Dear New World Investor:

Did non-farm payrolls really rise by 517,000 in January, clobbering the consensus estimate for 185,000? No, they did not. The Bureau of Labor Statistics changed the seasonal adjustment factors retroactively for 2022 and dumped all the changes into the January report.

As Bloomberg chief economist Anna Wong wrote: “The January jobs report showed extremely robust growth, higher than the highest estimate in the Bloomberg survey. If it seems too good to be true, that’s because it is too good to be true — the gain is mostly due to seasonal factors and revisions to past data. The Fed likely won’t place too much weight on this report in formulating policy.”

Ridiculous – and Fed Chairman Powell obviously knows it. That’s why during his Tuesday interview at the Economic Club of Washington he said that because this cycle is so unusual, perhaps some of our assumptions about labor market weakness being necessary to bring down inflation don’t necessarily apply.

No kidding! Look at the announced job cuts last month compared to prior Januarys since 1997 (left graphic) and hiring plans compared to job cuts (right graphic). Except for part-time, entry-level hospitality jobs, where my 20-year-old college freshman is making $25 an hour plus benefits, the job market is cooling quickly.

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We are at a cyclical inflection point: The market tends to be ahead of the earnings cycle, often by several quarters. That’s why we tend to see valuations expand in an early-cycle bull market while earnings are still contracting. This happened in 2009 and again in 2020. It fools most investors most of the time.

Corporate bonds yield are less than the Fed funds rate for the first time in 30 years. This clearly shows the bond guys expect inflation – and the funds rate – to fall.

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So far in 2023, 78 companies have announced stock buybacks compared with 125 companies as of this time last year. But the buybacks are much bigger – they’ve announced $173.5 billion worth of planned buybacks so far this year, just over double last year’s pace. By the end of 2022, buyback announcements reached a record $1.22 trillion.

Market Outlook

The S&P 500 lost 2.4% since last Thursday as various Fed governors said if inflation doesn’t come down then they may have to raise the Fed funds rate higher for longer. Well, duh. And what if inflation does come down? Like, for example, in next Thursday morning’s Consumer Price Index report?

The S&P still is up 6.3% year-to-date. The Nasdaq Composite lost 3.4% and is up a healthy 12.6% for the year. The small-cap Russell 2000 dropped the most – 4.3% – but is up 8.7% in 2023.

This is a chart of the 20- and 200-day moving averages going back 20 years. When the 20-day crosses up over the 200-day with authority it’s time to get long. That happened on Tuesday.

h/t @HulkCapital Click for larger graphic

The fractal dimension stalled in its move down and through the 55 level, which will signal a real multi-month upturn has begun.

Top 5

Changes this week: None, but I’m really tempted to add SoftBank to the Long-Term list.

Near-Term – chronological order
INO Inovio – VGX-3100 HPV Phase 3 results any day
EQT EQT – cold February
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
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

Dollar Death Watch

Speculators are far too bearish on the dollar and bullish on the euro. That probably means the dollar is about to make a comeback, a headwind for stocks and precious metals.

Coming Events
All times below are ET, and most presentations and slides are archived on the companies’ websites so you can listen to them.

Tuesday, February 14

via GIPHY

Consumer Price Index – 8:30am – +5.3% ex Food & Energy expected
GILD – Gilead – 11:20am – SVB Securities Global Biopharma Conference

Wednesday, February 15
EQT – EQT – After the close – Earnings release: call tomorrow
FSLY – Fastly – 4:30pm – Earnings conference call

Thursday, February 16
EQT – EQT – 10:00am – Earnings conference call

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 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.

Risks

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.

Arch Therapeutics (ARTHD – $3.25) dropped 24.4% today on no news. I suspect Maxim Group was shorting the stock to get ready to do the underwriting that will raise the cash to let Arch uplist to the Nasdaq National market. They need a minimum price of $4 to do that, though, so Maxim will have to make sure the stock runs up after the offering. ARTHD 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: March or June 2022 quarter

Bellerophon Therapeutics (BLPH – $1.50) got clearance of its Investigational New Drug application from the Center for Drug Evaluation of China’s National Medical Products Administration (NMPA) to do a Phase 3 clinical trial of INOpulse for fibrotic interstitial lung disease. Like the US trial, this trial has improvement in Moderate to Vigorous Physical Activity (MVPA) as the primary endpoint. It will be conducted in collaboration with Bellerophon’s regional partner, Baylor BioSciences. Buy BLPH under $5 for a $30 first target and $100 someday.
Primary Risk: The Phase 2b PH-ILD trial fails or the FDA turns down the INOpulse.
   Clinical stage of lead product: Phase 2 transitioning to Phase 3 in the March quarter
   Probable time of first FDA approval: 2021
   Probable time of next financing: March 2023 quarter

Medicenna (MDNA – $0.76) reported a December quarter loss of two cents a share, much better than the seven-cent loss estimate due mostly to a non-cash gain of $3.7 million related to the change in valuation of a non-cash warrant liability associated with the August 2022 financing.

