
Clinical stage of lead product: Phase 2
Probable time of first FDA approval: 2024
Probable time of next financing: 2023
Arch Therapeutics (ARTHD – $6.07) did a 1-for-200 reverse split and temporarily changed their stock symbol to ARTHD. The number of issued and outstanding shares of common stock was reduced from 249,936,370 to about 1,249,682.
The next steps are (1) uplisting to the Nasdaq National Market, probably in conjunction with (2) an underwritten secondary stock offering, and then – this is vital – (3) releasing good news to make the stock buyers happy. ARTH is a Hold for a buyout.
Primary Risk: AC5 fails to sell or the internal trial fails.
Clinical stage of lead product: External approved. Internal trial 2023
Probable time of first FDA approval: External done. Internal 2023
Probable time of next financing: June 2022 quarter
Bellerophon Therapeutics (BLPH – $2.26) completed enrollment earlier than expected in the 145-patient Phase 3 trial of INOpulse for the treatment of fibrotic interstitial lung disease. They will report pivotal top-line results in mid-2023.
The stock jumped in aftermarket trading last night but fell 7.8% today. That’s nuts – I expect success and easy FDA approval. I added it to the short-term Top 5 list. Buy BLPH under $5 for a $30 first target and $100 someday.
Primary Risk: The Phase 3 PH-ILD trial fails or the FDA turns down the INOpulse.
Clinical stage of lead product: Phase 3 data due midyear
Probable time of first FDA approval: 2024
Probable time of next financing: March 2023 quarter
Invitae (NVTA – $2.41) is up 21% since they preannounced December quarter results at the JPMorgan Healthcare Conference last week. Wall Street is getting optimistic on the new management’s ability to trim operating costs while maintaining revenue growth, which would give them a sufficient runway to execute their long-term strategy to become the Amazon of genetic testing. Buy NVTA under $10 for a first target of $50 and eventually $100+ when they become the Amazon of genetic testing.
Primary Risk: A competitor starts taking significant market share.
Clinical stage of lead product: NM
Probable time of first FDA approval: NM
Probable time of next financing: Not needed
Biotech & Digital Dominators MegaShift
There are at least four ways to make money in the stocks of these large, growing, dominant companies. You can:
* * Buy a stock and hold it
* * Buy a stock and write a call option against it
* * With a Level IV options account, write an out-of-the-money put option
* * With a Level IV options account, write an out-of-the-money put option and use part of the premium to buy an out-of-the-money call option
Apple (AAPL – $135.27) had an all-time high 25% of the smartphone market in the December quarter, according to market research firm Canalys. Behind Apple, Samsung had a 20% market share, Xaiomi got 11%, Oppo came in fourth with 10%, and Vivo had 8%. Worldwide smartphone sales in the quarter fell by 17% from the December 2021 quarter to about 300 million. That brought them in at 1.2 billion for the full year, down 11% from 2021.
Apple introduced two new processors, the M2 Pro and M2 Max. They are in a new Mac mini and a new MacBook Pro. The MacBook Pro features up to 6x faster performance than the fastest Intel-based MacBook Pro, plus the longest battery life ever in a Mac. AAPL is a Buy under $150 for new iPhone rollouts and augmented/virtual reality products.
Corning (GLW – $35.76) and PGT Innovations collaborated to produce next-generation glass technology, PGT Innovations’ Thin Triple Insulated Glass Unit (Thin Triple IGU) and Diamond Glass, both featuring Corning’s Architectural Technical Glass (ATG). They can produce large sizes of glass while substantially reducing the weight of the finished products. This reduction in weight translates to less fuel consumption during transportation, an easier install process for dealers, and less effort for homeowners to operate their windows and doors.
Goldman Sachs named Corning to its Top 50 list of high return on equity stocks. Goldman said: “An upwards inflection in S&P 500 ROE will be difficult to achieve in 2023, as headwinds from a higher cost of capital and higher taxes will place further strains on profitability…The median stock in the basket is expected to grow ROE in the next 12 months by 12% vs. -6% for the median S&P 500 company.” They cited Corning’s last 12 months ROE of 15% and consensus ROE growth of 7% in 2023. GLW is a Buy under $33 for the 5G cellular buildout, followed by the smartphone upgrade to use 5G services. My target is $60 in 2023 .
