To find “an investment that may have the biggest upside potential I have ever seen” it’s time to look east
The commentator looked to Matt McCall, then asked a question that made my ears perk up …
“What are we overlooking?”
If you missed it, on Monday, Yahoo! Finance‘s show “The Ticker” featured our own Matt McCall as a guest analyst.
If you’re new to the Digest, Matt is the editor of Investment Opportunities. As a thematic investor, Matt specializes in identifying major trends that are re-shaping our world, and by extension, the investment markets. He finds the investing implications of these trends in order to ride them higher for years.
It was a fun interview, with the conversation touching on various corners of the investment markets — recent stock losses … how to play the trade war … negative interest rates around the world … a specific stock name Matt likes in the autonomous vehicle space … sectors Matt likes right now … the effect of rates on banks … You can watch the entire segment by clicking here.
But there was one thing that jumped out at me …
It was the way Matt’s demeanor changed when the commentator switched subjects, asking “Okay, let’s talk about what we are overlooking … What are we missing here?”
With zero hesitation, Matt responds:
The opportunity in China.
In yesterday’s Digest, we featured gold as a defensive addition to your portfolio. But what about playing “offense”?
Well, if you recall from our Digest last week, we suggested that specific trends, poised for outperformance, will be one of the best “offensive” ways to position your portfolio over the coming quarters and years — especially if the markets are due for a slowdown.
It turns out, one of the trends that Matt is most bullish on is the rise of China. So, in today’s Digest, let’s turn our gaze east and revisit the opportunity here.
As Matt tells us, tune out the trade war — the reality is huge money is going to be made with Chinese companies in the coming years. And now is the time to position yourself.
Let’s jump in.
***Standing at the cusp of mind-boggling growth
In May, Matt went on a “boots-on-the-ground” research trip to China, evaluating different investment ideas. One of these ideas he featured in his May issue of Early Stage Investor. It’s a sector Matt just referenced as “an investment that may have the biggest upside potential I have ever seen.”
Let’s go straight to Matt to provide the overview:
In a nutshell, the Chinese government announced two years ago that it intends to make its domestic biotechnology sector constitute 4% of the country’s economy by 2020. That’s a HUGE deal if you connect the dots.
When the Chinese government says it’s targeting one of its domestic industries for massive growth, it pays to listen. Whether you like the government there or not, it has a history of creating economic champions whose stocks soar in value.
From there, our analysis is straightforward. The Chinese economy is projected to reach roughly $15.7 trillion by 2020. In 2017, the revenue generated by China’s domestic biotech industry was a tiny $5.4 billion, according to Goldman Sachs. So, in order for China’s biotech industry to constitute 4% of the economy (or $627 billion) by 2020, the industry must increase its sales by 116-fold.
***When I read about 116X growth in about two years, the suspicious, analytical part of me kicks into gear, cross-examining and looking for holes
But Matt’s Early Stage Investor issue on the topic provides solid reasoning for how this can happen.
As Matt tells us, the U.S. has 331 million people. China’s population is more than four times bigger at nearly 1.4 billion.
Unfortunately, that means China is dealing with a far greater number of sick people. That’s why the government is funding massive health-care research.
For example, take cancer research. From Matt:
In 2015, 4.3 million cases of cancer were diagnosed in China — more than any other country and double the number of cases in 2000. Put another way, 20% of the world lives in China, but it has 30% of all cancer patients …
The demographics show the immediate need for better drugs in China. In 2018, it was reported that about 30 Chinese companies that are working on CAR-T trials were building more than 107,000 square feet of manufacturing facilities for the therapy. The government helps fuel this growth with major subsidies.
In 2018 there were 116 CAR-T clinical trials in China. That’s more than the 96 in the U.S. and 15 in Europe. When human trials for CAR-T began in 2010 in the U.S., there was nothing going on in China. Today, it has become the leader in CAR-T research. This trend has just begun and will continue in varying fields.
***But is now really the right time to invest? Between market jitters and the trade war, why now?
Matt just answered this question to subscribers on Monday.
First, he tells us a trade deal will get done sooner than later. While Matt admits the dispute has dragged on longer than he expected, he points toward one key belief:
There is just no way President Trump will head into the 2020 election with this hanging over his head. Especially if the stock market is down. Today (this past Tuesday) gave us more evidence of this as the market popped on word that the administration would delay some of the new tariffs.
As to Matt’s second answer to “why now?”, he tells us that even with the tariffs, biotech trade relations are actually improving between the U.S. and China.
In 2018, China eliminated tariffs on 28 classes of medicines. Nobody talks about that. It’s the diamond in the rough of all the gloom and doom headlines.
For many years, Chinese companies licensed drugs from their large Western counterparts to sell in China, so the link between U.S. and Chinese drug companies is already strong. Cross-border deals between the U.S. and China increased 70% from 2012 to 2018.
Up until now, the “drug trade” has been one-sided with China licensing drugs from the U.S. That is quickly changing. Chinese biotech firms are starting to license their drugs to U.S.-based companies to sell outside of China.
***So, what’s the best way for investors to play this?
Matt recommends a “basket approach.” In essence, you spread your investment capital over an entire portfolio of investments, rather than concentrating it in just one or two specific stocks. This provides a level of diversification that helps to safeguard your overall investment.
Now, even though a basket approach is the right move here, in our May Digest that first introduced the China biotech opportunity, Matt gave me permission to reveal a specific biotech — Zai Lab (ZLAB).
Matt tells us it’s an innovative, early stage biotech that focuses on transformative medicines for cancer, autoimmune disorders, and infectious diseases. It boasts one of the strongest portfolios of late-stage oncology treatments in China.
Early Stage Investor subscribers who acted on Matt’s recommendation are already up 17% in ZLAB, despite the trade war, Hong Kong protests, and the market’s recent correction.
Plus, ZLAB continues to report good news. From Matt’s July issue of Early Stage Investor:
In early July, the company entered into an agreement with U.S.-based biotech Incyte to develop Incyte’s investigational anti-PD-1 mAb in China. Zai Lab will pay Incyte $17.5 million upfront and up to $60 million in milestones plus royalties. The plan is for Zai Lab to test the PD-1 with some of its other cancer treatments.
… the company has an impressive pipeline that already has two drugs commercialized and three drugs approved in the United States. There remain more than 15 drug candidates and 20+ ongoing or planned clinical trials. I expect big things in the coming years from this company, and in view of the recent trading, I am raising the buy limit for new money.
For Matt’s specific buy-up-to price on Zai, as well as the other biotechs he’s recommending, click here. In fact, the link will eventually lead you to Matt’s recent 10X presentation, where he’ll give away a second Chinese biotech company he likes. I hope you’ll take advantage of it.
As we wrap up, I’ll go to Matt for the last word:
Investing in industries with huge growth potential and gale-force tailwinds at their backs is how you set yourself up to make giant returns. Think of the internet in the 1990s … personal computers in the 1980s … and smartphones over the past decade.
Chinese biotechnology is that kind of industry right now. It is absolutely loaded with incredible potential and powerful catalysts …
I said it earlier, and I’ll say it again: This is undoubtedly one of the best early stage investment opportunities you’ll ever see in your life. And I don’t say that lightly.
Have a good evening,