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There Will Be Volatility

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By Brian Nelson, CFA Last year, 2022, was a big test for equity investors, and the downside volatility that we witnessed during the year wasn’t comfortable, to say the least. Following the COVID-19 crash and rebound during 2020, and then the market surge in 2021, it wouldn’t be a stretch to say many investors’ heads are probably still spinning from all the volatility witnessed to start this decade. That said, part of what we’ve been warning about the past few years with respect to the equity market, especially in Value Trap, is that the proliferation of price-agnostic trading (e.g. quant, machine/algorithmic trading, etc.) will only lead to more and more market volatility, so while we were somewhat surprised by last … Read more

Best Idea Vertex Pharma Outperforming in 2022

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Image Shown: Shares of Vertex Pharmaceuticals Inc, an idea included in our Best Ideas Newsletter portfolio, have performed incredibly well year-to-date through October 2022. By Callum Turcan Through the end of normal trading hours on October 7, shares of Vertex Pharmaceuticals Inc (VRTX) are up ~34% year-to-date on a price-only basis. We include shares of Vertex Pharma as an idea in the simulated Best Ideas Newsletter portfolio and remain huge fans of the name. Vertex Pharma’s commercialized drug portfolio consists of various treatments for cystic fibrosis (‘CF’) and the cash flows generated from sales of these therapeutics are used to invest in the biotech company’s robust drug development pipeline. Earnings and Guidance Update On August 4, Vertex Pharma reported second … Read more

Our Favorite Biotech Vertex Pharma Powers Ahead, Leaps 6%+

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Image: Vertex Pharma continues to soar toward our fair value estimate. By Brian Nelson, CFA  On Wednesday, January 26, Vertex Pharma (VRTX) reported solid fourth-quarter results that showed continued advancement across its clinical pipeline. For background reading on our thesis on the net cash rich, free cash flow generating biotech tied to established cystic fibrosis (CF) therapies and CRISPR technology, please read: “Best Idea Vertex Pharma Boosts Guidance (Again), Buying Back Stock While Awaiting Key Clinical Trials (December 2, 2021)” and “Best Idea Vertex Pharma Marching Forward with Innovative CRISPR Technology” (August 31, 2021).” Following fourth-quarter results, we’re reiterating our $250 per share fair value estimate at this time.   Image: Vertex finished an exciting 2021, and we look forward to … Read more

ICYMI: Valuentum’s Brian Nelson on the Latest Howard Marks’ Memo: “Something of Value”

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Valuentum’s President of Investment Research Brian Michael Nelson, CFA, explains why there are not really value and growth stocks, why most of the research in quantitative finance is spurious and needs to be redefined on a forward-looking basis, and why enterprise valuation (not the efficient markets hypothesis) should be the organizing principle of finance. Nelson explains his views about valuation, what it means to be a value investor, and investing in the context of Oaktree Capital Howard Marks’ latest memo, “Something of Value,” January 11, 2021. Please don’t forget to give the second edition of the book “Value Trap” a 5-star rating on Amazon here. Thank you for your membership! —– Tickerized for holdings in the IWM. Valuentum members have … Read more

Value Is Not Static and the Qualitative Overlay Is Vital to Our Process

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With prudence and care, the Valuentum Buying Index process and its components are carried out. Our analyst team spends most of its time thinking about the intrinsic value of companies within the context of a discounted cash-flow model and evaluating the risk profile of a company’s revenue model. We have checks and balances, too. First, we use a fair value range in our valuation approach as we embrace the very important concept that value is a range and not a point estimate. A relative value overlay as the second pillar helps to add conviction in the discounted cash-flow process, while a technical and momentum overlay seeks to provide confirmation in all of the valuation work. There’s a lot happening behind the scenes even before a VBI rating is published, but it will always be just one factor to consider. Within any process, of course, we value the human, qualitative overlay, which captures a wealth of experience and common sense. We strive to surface our best ideas for members.

Incyte’s Ongoing Disappointments and Ultragenyx’s Exciting Development

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The pharma/biotech sector, unlike other mainline industries, is driven by the clinical data readouts on the next-gen molecules in the clinical pipeline. We have witnessed many exaggerated moves with an often-binary outcome on the smaller single molecule entities, but we also have witnessed a negligible impact on the broader, more-diverse industry behemoths. We wanted to touch on a few recent data readouts to illustrate the volatile, risky yet potentially lucrative nature of the industry. By Alexander J. Poulos Key Takeaways The iShares Nasdaq Biotech ETF serves as an excellent proxy for investors to gain broad exposure to a number of biotech equities, but it is not for the faint of heart. Incyte has disappointed on a number of occasions. From … Read more

An Overview on Valuing Junior Biotech Companies — Does Clovis Fit the Bill?

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The biotech industry remains one of the most fascinating yet perplexing industries for investors. Anecdotes of the entry-stage biotech with a home-run new therapy are often romanticized, but the reality is the vast majority of molecules fail in various stages of clinical testing.  Due to the boom-bust nature of the industry, many are wary of investing in the space, and traditional valuation metrics are not as useful due to a large number of such speculative entities being in the pre-revenue stage. With this in mind, let’s take a glimpse into our thought process when evaluating upstart biotech companies. By Alexander J. Poulos Before we dig in, we feel a word of caution is warranted. Entry-stage biotechs (IBB) inherently come with … Read more

Best in Biotech? Global Blood Therapeutics’ Promising Treatment for Sickle Cell Anemia

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We remain impressed with the depth of research conducted over a wide host of disease states. Though a molecule may appear to hold significant promise in the pre-clinical phase, we have often witnessed the unique ability of the human body to react to various treatments. Often an unwanted side effect can torpedo a treatment, thus relegating millions of dollars of research obsolete. However, if a promising molecule is brought to market, the payoff is often well worth the effort. Our goal is to sift through the various clinical data to unearth the most promising treatments with the understanding that nothing is assured until the FDA authorizes the product for marketing in the US. We believe we have identified a promising … Read more

Prepared Remarks From Nelson Exclusive Conference Call June 30

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Read President of Investment Research Brian Nelson’s prepared remarks for the yearly roundup conference call, held for Nelson Exclusive members. If you would like to subscribe to the Nelson Exclusive publication, please learn more about the publication here. The Nelson Exclusive publication does not reflect real performance. Performance is hypothetical and does not represent actual trading. Ladies and Gentlemen, Thank you very much for joining us on the first conference call for members of the Nelson Exclusive publication. The first year of the publication has surely been an exciting one for all involved. When I first wrote the introductory letter of the Nelson Exclusive on July 1, 2016, we were well-aware the market had laid down the gauntlet for this publication. … Read more

Valuentum’s 3 Breakthroughs in the Field of Finance and More

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Valuentum’s President Brian Nelson pauses for a picture before speaking at the CFA Society of Houston in March 2017. By Valuentum Editorial Staff Let’s cover Valuentum’s 3 major breakthroughs in the field of finance. The first one is big and may challenge you to rethink everything you think you know about investing. 1. On a logical framework, Valuentum has debunked John C. Bogle’s landmark syllogism that has paved the way for the concept of index investing. Index investing has been built on a logical shortcoming, whether supported by evidence or not. We think it is important that the investment community know of this. Read (pdf): The “Luck” and “Randomness” of Index Funds (2018), Brian Nelson, CFA See video documentation: /FALLACY_of_Index_Funds To … Read more