Rocket Lab USA (RKLB – $4.79) said the first building for the new Neutron production complex at NASA Wallops is complete. Inside this facility, Neutron’s 7-meter-wide reusable first stage will take shape as they work toward first launch. RKLB is a Buy up to $13 for my $30+ target as low earth orbit satellites and space exploration grow.
Primary Risk: A new competitor emerges.
Probable time of next financing: None needed
Gold ($1,934.60) gained $27.60 today. It is just starting to attract managed money as they both cover shorts and increase longs.
The fractal dimension is headed down towards the 55 level that signals a new trend is underway.
Because it has been so consolidated, it probably will take at least four weeks to get under 55, by which time we are likely to be at or knocking on the door of new all-time highs. Got gold?
Miners & Related
First Majestic (AG – $8.18) said December quarter production fell 14% from the September quarter to 7.6 million silver-equivalent ounces, consisting of 2.4 million silver ounces and 63,039 gold ounces. Total 2022 production reached a new record of 31.3 million silver-equivalent ounces, consisting of 10.5 million silver ounces and 248,394 gold ounces, or a 16% increase compared to 2021.
In 2023, they expect to increase production 12% to another new record of between 33.2 to 37.1 million silver-equivalent ounces, consisting of 10.0 to 11.1 million ounces of silver and 277,000 to 310,000 ounces of gold, with an all-in sustaining cost guidance of between $18.47 to $19.72 per silver-equivalent ounce. AG is a Buy under $11 for a $23 next target price as production increases and the price of silver rises.
Primary Risk: Prices of precious metals fall due to US dollar strength.
Cryptocurrencies are a diversifying asset that offer a unique opportunity to make (or lose!) a lot of money quickly. You can easily buy Bitcoin and other cryptocurrencies at Coinbase, Block, or Robinhood.
Bitcoin (BTC-USD on Yahoo – $21,164.59) continued its strong upswing as the chaos in the cryptocurrency exchanges and altcoins calmed down a little. This trend should continue.
BTC-USD, ETH-USD, GBTC, and ETHE are Strong Buys.
Primary Risk: Bitcoin falls due to over-regulation or is surpassed by another cryptocurrency.
Grayscale Bitcoin Trust (GBTC- $11.70) got quite a write-up in Nasdaq’s Bitcoin Magazine: Potential Paths Forward For The Grayscale Bitcoin Trust. They wrote:
“Another path — the most likely one — is that the GBTC, along with Grayscale’s other trusts, find their way into the hands of a new sponsor and manager. Valkyrie has already proposed to do exactly this:
* * Give an option for investors to redeem shares at NAV through a Regulation M filing request (although it’s not clear a Regulation M request would get approved by the SEC).
* * Lower fees from 200 basis points to 75.
* * Attempt to offer investors redemptions in both cash and spot bitcoin.
The option for a new manager gives investors an opportunity to get out of investments at NAV.”
“We at Valkyrie are excited to present our proposal to become the new sponsor and manager of the Grayscale Bitcoin Trust (GBTC). As a registered investment advisor and trusted investment manager with extensive experience in the world of bitcoin and cryptocurrency, our company is uniquely qualified to take on this role.
“Valkyrie has a proven track record of success in the realm of digital asset management. Our Bitcoin Trust has operated with daily liquidity since its inception on January 1st, 2021. Later that year, we launched publicly-traded bitcoin-related ETFs and have a strong reputation for working with and caring about our investors and partners.
“In addition to our expertise in digital asset management, we have a team of experienced closed-end fund managers who, while at Guggenheim Partners, launched, managed and even took over a closed-end fund from another manager who let the discount slip well beyond 10% without taking action. We are well-equipped to handle the unique challenges and opportunities presented by GBTC. Our combination of technical and regulatory knowledge and hands-on experience makes us the ideal choice to take on this role.
“We are also excited to announce the launch of the Valkyrie Opportunistic Fund, LP that seeks, among other things, to take advantage of the massive discount in the spread between the NAV and price of GBTC. As the fund increases its holdings of GBTC, we are very interested in realizing the true value of the underlying bitcoin for our investors and will actively pursue this goal on their behalf.”