On the conference call (TRANSCRIPT HERE), management said they have advanced the Phase 1/2 trial of MDNA11 in cancer to the sixth dose cohort. There have been no dose-limiting toxicities, dose interruptions, dose de-escalations, or treatment discontinuations due to safety issues – and that is why this drug will be a blockbuster that replaces Proleukin.

They’ll report the first data from the fifth cohort by the end of March. Then we’ll get the data from the sixth and probably final cohort in the September quarter and the first data from the combination arm with a checkpoint inhibitor in the December quarter.

They’ve renamed MDNA55 “Bizaxofusp.” Last month, the full results of their single-arm Phase 2b trial in patients with recurrent glioblastoma were published in Neuro-Oncology. They continue to pursue partnership opportunities to fund a Phase 3 trial.

Medicenna finished the quarter with $36.2 million in cash, enough to carry them into the June 2024 quarter, past the completion of their Phase 1/2 trial. Buy MDNA under $3 for a first target of $20, then maybe $40.
Primary Risk: Their drugs fail in the clinic.
   Clinical stage of lead product: Phase 1/2
   Probable time of first FDA approval: 2025
   Probable time of next financing: March 2024

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

Gilead Sciences (GILD – $85.53) got FDA approval of Trodelvy in pre-treated HR+/HER2- metastatic breast cancer. The drug is now recommended as a Category 1 preferred treatment for metastatic HR+/HER2- breast cancer by the National Comprehensive Cancer Network.

Gilead’s Kite subsidiary said the three-year follow-up results from their pivotal ZUMA-3 study of the CAR T-cell therapy Tecartus showed a median overall survival of 26 months and demonstrated that responses remained durable in adults with relapsed/refractory B-cell acute lymphoblastic leukemia with a consistent safety profile observed since the two-year analysis. GILD is a Long-Term Buy under $70 for a first target of $100.

Meta Platforms (META – $177.92) is asking many of its managers and directors to transition to individual contributor jobs or leave the company as part of a process to become a more efficient organization, known internally as a “flattening” and externally as “getting rid of the fat.” META is a Buy under $150 for a $400 target in 2024.

SoftBank (SFTBY – $22.49) reported December quarter revenues up 6% from last year to $12.75 billion and a $5.9 billion or $4.02 loss per share. The Vision Funds reported their fourth straight quarterly loss due to writedowns of some of the 311 private investments and some slumping stocks of the 37 that have gone public, like South Korean e-commerce giant Coupang and Indonesia’s ride-hailing GoTo Group. The funds lost $5 billion in the December quarter, with the major good news being that was the smallest quarterly loss yet.

ARM Holdings’s CEO said their December quarter revenue rose 28% from last year to $746 million with earnings of $147 million, driven by an increase in Internet-of-Things adoption and higher royalty rates of 5G smartphone chips. SoftBank CEO Masayoshi Son is working to take ARM public by the end of this year in what probably will be the biggest semiconductor Initial Public Offering ever. I expect a huge share buyback announcement after that.

On the conference call (WEBCAST HERE and SLIDES HERE and TRANSCRIPT HERE), the CFO of Softbank said there are 30 companies in the Vision Funds ready to go public with $37 billion in fair value. They still have $6.5 billion in cash for new investments, but they are being very cautious in this economy. In the last quarter, SoftBank put less than $350 million into just a handful of startups, roughly 95% off of its average pace of $6 billion a quarter over the prior five and a half years.

Softbank’s Vision Funds hold a large number of Artificial Intelligence investments:

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As the tech markets recover, SoftBank starts taking Vision Fund companies public, and ARM goes public, SFTBY will soar. The stock is a Buy under $25 for a first target of $50 in the next two years.

Other Tech

Fastly (FSLY – $10.21) was named a 2023 Gartner Peer Insight Customers’ Choice for Cloud Web Application and API Protection (WAAP) for the fifth consecutive year. It is the only vendor to be recognized for five years running.

Fastly also is the highest-rated Web Application and API vendor with reviews given by 140 verified enterprise customers who have purchased, implemented and used a WAF. Enterprise IT professionals gave Fastly 5 out of 5 stars – the highest of any vendor – with 97% willingness to recommend the product, based on 140 reviews as of November 30. FSLY is a Buy up to $20 for a 2- to 5-year hold to $80+ as Compute@Edge drives customer acquisition and revenue growth.
Primary Risk:Content and applications delivery networks are a competitive area.
   Probable time of next financing: None needed

Rocket Lab USA (RKLB – $4.55) released two new high-performance essential satellite components to the global small satellite market. The Frontier-X software-defined radio provides high-speed data for both near-Earth and deep space small satellite missions. The second component is a new 12Nms reaction wheel designed specifically for in-space attitude control of constellation class satellites.

