Thinkolating on Oxford Club’s “The Three Biggest Winners of the Coronavirus Recovery”

What's Alexander Green teasing as the "Coronavirus Recovery Package?"

By Travis Johnson, Stock Gumshoe, April 15, 2020

Today I’m getting a lot of questions about the “Coronavirus Recovery Package” being pitched by Alexander Green — he’s selling Oxford Club subscriptions ($99) by promising a special report called “The Three Biggest Winners of the Coronavirus Recovery.”

Green’s big-picture intro is pretty reasonable and rational, and similar to lots of other folks these days who are talking up the coronavirus crash as a buying opportunity… here’s a little sample to give you the gist…

“The fact is… stocks are available at the cheapest prices we’ve seen in years.

“And which stocks you decide to buy now will dramatically alter your investment fortunes over the years ahead….

“For example, food companies, drug companies, utilities and defense contractors will be largely unaffected by the coronavirus. (Even if their share prices have dropped.)

“Hotels, airlines, cruise lines, brick-and-mortar retailers and restaurants are bracing for harder times. Many of them could even go bankrupt.

“And some companies – like Netflix and Amazon – would actually benefit from more people staying inside….

“While there is bound to be more volatility ahead, the greatest risk right now, in my view, is listening to hysterical voices…..

“That is where we find ourselves today, in the midst of an all-time buying opportunity.

“This is hands down THE MOST IMPORTANT MOMENT of your investing career.

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“Buy and hold for the long run and you could end up owning a few stocks that pay for your whole retirement.

“But miss out and you’ll end up looking back with regret at the stocks you missed.”

Sounds pretty reasonable, even if we don’t really know whether that March crash was the “bottom” or whether there will be additional outbreaks. I’m personally worried about the stock market underestimating the economic impact of the coronavirus shutdown, and overestimating the pace of recovery we’ll see over the next year or so, but that just means I’m keeping some cash on hand in case we get more market crashes or more drops in the years to come… I’m still also buying the companies that I think are appealing and will survive (or even thrive) during the economic slowdown and recovery.

But I don’t do a lot of healthcare sector investing, so I thought it would be interesting to see what the stocks are that Green is teasing… because they’re all in that space. Here’s how he introduces the tease….

“There are three ultra-cheap healthcare stocks I am recommending to Oxford Club Members right now. I believe they’re the three stocks that people will most likely look back on years from now wishing they had bought.”

So that’s our task today — ID those three stocks.

Let’s start with the first one, what clues do we get?

“The Genetic Testing Company That Just Came Out With a Coronavirus Test… and Could Double in Value!

“The first company I’m looking at is an American company that provides some of the most flexible and affordable genetic testing on the market today.

“It offers more than 18,000 single-gene tests and more than 800 rare disease tests, as well as whole-genome sequencing and analysis.

“Its lab is CLIA-certified and CAP-accredited and exceeds the standards of diagnostic testing.”

OK, we’ve certainly heard all kinds of talk about how critical testing is going to be as we get a handle on the coronavirus and try to manage the spread. What other hints does Green drop for us?

“It just announced a new test for the coronavirus (COVID-19), one of the first on the market based on next-generation sequencing (NGS).

“It also began accepting specimens for testing last week. And it will not be hampered by an ongoing shortage of reagents.

“The company said its lab has the capacity to process thousands of samples per day.

“The enormous surge in coronavirus cases has created an urgent need for accurate diagnostic testing for the disease….

“As it becomes a community virus, testing will be widespread.

“Anyone who goes to the hospital with flu-like symptoms will get a coronavirus test to ensure that another outbreak doesn’t begin.

“And as a result of that, the company I’m recommending is likely to see its tests used on millions of patients.”

OK, so “millions of patients” sounds like a nice revenue indicator. What else? We’re also teased that it was doing very well before the coronavirus hit…

“… revenue was growing at a 48% annual rate even before it developed this new coronavirus test.

“And I estimate that earnings are likely to more than double from $0.35 a share this year to nearly $0.75 next year.

“Prospects are looking very good.

“And yet the stock dropped 50% from its high of more than $20 during the crash.”

Hoodat? Thinkolator sez this is Fulgent Genetics (FLGT), which I confess I’ve never heard of before. Fulgent has been around for almost a decade and public for about four years, and the stock was mostly a disappointment because of weak revenue growth (and falling revenue in 2018), until the middle of last year when it started a bit of a run that ended on the market’s peak day of February 19 at right around $20 — it did fall briefly below $10, and it’s right now around $12 a share.

