For Immediate Release
Chicago, IL – January 8, 2019 – Zacks Equity Research Editas Medicine EDIT as the Bull of the Day, YY Inc. YY asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Intel Corp. INTC, Advanced Micro Devices, Inc. AMD and NVIDIA Corp. NVDA.
Here is a synopsis of all five stocks:
Bull of the Day:
Zacks Ultimate veterans know that I have owned Editas Medicine for Healthcare Innovators since September of 2017 from $20. We watched shares more than double to $45 by March of 2018 on a sizable degree of hype and FOMO (fear of missing out) over the potential of CRISPR.
For more background there, see my most recent ZU report on CRISPR from October "The Greatest Discovery in the Century of Biology" (access link below).
But then reality set in with a new story every other month on the dangers of CRISPR technology. And while I was encouraged to hold the stock around $30, and not take a 50% long-term gain, the correction finally took its toll.
More importantly, on November 30, the FDA accepted the company’s Investigational New Drug (IND) application for EDIT-101, an experimental CRISPR genome editing medicine being investigated for the treatment of Leber Congenital Amaurosis type 10 (LCA10).
LCA10 is a rare inherited eye disease that appears at birth or in the first few months of life. Congenital means a condition present from birth and amaurosis refers to a loss of vision not associated with a lesion. The expression of LCA can vary, because it is associated with multiple genes.
EDIT-101 is now set to be the first in vivo CRISPR medicine administered to people anywhere in the world. And this is why EDIT was one of the few green stocks during the Oct-Nov portion of the correction, especially headed into early December and the ASH conference where they were expected to present data in other experimental areas.
Editas ASH Presentations
At the annual American Society of Hematology (ASH) conference in December, Editas presented preclinical data to demonstrate expanded CRISPR genome editing strategies in hematopoietic stem cells for the treatment of sickle cell disease (SCD) and betathalassemia. Hematopoietic stem cells are the stem cells that give rise to other blood cells. This process, called haematopoiesis, occurs in the red bone marrow at the core of most bones.
Data presented at ASH 2018 demonstrated in vivo an increased production of fetal hemoglobin, which can be beneficial to patients with sickle cell disease or beta-thalassemia.
The biggest Wall Street bull on EDIT is SunTrust. After ASH, their analyst Peter Lawson said the bank's biotech team was encouraged by Editas’ systemic analysis for their hematological approach and important data flow in 2019. They reiterated a BUY rating and $45 PT on EDIT.
But that's their "base case" built upon only a 40% probability of success in 4 major pipeline targets. Their Bull and Bear cases have probability-weighted projections of $72 and $11, with $15 of value assigned to the technology platform.
This is not hard science. Assigning Bayesian probabilities to clinical trial research outcomes is just as subjective as many stock market valuation pursuits. But in Biotech, as the R&D targets moves closer into view, so do the guesstimates of future success.
Bear of the Day:
I last wrote aboutYY Inc., the $4 billion Chinese Internet social/gaming portal, as the Bear of the Day in early October when shares were trading around $74. Since then, estimates continue to fall as the Chinese economy stumbles under its own shifts, and in the midst of tariff and technology battles with the US.
During the late October swoon, YY shares fell to $57, and during the December rout they dropped to a new 18-month low under $56.
Here's what I wrote back in early Oct about the situation and why it was best to avoid YY shares...
It's not news to most investors that Chinese stocks are caught in a nasty downtrend, and today's Bear of the Day is another great example why.
YY Inc. is a $5 billion Internet communications and content company specializing in social media, gaming, user-generated video and entertainment. They recently completed a spin-off and IPO of their very successful e-sports franchise Huya (HUYA), of which they still own a significant stake.
But the growth outlook is another story and the stock is off 48% from its all time high near $142. Despite projections for 31.7% revenue growth this year and 24% next year to top $2.8 billion, YY has seen its EPS estimates drop sharply in the past few months.
Current full-year estimates for the bottom line fell from $8.22 to $7.53. And next year slid from $9.58 to $8.89.
