The 10 Stocks to Watch in 2014
Twitter, Salesforce.com, Nike, and FedEx are among the names attracting our expert contributors' attention.
Microsoft: The Once (and Future?) King of Tech Is Getting a New CEO and a Fresh Start
By Michael Comeau
The challenges are obvious: Microsoft has to A) gain a bigger foothold within the mobile computing industry, B) keep the legacy PC industry afloat as long as possible, and C) build a better brand name.
The latter objective may be the most important, and most challenging.
Too many consumers view Microsoft with disdain, or worse, apathy, because of past product quality issues and poor product planning. The Xbox brand has a large and loyal following, but gaming has never been a serious profit center for Microsoft.
With a fresh start under a new leader from the outside, will consumers view Microsoft any differently?
We're about to find out.
Michael Comeau edits Minyanville's Buzz & Banter and is also a regular columnist on Minyanville.com, focusing on technology and consumer stocks. Read more of his work for Minyanville, here.
Exelixis: An Admittedly Unconventional Biotechnology Pick
By David Miller
Exelixis (NASDAQ:EXEL) is an admittedly unconventional pick from the biotech space. It’s not one of the new IPO class of billion-dollar, barely Phase I companies. It’s not unknown and certainly not overloved, though I think it’s been overlooked.
The company’s only focus is advancing Cometriq (aka cabozantinib). Already on the market for the treatment of relatively uncommon medullary thyroid cancer, Exelixis is seeking broader approvals in the treatment last-stage prostate cancer, second-line kidney cancer, and second-line liver cancer. There are positive Phase II data on the drug in these indications, so the clinical trial risk isn’t as high as other companies. So why is the company overlooked?
The first trials in the prostate cancer space are a bit of a head-scratcher to some of us who fancy ourselves experts in such things. But most of all, there was nothing interesting going on in 2013 -- bad news for our, “what have you done for me lately” markets.
That changes dramatically in 2014. The so-called “COMET” trials in prostate cancer return data. If positive -- and that’s not a given -- they’ll open up the lucrative prostate cancer space.
Much less appreciated is melanoma data coming in the first half of 2014 from cobimetinib, a drug Roche Genentech (OTCMKTS:RHHBY) acquired from Exelixis. If positive -- and most people I know think the trial will be positive -- this unlocks a $400 million initial market in front-line melanoma. Exelixis gets 30-50% of the US profits from cobimetinib and a 10-15% royalty on ex-US revenues. Almost none of the buy-side analysts have cobimetinib revenues in their models, so positive data will almost certainly lead to hikes in price targets.
David Miller is the Portfolio Manager for hedge fund Alpine BioVentures. David is also the former CEO of the independent research firm Biotech Stock Research. In addition to co-founding BSR, Mr. Miller currently co-teaches an entrepreneur's workshop for the Center for Student Entrepreneurship at the University of Washington - Bothell. He is a regular contributor to Minyanville's Buzz and Banter. Read more of his work for Minyanville, here.
Disclosure: Miller has a position in EXEL.
Rockwell Medical: Disruption in Progress
By Jonathan Moreland
Safe, boring businesses can be vulnerable to disruptive technology. Rockwell Medical (NASDAQ:RMTI) is both safe and potentially disruptive, and looks like a good bet to alter the staid dialysis business from within.
Rockwell is one of only two major suppliers of dialysate (a chemical used in dialysis) in the US. Unfortunately, this stable business is not particularly profitable due to pricing pressure from much larger competitor, Fresenius (NYSE:FMS). Caps on reimbursement from Medicare and Medicaid for dialysate don’t help either.
Rockwell’s dialysate business has, however, opened a valuable channel for this trusted supplier to sell related, higher-margin products through to a very concentrated customer base. That’s what Rockwell has been focused on doing for years, and the risks of its past efforts are finally translating into rewards for shareholders via two new products: Triferic and Calcitriol.
Triferic is a potentially disruptive drug that replaces the need for iron to be intravenously delivered into dialysis patients. It has both clinical benefits for patients, and economic benefits to dialysis providers by reducing the need for costlier drugs now used in the process.
Both the efficacy and safety of Triferic were clearly shown by clinical trials that wrapped up last summer. Rockwell can now file a new drug application (NDA) for Triferic in early 2014, with expectations of getting the drug in place to attack a $600 million annual market opportunity by the end of 2014.
Rockwell also looks likely to get its new generic vitamin D product, Calcitriol, to market by the end of 2013. All that‘s left in the process is to receive FDA manufacturing approval. Calcitriol is also used in dialysis, and it’s the lowest cost option around, targeting a larger market estimated at $350 million per year.
I bought into Rockwell in early August 2013 for its sum-of-the-business value, after a troika of insiders with excellent track records generated a clearly bullish InsiderInsights Company Rating for RMTI. While the stock is up by nearly 200% since then, the risk in the Rockwell investment thesis is also much lower now that Triferic’s clinical risk has passed. Also to the dismay of persistent short sellers, the company’s liquidity risk is now negligible after it successfully raised cash earlier in 2013.
Management believes its cash balance is sufficient to cover continuing operating losses until Triferic is launched in late 2014. Rockwell’s income statement should improve before then, however, from Calcitriol’s revenue contribution and sharply lower R&D expenses. When they hit the market, both Calcitriol and Triferic should also prove to be an easy, cost-saving sell to Rockwell’s established customer base, which includes close partner (and potential acquirer?) DaVita HealthCare (NYSE:DVA).
While experience shows that the FDA can find unexpected ways to disappoint those awaiting its decisions, the odds of FDA events being favorable to Rockwell appear very good. Yet with risk now much reduced, Rockwell’s upside potential appears far from fully priced in. Even a risk-averse investor like me thinks this is one special situation worth “buying high” with the reasonable expectation of “selling higher.”
Jonathan Moreland is the Founder and Director of Research at InsiderInsights.com, which offers users a weekly newsletter, real-time insider trading data, and analytics. Every day, Minyanville publishes a story featuring InsiderInsight's top insider trades filed with the SEC. Those stories can be viewed, here.