Investor's Forecast 2018
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RUNNING HEADER 1 WWITITH ALLEXANDEREXANDER GRREENEEN GREAT PROFITS IN THE COMPANY OF GOOD FRIENDS | JANUARY 1, 2018, VOLUME 31, NO. 1 The Oxford Club Investor’s Forecast 2018 Alexander Green Chief Investment Strategist 2017 Was Another Blockbuster Matthew Benjamin Editorial Director Year for Us Samuel Taube Managing Editor Now Watch This Cancer Company Blast Higher in 2018 Anne Mathews Managing Copy Editor Dear Member, Allison Brickell The past year was another exceptional one for Oxfordians. Copy Editor As I write, 18 of the 19 positions in our Oxford Trading Portfolio are Alison Kassimir Art Director profitable, with gains as high as 284%. Five of the six positions in our Oxford All-Star Portfolio are profitable, with gains as high as 442%. All Chelsea Centineo of the positions in our Gone Fishin’ Portfolio are profitable, with gains as Graphic Designer high as 410%. ALEXANDER GREEN James Boxley Cooke Honorary Chairman While the individual stocks in our Ten-Baggers Portfolio have fluctuated widely – as I sug- gested they would from the outset – the portfolio has doubled the market so far in 2017, Julia Guth including a realized gain of 227% in Kite Pharma. CEO & Executive Director I look forward to another prosperous year in 2018. And one sector looks particularly prom- Ryan Fitzwater Director of Research ising: small cap to midcap biotechnology stocks. Chris Matthai I see two reasons for a rally here. One is that the industry has recently undergone a signifi- Senior Research Analyst cant correction and valuations are far more reasonable. Steven King The other is that the FDA just announced plans to allow quick approval of cancer drugs if Event Director they show early and “outsized” survival benefits for patients, even in smaller studies. Nathan Hurd Director of VIP Trading In other words, many cancer drug companies just got cheaper as their prospects became Services more favorable. That’s a good combination. This month I highlight a leading cancer drug company that could rise severalfold in the months ahead. The firm already has a leading cancer drug with FDA approval – and annual revenue of more than $1 billion. Its up-and-coming pipeline should lead to more approvals this year. Please read on... MEMO FROM THE CHIEF 2 Sales and earnings will almost certainly drive these That protects both our principal and our profits. shares higher. But we use a different sell discipline to avoid But there is also a chance the company will be stopping out of these more volatile stocks too soon. bought out by a larger competitor like Amgen (Nasdaq: AMGN), Celgene (Nasdaq: CELG) or Here we sell only when there is a fundamental Gilead Sciences (Nasdaq: GILD). change in the business outlook or the company misses the quarterly consensus earnings estimate by That’s why it’s the newest addition to our Ten- 25% or more. Baggers of Tomorrow Portfolio. As I mentioned, this approach has allowed us to The companies in this portfolio are different from roughly double the market’s return this year. And our other recommendations. today I have a new addition to our Ten-Baggers Portfolio: Incyte Corp. (Nasdaq: INCY). They tend to be younger, smaller and more volatile. Based in Wilmington, Delaware, Incyte is a They also have to have the realistic potential to rise biotech focused on the discovery, development tenfold or more. and commercialization of proprietary therapeutics, From the beginning, the companies in this portfo- mostly in the field of cancer treatment. lio have had to meet six minimum requirements: Although the company has a diverse and growing • They must be tremendous innovators, offering portfolio of drug candidates, its first commercial revolutionary technologies, new medical product – Jakafi – is approved in the U.S. for devices, blockbuster drugs, or other cutting- patients with intermediate or high-risk myelofibro- sis, a cancer of the bone marrow. edge products and services. • They must experience terrific sales growth. In Jakafi is a big hit with both doctors and investors. this case, top-line expansion has to be 30% or Oncologists and their patients are excited by the more. drug’s effectiveness. • They must protect their margins. A firm needs Investors are wowed by its list price: $11,587 a to rebuff competition with patents, trademarks month, indefinitely. (This is generally covered by or brand names. insurance.) • They must beat consensus estimates. In the Investors are also excited about a new Incyte short term, share outperformance is all about medicine, epacadostat. Epacadostat amplifies the beating expectations. Even if a company loses potency of two drugs made by Bristol-Myers money, it can still register as a significant beat Squibb (NYSE: BMY) and Merck (NYSE: MRK). if the loss is smaller than expected. Both unlock the human immune system, allowing • They must be small cap to midcap companies. it to attack tumors. Mega-corporations simply cannot grow at the high rates of smaller firms. In clinical studies, for example, patients with advanced forms of the deadly skin cancer melanoma • They must be relatively unknown. Once a see their tumors disappear with a combination of company becomes a household name, the para- epacadostat and one of these other drugs. bolic move higher is often over. Investors who recognize opportunities early have a substantial A big trial will be completed in the first quarter of advantage. 