I think we just have to hold on and wait. Getting out at net asset value would create a 64.5% gain from today’s closing price, even if bitcoin was flat. GBTC is a Buy under net asset value.
Primary Risk: Bitcoin falls due to over-regulation or is surpassed by another cryptocurrency.
Oil – $80.46
OPEC Secretary General Haitham Al-Ghais said that the group is cautiously optimistic about oil demand as China opens up again. They believe that a stronger demand outlook for China could offset continued concerns about a global economic slowdown. China’s oil consumption is expected to jump by 800,000 barrels per day this year to a record 16 million bpd, the median estimate of 11 China-focused consultants polled by Bloomberg News last week.
Oil moved up as traders bought oil futures on optimism over China’s reopening. Chinese domestic air traffic before their New Year is sharply higher after two years of pandemic lockdowns. Total open interest in oil futures rose to 5.24 million contracts, the highest since June 20. Holdings are up by about 10% so far this year.
Despite the recent increase, holdings remain about 20% lower than the same time last year. This is not an overbought move yet.
WTI crude oil broke through the 50-day moving average and is targeting the neckline/100dma around $83. The back end of the futures curve is firming up and refinery crack spreads are testing range tops. This is looking like a real move up that could turn into something big.
Last week was the first time since September 2021 that the US didn’t release a single barrel of oil from its Strategic Petroleum Reserve. The SPR stood unchanged week-on-week at 371.6 million barrels. Got OIL?
The July 2026 Crude Oil Futures (CLN26.NYM – $65.50) are a Buy under $55 for a $200+ target.
The iPath Pure Beta Crude Oil Exchange-Traded Note (OIL – $30.67) is a Buy under $36 for an $80+ target.
EQT (EQT – $33.93) moved up after a cold snap in Europe led to a surge in electricity prices and an uptick in natural gas prices. The weather fluctuates, so I favor buying dips caused by warmer weather and waiting out spikes caused by colder weather.
Natural gas prices in Europe dropped to a 16-month low due to the strong supply outlook. This is caused by full stockpiles in China, which is forcing Chinese buyers to send LNG cargoes to Europe, combined with the mild weather in Europe. The panic-like situation from last year has been replaced by confidence that Europe will get through this winter without any supply issues. While gas prices have dropped, they are still almost double their five-year average for the time of year.
The bigger picture is that the world needs more natural gas in the future. The Gulf energy ministers said there are a lot of European and Asian buyers, and there is a potential that by the end of this year, the entire Qatar LNG expansion will be sold out.
Baker Hughes reported that the natural gas rig count declined by two rigs last week to 150, the lowest since May 2022. There still are 41 more rigs than last year, but 16 fewer since peaking at 166 in September.
If this trend continues, production growth may slow, but this won’t be clear for four to six months. A lot of gas also comes from shale oil wells, but those are flattening, too.
Goldman Sachs added EQT to its Top 50 list of high return on equity stocks for its consensus ROE growth of 43% in 2023.
Wall Street loves high free cash flow companies – as do I! Buy them before The Street believes it’s real.
EQT is a buy under $35 for a first target of $70 and a long-term hold for much higher prices.
Primary Risk:Natural gas prices fall.
Energy Fuels (UUUU – $6.51) got a good write-up in SeekingAlpha. They are very leveraged to the price of uranium, which I believe is headed much higher. UUUU is a buy under $8 for a $30 target.
Primary Risk: Uranium prices fall.
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RIP Robbie Bachman
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Your better understanding scientific papers Editor, (1.8 million published every year!)
Michael Murphy CFA
New World Investor
Check out the complete Portfolio page HERE.
These are the stocks everyone needs to own because transformative events are happening over the next year or two, and I expect to hold them long-term.
