Stock of the Week

It’s a special two-for-one edition of Dealmaker’s Diary this week…

As I rate not one but TWO reader-submitted stocks.

One’s burning through capital on groundbreaking research, with a potential 232% upside if it succeeds…

The second’s already essential to modern technology, but trades at a surprisingly modest 15 times earnings with $25 billion in revenue.

But how do they stack up against my GVI rating system?

I break down the numbers that number that matter… to give you a clear picture of each.

This the kind of research my clients pay thousands for… but you get it for FREE as a Total Wealth subscriber.

TRANSCRIPT

Hi, friends. Welcome to the Dealmaker’s Diary and Stock of the Week.

I’ve got two for you this week from viewers. They’ve asked me to analyze a couple of companies, so I’m doing that.

The first one is Nasdaq-based Iovance Biotherapeutics (IOVA).

Let’s dive in. It has revenues of $58 million, so it’s a relatively small company, and not making profits. It’s invested a lot in R&D, so it looks like a speculative and volatile play.

It has some innovations in cell therapy and gene editing.

So it really is one of those which, if it all works, could be huge, but we have to say it’s speculative because we don’t have enough data information on a company like this.

Let’s go into the details, shall we?

It’s what you might call an out-of-the-money call option, deep out-of-the-money call option.

Loss-making, lots of capital, negative CROCI, lots of capital being spent on R&D, but not much by way of revenues to show for it, and not much cash coming out of it as a result.

Sortino, the average reserve versus volatility, well, it’s been going in one direction.

It’s awfully volatile as you’d expect with something that will probably be moving a lot on rumors that they’re about to strike oil, find gold, get a new gene editing technology going. That’s what this is.

It’s like those Seven Seas Exploration Companies, the old companies exploring the Far East and the Australian markets for gold. It’s one of those.

So how might it look?

Well, you could go from $6 to an all-time low of $3.

However, that’s only a 50% downside, which for one of these is not too bad. But were you to hit the 2024 high, you’d have a 232% return on where we are now.

What’s interesting is you have some of the big banks covering it, which is somewhat unusual for such a small company.

So, I’m going to put this in the cryptocurrency “I might get really rich or I might just end up with nothing” category. It is the speculative end of the market. That’s not to deny it can’t do incredibly well.

On a discount cash flow basis, i’s undervalued, but discount cash flows with companies like this with limited data, especially loss-making ones, are incredibly difficult to be reliable.

So you have been warned. It’s for those people who like speculating in the market. Not one for me, but there we go.

What about the next one? Micron (MU) was what I was asked to examine as well. Now revenues, this is the opposite end: $25 billion.

Market cap, $114 billion. It’s a semiconductor company.

Semiconductors, we know we need them. We know there are so many applications right across the board. But at the daily end, they’re subject to rumors about AI coming out of China and cheaper ways of doing things. And sooner or later, somebody’s going to say, actually, isn’t there an easier way of doing all this processing without the silicon chip?

And semiconductors, can’t we do away with them altogether? I suspect that will happen at some point. After all, a semiconductor is obviously innovative and a new technology in many ways. You know, there are always new semiconductors coming out.

But in other ways, it’s an awfully old technology. What is it? A hundred years old? Forgive my ignorance.

But I think we’re looking at something like that. So you can see that perhaps they aren’t really the most efficient way of doing things. You need these big fabrication plants. You need these design specialists.

You need these rare materials.

Surely, someone’s going to come up with a clever way of doing a lot of computations.

I might be completely wrong.

But they are subject of the rumor mill. This company, on the other hand, on my proprietary value growth income rating: 6, not bad.

I would have preferred a 7-8-9. Remember, that’s based on growth, valuations, income, and a forecasted price-earnings ratio is cheap for a tech company. You’re paying $15 for one dollar of future profits.

That’s not bad at all. Unfortunately, the cash it’s generating on the capital it’s investing – it’s a capital-intensive industry – it’s not getting much cash back off the back of it. Well below what I’d like to see and what Goldman Sachs, who use that formula for their wealthiest clients, would like to see.

I’d like to see that above 10, just to put it into context. Sortino, not too bad at all.

That’s the average return versus downside volatility. And the volatility, 14%, is relatively low.

That’s relatively low, and I like low volatility personally.

I’ve drawn on their projected gains. There you see on the upside, that’s the bullish case. The base case is you stay where you are. On the bear case, you go below about $85.

You have some momentum on the monthly falling lower, but the weekly at least is perking up. So I’d say between a base and a bull case is where it’s going to end up, which isn’t too bad at all.

What about valuation? Well, it’s marginally undervalued on discount cash flow.

But as I said, discount cash flows can be notoriously fickle because even a small change in interest rates can give you wide disparity of output. So I like to look at it, but it’s not a must-have for me.

Anyway, hopefully, that was fine, dandy, and useful.

Thank you to the readers and viewers who sent those in. Thank you.

— Alpesh Patel

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Source: Total Wealth Research