Their press release about the status of their genetic testing program for COVID-19 is here if you’d like those details.

The company is just on the verge of profitability on a GAAP basis, and growing, but it’s quite small so doesn’t really have any analyst coverage. The balance sheet is very solid, with no net debt and about $25 million in cash (the market cap is only about $250 million), so they don’t look fragile in any worrisome way… whether or not the coronavirus outbreak leads to a stronger business, I don’t know. The risk to that in the near term, I expect, is that a lot of the other testing that normally goes on isn’t happening right now, so their other testing volumes are probably lower than usual and it wouldn’t be at all shocking if they have a couple weak quarters as a result.

And the broader risk, most likely, is that Fulgent is a tiny company in a land of giants, so I have no idea how their competitive position looks compared to other major diagnostics and testing companies. That’s not something I’m going to become particularly wise about in the hour or so I’ve got to skim over Fulgent’s information for you, so I’ll have to leave that to you — I’ll just say that it’s a pretty low-risk small cap in the diagnostics space… it might or might not grow, but business was solid and growing before the coronavirus and they’re in pretty good shape financially right now.

They report on May 4, so in a few weeks we should learn a little more about how the coronavirus will impact their financials. Can’t argue too much with this one, seems like a decent small cap to research further, with emerging profitability and good revenue growth. If Alexander Green is right about their profitability next year, then with earnings per share of 75 cents you’d be looking at a forward PE of about 16… awfully reasonable given their growth rate (for what it’s worth, the one analyst who has a formal estimate in for FLGT is aiming a bit lower, 53 cents in earnings next year).

What’s next? Another testing company of some kind…

“… people with healthy immune systems seem to be able to fight off the virus.

“But if the immune system is already trying to fight off a different disease, that’s when the coronavirus can turn deadly.

“For example, in Italy… 99% of all deaths have been people with existing illnesses.

“That would indicate that if we can identify and protect people with existing medical conditions, we can bring down the death rate dramatically.

“And that’s what my second company does.

“It’s a leading diagnostic healthcare manufacturer.”

So what exactly does this company manufacture? More from Green…

“It creates immunoassay tests that can help people understand whether they have other medical conditions that are weakening their immune systems.

“Its tests include diagnostics for adenoviruses, bordetella, C. diff, strep, HSV, flu, hMPV, parainfluenza virus, RSV and trichomoniasis.

“These tests are critical for protecting people now… and will continue to be as we move to protect the vulnerable from the coronavirus in the months ahead.”

And some good hints, including an indication that they will have a quick and real benefit from the people flooding emergency rooms right now:

“In a recent conference call, the president and CEO said the firm is seeing a sharp uptick in revenue as customers who purchased generic flu tests in the past turned to the company’s brands ‘because of ease-of-use factors and the importance of shorter turnaround time when patient volumes are high.’

“This is a recession-resistant company that is about to get a serious shot in the arm.”

Green describes this as “a low-risk play in a high-risk market.” So what’s the stock?

This one, the Thinkolator tells me, is yet another stock I haven’t heard of before, Quidel (QDEL)… and it has been a growth rocket for the past couple of years, with no real “discount” from the coronavirus crash (the stock did dip slightly on the worst days in March, but is up more than 30% so far this year and almost 60% over the past 12 months).

Quidel is quite a bit larger than Fulgent (QDEL market cap is about $4 billion, with more than $500 million in annual revenue), and is in the crowded “rapid diagnostics” space, so you can see why a viral outbreak would cause investor interest to rise.

And it’s priced like a growth stock, no surprise there — revenue grew about 15% over the last year, so even though the actual earnings didn’t grow investors are still willing to bid this up to a trailing PE of over 30. Any caution here would probably be from the fact that before coronavirus, analysts anticipated pretty moderate earnings growth — there are only a few analysts providing estimates here, but they were expecting Quidel to grow earnings (from 2019 through 2022) at a rate of only about 5% a year. And that’s with 2020 being flat.

So QDEL looks like a pretty solid “story” stock on rapid growth in immunoassay testing, and the CEO did indeed say on the year-end call that they’re winning back market share from generic tests because of the ease of use and speed of processing they offer, but at these prices you’re probably assuming that COVID and COVID-related flu testing will make up for a shortfall in any other testing they’re doing, and that testing in general will spend the next few years growing more strongly than analysts were forecasting before COVID-19 hit the world.

