Bada Bing Bada Boom

As if on cue, the market took a turn lower last week. This will be but a quick note on the market, as I’m not sure how much value I can add. That is, if you’ve read my newsletters of the last few weeks, I’m not able to add anything more to that. If you’re new here…well let me just inform you that I’m bearish on the market and that trade appears to be gaining momentum at the betting windows.

Last Sunday this newsletter showed the S&P 500 and Russell 2000 both up 1% on the month. As of Friday they are both in negative territory, down 2 and 4 percent respectively. There are many moving parts to the market, and the whole world, right now, so investors can point their fingers at multiple reasons why the market may have sold off. I’ll give my two cents; with the shelter-in-place starting to come to an end, we have seen a classic market move of buy the rumor, sell the news.

Now that the positive event of removing lockdowns has arrived, investors are looking to the future. And, it isn’t very pretty. At least for the overall market and economy. Within Tailwinds, things are actually looking very encouraging. Our performance demonstrated a nice gain of 3% on the week and we own several stocks that act great and have lots of interesting business momentum driving these moves. As I’ve written extensively of late, owning binary stocks in a weak market is one way to outperform…if you get it right.

Looking forward, we have just made it through the bulk of earnings season for micro-caps and there is going to be a lot of digestion (or is it indigestion?). How is the economy affecting companies? How much China exposure, the newest risk resurfacing yet again, does a company have? Will they need to raise money? These are the biggest questions out there, but there are more. Uncertainty weighs heavy on the market.

I’m trying to tread cautiously. I own a lot of healthcare as this spending is rather insulated and, with Covid-19 out there, the space is getting lots of attention and federal dollars. I’m avoiding economically sensitive companies; the federal dollars they receive can’t cover the holes in their business. I’ve also, for the first time, raised a little cash. I’ve got several investments earmarked and am willing to sit in cash while I wait for these opportunities to come together.

But, as I said earlier, I can’t really add much new in my market observations, so let’s move on to other interesting news and information from the last week. It was a very busy week in that regards and there’s a lot to discuss…

Russell Rebalance. JP Morgan put out a spreadsheet detailing the changes to the Russell indexes around the rebalancing that takes place the last Friday in June. There were a number of Tailwinds’ companies that will see activity based on these estimates. Here’s a list of the expected changes as they impact our portfolio.

These companies will see buying…
Fortress Bio (FBIO) 5.9 million shares (wow!!!)
Resonant (RESN) 4.8 million shares
Provention Bio (PRVB) 3.8 million shares
Harrow (HROW) 2.7 million shares
Dyadic (DYAI) 2.0 million shares
Atomera (ATOM) 1.7 million shares
ChromaDex (CDXC) 636 thousand shares
Vicor (VICR) 300 thousand shares
Catasys (CATS) 138 thousand shares

These are approximate numbers and the indexers do hedge in advance, so the moves on rebalancing aren’t necessarily going to be as dramatic as they would appear to be based on average volume and the size of the potential demand. However, it certainly doesn’t hurt these stocks and we can expect them to likely outperform their peers. In the past, I’ve noticed a trend that the strongest stocks going into the rebalancing often have the biggest moves due to it. (see next note on ATOM…)

None of the companies that we follow are expected to see any selling. I guess that says something positive about our stock selection…

The most interesting Russell change, from my perspective, is Atomera (ATOM). This is not the most liquid stock and it’s been under accumulation. Having 1.6 million shares of buying pressure could really move the stock. It’s also breaking out on the chart as the long-term downtrend has been firmly vanquished.

I’d actually written the above paragraph, and posted the chart, early in the week, prior to the Company doing a secondary at $5. That deal put a very temporary halt to the upward progress, which then resumed on Thursday and Friday. ATOM closed the week trading on Friday at a new 52 week high and up 140% on the year. It’s been a beast.

Driving the surge are rumors that continue to swirl that ATOM will be signing not one, but multiple phase 4 contracts this year. As the company has stated, a very large portion of the  $45 billion semiconductor industry is looking at their process. Their performance numbers are game changing. Adoption could be rapid and industry-wide. In which case, the revenue numbers (on a high-margin, licensing model) can get scary big. I’ve kept a large position out of FOMO and am not even thinking of trimming at this time…

Lots of companies reported earnings last week and I spent a lot of time listening to earnings calls and digesting information. Here are my key takeaways from them.

