We're At War - Stay Invested
“In the West you have the notion that if somebody hits you on the left cheek, you turn the other cheek, In our culture, we punch back.”
― Xi Jingping General Secretary of the Communist Party of China
The Portfolio
Today's rally gave the portfolio a little bump and pushed it above 7%. I haven't been saying too much about the portfolio because its running live it's there for everyone to see all day long. Please let me know if you want more commentary.
The biggest change is today is I bought Nabriva Therapeutics (NBRV) this morning at $2.65 per share. NBRV closed today at $2.75; this pushed the blog performance above 9%. My twelve month price target on this company is $12.50, but I think it can conservatively reach $8 by year-end. Nabriva has PDUFAs with the FDA for two antibiotics, Lefamulin and Contepo. Lefamulin is an IV/oral drug targeting community-acquired bacterial pneumonia (CABP) and Contepo is an IV only drug targeting cUTI, or complicated urinary tract infection. Lefamulin is a completely new class of antibiotic and would be the first novel antibiotic to be approved in a decade. Lefamulin has the potential to generate $500 - $700 million revenue for Nabriva. While the drug met its trial objectives there was an issue with potential safety concerns; however on closer examination these look like issues that would be resolved by closer monitoring by a patients doctor. In May Nabriva received a Complete Response Letter (CRL) for Contepo from the FDA; this is the equivalent of a rejection. Again, on the surface this sounds bad and investors thought so too and sold the stock off hard. But looking closer, the rejection was for deficiancies at a 3rd party contract manufacturing facility; not for any deficiency or safety concerns with the drug. Nabriva is going to be more volatile than some of our other stocks, but this is not entirely unusual for the blog. In the past I've included small-cap biotech and pharmaceutical companies when they looked mis-priced by the market; remember Dynavax DVAX?
The War and New Allies
In my July 19, 2018 post "The Art of Trade War" I discussed my thoughts on what I think the trade war is and isn't; my views haven't changed. It's a long post, the general gist is, we're not fighting a trade war, trade is just some of the ammunition we use. The War is about technology, specifically 5G technology and who will dominate in this field. The winner I proclaimed will be the global economic super power for the next century. The chart below depicts where we are in time with respect to being the global economic superpower. As we can see, the United States raged into dominance during the industrial revolution, and then began a dramatic decline starting in 1950 as a host of changes occurred in our society, globally and in financial markets. At the same time significant increases in regulations, taxes and contributions to entitlement programs ramped up as we also entered a period of families having fewer children. In 1980 we begin to see China making its own changes and emerging as the next contender. What's most notable about this graph is that each nation hold its position as the economic super power for about 100 years.
Source: Visual Capitalist
Does Anyone Agree?
A few hours ago, former Trump strategist Steve Bannon appeared on CNBC along side Thomas Friedman. That's right, I just used those two names in the same sentence, two people who should be diametrically opposed to each other, went on air, agreed with each other and applauded each others views on The U.S. position with China.
"Just because you disagree with someone, doesn't make them wrong"
-Robert Baker Sr. my dad
Thomas Friedman is an American political commentator and author. He is a three-time Pulitzer Prize winner. Friedman currently writes a weekly column for The New York Times. He has written extensively on foreign affairs, global trade, the Middle East, globalization, and environmental issues.
Stephen Bannon is an American media executive, political figure, strategist, former investment banker at Goldman Sachs, and the former executive chairman of Breitbart News. He served as White House Chief Strategist in the administration of U.S. President Donald Trump during the first seven months of Trump's term.
Yesterday, The Washington Post, a news paper not traditionally thought of as a Trump ally, ran a piece that sounds a lot like rhetoric from 2016, "Trump Didn't Start This Trade War, China Did"
Minority Leader Chuck Schumer came out yesterday in support of Trump's position on China when he said, “I think if we're really strong and tough against China and the president takes my advice and gets all the other countries involved, we will come to a very good solution very quickly,” Schumer said Tuesday. “I hope he doesn't back out and come up with a weak solution, because China is going to continue to hurt us over and over again.”
Rep. Eric Swalwell, D-Calif. and 2020 presidential contender stated, "I’m a member of the House Permanent Select Committee on Intelligence, as well as of the Judiciary Subcommittee on Courts, Intellectual Property, and the Internet, so I’ve seen first-hand the economic espionage that China commits and the adverse impact it has on American businesses. China has not been forthright in even admitting that intellectual property theft and technology transfer occurs. Nor is China transparent on its industrial subsidies. Curbing China’s dishonest practices must be a part of any negotiation; as president, I would hold China accountable."
Texas Rep. Beto O’Rourke wrote in a statement: “Holding China accountable should not come at the expense of American workers. That is why we must not settle for any deal that does not respect intellectual property, level the playing field in the Chinese market, nor end unfair trade practices. We must advance progress based on shared interests and core democratic values.”
How To Invest
I think anything not directly connected to China is a good investment for the rest of the year. I'm looking at healthcare, especially those that are trying to solve big problems at lower cost. For these I'm looking hard at companies that make biosimilar drugs that can be sold at more competitive prices than either the brand name or generics. I'm also very interested in companies that are making non-opioid painkillers, the medicinal cannabis companies and drugs that help patients kick opioids. While most investors look for stocks that will "deliver alpha", high Beta names like Google, Amazon and Nvidia, I'm really interested in companies that have low beta, but are mis-priced by the market, offering tremendous upside potential.
To Stay Invested I like to keep the portfolio on a steady course vs. a roller coaster that forces one to confront their own fear.
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and use sun screen"
- Clay Baker
Stay Invested,
Clay
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Keep Me Honest
S&P 500 declines to 2,350 or more (1-3-2019)
Healthcare and Biotech sectors outperform (1-3-2019)
S&P reaches 3,000 by year end (1-11-2019)
CSCO reaches $60/share (1-18-2019)
VEEV reaches $145/share (2-14-2019) (achieved $145.23 on 5-10-2019)
CVS reaches $91.50 (2-27-2019)
Bull market takes another leg up (4-7-2019)
The Fed will lower rates (5-13-2019)
Clay's Rules
Rule #1: Don't lose money
Rule #3: Portfolio go to zero, markets don't
Rule #4: When a good stock you own drops 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
CVS, CSCO, VEEV, STZ, AMZN, NVDA, BCRX, GS, BDSI, VEEV, VTI, GLD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.
