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Investors Alley by TIFIN

Add This Cheap Chip Play to Your Portfolio

The pharma giant GSK PLC (GSK) is working to emerge from years with a share price that goes nowhere. The company’s CEO, Emma Walmsley, is still trying to convince investors that she is delivering a “new chapter of growth” after many years of underperformance.

GSK shares are down 3% over the past five years, while its U.K. pharma peer, AstraZeneca (AZN), has soared more than 125%. AstraZeneca shareholders are willing to pay 20 times forward earnings per share for 2023, while GSK’s shareholders are barely willing to pay 10 times earnings.

GSK’s Turnaround

Turning around GSK may be like trying to turn an oil tanker. But make no mistake—Walmsley is turning the GSK ship around.

Last year, the company completed its biggest restructuring in 20 years, spinning off its consumer health division, which sold the company’s over-the-counter medicines, as Haleon (HLN).

So now, investors are now focused on how GSK will spend the £7 billion ($8.72 billion) payoff it earned from the split to make acquisitions to fill its drug pipeline.

GSK needs to re-stock its “medicine cabinet” ahead of the expected loss of exclusivity on its HIV drug, dolutegravir (marketed as DOVATO), towards the end of this decade. It is a big hole to fill: products using dolutegravir generated $1.62 billion in the latest quarter, about 19% of total revenues of $8.72 billion.

One attempt to partially fill that gap is an agreement  to acquire Canadian biotech firm Bellus Health for $2 billion. Bellus has a medicine for chronic refractory cough (CRC), a debilitating and persistent condition that GSK says affects 10 million people worldwide. The drug, camlipixant, is in late-stage trials.

Luke Miels, GSK’s chief commercial officer, said camlipixant had the potential to be “best-in-class” for CRC, for which there are no approved medicines in the U.S. or Europe. If approved, GSK expects to launch the drug in 2026 and see a contribution to its earnings from the following year. Sales could hit $1.1 billion by 2028, according to Wall Street estimates.

The proposed acquisition builds on GSK’s expertise in respiratory therapies. Last year, sales of GSK’s drug for severe asthma, Nucala, rose 25% to $1.74 billion, while revenue from Trelegy, a treatment for asthma and chronic obstructive pulmonary disease (COPD), soared 42%, to $2.12 billion.

Another area of strength for GSK is its vaccine division, which developed the blockbuster Shingrix shingles vaccine. The company has now developed the first-ever vaccine for a common infection, respiratory syncytial virus (RSV). GSK believes its RSV vaccine presents a similar sized market opportunity as its shingles vaccine, which generated over $1 billion of sales in the first quarter. The vaccine may be approved soon in both the U.S. and Europe.

RSV leads to about 2.1 million outpatient visits annually in the U.S., between 58,000 and 80,000 hospitalizations, and 100–300 deaths among children under than 5. For patients 65 or older, each year brings about 60,000–120,000 hospitalizations and 6,000–10,000 deaths, according to the CDC.

The total global market for RSV vaccines is thought to be worth more than $10 billion per year.

Why Buy GSK?

The market seems to be underappreciating the steady core sales growth that was shown in the latest quarter and will likely continue for several years. Also, the market is overly concerned by the Zantac litigation, which I expect will be settled for close to $1 billion, not the $30 billion being sought.

In the latest quarter, GSK’s total sales increased 10% operationally, excluding the expected COVID-19 product sales decline. The growth was broad-based, with solid traction for vaccines (up 15%), HIV (up 15%), and general respiratory (up 10%). GSK’s shingles vaccine Shingrix (up 11%) looks well positioned to post significant gains as more manufacturing capacity has been building.

Sales of longer-acting HIV drugs Cabenuva and Apretude each grew over 100% and now represent close to 10% of HIV drug sales. GSK’s respiratory drug Trelegy (up 28%) is poised for further gains based on leading efficacy in chronic obstructive pulmonary disease (COPD), and the complexity of the molecule likely means less competitive pressure following the 2027 U.S. patent loss.

On the pipeline side, GSK is making solid progress. I expect U.S. approval for GSK’s RSV vaccine in May, with peak annual sales potential over $2 billion. Also, later in the quarter, solid data should be available about the RSV vaccine testing’s durability over two years. This will enable increased pricing power and a stronger position versus competing vaccines. Also, I expect approval for myelofibrosis drug momelotinib in June for patients at higher risk for anemia, leading to another billion-dollar annual sales opportunity

Using industry parlance, GSK’s new formula for success is still undergoing early phase trials.