I watched this deterioration in the growth outlook as it occurred because I actually held YY shares and had to let them go when the stock became a Zacks #4 Rank (Sell) in early August and broke its April lows near $88.
The Zacks Rank saved me a lot more pain, as you can see the shares are over 15% lower since then.
YY seems like an Internet value trading under 10X forward EPS estimates and growing sales 25-30%, with hundreds of millions of active users. But in addition to the bear market for most Chinese stocks and indexes, new Internet regulations from the Chinese government continue to hamper expansion and investment.
So YY becomes another great lesson in being careful to avoid what looks like a bargain when an entire country's stock market is under siege.
Many Chinese stocks will indeed be valuable bargains some day as they serve and capitalize on the largest middle class on the planet.
But the time is not yet here to sift through the wreckage. The Zacks Rank will let you know.
(end of excerpt from October 4 Bear of the Day)
Since then, here's what has transpired in the downward trajectory of full-year EPS estimates...
2018: $7.36, down from $7.53
2019: $8.06, down from $8.89 -- another 9% drop for this year.
Now it's possible that YY could be discovering a bottom between $55-60 and these smacked-down EPS estimates, especially with a Goldman Sachs analyst, who is a big fan, recently upgrading the stock.
But until either the "trade peace" is final, or YY estimates start going back up, it's best not to ask "Why not YY?" and just say "No way YY!"
China Aims to Curb U.S. Dependence with New Data Chip
Amid the ongoing negotiations between the United States and China to reach a long-term solution to the trade dispute, the latter has been stepping up efforts to develop chips and other telecom components to end the dependency on imports from Western countries. Huawei Technologies Ltd., the leading smartphone manufacturer of China, is the latest to join this bandwagon as it launched a new processor chip for data centers and cloud computing.
Dubbed Kunpeng 920, the new chip is specially designed for servers that handle huge data from smartphones, video and other network services. The initiative is an integral part of the "Made in China 2025" project that aims to indigenously built products in telecom, robotics and other fields. Based on the ARM system typically used in smartphones and distributed computing, the chip reportedly competes with traditional industry leaders like Intel Corp., Advanced Micro Devices, Inc. and NVIDIA Corp. However, management refuted claims that the new product is in direct competition with Intel, which had been a strategic supplier for Huawei for years.
Meanwhile, Huawei is likely to record annual sales of more than $100 billion across the globe despite widespread sanctions and trade restrictions in various countries. Time and again, the U.S. administration has asked federal agencies to abstain from using China's ZTE and Huawei products over perceived risk of espionage. The Pentagon has also banned the sale of smartphones from these manufacturers from all military establishments. The U.S. officials had even reached out to allied countries to persuade them to refrain from using Huawei telecom equipment, accusing it of sophisticated and intensified cyberattacks to siphon off data for possible collection and analysis.
Although the underlying issue is cited to be related to national security concerns, the bone of contention perhaps stems from an innate desire between the two warring nations to claim dominance in cutting-edge technologies and the next generation of wireless services.
Relations between the United States and China were further strained when Meng Wanzhou, the chief financial officer of Huawei, was arrested in Canada over potential violations of sanctions on Iran. Serving as the deputy chairwoman of the management board, Meng is the daughter of the founder of Huawei. Consequently, the detention and eventual arrest of such a high-profile business tycoon rattled the markets and put the political environment on high alert.
Although Meng has been granted bail, the matter remained a potboiler as she faced probable extradition to the United States. The Sino-American tensions elicited strong protests from China against the perceived undemocratic act and threatened to derail the 90-day truce offer to initiate negotiations related to the tariff war. However, officials from both countries have reportedly initiated trade talks to ease the tariff restrictions imposed on each other.
Meanwhile, after a series of accusations of being a security threat, Huawei has hit back at its detractors asking them to prove the allegations. The leading Chinese telecom manufacturer has faced roadblocks across several countries, denting the company’s global ambitions. It seems that Huawei will now aim to counter these charges as the 5G race heats up.
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