Here’s Why I’m Playing It Safe (For Now…)
You may have heard the talking heads in the financial media opining about market breadth lately. It refers to the number of stocks in a given index or subset participating in the overall direction of the index.
My colleague Jimmy Butts has also touched on this indicator on a number of occasions. And while I don’t consider myself a chartist or technical wizard, this is one metric that I do pay attention to…
On a robust market rally, you might see 450 members of the S&P 500 gaining ground. But I’ve also seen days where the S&P is in the green, yet more than half of the individual components are in the red. In other words, there are fewer advancers than decliners.
I don’t pay much attention to arcane technical indicators. But whenever the Advance/Decline ratio falls below 1.0, yet the market still chugs forward, we know it’s a relatively small number of stocks that are doing the steering. The rest may have careened off into a ditch.
This negative market breadth is generally considered to be a warning sign. It’s more bullish for gains to be broad-based, rather than confined to a narrow group. Such rallies can be deceptive. In fact, it’s not uncommon for this situation to foreshadow a market reversal.
More Stocks Are Falling Than Rising
I’m not saying to head for the hills. But while the major averages look resilient, the past month has generally been weak for most stocks. According to Morningstar, the Advance/Decline ratio over the past 30 days stands at 0.77. Flip the two numbers, and you’ll get a ratio of 1.30. That means for every 100 stocks moving up, there have been 130 moving down.
Many of our biggest gainers from May and June over at High-Yield Investing have sagged in July. (Thankfully, I put a few protective stop-loss orders in place, helping us walk away with quick gains ranging from about 30% to 50%.)
So what’s moving higher? Well, we get a fairly good clue from the Nasdaq, which just set a new all-time peak of 10,578 last week. Tech stocks are once again in charge, particularly those seen benefiting from a second wave of Covid-19 and new social distancing restrictions.
These high-growth businesses aren’t known for dividends. But I’m still looking for creative ways to add more tech exposure to my portfolio. In the meantime, my overall posture remains cautious. After going on a buying binge in April and May, I’ve cashed out gains on five holdings the past few weeks, raising my cash position to $17,000.
But if a potential vaccine shows promise, then get ready for another round of buying.
And as it turns out, we just had some encouraging news on that front. And it just so happens to come from one of our portfolio holdings…
Big News For Our Holding
The Covid-19 outbreak has reached another grim milestone in the U.S. The number of confirmed cases has now topped the 3 million mark. A second wave of infections in states such as Texas and Florida has underscored the dire need for a vaccine.
Fortunately, there are at least 17 hopeful candidates that have already entered human trials. And in some regards, an entry from Pfizer (NYSE: PFE) shows perhaps the most promise.
Pfizer is jointly developing a potential vaccine with BioNTech. This German-based partner has some talented researchers but lacks the financial resources to commercialize a vaccine and roll it out on a global scale. So a collaboration makes sense. When the time comes, Pfizer will flex its manufacturing and distribution muscles. The two partners will share development expenses on a 50/50 basis.
The goal is to have 100 million doses ready by the end of this year and 1.2 billion doses by 2021. Of course, the treatment first has to be proven safe and effective. And it just made a major leap forward in that regard.
In a recent blind study of 24 subjects, patients received injections of the potential vaccine (BNT162b1). They produced significantly more neutralizing antibodies than those who took the placebo. Even at low doses, the treatment has shown to be more effective than antibodies taken from the blood of convalescent, recovering Covid-19 patients.
Shares of both Pfizer and BioNTech advanced sharply on the news.
Action to Take
Pfizer is currently publishing its potentially trail-blazing clinical research for peer review. Pending regulatory approval, the company aims to push forward over the next few weeks with a larger, global study involving 30,000 healthy participants.
Of course, the potential lifesaving ramifications of this breakthrough are foremost in everyone’s minds. But Pfizer isn’t a charity, and investors are already assessing the potent financial impact should this vaccine get the green light.
Future revenues are tough to quantify. They will likely be suppressed in the early stages as millions of doses are donated for free or sold at reduced rates. But one analyst from Bernstein has pinned a number of $10 billion in potential annual sales. If even close to true, that’s a huge catalyst, even by Pfizer’s standards.
Keep in mind, the pharmaceutical giant has 100 other drug compounds in its pipeline. And 37 of those have advanced to Phase 3 clinical trials. So while it may take some time to know whether this ends up being a game-changer, there are there are plenty of other reasons to like PFE.
Editor’s Note: If Covid-19 has taught us anything, it’s that innovation is the key to the future.
And my colleague Jimmy Butts recently found something very interesting on that front…
While digging through SEC documents, he found a small item in the filings of a little-known satellite technology company. And the implications are huge…
It turns out this company paid a measly $26 million for a tech startup it bought in 2019. That’s an amazing price, but it’s just a small fraction of what they received for their $26 million. And it could amount to the most lucrative opportunity we’ve come across in years…