In the list of "fallen angels" below, we focus on buy-rated stocks that fell sharply in the second q...
Nate Pile: Top Picks Update
07/09/2014 10:00 am EST
Each January, we ask the nation’s top newsletter advisors for their favorite stocks for 2014. Now that we have reached mid-year, we are following up with some advisors whose performance was most noteworthy. Here, we talk with Nate Pile, editor of Nate’s Notes.
Steven Halpern: Our guest today is Nate Pile, Editor of Nate’s Notes. How are you doing today?
Nate Pile: Fine, thanks. Good to be with you.
Steven Halpern: There were over 60 picks in our 2014 top pick special report that came out at the beginning of the year and the top performer as of mid-year was your selection of MannKind with a gain of over 100%. Congratulations!
Nate Pile: Well, thanks. It’s always nice when things work out in our favor.
Steven Halpern: Before we look at the more recent developments of the company, I’d like to review your original rational behind this stock pick. If you could tell us a little about MannKind (MNKD) and why you chose this as your favorite idea for 2014.
Nate Pile: Sure, we’ll try to put it all together in a summary going back to the beginning. To give a little background on the company, they’ve technically been around since the early 90s.
Its current incarnation came about in 2003 when the company’s founder and CEO, billionaire, Alfred Mann merged three companies he was involved with and kept the name MannKind on the front door and since, I think, it’s an important piece of the puzzle when people are trying to understand what the company is all about.
For those aren’t familiar with him, he’s a serial entrepreneur, who, over the course of the past 50 years or so, has amassed a great deal of wealth by starting and then eventually selling a number of companies in the technology and medical sectors.
One of his most recent ones was a little company called MiniMed Insulin Pumps. It ended up being sold to Medtronics.
The significant reason I’m involved with this stock is the fact that Mr. Mann has invested close to a billion dollars of his own money in this company and he remains its largest shareholder with close to 40% stake, roughly. I’m a big believer in investing alongside smart money—as it’s called—and this situation fits that setup to a Tee.
So, what does the company do? There are a number of projects in the development stage at MannKind and the company’s technosphere technology is an interesting bit of intellectual property all on its own. MannKind’s lead product and the one that you people have probably seen in the news a lot lately is an inhalable form of insulin called Afrezza.
As your audience may, or may not know, a number of other companies have tried but failed miserably to develop inhalable insulin over the years and consequently, there’s been a great deal of skepticism about MannKind’s chances for a success. However, there are a number of things that make Afrezza quite different than its predecessors.
And, to finally get around to answering your question, one of the main reasons I chose this stock as my favorite idea for 2014 was the fact that, not only did the majority of the articles being written on MannKind back in December have a huge negative bias to them, the rationale behind those articles suggested the authors were still fighting the last battle and they had not actually taken any time to understand why the Afreeza story is so different.
Because of this overwhelmingly large and, frankly, somewhat misinformed level of skepticism that was surrounding the stock back then, it made sense to me that the stock was probably being held back artificially and once the truth started to come to light, we got to see a nice move up in the stocks. Hence, my decision to make it my favorite idea for 2014 and it’s worked out.
Steven Halpern: So the stock moved sideways from the beginning of the year through March and then would take—again—a very strong up move, nearly doubling between April and June, and, just this past week, the company announced some important new developments. Could you explain what’s been happening here lately?|pagebreak|
Nate Pile: Sure. The catalyst for the move that you’re referring to was the outcome of an FDA advisory panel meeting that was held on April 1.
As just discussed, a number of prominent journalists and analysts were predicting that the drug would get turned down at this panel meeting, but instead, the advisory committee ended up voting 13 to 1 in favor of recommending approval for Type 1 diabetes and the unanimous 14 to 0 in favor of Type 2.
Not surprisingly, this forced a lot of investors to re-evaluate the situation, and—though the stock did sell out briefly a few weeks later when it was announced that the FDA was going to extend its deadline to issue a final ruling—they postponed it from April 15 to July 15.
The selloff was fairly short-lived and folks began to position themselves for the possibility of an approval after all and this approval did, in fact, come a little bit early on the last Friday in June.
Steven Halpern: Now, with the stock up over 100%, would you still recommend holding for those who followed your earlier recommendation and what would you say for a new investor who is just now considering initiating a position?
Nate Pile: Yes, we still consider this stock a buy, especially with the uncertainty surrounding the FDA finally out of the way. It’s always nerve-wracking when you go into those meetings wondering how they’re going to rule, but now that that’s behind us, we know we’ve got an approved product and that Al Mann worked his magic.
Currently, we’ve got it as a strong buy under $9 and a buy under $12. The next catalyst we’re going to be looking for is the announcement of a partnership agreement—or perhaps agreements—with one or more of the large pharmaceutical companies that, given the newsletters long-term approach, we’re not trying to trade around such an announcement.
We’d like to simply build positions over time and then let the stock market work its magic for us. That being said, for investors who are thinking of starting new positions, I would caution them that the stock is likely to be fairly volatile in the weeks ahead.
It ran from $6 to $11, basically, and could pull all the way back to, I would guess, $7.5 or $8 and consequently, I’d encourage them to just average into the stock over a period of a couple of weeks, if not longer, just to sort of catch all of the different price points that might happen between now and say the end of August, rather than buying their entire position in one fell swoop.
Steven Halpern: Now biotechnology has long been a specialty of yours. Before I let you go, perhaps you would share a stock or two in this sector that you would also suggest investors look at now.
Nate Pile: Sure. One of my long-time favorites is Celgene, ticker symbol (CELG)—even though it just recently became the newsletter’s first official 200-bagger—we were lucky enough to get into the stock at $0.435, adjusted for splits back in November of 1995.
Despite the run up, we still like the stock as a long-term investment. They’re a major player in the cancer area and they’re doing a lot of work in other areas as well.
And then another one we’ve had in the newsletter for quite a while, but is still a buy—despite the fact that it’s up a bunch—is Cubist, ticker symbol (CBST) and they’re one of the leading developers of new antibiotics to treat the super bugs that have become resistant to traditional antibiotic therapies. We like both of those stocks at these prices.
Steven Halpern: Well, again, congratulations on such a successful pick with MannKind for your 2014 favorite and we appreciate you taking the time to join us today.
Nate Pile: Thanks. It’s always great to talk to your audience.
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