The Eye Of The Storm…This Week In Tailwinds’ World

Well, I’ve been expecting it and it appears that it’s here. The market put up one of its best months ever in April, but starting on Thursday my anticipated end of the rally kicked off. I’m saying it here and now, I think stocks go back to test the lows over the next few months.

Looking back over recent trading, it’s been a whirlwind. March felt like we were caught in a hurricane. Stocks were being uprooted and the s*** was hitting the fan. Then April came along and man! did everything feel so much better. A calm settled over the market in April as traders all breathed a sigh of relief.

The same thing happens when you’re in the eye of the storm. The winds get calm and you think the worst is over. However, this would be an incorrect interpretation of the situation and lord help those who venture out whilst in the eye. The back-end is coming at you and it’s usually worse than the leading edge. Hopefully, as an investor, you weren’t fooled in April; the hurt locker appears to be opening up again.

The market’s actions remind me of the Nasdaq in 2000. Early in the spring, a major bubble had burst yet, inexplicably, there was a strong rally into year-end. Then, reality set in and stocks finally capitulated to the weakening fundamentals and excessive valuations. The S&P is eerily reminiscent of the Nasdaq at that time. There is a nearly universal crash in fundamentals taking place as both revenues and earnings are collapsing in real-time. Yet, on April 30th the market was down less than 10% for the year.

I get it. There’s a lot of liquidity and investors were expecting the current lockdown restrictions to be eased. Why not buy stocks in front of that, right? Well, maybe because, despite restrictions lifting, there is now 20% unemployment. People are saving instead of spending and many companies are teetering on the edge of bankruptcy. It’s tough out there. Don’t let the Feds pumping liquidity fool you; despite trillions of dollars being thrown around, things are not going to get better for a while. And, when they do, there will likely be a bout of inflation associated with all the money printing. It’s not a pretty sight looking forward.

The Tailwinds’ portfolio had a great month of April. We were up 27% and beat all indexes handily. Importantly, as I’ve mentioned in the past, we are sitting on a bunch of binary stocks that are dependent upon success of individual programs to drive them rather than the overall health of the economy. Our companies appear primed for success. I have wanted to raise cash, but don’t want to sell anything. So, we sit here willing to ride out the next downward wave, knowing that we’ll probably take some short term pain, but wanting to be there for the good news to come. Isn’t that the definition of FOMO?

So, what exactly happened in the portfolio during April? The average stock in our universe was up 23% and we managed to outperform this primarily due to our large holding in Catasys (CATS), which was up 100% on the month. Business is booming at CATS and institutional investors are finally catching on. Weighing on the portfolio was Akazoo (SONG) which was down 74% (more on that below). But, there were lots of other significant moves. Six stocks were up more than 50% in the month…the definition of a rebound from an oversold position.

Here’s the overall performance…

Amazingly we finished the first four months only down 6%. I say amazingly as who would have thought that at the end of March? We are also now ahead of the S&P and its big bad bullies of Amazon, Google and Netflix. The Russell 2000 and LD Micro indexes, our best comps, are trailing substantially.

But, back to my comment regarding FOMO (Fear of Missing Out). What stocks look well positioned for the coming weeks/months? Which ones are giving me such FOMO that I am willing to keep large positions despite my anticipation of a market selloff? Here’s a list of a companies that have enough market-irrelevant potential that I am going to sit with them regardless of my overall big picture concerns.

INmune Bio (INMB) has two potential catalysts in the wings. I expect they will be in human trials for a CV19 treatment any day now. And, I expect them to announce interim Phase 1b results from their Alzheimer’s trial before the end of the Q. Either event could be significant for the stock.

Avenue (ATXI) all indications point towards the October PDUFA date being successful, with the company acquired by Cipla within the five days after. The return is greater than 50%, which ignores the Contingent Value Rights, which could be worth a lot more. I’ll continue adding prior to that date.

Atomera (ATOM) earnings this last week revealed a management team that believes they are on the verge of at least one Phase IV license being inked. When this happens, the stock likely takes off. It could take a week or several months; I’ve been waiting two years and am not going to give up now.

TFF Pharma (TFFP) the recent CRADA with the US Army is really a gold seal of approval for their novel drug delivery platform. Major pharma is speaking with TFFP about partnering on numerous drugs and there is great potential something gets announced in Covid-19 soon.