Rocket Lab’s portfolio of components, including star trackers, reaction wheels, separation systems, radios, flight software, ground software, and solar power solutions, have flown on more than 1,700 space missions to date. 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

Velo3D (VLD – $3.25) announced strong preliminary December quarter results. They said revenue will exceed the company’s previous guidance and be in the range of $29 million to $30 million. Gross margin (the company’s gross profit as a percentage of revenue) for the fourth quarter will be in line with the company’s previous guidance and will be in the range of 5.0% to 6.0%. We’ll get the final numbers on the March 2 conference call.

They also announced the sale of two Sapphire printers to Visser Precision, a contract manufacturer for aerospace customers. One is the first Sapphire calibrated for Haynes 214, a nickel-based superalloy used in high-temperature environments for oxidation resistance. That is now available as a powder option for all Velo3D customers.

The company finished the year with $81 million in cash. VLD is a Buy up to $6 for my $50 target as Velo3D’s high-tolerance metal parts printing business grows.
Primary Risk:A new 3D metal printing competitor emerges.
   Probable time of next financing: None needed

Inflation MegaShift

Gold ($1,871.60) is back under $1,900 after last Friday’s smackdown. That ended a nice string of weekly gains that had the fractal dimension heading for an uptrend signal. The fractals are stalled for now.

The recent trend of consolidation among global gold miners accelerated significantly last weekend when Newmont (NEM) announced a $17 billion bid to acquire Newcrest Mining (NCMGY). It’s the largest gold mining takeover ever.

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As Yamana Gold’s founder Peter Marrone said: “With this transaction, there will be fewer other senior companies, and so it seems to me that the logical next place for consolidation is with the mid-tiers.” Indeed. The majors – Newmont, Barrick, et. al. – have not been able to find enough gold to replace mined resources, so it’s either go out of business or start a feeding frenzy to roll up the smaller miners.

Cryptocurrencies

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 – $21,893.00) broke under $23,000 yesterday, possibly because Digital Currency Group, the parent of the Grayscale trusts, is selling some of its trust shares to raise cash for its creditors. I suppose that could translate into short-term pressure on the price of bitcoin.

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BTC-USD, ETH-USD, GBTC, and ETHE are Strong Buys.
Primary Risk: Bitcoin falls due to over-regulation or is surpassed by another cryptocurrency.

The Grayscale Bitcoin Trust (GBTC- $10.63) discount to net asset value increased to 46.6% on the news that Digital Currency Group is selling some of its holdings. DCG could have raised twice as much money by making the units redeemable for bitcoin, but I suspect they decided the haircut was worth it to preserve the current cash flow from management fees. This is an excellent time to Buy GBTC well under net asset value.
Primary Risk: Bitcoin falls due to over-regulation or is surpassed by another cryptocurrency.

Oil – $77.61

The Energy Information Administration trimmed their 2024 US crude oil output forecast from 12.81 million barrels a day to 12.65 million barrels a day, both essentially flat with their 2023 output estimate of 12.49 million barrels a day. But the drilling rig count has flattened in spite of high prices, as companies use their cash flow to pay off debt. US production is not growing even though US and world demand increase every year and US inventories after the Strategic Petroleum Reserve releases are quite low:

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Traders and quants bought up oil futures in anticipation of the inevitable return of Chinese oil traders. But when February rolled around and there were no signs of them returning, traders dumped their positions, and this resulted in a cascading sell-off. But on Monday, Saudi Arabia raised the official selling price of its flagship Arab Light grade to Asia for March loadings by 20¢ per barrel to a premium of $2 a barrel over the Dubai/Oman average. That’s the first increase in the official selling prices for Asia since September, likely reflecting Saudi expectations that demand in Asia will be rising from the second quarter onward.

The move was contrary to expectations in a Reuters survey of four refining sources from last week, in which participants said they expected the price of Arab Light to be cut by around 30¢ for March loadings. It’s also against the Bloomberg poll, in which traders and refiners expected a 20¢ cut from Aramco for next month.

The July 2026 Crude Oil Futures (CLN26.NYM – $65.11) are a Buy under $55 for a $200+ target.

The iPath Pure Beta Crude Oil Exchange-Traded Note (OIL – $29.55) is a Buy under $36 for an $80+ target.

EQT (EQT – $30.50) will benefit from both colder weather in the Northeast and Europe and slow increases or even declines in natural gas production. The Baker Hughes combined natural gas and oil rig count – which I believe is a better reflection of gas exploration given how gassy oil wells have become – dropped 12 rigs this week to 757 rigs. The count is still up 144 versus 2022 but is down 25 from November’s peak and at the lowest since July.