And as with Fulgent, I cant’ tell you much about the broader picture of this kind of immunoassay diagnostic testing or what market shares or larger risks might be, all I can really tell you is that Alexander Green and the Oxford Club folks are teasing it as a winner. And so far this year, the market agrees.

And one more…

“When people sell in a panic… they sell everything.

“That creates great buying opportunities, because many stocks that are still doing very well are suddenly available at unthinkable valuations.

“My next recommendation is one of those.

“This Cancer-Fighting Company Is Likely to Be a 10-Bagger Moving Forward”

What clues do we get about this third one?

“It’s a cancer-fighting company based in St. Helier, Jersey….

“This company sells a medical device that uses low-voltage electric fields to help treat the most aggressive forms of cancer.

“The technology has passed every clinical trial.

“Let me be clear… this treatment is NOT experimental.

“The Food and Drug Administration (FDA) has approved it and Medicare covers it.

“The company launched its tumor treatment system in 2011 for glioblastoma, the most common primary brain cancer and one of the most difficult cancer types to treat.

“It also uses low-intensity electrical fields to help treat mesothelioma, a cancer of the tissue that lines the heart, lungs, stomach and other organs.

“Nations across the globe are embracing this new approach.

“Today the company’s device is sold in the U.S., Germany, Austria, Switzerland, Sweden, Israel and Japan.”

So this seems largely to be a “cancer treatments are continuing even though coronavirus is getting the headlines, but people are ignoring cancer-fighting stocks” spiel… a few other clues:

“Studies are underway with other brain cancers – as well as pancreatic, ovarian, liver and lung cancer ­– with key results due over the next few months. (Four treatments are already in Phase 3 trials.)

“If successful, the company’s target market will quadruple in three years… and then take off from there.”

And some tidbits of the numerical variety…

“More than 14,000 patients have used this therapy already….

“… in its latest earnings release, the company reported a 300% earnings surprise on a 42% jump in net revenue….

“The company has more than 145 patents and patent-pending applications protecting its profit margins.

“It has three FDA-approved medications and four more in its late-stage pipeline. It has a healthy balance sheet with little debt and $326 million in cash on hand….

“Better still, the company’s positive cash flow already pays for its R&D activities. That means it doesn’t need to keep raising money through stock and bond offerings to accelerate clinical development.

“The biggest hurdle the company faces right now is ignorance in the medical profession….

“… research shows that its treatments show promise against 18 different solid tumor types, including some of the most aggressive forms of cancer.”

So what’s this one? Thinkolator sez Green here is teasing NovoCure (NVCR), which did indeed pioneer what they call “Tumor Treating Fields” and begin selling their treatment system back in 2011 for some brain cancers — and yes, though the company has no real direct connection to COVID-19, the stock has tumbled by about 30% since the February highs.

You can see NovoCure’s most recent investor presentation here, it reinforces some of those points that the teaser ad makes about financial strength, the number of patients they’ve treated, the robust patent portfolio, and the near-term news expected about usage of their system in different kinds of cancer.

Their basic system is called Optune, and it seems to be a little electrical generator that you carry around in a satchel, with “transducer arrays” that you connect to the generator and stick on your head (for glioblastoma, at least), where they generate electric fields that interfere with the division (and therefore growth) of cancer cells.

According to the presentation info from the company, it works well, and that is supported by pretty steady growth in revenue and patient numbers of the past four years… but it also looks like they have only about 3,000 active patients at a time, so this is a pretty niche treatment still, even among the relatively small number of glioblastoma patients worldwide.

There are some big cancers in the pipeline, and that’s probably where the next wave of growth potential lies — with phase three trials underway in non-small cell lung cancer, pancreatic cancer, and ovarian cancer that should be completed over the next year or two. That creates a huge potential market, because those cancers are all much larger than glioblastoma when it comes to number of patients (and all of those cancers have large numbers of patients for whom current standard treatment doesn’t provide a great result), but I don’t know that we should expect imminent results — most of those trials wrap up in 2022, though some data may be released before that.

