Four For the Fourth…The Half Year In Review

As we round out the first half of 2019, I’d like to wish a happy early birthday to America. The last six months were, for investors, certainly a gift. After a truly disastrous end to 2018, we have had quite the reversal of fortunes in the stock market. Indeed, after it appeared that the snapback rally of Q1 looked to be petering out in May, the ship somehow got righted and we exited Q2 with another solid performance number in the stock market.

In the second quarter, Tailwinds managed to double the returns of the S&P 500, placing our performance ahead of the index for the year, after fees. More pleasing to us was our performance relative to our peer indexes as our 7.8% performance handily bested the Russell 2000’s 1.8% return.

Looking forward, we feel very well positioned in our portfolio. We have had a number of stocks execute on their business plans, which has sent their shares to 52 week highs. Witness the first half performance of Catasys (CATS), Cryoport (CYRX) and Harrow (HROW).

At the same time, what is maybe even more exciting is the strong fundamental performance from several stocks that are not near highs. These are the companies that appear to have a cognitive disconnect between fundamental execution and share price. In these names lie perhaps the most opportunity for investors. For, if they continue to execute, the stocks can have extended rallies just on achieving decent valuations, much less on keeping up with their brethren.

Here’s the list of all our stocks, including their first half performance…

As you can see, the performance runs the gamut from great to terrible. Some of the terrible ones deserve this performance. For example, SGBX has missed every forecast I can remember. The stock is deservedly being punished.

One the other hand, we have four stocks that are, in our opinion, executing better than expected, yet trading down on the year. Some of them significantly so. These four stocks are our “four for the fourth”. They are a gift from the market and we have been taking advantage by adding to positions.

Here they are in alphabetical order, along with a brief comment about why they’re down…and why they shouldn’t be. If you want more information, every one of them is covered on the company page on this site.

ANIX Anixa remains our top pick for 2019. The stock is down due to three things. 1. a meaningless (to the company) lawsuit against the board on stock option pricing. 2. an S-3 filing which makes investors believe a financing is coming; it’s not and the CEO has emphatically shown this through continued open market purchases. 3. a lack of newsflow from their CAR-T program.

I see the Company getting their Cchek prostate cancer diagnostic in the market in Q3. I also see them getting a successful IND acceptance by the FDA before year end. Both of these events will be significant value drivers and we think ANIX is poised for a huge second half.

HJLI I’ve written extensively about Hancock Jaffe lately. Suffice to say, I’ve never seen a company report better results yet trade so dismally. This is the result of a poorly transacted financing, that has the stock in the penalty box with investors. The value creation here is substantial, however, and the stock is so cheap. Let the traders sell; those of us with a longer-term perspective will benefit at the end of the day.

PEER If you thought HJLI’s financing was a problem, PeerStreams was even worse. However, the Company has the financial flexibility to ignore the market and pull the deal. Resulting in a unique company with nearly zero investor interest and a low market cap, yet a business plan that appears to have the opportunity to drive big upside in the stock over the next year or so.

WISA Yes, we’ve hit a theme by now…difficult financings drive stocks down. Summit Technologies is no exception. As the Company sits at their inflection point in revenues, investors stand the chance to be well rewarded for seeing the forest through the trees and picking up shares on the cheap.

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At Tailwinds, we value the portfolio approach to investing. We are beating the market despite some of our favorite names (like the ones just mentioned) underperforming. This is because some other favorite names are crushing it. But, we are not momentum investors. Well, not in terms of share price momentum; we are, however, business momentum investors.

If the underlying business of one of our companies is meeting or beating expectations, we want to own the stock. If the stock is down while this is happening, we will continue to buy. As long as we get the fundamentals right, we believe the rest will fall into place.