The good news for value investors is that GSK’s stock still trades at a one-third discount to the overall pharmaceutical sector. The shares currently trade on a forward price/earnings ratio of 9 for the 2024 financial year, which is a significant discount to their peers, with a group average of 15. And the modest size of the Bellus acquisition leaves GSK well positioned to make further deals, as leverage has fallen and cash is still plentiful thanks to the Haleon spin-off.

GSK also pays a decent quarterly dividend. The latest declared dividend is $0.35 per share, giving GSK a yield of 3.85%.

In addition to the ongoing Zantac litigation over whether Zantac causes cancer, concerns persist over the drugmaker’s long-term growth prospects. However, I believe the improving drugs pipeline means that GSK’s days of underperformance are disappearing into the rear-view mirror.

That makes it a buy anywhere in the mid-$30s.

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Stock News by TIFIN

These 2 Industrial Stocks Are Set for Growth in May and Beyond

Amid several economic and geopolitical challenges, the industrial sector has addressed its vulnerabilities by bolstering domestic manufacturing, leading to improved industry prospects. Hence, robust industrial stocks EMCOR Group, Inc. (EME) and Balfour Beatty plc (BAFYY) could make great additions to your portfolio for the long term. Let’s discuss this in detail. Decades of underinvestment in

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Wealthpop

This ETF Looks Weaker Than The Rest ⎯ Time To Short?

ETF Watchlist
The Fed has broken the market yet again, sending it lower after deciding to raise interest rates once more by a quarter of a percentage point. After the announcement, stocks all across the market fell, led by financials and energy.
With all the turmoil in the financial sector leading up to yesterday, we think this could be an area of the market to keep on watch, more specifically, the regional banks.
SPDR S&P Regional Banking ETF (KRE)
Experts have all chimed in with their thoughts on how this banking crisis could play out, but few have said we are fully out of the woods at this point. One of the most prominent of these famed investors who has said the worst has yet to come with regional banks is billionaire investor Bill Ackman. Should the ground give out on this industry, a short trade could be entered and traders could let this one ride.
This could be one of the higher probability trades as depositors lose faith in the banks, especially the smaller ones. Given what happened to First Republic Bank recently, it isn’t too far fetched to think other banks of smaller or similar size could follow suit. Keep this ETF on your radar if the market continues to pull to the downside.
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Good Luck With Your Trading!
Christian Tharp, CMT

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Wealthpop

Is Lululemon Your Next Trade?

One of our favorite stocks to trade has finally come up to an old resistance level, signaling there could be another retreat from this level. Given the weakness of the market after yesterday’s FOMC meeting, this could be another rejection in the making.
Couple that with the MACD sell signal and the fact that we have a momentum divergence, a trade to the downside could end up being the highest probability trade. This divergence means the buying pressure that pushed the stock up to this resistance level has slowed and is beginning to reverse course.
If the weakness in the market continues, traders should keep this trade on their list as what could be their next big trade.
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Learn to find these levels for yourself when you join The Profit Machine. There, you’ll learn all about my favorite stocks, setups, strategies, and plenty more. You’ll also be invited to weekly webinars where I answer questions and go over important trading lessons, like the one in today’s article. The best part, you’ll also receive live trade alerts. Not only will you get a world-class education, but you’ll earn while you learn.

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Good Luck With Your Trading!
Christian Tharp, CMT

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INO.com by TIFIN

Dollar Stores Change As Inflation Rises

Editor’s Note: Our experts here at INO.com cover a lot of investing topics and great stocks every week. To help you make sense of it all, every Wednesday we’re going to pick one of those stocks and use Magnifi Personal to compare it with its peers or competitors. Here we go…

Dollar stores – the no-frills discount retailers – were known for catering to the most cash-strapped consumers. These chains expanded rapidly to meet the needs of that demographic, with more than 19,000 Dollar General stores and more than 16,000 Dollar Tree and Family Dollar outlets now in North America.
But now, dollar stores’ demographic is changing, as inflation drives more and more middle-income consumers through their doors. One primary factor behind this trend is U.S. grocery prices, which were up 8.5% from March of 2022.
This emerging trend has led the industry’s two biggest chains – Dollar General (DG) and Dollar Tree (DLTR) – to both announce plans to remodel almost twice as many stores as they will open this year. Dollar General and Dollar Tree will increase the number of refitted stores by 11.4% and 25.6% from last year, respectively.
Both are investing heavily in freezers and coolers to meet growing demand for groceries from U.S. consumers who have shifted more spending from discretionary items to essential items like food.
Dollar General will increase capital spending by 22% this year, to $1.9 billion—about 142% above what it spent in the pre-pandemic fiscal year to January 2020. Dollar Tree is increasing its capital expenditure this year by about 60% to $2 billion, nearly double what it spent in the fiscal year to February 2020.
However, profit margins are lower for groceries than other items, so dollar stores have little incentive to push too far into the terrain of the likes of Walmart (WMT). UBS notes that dollar stores’ operating margins were more than double those of grocery chains last year. So, the number of food items available at dollar stores will be limited.
With that in mind, let’s compare the largest of the dollar stores, Dollar General, against Walmart over this past volatile and inflationary year. The quick and easy way to do this to ask Magnifi Personal to run the comparison for us. It’s as simple as asking this investing AI to: “Compare DG to WMT.”
As you can see, it was a toss-up. While Walmart’s stock was less negative than Dollar General’s, its operating margin was much weaker than that for Dollar General.