NovoCure is not a tiny company, the market cap is about $6 billion, but there is some potential for serious growth in the long term if their technology becomes more accepted — and particularly if it begins to be used in additional diseases beyond their current niche in aggressive brain cancer. Revenue has been growing strongly, their margins have clearly improved with growth, and they have been able to cover their R&D costs with cash flow over the past year or so — so they’re not quite making money, but they are self-financing and growing. The few analysts who cover the stock expect revenue to grow from last year’s $350 million to about $665 million in 2022, and while that’s a guess based on unknowable things (like clinical trial results and the pace of adoption of their treatment), it is true that their progress over the past few years has been quite steady.

I have a fondness for medical device companies in general, and for medical “service” companies as opposed to those who are developing drugs, so these three all stand out as somewhat appealing even if I always hasten to reveal my ignorance in all things medical. The steadiness of progress for NovoCure in its niche application particularly appeals to me, so I did put on a small position in some LEAP options for 2022, but the others may have some fundamental appeal as well if you’re comfortable with the diagnostics and testing businesses.

With that, dear friends, I’ll leave you to do your research and chat amongst yourselves — think these will be the “Three Biggest Winners of the Coronavirus Recovery?” Have other favorites that you think will do better, or things that worry you about these three companies? Let us know with a comment below… thanks for reading!

Disclosure: As noted above, I have a position in NovoCure January 2022 LEAP call options. Of the other companies mentioned, I also own shares of and/or call options on Amazon. I will not trade in any covered stock for three days after publication, per Stock Gumshoe’s trading rules.


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23 Comments
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Paul Essen
Guest
April 15, 2020 4:09 pm

Been a happy NVCR shareholder since 2017. Really excited to see how those trials work out.

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Paul Essen
Guest
Reply to  Travis Johnson, Stock Gumshoe
April 15, 2020 8:49 pm

Not really, sorry. I imagine it would probably have to do with if the results are promising or not? The company tends to be pretty forthcoming with positive trial results, although I haven’t often paid attention to if they announce preliminary results or not. I can see some “preclinical data” being mentioned on their investor relations page now…

Nathan
Nathan
Irregular
April 15, 2020 7:08 pm

Thanks for the write up…Love these .

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Larry Guest
Larry Guest
Irregular
April 15, 2020 8:35 pm

I subscribed In Jan to Green’s Oxford Club newsletter and invested in his main 4 recommendations: LOPE, Taiwan chip company HNHAF, NVCR and corporate bond Nabors oil and gas company. I cancelled Green, made $1500 on NVCR, lost $5000 on HNHAF, lost $1200 on LOPE which he touted on the very day it was short attacked and targeted for class-action suits, and the Nabors bond is down 75% and rumored headed to bankruptcy. Tried to reach Green, but no luck.

Kevin
Kevin
Guest
Reply to  Larry Guest
June 25, 2020 4:39 pm

Most of the time they are the ones making money. Off of your subscriptions to their newsletters. Stansberry Research had to be the worst; they sold my email to I don’t know how many entities, and I was inundated with propaganda emails daily, telling me this or that would make me gazillions of of $20. If I had $1 for every one of their marketing emails, I wouldn’t need investments.

David
David
Member
April 15, 2020 10:29 pm

Not sure about either of these four stocks…none of which I had heard of before. But I wanted to thank you for mentioning a stock that is a STONE COLD LOCK to profit greatly from Coronavirus: INSG. Their hot spots are flying off the shelves and have been a steady eddie heading North in the last few weeks. Work From Home (WFH) is the new normal and most companies will experience productivity gains from teleworking. Again, thanks Travis, the first time I heard of INSG was from you. Eliminate risk –earnings in 2 weeks….

David Koopman
David Koopman
Member
April 15, 2020 10:52 pm

Recently bought QDEL, well before reading this piece. So far so good and I really like the thesis going forward.

cabaoke
cabaoke
Irregular
April 15, 2020 10:59 pm

Not sure if this is an appropriate question for this wonderful community you’ve built, Travis but… does anyone know if there is a public company that specialises in converting office space into residential space?

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cabaoke
cabaoke
Irregular
Reply to  Travis Johnson, Stock Gumshoe
April 16, 2020 12:39 am

I can think of a few obstacles off the cuff, such as the difference in tax rates (corporate vs residential. Can’t speak to the US but in Canada residential is far higher than corporate which supports the concept), permit and insurance requirements and serious infrastructure issues (meaning transportation). But what an opportunity for all the places with chronic housing shortages.

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cabaoke
cabaoke