INmune (INMB) continues to intrigue me. Inflammation is getting recognition as a problem that is shared by multiple diseases. Dealing with inflammation will become a very big topic in healthcare going forward; especially since most Covid-19 deaths appear related to an overactive immune system causing inflammation in the lungs. INmune is working with the FDA and expects to have an approved IND for Quellor within a month and to be in Covid-19 patients in June. My non-medical opinion is that they are addressing the right target with a known anti-inflammatory; I believe, and they would concur, that the odds of them being beneficial as part of an overall Covid-19 treatment aren’t bad at all.

HyreCar (HYRE) is bucking the trend in mobility. Their volumes were down, but nowhere near as bad as Uber or Lyft, and they expect to be back at highs shortly. As I’ve written in the past, HYRE could exit Covid-19 as a stronger player in this space as several trends point towards success from their business model. Their valuation is cheap and the stock has been working, and appears likely to continue to do so, especially relative to the group.

Fortress Bio (FBIO) put out a shareholder update along with their earnings. I’m working on a longer note detailing the sum of the parts discount that is to be found here. Stay tuned for that as I find this stock very compelling.

Harrow (HROW) reported earnings and, not surprisingly, their guidance was mixed. This is one of my favorite companies as I love the valuation creation aspect here with all their subsidiaries. Add in the strong core ophthalmology business and you have a potential cash-cow with major catalysts. Unfortunately, they are dependent upon having elective surgeries to drive that business, and needing financing for the subsidiaries they are creating. I think they are a long-term winner; the near-term looks bumpy. When things open up in the US, I expect the Harrow engine to start down the track again.

MTBC continues to execute. The stock acts great. It will never go up multiples in one year, but this is a nice growth stock with strong management. A good safe haven in a very tricky market.

TFF Pharma (TFFP) has a burgeoning pipeline. Two key takeaways from their earnings call. First off, the CRADA they signed with the US Army is a very significant event as it puts a gold seal of approval on their technology. Since signing this, they are getting many incoming calls from major pharma. And, it’s not just for one-off products, but for platforms like SRNA, MRNA and macrophages. Huge opportunity there. Secondly, they signed a deal to enter in the cannabis space. With all negativity around vaping, bringing a new delivery methodology to this $15 billion industry could be quite big. It’s just a start in here for them, but there’s big potential.

Dyadic (DYAI) reported and CEO Emalfarb talked about the pipeline and their numerous partnerships. However, the Q&A from the call was of note in that several analysts expressed skepticism about where Dyadic stood in the race to a vaccine and in development of other products. The potential behind C1 is huge. Where it stands in the timeline to revenue is the big question that no one can seem to get their head around. In the next couple months Sanofi will reach a decision on whether or not to move forward with the C1 platform. This is going to be a key event for Dyadic as success here would provide tremendous validation and really take them to the next level.

Can we talk about inflammation for a minute? The buzz around inflammation in Covid-19 is growing. But, beyond that, healthcare professionals are increasingly looking at inflammation in other diseases. I suspect over the next year, inflammation is going to be one of the hottest topics in healthcare. Here a few articles from the last week that discuss this.

From Depression to Dementia, Inflammation Is Medicine’s New Frontier
Is Inflammation the Link Between Dementia, Cancer and Coronavirus?
How quieting ‘blood storms’ could be key to treating severe COVID-19
How Your Brain’s Immune System Affects Your Mood and Memory

I have continually mentioned INmune (INMB) in regards to there ability to fight inflammation. I’m sure there are others doing interesting things as well. The space is about to get very hot.

Catasys (CATS) will be presenting at RBC’s 2020 Global Healthcare Conference. This is on Tuesday May 19th at 4:15pm EDT and will be webcast. Here’s the link.

A good piece on Anixa (ANIX) from the last week. The valuation discounts any success in their potential blockbuster programs. Two INDs coming later this year will be significant catalysts. Meanwhile, they areworking on potential Covid-19 solutions. Lots of shots on goal…

Interesting article about ChromaDex (CDXC)‘s niagen in regards to obesity.