Anixa (ANIX) has a number of catalysts coming up, each of which could drive the stock. They are in the midst of a COVID-19 program, have a solid-tumor CAR-T drug in development and hopefully will be filing an IND for a (potentially blockbuster) breast cancer vaccine in the next couple months. Shares have suffered from program delays over the last year, but there’s a light at the end of the tunnel.

Fortress Bio (FBIO) with a ridiculously low valuation relative to the sum of the parts and more potential catalysts than you can shake a stick at, this is one stock I will continue to own and add to on any market-related weakness.

ParkerVision (PRKR) goes to trial in August (unless it’s delayed by the lockdown). There’s increasing chance of a settlement prior. See next note…

ParkerVision (PRKR) announced the results of a Markman Order. This is a very important event for them as they prepare to go to trial. In patent trials, the definition of words in the patent can sometimes determine the outcome of a case. The Markman Order is when a judge rules on the definition of terms used.

It’s commonly assumed that, if you get 80% of what you want in a Markman Order, you win the case 90% of the time. ParkerVision came close to a clean sweep of the Markman. On 70% of the terms they got 100% and the other three were minor tweaks to their wording. This was a complete loss for Qualcomm and it has dramatically increased both the odds of a PRKR victory and the likelihood of a settlement.

One example of the completeness of the hearing was in the definition of matched signal processing. ParkerVision submitted an, almost unheard of, 94 word definition. This exceeded the recommendation of their counsel who thought it was too defining. The judge ruled almost completely in PRKR’s favor, accepting 91 words of the definition and, in the process, providing substantial validation around Parker’s key patent.

From Wikipedia…”Markman hearings are important, because the court determines patent infringement cases by the interpretation of claims. A Markman hearing may encourage settlement, because the judge’s claim construction finding can indicate a likely outcome for the patent infringement case as a whole.”

At this time, we believe Qualcomm is likely very nervous about the upcoming trial. ParkerVision stock was up 50% this week. However, at $20M market cap and over $1B in potential verdicts, the upside here is significant.

We will be publishing our long-overdue report on PRKR soon. It’s become a 60 page tomb that dives deep into the history of the technology and the patents. And, it presents a compelling case as to why we believe ParkerVision will prevail in the upcoming cases. Stay tuned for that one.

Atomera (ATOM) reported earnings this week. COVID-19 is having an effect on timelines here as customers are examining the impact and holding off on Cap-Ex until there is clarity. However, despite this, the tone of the call was decidedly bullish. In particular, they are now beating the industry leading RSP on their test runs. This is meaningful as the industry leaders have more advanced processes and equipment, yet ATOM is producing better results. If you add ATOM’s process to the industry leaders fabs, the results would be even better.

Their internal runs of customer wafers are busier than ever and they will have a 300mm EPI tool on line this Q, which will speed that up even more. Customer engagement has never been stronger and once travel restrictions are over and fabs have a sense of the future of the market, Atomera expects to sign several Joint Development Agreements. We remain very bullish here.

Vicor (VICR) was downgraded by Northland. Just a trading call more than anything as the stock has made a big move. Interestingly, Intel is talking about data center strength which bodes very well for Vicor. This stock has been a great performer and is very well positioned for the next round of data center upgrades/growth.

Summit Wireless (WISA) announced the closing of their financing this week. The stock has traded down, which is likely to be expected due to the nature of the financing (stock + warrants). The Black-Scholes value of the warrants is approximately $.75, so funds looking to arb this deal could sell stock bought at $3.25 at any price over $2.50 and book a profit, while they sit on the warrants held at cost. Financial accounting shenanigans on their parts? Perhaps, but it means shares of WISA are likely to trade a lot of volume at $2.50 before they start heading higher.

It looks like we have churned through a significant chunk already. Once the arbs are out of the way, the fundamentals should start to become more relevant here. That’s a good thing as WISA looks poised to continue accelerating sales throughout the balance of the year. The platform continues to shine, someday the stock will likely follow.

Akazoo (SONG) as I mentioned last week, we were stepping to the sidelines as our channel checks couldn’t confirm their claims of market share in several emerging markets. Well, it turns out we’re not the only ones having trouble confirming the level of business here. This week the Company, which is undergoing an internal audit, announced the installation of an interim CEO and non-reliance on previous financials. It doesn’t look good, but there’s still a lot left to learn before we know for sure. I still believe that there’s $40M in cash in the bank accounts in the UK, so there is possibly some value here. More to be determined…