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The breakeven prices for different natural gas companies from the September quarter of 2022 data shows Southwestern and Chesapeake need gas price above $4 to make a profit, whereas Gulfport and Comstock were better at controlling cost, with EQT well-placed below $2.

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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.

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Your reading the Month in Macro Editor,

Michael Murphy CFA
Founding Editor
New World Investor

All Recommendations

Check out the complete Portfolio page HERE.

Buys
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.

$20-for-$1
  Aptose Biosciences (APTO – $0.69) – Buy under $2.50, ultimate target $30
  Bellerophon Therapeutics (BLPH – $1.50) – Buy under $5, first target $30, then $100
  Compass Pathways (CMPS – $9.37) – Buy under $20, hold a long time for a 10x return
  Inovio (INO – $1.61) – Buy under $7, hold a long time
  Invitae (NVTA – $2.22) – Buy under $10, first target $50, then $100+
  Medicenna (MDNA – $0.76) – Buy under $3, first target $20, then maybe $40
  ScyNexis (SCYX – $1.55) – Buy under $3, target price $20, then $50

Other Biotech
  TG Therapeutics (TGTX – $17.52) – Buy under $7, target price $25+

Tech Dominators
  Apple Computer (AAPL – $150.87) – Buy under $150 for new iPhones
  Corning (GLW – $35.00) – Buy under $33, target price $60
  Gilead Sciences (GILD – $85.53) – Buy under $70, target price $100
  Meta (META – $177.92) – Buy under $250, target price $400
  SoftBank (SFTBY – $22.49) – Buy under $25, target price $50

Other Tech
  First Trust NASDAQ Cybersecurity ETF (CIBR – $41.66) – Buy under $40; 3- to 5-year hold
  Fastly (FSLY – $10.21) – Buy under $20; 2- to 5-year hold to $80+
  PagerDuty (PD – $30.10) – Buy under $30; 2- to 5-year hold
  QuickLogic (QUIK – $5.85) – Buy under $10, target price $40
  Rocket Lab (RKLB – $4.55) – Buy under $13, target price $30+
  Velo3D (VLD – $3.25) – Buy under $6, target price $50

Inflation
  A Short-Sale or REO House – ($447,000) – Hold
  Bag of Junk Silver – ($21.99) – hold through silver bull market
  Sprott Gold Miners ETF (SGDM – $25.77) – Buy under $28, target price $50
  Sprott Junior Gold Miners ETF (SGDJ – $29.59) – Buy under $39, target price $100
  Sprott Physical Gold and Silver Trust (CEF – $17.66) – Buy under $18, target price $30
  Global X Silver Miners ETF (SIL – $28.11) – Buy under $30, target price $50
  Coeur Mining (CDE – $3.42) – Buy under $5, target price $20
  First Majestic Mining (AG – $7.38) – Buy under $11, next target price $23
  Paramount Gold Nevada (PZG – $0.36) – Buy under $1, first target price $10
  Sandstorm Gold (SAND – $5.30) – Buy under $10, target price $25
  Sprott Inc. (SII – $38.27) – Buy under $40, target price $70

Cryptocurrencies
  Bitcoin (BTC-USD – $21,893.00) – Buy
  Grayscale Bitcoin Trust (GBTC – $10.63) – Buy
  Ethereum (ETH-USD – $1,547.29) – Buy
  Grayscale Ethereum Trust (ETHE – $7.10) – Buy

International & Other Recommendations
  EMQQ Emerging Markets Internet & Ecommerce ETF (EMQQ – $33.65) – Buy under $38 for a $66 target in 12 to 18 months
  KraneShares Bosera MSCI China A Share Fund (KBA – $27.80) – Buy under $40 for a three- to five-year hold
  Morgan Stanley China A-Shares Fund (CAF – $15.79) – Buy under $18 for a three- to five-year hold
  KraneShares CSI China Internet ETF (KWEB – $33.12) – Buy under $40 for a double over the next three years
  Acreage Holdings (ACRDF – $1.06) – Buy under $2 for the Canopy Growth merger
  Mongolia Growth Group (MNGGF – $1.12) – Buy under $1.30; long-term hold

Energy
  Crude Oil Futures – July 2026 (CLN26.NYM – $65.11) – Buy under $55; $200+ target
  iPath Pure Beta Crude Oil Exchange-Traded Note (OIL – $29.55) – Buy under $36; $80+ target
  EQT (EQT – $30.50) – Buy under $35; $70 first target
  Energy Fuels (UUUU – $7.36) – Buy under $8; $30 target

Holds
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 – $1.64) – Hold for IPF/chronic cough trial
  Akebia Biotherapeutics (AKBA – $1..12) – Hold for FDA decision
  Arch Therapeutics (ARTHD – $3.25) – Hold for buyout
  Graphite Bio (GRPH – $2.28) – 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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