Your Week In Brief
What's the Difference Between a Motorcycle and a Vacuum Cleaner?
The position of the dirtbag.
Jokes aside, Harley Davison's stock will ride again. The iconic "hog" motorcycle stock (NYSE: HOG) is beginning to accelerate, up 6% as of early trading, and has ridden a strong week. Like any vehicle stock during this time, Harley needed serious maintenance. Management recently cut salaries, froze new hiring, and slashed its dividend.
Currently, Harley is only trading at about six times the per-share earnings, driving venerable analyst shop Argus Research to upgrade the stock from a hold to a buy on Tuesday; the price target for Argus is $30.
"Our upgrade reflects our positive view of the company's new strategic plan," wrote Argus analyst David Coleman. "We expect the plan, called ‘The Rewire,' to result in a solid recovery for Harley as the economy restarts."
Sales figures are not expected to look good anytime soon; Argus expects the Covid-19-driven recession to chop the chopper stock's revenues down to $3.5 billion this year from $4.6 billion in 2019. Recovery is expected in 2021, with sales targets of $4.1 billion and earnings of $3.35 a share. Down 40% this year, the stock is a buy at this level.
Ridesharing Stocks Ride High and Only God Knows Why
Lyft Inc. skyrocketed nearly 22% to $31.79 per share by midday Thursday on news of it generating more revenue than expected in the first quarter. It also narrowed its adjusted net loss to $97.4 million compared with $211.5 million in the same period in 2019. The results crushed Wall Street's projections. And while I put a buy on Lyft (Nasdaq: LYFT) and Uber (NYSE: UBER) last month, I did not expect the stocks to recover so quickly.
"While the COVID-19 pandemic poses a formidable challenge to our business, we are prepared to weather this crisis," Logan Green, the co-founder, and chief executive officer of Lyft, said in a statement. The news also helped its rival, Uber, whose stock soared 8% to $30.08 per share. How these stocks could be rising so sharply with unemployment now at over 14% and the pandemic still in full-swing is beyond me. I picked those stocks as long-term holds, not trading moves. I guess my only questions are: One, where is anyone going? And two, what in God's name would motivate someone to take an Uber pool with strangers right now? I'm fine right here at home watching Lyft lift off. But please, keep riding in a petri dish, and I'll keep buying even at these levels.
Nobody Knew Private Enterprise and Public Health Could Be So Complicated
When asked why he didn't choose to patent the polio vaccine, Dr. Jonas Salk replied: "You cannot patent the Sun." Leaving aside any debate that the National Foundation on Infantile Paralysis or the University of Pittsburgh tried to patent the vaccine but couldn't, there seems to sufficient anecdotal evidence to suggest that Salk's reluctance to pursue a patent on the vaccine was, in part, one of the reasons why the lawyers didn't try harder. The estimated profits from said patent, had it existed, would have netted Salk $7 billion.
Like it or not, Money and Medicine in America go hand-in-hand. And even the most ardent socialist must admit if they are at least at all honest about the state of things, that America—and the world's—best bet right now for beating this virus is going to originate from a private company.
We have covered and named many stocks in the vaccine race, including Gilead, Regeneron, Pfizer, and Moderna, to name a few. These are all buys and they are all our best hope. And if one of these companies does create a vaccine to save the planet, how much should they charge? This is not an easy question and requires that we rethink the relationship between public health and private enterprise and investment.
The amount of assets being held by institutional investors in the pharmaceutical business is $2 trillion. A real balancing act is needed to protect public health while protecting shareholders. There is significant risk in fighting a pandemic, as pharmaceutical CEOs are quick to point out. While a pandemic is in full swing, demand is high but as the pandemic fizzles out, demand disappears—as might hundreds of millions of dollars spent on R&D fighting what becomes a ghost. And ghosts don't need or pay for vaccines.
Understanding this, governments have stepped up to fund R&D and subsidize costs. To wit: the U.S. created the Biomedical Advanced Research and Development Authority after 9/11 to develop health products to thwart and/or treat a chemical attack. Known as Barda, the government outfit determines what technologies need to be developed, and then hires private companies to do the job. Over 50 medical technologies--from ventilators to vaccines--have been produced through this public-private partnership since 2007.
A New Manhattan Project
No health scare in the last 100 years has brought the issue of drug development into focus like the need to fight Covid-19. So far, $2 billion has been committed by governments and philanthropists to fund pharmaceutical R&D, according to a piece by Suerie Moon and Nadya Wells in Barron's this week. The European Union just approved $8 billion in public funds to further develop drugs and vaccines and well as make sure poor people can actually get them.
But this is not nearly enough. To fight this virus, we need a new Manhattan Project—which is what should have been done immediately. Allocate a couple of billion dollars at least and get the Gileads and Regenerons and Academic researchers of the world in a room and find a freakin' cure, together. Real-time research data sharing between public and private entities speeds things up while hiding findings to protect intellectual property and company shareholders, slow things down. Oh, and in doing so, kills more people.
There was a reason the U.S. government stuck Robert Oppenheimer in a room with a bunch of smart people to make the atom bomb, and not just hand out some subsidies for private companies like Trinity, Inc. and This Is for Pearl Harbor, LLC to compete in secrecy to develop the first atomic weapon. If we can do this to kill people, we should be able to do it to save them.
Brother, Can You Spare a Vaccine?
The big question though is this: What should a private company like Gilead charge for remdesivir if it does indeed really work? Just enough to break even, or should they make a profit? If so, how much? And should the price be the same in New York as it is in New Guinea? Or should it be adjusted and, if so, using what exact measurements? I don't know a lot about Burmese real estate, but I would imagine it is more affordable than Brooklyn.
Importantly, this issue has not fallen on deaf pharmaceutical executive ears. Barda grant recipient Johnson & Johnson has committed to supplying Covid-19 vaccines at $10 per dose for no profit (J&J now has an extra billion dollars to work with to be split between the government and the company). Last week, it was announced that Moderna received $483 million from Barda to help move its vaccine to approval and boost manufacturing capacity. (Needless to say, this isn't the best time for a shakeup at Barda; this week, Richard Bright, the director of Barda, was fired in retaliation for his efforts to stand up to the Trump administration.)
In this expanding public-private partnership, the details of these arrangements will matter—and they will require pharmaceutical companies, their shareholders, public research institutions, and, of course, the taxpayer, to foot the bill.
We want to encourage private medical entrepreneurship and its investors while also promoting and solving public health issues like this pandemic. But big pharma will need to take a big hit.
That's fine with me. Call it payback for charging me an extra $90 per month for decades because of the "pre-existing" condition of…wait for it, eczema. And I didn't even get a lousy tube of Cortizone 10.
(The opinions expressed in this article do not reflect the position of CapitalWatch or its journalists. The analyst has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice.)