Question: When you see a biotech that’s working on a cancer drug that could be worth over $500 million in annual sales if effective, and that same company is valued at $22.8 million, do you think there is much optimism that the company will be successful?
I think the answer is a pretty obvious “no.”
Now, it’s always nice to think that there are biotech companies out there that are simply overlooked… cheap potential blockbusters are just waiting for someone to step in and recognize the value. And while the truth is that you do see biotech companies surprise investors with solid drug trial data, it’s just not accurate to say that these companies are “overlooked.”
This is the stock market we’re talking about. The smartest people all over the world are analyzing technologies, processes, drug formulas, etc., trying to determine which ones will be successful and make them some money. In biotech, you have the very best doctors and research scientists in the world trying to make their fortunes with new drugs. Top research universities sponsor drug development. Hedge funds hire doctors to tell them which drugs have the most potential…
There is literally hundreds of billions of dollars at stake. So, no, there aren’t any truly overlooked opportunities. But you can find companies where success is extremely discounted…
It’s all about risk and reward. Even with hundreds of billions available for investment, you still have to pick your best shot and choose investments with higher potential success. That means lower probability companies can get priced to the point that becomes very attractive. That’s the case with the biotech I’m recommending to you today…
Anytime you see a company valued at $22.8 million, you know investors are not giving this company much of a shot at success. However, this one has a legitimate shot…
Cyclacel Pharmaceuticals (NASDAQ: CYCC) is working on orally administered cancer treatments. These treatments are not blockbuster cures, but rather intended as treatment for patients that can’t do traditional chemo-based treatment — the elderly and children. Cyclacel has been getting some pretty decent results in trials.
There’s an analyst from H.C. Wainwright that has a best-case $170 price target and a worst-case $60 price target on Cyclacel. From current prices around $5.70, that’s pretty good.
So buy yourself some shares of Cyclacel. And use a limit order and buy small lots at a time, like a few hundred. There isn’t a lot of stock out there, and if you go crazy and try to buy 25,000 shares at a time, the price is gonna run. Be patient and you’ll get some.
- Huh. Whaddya know. Disney (NYSE: DIS) has emerged as one of the companies looking to buy out Twitter (NYSE: TWTR). I’ve suggested that Twitter would be a good fit for Disney a few times…
Disney desperately needs to end its dependence on cable TV as the primary source of revenue for ESPN. And Disney has already said it wants to go direct to consumer with ESPN live sports events. Twitter would give Disney a solid platform for doing so.
The main problem as I see it is that revenue from sports on Twitter would be dependent on advertising. Unless Disney chooses to implement a pay-per-view kind of thing — individual games for $1, packages for $10, etc…
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I don’t know what Disney will do, but some really transformative changes are coming soon. Last time around, with the emergence of cable TV, the content providers were happy to sit back and let Comcast et al. figure it out, and pay them for their content. But it may be different this time around, where content providers get fully integrated and drive content delivery, too.
Disney has made some incredibly good decisions in recent years, buying Marvel, Pixar, and Star Wars. I would not be at all surprised to see Disney make another bold move into content delivery with an acquisition of Twitter (or Netflix).
- So Deutsche Bank (NYSE: DB) has the world’s biggest derivatives exposure. $46 trillion. And that’s down from $75 trillion. Now, when we talk about derivatives, we’re talking about credit-default swaps, futures, interest rate swaps, insurance, etc. There’s a whole range of contracts that fall under the banner “derivatives.”
Now, the smarty-pants will tell you that derivatives are always hedged. That is, if a bank is on the hook for a potential payout to one entity, it will no doubt have another derivative with another entity that will offset the first. So if it’s paying out cash with one hand, it’s taking in cash with the other. Sounds good — that’s how the various forms of financial insurance are supposed to work.
But let me ask you: how well did it work during the financial crisis? Answer: not well at all. Because when you get into many trillions of dollars, if one little thing goes wrong, entire companies get wiped. Goodbye, Bear Stearns. See ya later, Lehman.
Deutsche Bank is worth $16 billion right now. And it’s got $46 trillion in potential transactions on its books. What if one of its counterparties has a cash flow problem and can’t pay? Then DB can’t pay, and it all comes crashing down.
- OPEC failed to make any positive headlines yesterday. Oil prices got absolutely whacked. But don’t let the on-again, off-again Saudi relationship with production cuts fool you. The Saudis want oil prices higher. But there’s a game to be played first…
The Saudis want to be the big dog on the oil block again. That means Russia and Iran have to fall in line. For Putin, that’s no problem. He’s happy to make backroom deals with other quasi-criminal governments to get what he wants. Iran is a different story. Arms deals and that kind of crap aren’t going to lure Iran. No, the Saudis have to maintain their suicidal production stance. They need to make Iran truly worry about their sanity. And that’s no easy feat when you’re talking about Iranian mullahs…
Still, the rhetoric sounds to me like we’re getting closer to a production cap. Look at U.S. oil companies today — most are up while oil is still weak.
Until next time,
Until next time,
Briton Ryle
@BritonRyle on Twitter
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
