Portfolio Changes: none
Portfolio cash position: 25%
Politics & Stocks – Update on NovoCure (NVCR)
It appears that we will have a sharply divided government in Washington, which Wall Street initially is taking as a positive. A better way of putting it is that it could have been much worse for investors.
With Republicans appearing likely to maintain control of the U.S. Senate, certainly the tax increases on capital gains will be off the table, which is good for asset holders. But we also could see absolute gridlock and chaos as all the factions within the two parties jockey for position ahead of the 2022 and 2024 elections. In addition, the outcome of the presidential election will surely be contested so the next three months may prove to be unsettling.
For now, though, the election results are being framed as a positive as we look to close out a turbulent 2020.
From time to time, I’m going to give you a more extensive update on a recommended stock in the Explorer portfolio.
This week, NovoCure (NVCR), which has almost doubled in the last six months, is center stage.
NovoCure founder Yoram Palti discovered that alternating electric fields, when applied at specific frequencies, not only stop cancer cells from dividing but also can kill them outright. He called this innovative cancer treatment Tumor Treating Fields. And he used the discovery to found NovoCure in 2000.
Since then, the firm has developed into an up-and-coming international oncology leader with nearly 800 employees, operations in the U.S., Europe and Asia, and $450 million in annual sales. NovoCure’s attraction as an investment idea is twofold: its innovative technology, and that it is that still a relatively small company.
In 2011, the company launched Optune – its Tumor Treating Fields delivery system – for glioblastoma, the most common primary brain cancer and one of the most challenging cancer types to treat.
The FDA approved the device in 2015, and NovoCure received subsequent approvals for expanded upgrades in 2016 and 2019. These products are sold in the United States, Germany, Austria, Switzerland, Sweden, Israel, China and Japan.
Today, Optune uses low-intensity electrical fields to treat glioblastoma and mesothelioma, a tumor of the tissue that lines the heart, lungs, stomach and other organs. Research is also moving forward with other brain cancers as well as pancreatic, ovarian, liver and lung cancers, with key results expected in the coming months.
The company is working to expand its network and partnerships to build on its strengths. One is that its technology has succeeded in every clinical test.
Also, unlike pharmaceutical products that often work only in specific subsets of patients, NovoCure’s technology seems to be effective across the board. In addition, there are no toxic side effects and NovoCure customizes its technology to target each cancer type.
Finally, its devices work in patients undergoing other forms of treatment, including radiation, chemotherapy and immunotherapy. This combined treatment maximizes the probability of success.
Last week, NovoCure reported encouraging quarterly earnings results.
Here are some highlights:
• Net revenue increased 44% year over year to $132.7 million.
• Sales rose 51% in the U.S., 57% in Japan and 205% in China.
• Net income increased 381% to $9.3 million.
• The company now has 3,361 active patients on therapy.
NovoCure has momentum and has the opportunity to scale up as it gets the word out and gains wider acceptance in the oncology community.
In early 2020, NovoCure had over 100 physicians from more than 50 cancer treatment centers certified to prescribe Optune. This is the key metric to monitor.
Position Updates
Afterpay (APT.AX) shares continued their momentum this week, and the stock is up 26% in the last month. Afterpay users can pay for their online or in-store purchases in four installment payments, without the need to take out a traditional loan or pay upfront fees or interest. Last week it reported that underlying sales increased 115% to $4.1 billion on a year-over-year basis. Active customers globally increased 98% to 11.2 million, with the U.S. reaching 6.5 million customers, and active merchants increased by 70% to reach 63,800. If you have not already done so, I suggest you purchase shares on the Australian stock exchange. The stock also trades OTC in the U.S. at (ATFPF) but the liquidity there is poor. BUY A HALF
Alibaba (BABA) shares pulled back this week from 313 to 296 as China’s regulators’ suspension of Ant Group’s $35 billion IPO pulled the rug out at a very inopportune time. Alibaba has a 30% stake in Ant, which has over 700 million customers. Of particular interest to financial regulators are Ant’s consumer credit platforms. It seems to me that the Mandarins in Beijing are sending a clear message that they are in charge and will protect the interests of state-owned banks. Alibaba released a positive earnings report this morning. Revenue of 22.8 billion was up 30% year-over-year, earnings per share of $2.65 beat expectations, and mobile active users climbed to 881 million. BABA remains a legacy Explorer hold and is an essential core holding for investors looking for a quality stake in the Chinese consumer. HOLD A HALF
Cloudflare (NET) shares bounced back 5.5% ahead of quarterly earnings, which are due out after the bell today. The stock has been surging over the past few weeks on the back of the launch of its new cloud-based platform, Cloudflare One, an easy-to-use platform that promises to secure and connect companies and remote working teams anywhere and on any device. I will keep NET a hold at these levels. HOLD A HALF
ElectraMeccanica (SOLO) shares were up 20% in their first week in the Explorer portfolio. This Canadian company has been quietly laying the groundwork to bring to the U.S. west coast and then Europe and Asia a single-seat, three-wheel electric car (dubbed the “Solo”). Last week, the company announced that it would open six new retail locations across the western U.S. within the next month. The company also announced that the initial shipment of its Solo production vehicles have arrived in North America.
