COMPANIES TO WATCH

Illumina ($ILMN) ◾ Biotech

Brief:

Since peaking in July, the stock has fallen 25%. In July, Illumina lowered guidance for the year and expects revenue growth of 6% compared with its previous guidance of 13-14%. They blame slowing revenue on problems with its population genomics initiatives, weakness in the direct-to-consumer market, and lower sales associated with its non-high-throughput sequencing systems.

What they do:

They make sequencing and array-based solutions for genetic and genomic analysis. Historically, their core business has been in the life sciences research market. Recently, they’ve been developing technologies in order to sequence genomes. ✅See p. 6 of the recent annual report

Our view:

In the past, buyers bought aggressively between 270-$280. If that level holds, look for a rotation back towards the all-time high at $380.75.

Trade metrics:

  • Entry: Between 270-$280
  • Stop: Weekly close under $260
  • Target: $375
  • Reward/Risk: 4.73 (33.76% upside vs. 7.14% downside)

ETFs that include Illumina:

ARK Revolution Multi-Sector ETF ($ARKG); ARK Innovation ETF ($ARKK); iShares Nasdaq Biotechnology ($IBB).

Additional resources: 

Illumina homepageFinancial ratios and statements; Recent 10-Q; 2018 10-K; Latest investor presentation.


AbbVie ($ABBV) ◾ Biotech

Brief:

Their stock peaked in January 2018 at $125.86. Since then, it’s fallen ~50%. In June, they bought Botox maker Allergen for $63 billion in cash. They paid a 45% premium and took on an additional $38 billion in debt. Investors are worried this could turn into a Stemcentrx situation. In 2016, AbbVie acquired Stemcentrx for $5.8 billion. And in January 2019, they admitted defeat and wrote off the deal.

What they do:

AbbVie is a biotech company that was spun out of Abbot Labs ($ABT) in 2013. Their products and R&D is focused on Immunology, Oncology, Neuroscience, Virology, and general medicine.

🔥Two risks🔥

(i) They get 60% of their revenue from anti-inflammatory drug Humira. Which faces rising competition from cheaper alternatives. (ii) The Trump administration is looking at ways to lower drug prices, including the introduction of a pricing index that will limit how much federal insurance pays for medicines (this applies to all drug companies, not just AbbVie).

Drugs covered by Medicare part B are likely to face reimbursement cuts if the law is enacted. However, AbbVie only gets 20% of its sales from Medicare part B.

Our view: 

We believe price will stabilize between 50-$70. With such a wide price range, we can’t recommend trade metrics until we see some evidence of demand.

ETFs that include AbbVie

Healthcare Select SPDR Fund ($XLV); iShares U.S. Healthcare ETF ($IYH); Vanguard Healthcare ETF (VHT).

Additional resources

AbbVie homepageFinancial ratios and statementsCurrent pipeline.


ETF SPOTLIGHT

Gold ($GLD) ◾ Precious metal

Brief:

Led by Russia and China, the world is accelerating its move away from the U.S. dollar. But rather than increasing buys of other currencies, more of the world’s financial authorities are buying gold, reports Axios.

Our view:

The two commonly held views on gold are (i) it’s a hedge against inflation and should be part of a diversified portfolio. And (ii), #(i) is bunk.

I’ve read arguments from smart people on both sides of the debate. We lean toward (ii) and view gold as an instrument that occasionally offers a good trading opportunity. If gold was to test the all-time high print at $185.85, that would be a 31% gain from current levels; which is just ok… We think there are better opportunities out there😉

Additional resources:

$GLD homepage; Another way to trade gold: Gold miners ($GDX/homepage).


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Category:
Company Briefings, ETFs
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