Aptose Biosciences (APTO – $0.65) – Buy under $2.50, ultimate target $30
Bellerophon Therapeutics (BLPH – $2.26) – Buy under $5, first target $30, then $100
Compass Pathways (CMPS – $9.63) – Buy under $20, hold a long time for a 10x return
Inovio (INO – $1.68) – Buy under $7, hold a long time
Invitae (NVTA – $2.41) – Buy under $10, first target $50, then $100+
Medicenna (MDNA – $0.61) – Buy under $3, first target $20, then maybe $40
ScyNexis (SCYX – $1.63) – Buy under $3, target price $20, then $50
TG Therapeutics (TGTX – $11.82) – Buy under $7, target price $25+
Apple Computer (AAPL – $135.27) – Buy under $150 for new iPhones
Corning (GLW – $35.76) – Buy under $33, target price $60
Gilead Sciences (GILD – $83.62) – Buy under $70, target price $100
Meta (META – $136.15) – Buy under $250, target price $400
SoftBank (SFTBY – $22.85) – Buy under $25, target price $50
First Trust NASDAQ Cybersecurity ETF (CIBR – $38.21) – Buy under $40; 3- to 5-year hold
Fastly (FSLY – $9.88) – Buy under $20; 2- to 5-year hold to $80+
PagerDuty (PD – $26.38) – Buy under $30; 2- to 5-year hold
QuickLogic (QUIK – $6.11) – Buy under $10, target price $40
Rocket Lab (RKLB – $4.79) – Buy under $13, target price $30+
Velo3D (VLD – $2.04) – Buy under $6, target price $50
A Short-Sale or REO House – ($447,000) – Buy while fixed mortgage rates are low
Bag of Junk Silver – ($23.99) – hold through silver bull market
Sprott Gold Miners ETF (SGDM – $27.51) – Buy under $28, target price $50
Sprott Junior Gold Miners ETF (SGDJ – $32.51) – Buy under $39, target price $100
Sprott Physical Gold and Silver Trust (CEF – $18.61) – Buy under $18, target price $30
Global X Silver Miners ETF (SIL – $30.75) – Buy under $30, target price $50
Coeur Mining (CDE – $4.04) – Buy under $5, target price $20
First Majestic Mining (AG – $8.18) – Buy under $11, next target price $23
Paramount Gold Nevada (PZG – $0.40) – Buy under $1, first target price $10
Sandstorm Gold (SAND – $5.89) – Buy under $10, target price $25
Sprott Inc. (SII – $39.99) – Buy under $40, target price $70
Bitcoin (BTC-USD – $21,164.59) – Buy
Grayscale Bitcoin Trust (GBTC – $11.47) – Buy
Ethereum (ETH-USD – $1,552.52) – Buy
Grayscale Ethereum Trust (ETHE – $7.90) – Buy
International & Other Recommendations
EMQQ Emerging Markets Internet & Ecommerce ETF (EMQQ – $33.55) – Buy under $38 for a $66 target in 12 to 18 months
KraneShares Bosera MSCI China A Share Fund (KBA – $28.33) – Buy under $40 for a three- to five-year hold
Morgan Stanley China A-Shares Fund (CAF – $15.44) – Buy under $18 for a three- to five-year hold
KraneShares CSI China Internet ETF (KWEB – $33.91) – Buy under $40 for a double over the next three years
Acreage Holdings (ACRDF – $0.99) – Buy under $2 for the Canopy Growth merger
Mongolia Growth Group (MNGGF – $1.08) – Buy under $1.30; long-term hold
Crude Oil Futures – July 2026 (CLN26.NYM – $65.50) – Buy under $55; $200+ target
iPath Pure Beta Crude Oil Exchange-Traded Note (OIL – $30.67) – Buy under $36; $80+ target
EQT (EQT – $33.93) – Buy under $35; $70 first target
Energy Fuels (UUUU – $6.51) – Buy under $8; $30 target
These are holds but not sells – yet. They could get moved back to one of the buy categories if their prices drop or outlook improves, or they could become sell recommendations in the future.
Algernon Pharmaceuticals (AGNPF – $1.62) – Hold for IPF/chronic cough trial
Akebia Biotherapeutics (AKBA – $0.71) – Hold for FDA meeting
Arch Therapeutics (ARTHD – $6.07) – Hold for buyout
Graphite Bio (GRPH – $1.94) – Hold until they resolve the clinical hold
Publisher: GwynRose LLC, 5348 Vegas Drive, Suite 868, Las Vegas, NV 89108
New World Investor does not act as a personal investment adviser or advocate the purchase or sale of any security or investment for any specific individual. The recommendations and analysis presented to members are for the exclusive use of members. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. Recommendations are subject to change at any time. Nothing in this presentation should be considered personalized investment advice. No communication to you by Michael Murphy or any of our employees or contractors should be deemed as personalized investment advice.
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