2018. Success here could light a fire under Incyte. Our sell discipline is different here too. Unlike most of its competitors, Incyte focuses on the basic chemistry of making drug molecules. In our Oxford Trading Portfolio, for example, we sell any stock that closes 25% or more below its That’s a technical part of the drug discovery closing high. process that many biotechs outsource. MEMO FROM THE CHIEF 3 But Incyte does this work in-house because it has of healthcare, they generally point to drug prices. an army of qualified scientists and because it has Yet drugs are only 11% of overall U.S. healthcare access to the latest cutting-edge technology – like expenditures. the NMR spectrometer – that enables researchers to see individual molecules that can be turned into If effective drugs can reduce the need for the other 89% of costs, the price of treatment will come new drugs. down substantially. The numbers at Incyte are already impressive. Incyte is at the forefront of this movement. Third quarter results exceeded both top- and bottom-line estimates. As I write, the biotech sector – which was strong in the first three quarters of the year – has under- Revenue soared 42% year over year. (Jakafi sales gone a correction. alone jumped 36% to $304 million.) Earnings per share beat the consensus by 183%. Incyte itself has sold off, in part due to buyout rumors that didn’t materialize. This doesn’t mean And the future looks especially promising. the company is not still a takeover candidate. Along with earnings, Incyte It has over $1 billion in announced expansion of annual sales – and a valuable its collaboration agreement “If effective drugs can immunotherapy pipeline. with AstraZeneca’s research Incyte also has a healthy and development arm, reduce the need for the balance sheet with $1.3 MedImmune. other 89% of costs, the billion in cash and only $23.7 million of debt. The companies will evaluate price of treatment will the effectiveness and safety Historically, the best time of epacadostat in combina- come down substantially. to invest in biotech stocks is tion with an AstraZeneca after the short-term specula- drug for patients with non- Incyte is at the forefront tors have sold. small cell lung cancer. of this movement.” This appears to be one of Incyte CEO Hervé those times. The entire Hoppenot is not just sector has gotten a haircut focused on profits, incidentally. He intends to in recent weeks. Yet there have been no clinical overturn the entire field of cancer therapy. failures at Incyte and no earnings miss. Indeed, the company recently blasted estimates. In a recent interview with Forbes, Hoppenot said, “If we are successful, the entire cost of treating In short, Incyte is a potential ten-bagger. The firm cancer should be drugs. That is my hope, not is experiencing dynamic revenue growth and sig- from a business standpoint but from a medical nificant progress in its clinical development port- standpoint. What you would like is being able to folio. replace palliative treatment and hospital treatment for patients who are a few months from dying with The firm just turned the corner on profitability medicines that are very effective against cancer.” and should earn almost a dollar a share in 2018. This is no pipe dream. Successful drugs – even While sales and earnings growth will be prodi- costly ones – will ultimately save the healthcare gious... Incyte remains an attractive buyout candi- system money. date too. How? By reducing the need for even more expen- Action to Take: Buy Incyte Corp. (Nasdaq: INCY) Safety Switch sive services. at market. We will notify you with a Alert if the company reports quarterly results 25% or When Americans complain about the high cost more below the consensus estimate. n BEYOND WEALTH 4 How Pessimists Make Getting Rich Easy Alexander Green, Chief Investment Strategist, The Oxford Club According to a new report from Credit Suisse, If this is Armageddon, bring it on. America has 43% of the world’s millionaires, the most of any nation. Of course, it’s not Armageddon. And you’d think someone who shows up every day at the Carnegie There are currently 15.35 million millionaires in Endowment for International Peace might have a the U.S. That’s 1.1 million more than last year.