These Solos have been manufactured in China on a contract basis and shipped to America, though the company’s plan is to open an assembly plant in either Arizona or Tennessee. The initial rollout next month will be primarily in Los Angeles followed by Scottsdale, Portland, San Francisco and Seattle. There are 4.6 million commuters in Los Angeles, with an average 30-minute commute – an ideal market for the Solo. This is a speculative idea that will attract some serious media attention into 2021 and has a chance to scale up in America and beyond. BUY A HALF
Logiq (LGIQ) shares pulled back a point over the last week as the company announced that it expects to release its next earnings on November 16. Last week, the company announced that it has been selected to provide mobile microlending and related services to 48 million Indonesians in an exclusive strategic alliance with the country’s social security program.
The company is a New York-based leading global provider of e-commerce, mobile commerce, and fintech business enablement solutions for three big markets: Southeast Asia, Europe and the United States. Logiq’s stock is trading at less than three times 2020-projected revenue. This is an aggressive idea and I suggest you take advantage of this week’s pullback to buy shares if you have not already done so. BUY A HALF
NovoCure (NVCR) shares had a volatile week but were up for the week, gaining 7% yesterday. An extended update on NovoCure is provided in the introduction to this issue, above. NovoCure is a global oncology company working to extend survival in some of the most aggressive forms of cancer through the development and commercialization of its innovative therapy, Tumor Treating Fields. I encourage you to take advantage of the stock’s dip to buy shares if you have not already done so. BUY
Sea Limited (SE) shares jumped from 165 to 177 over the last week as the company announced its next earnings report is scheduled for November 17. Sea’s last quarterly report underlined the company’s soaring online activity in Southeast Asia just like it did in the rest of the world, and their revenue grew by more than 100%, year over year, with strength from both their profitable gaming business and their unprofitable e-commerce platform Shopee, which you might think of as sort of like Shopify for that region of the world.
Sea’s gaming division, Garena, is their cash-flow generator, thanks mostly to their Free Fire game, which is wildly popular in Latin America and Southeast Asia. More recently, it has entered the Latin American and Indian markets. No change in my hold rating but aggressive investors can add to their position and if it pulls back with a weaker market, I will consider moving this back to buy. HOLD A HALF
Taiwan Semiconductor (TSM) shares made a nice move this week from 84 to 89 as China announced major investments in its semiconductor industry. China is light years behind this company, which dominates global chip fabrication with a market share of 56% while delivering an impressive return on equity of 31%. The new Apple 5G phone is powered by Taiwan Semiconductor’s A14 bionic chipset, and features an incredible 11.5 billion transistors – 40% higher than the A13. I maintain a buy rating on this stock. BUY A HALF
VanEck Rare Earths/Strategic Metals ETF (REMX)’s share price finally made a move this week, up almost 10% as rare earth stocks came alive on the back of some bullish news from Chinese miners. Also helping was China’s announcement that it was putting some American companies such as Lockheed Martin, Boeing and Raytheon on a blacklist due to their participation in arms sales to Taiwan. I view this ETF basket of rare earth and strategic metals stocks as an effective hedge on rising U.S.-China tensions and green energy, electrification and climate change tech. BUY A HALF
Vipshop Holdings (VIPS) shares were up only slightly this week but are up 34% over the last month. The company announced it would unveil third-quarter earnings on November 13, just after the world’s biggest shopping day – China’s annual Singles Day splurge on November 11. Some analysts believe sales on that one day in China could reach $4.8 billion. You might think of the company as a Chinese online version of T.J. Maxx, Ross and Marshall’s all rolled into one. I suggest you buy this stock if you have not already done so. BUY A HALF
Virgin Galactic (SPCE) shares gained only marginally this week and the stock, which is a long-term speculative holding and a concept stock, has been a bit more volatile recently as some targets for the company have slipped from the fourth quarter of 2020 to the first quarter of 2021.
Yet, as the only pure play space tourism stock in public markets, this remains your best way to gain exposure to this megatrend. Analysts at UBS said this emerging industry could produce revenues of $38 billion per year by 2029. Therefore, this company has big-time potential and is just one or two flights away from completing all of its necessary Federal Aviation Administration (FAA) milestones. If the next two missions run smoothly, Virgin Galactic plans to send founder Richard Branson up in the first quarter of 2021. Aggressive investors should be buying at these levels ahead of 2021 developments. BUY
