The week ahead 01/03/2022

Happy New Year Everyone!

I hope you’re as excited about 2022 as I am. We’re currently 4,600 subscribers strong here at Rate of Return, and we’re thrilled you all are tagging along for the ride!

I wanted to start this edition off with a warm welcome to the 73 of you who have decided to join us since last Monday — let me know if you have any questions.

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Quick Links to Some Recent Posts:

In this post, we’ll cover:

  • IPOs taking place this week

  • Quarterly financial reports worth reading

  • Investor events to keep an eye on

  • Major economic releases

If you want to learn more about the companies mentioned in this post, consider using Unhedged to conduct your research.

The Investing Week Ahead – Too Long, Didn’t Read:

A healthcare IPO party has apparently been “shipped up to Boston,” reports from some food and retail brands will kick off the new year’s earnings, the Consumer Electronics Show must go on, and expect a wide range of economic data to immediately impact investor sentiment.

IPOs to Watch this Week:

Three Boston-area healthcare IPOs are expected to take place this week (or shortly thereafter), in which I’m not too interested. Let’s quickly touch on the details.

  • Amylyx Pharmaceuticals (AMLX):

This Cambridge, Massachusetts-based pharmaceutical company is focused on providing solutions for those living with neurodegenerative diseases – most specifically ALS. The company plans to raise $175 million through an IPO, which is expected to price between $18 to $20 per share.

The company recorded a net loss of -$59.6 million on grant revenue of $285,000 during the nine months ended Sept. 30, after a loss of -$33.7 million on grant revenue of $300,000 in the same period a year ago.

I’m not interested in this company. IPO success is highly correlated with a massive total addressable market (TAM), and only 5,000 Americans are diagnosed with ALS each year. There could be more bright spots for this company with deeper research, but I don’t have any desire to make a play here.

  • CinCor Pharma (CINC):

This Boston, Massachusetts-based biopharmaceutical company is focused on developing the next generation of treatments for cardiovascular diseases – most specifically hypertension and its associated risks. The company plans to raise $187 million through an IPO, which is expected to price between $15 and $17 per share.

The company has recorded a net loss of -$21.0 million on $0 revenue during the nine months ended Sept. 30, after a loss of -$16.5 million on $0 revenue in the same period a year ago.

With Evercore, Morgan Stanley, and Jeffries being the lead underwriters, this may be the most ~legit~ of the three IPOs. As I’ve said numerous times before though, I best value companies based on free cash flow and it’s extremely difficult to be “in the know” for these pharma plays.

If we wanted to take another qualitative approach of total addressable market, nearly 1 out of 2 adults in the US suffer from hypertension (116 million people). The TAM is seemingly large, but with all pre-revenue pharmaceutical companies — this is a dice roll.

  • Vigil Neuroscience (VIGL):

This Cambridge, Massachusetts-based biotech company is the world’s first microglia-focused therapeutics company. This means treating neurodegenerative diseases by restoring cells in the brain’s immune system. The company plans to raise $100 million through an IPO, which is expected to price between $15 and $17 per share.

The company recorded a net loss of -$30.3 million on $0 revenue during the nine months ended Sept. 30, after a loss of -24.3 million from June 2020 (inception) to Sept. 30 2020.

There’s plenty of money to be made in pharma plays, specifically in the mid-to-low cap biotech market. As someone that used to work full-time healthcare, I know that many of these companies will succeed and make all investors crazy rich. I also know that most of them fail and run out of their money from research grants – praying for an acquisition by a major healthcare player.

I’d rather hold stocks like UnitedHealth Group (UNH) and find “moonshot” value in other areas.

If any of our subscribers know more about why all of these IPOs are coming at the same time out of the same place… let us know!

Key Earnings Announcements:

For those of you who made New Year’s resolutions to listen in on company earnings calls — Thursday is your big chance this week!

January 6: Bed Bath & Beyond (BBBY), Conagra Brands (CAG), Constellation Brands (STZ), Helen of Troy (HELE), Walgreens Boots Alliance (WBA), WD-40 Company (WDFC)

January 7: Acuity Brands (AYI), Greenbrier Companies (GBX)

All eyes on Walgreens as analysts across the board have increased their short-term revenue expectations in large part due to higher vaccination rates because of Omicron (booster shots in particular).

Bank of America has a $49 PT on the stock (trading at $52 at time of publication) as they see a long pathway for sustainable profits — as the Walgreens Health build-out still remains unproven and serves as an anchor for profitability going forward.

Walgreens Investor Day 2021

Investor Events:

Despite Covid wrecking the attendance expectations, high expectations still surround CES in Vegas.

January 5-8: Consumer Electronics Show (CES) hosted by the Consumer Technology Association in Las Vegas

January 6: Goldman Sachs Healthcare CEOs Virtual Conference

For those unfamiliar, CES is an annual trade show that typically hosts presentations of new products and innovate tech in the consumer electronics industry. Leaders from tech, retail, fashion, sports, and pretty much anything related usually take advantage of this time to network and engage in networking opportunities.

While many major companies (Amazon, AMD, Google, Meta, Microsoft, TikTok, etc) have canceled / modified their physical exhibitions, I still plan to recap the biggest takeaways from the 4-day event in the upcoming Week in Review.

Goldman Sachs Healthcare Conference is also a big deal — expect notes on their participants Sunday.

Major Economic Updates:

While the IPOs and earnings reports may still be hungover from New Year’s, the economic analysts are fully back on the saddle. This is a big week.

January 3: PMI Manufacturing Index from Markit Economics

January 4: Manufacturing Index from the Institute of Supply Management (ISM), Job Openings & Quits from the Bureau of Labor Statistics (BLS)

January 5: Employment Report from ADP, FOMC meeting minutes released

January 6: US Trade Deficit from the Bureau of Economic Analysis (BEA)

January 7: Jobs Report w/ Updated Unemployment Rate from the Bureau of Labor Statistics (BLS)

Be on the lookout for economic data throughout the week having an impact on a relatively fragile stock market.

The beginning of the year means optimism for most, but also healthy skepticism for many others. I’ll make sure to break these down in detail at the end of the week and call out anything you should now. Personally, I’m excited to see what the jobs report brings.

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

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