This is an example of a response using Magnifi Personal. This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including INO.com’s relationship with Magnifi.
This is just a starting point, of course. Magnifi Personal can easily compare several stocks or ETFs on more criteria, such as dividend payments, turnover, volume, and so on.
You can do it, too. Get access to Magnifi Personal completely free-of-charge – just click here.
This ability to have an investing AI pore over reams of data for you in seconds and spit out an easy-to-understand comparison of two or more stocks is an invaluable tool in deciding where to invest next.
We highly recommend you try it out. Click here to see how.
Magnifi Personal makes research like this as simple as typing a question. You can easily do this yourself, or ask Magnifi Personal to add other measures to the comparison, including dividend, valuation metrics such as P/E or P/B ratios, gross margin, and more.
Just click here to see how to set up your Magnifi Personal account.

INO.com, a division of TIFIN Group LLC, is affiliated with Magnifi via common ownership. INO.com will receive cash compensation for referrals of clients who open accounts with Magnifi.
Magnifi LLC does not charge advisory fees or transaction fees for non-managed accounts. Clients who elect to have Magnifi LLC manage all or a portion of their account will be charged an advisory fee. Magnifi LLC receives compensation from product sponsors related to recommendations. Other fees and charges may apply.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
Mutual Funds and Exchange Traded Funds (ETFs) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

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Stock News by TIFIN

The Rise of ESG: 3 Stocks Leading the Environmental, Social, and Governance Movement

Amid a rapid transition towards clean energy and environmental-friendly alternatives, Environmental, Social, and Governance (ESG) investing has gained immense prominence in recent years. Given this backdrop, let us explore some stocks, PepsiCo, Inc. (PEP), Salesforce, Inc. (CRM), and Cisco Systems, Inc. (CSCO), that are presently leading the ESG movement. Growing climate change concerns and the

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INO.com by TIFIN

Subpoenas to Biden Agencies Over Social Media ‘Censorship’: Impact on Big Tech and Stock Market

Holocaust survivor Susan Sontag, when asked, summed up her lesson from her struggle with a simple yet profound observation that 10% of any population is cruel, no matter what, and that 10% is merciful, no matter what, and that the remaining 80% could be moved in either direction.
The above observation has not just stood the test of time; it holds true for political ideologies and economic doctrines as well, as revolutionaries and public enemies over the ages have found out to their respective triumphs and desolations.
However, in the age of information and the Internet, social media has become the new battleground for conflicting subcultures to shape narratives and influence the 80% to write a preferred version of history.
This ongoing and intensifying conflict reached another flashpoint when House Judiciary Committee, chaired by Republican Jim Jordan, subpoenaed three government agencies on Friday, April 28, as part of investigations into alleged censorship.
This has followed subpoenas sent in February to chief executives of Alphabet Inc. (GOOGL), Amazon.com, Inc. (AMZN),Apple Inc. (AAPL), Meta Platforms, Inc. (META), and Microsoft Corporation (MSFT) demanding information on how they moderate content on their online platforms.
In this article, we will get into the details of the subpoena, followed by an exploration of what regional and temporal differences in the definition of appropriateness and appropriateness in the limits of free speech mean for the business prospects of big tech companies.We conclude by contemplating how regulation and expression could coexist in an age in which almost everyone has an opinion about everything, and anyone could be offended by just about anything.
Government Versus Government
As part of the Republican-led investigation into allegations of censorship, House Judiciary Chairman Jim Jordan has sent subpoenas to the Centers for Disease Control and Prevention, the Cybersecurity and Infrastructure Security Agency, and the Global Engagement Center.

Documents have been sought by May 22 from the agencies to ascertain whether the federal government “pressured and colluded” with social media companies “to censor certain viewpoints on social and other media in ways that undermine First Amendment principles.”Of late, the Biden administration has come under fire for its efforts to stave off alleged “disinformation,” especially following a series of Washington Examiner reports of the Global Engagement Center funding a group called the Global Disinformation Index that has allegedly been blacklisting conservative media outlets.
Further reports based on internal Twitter documents and communications have also claimed that the government under President Joe Biden repeatedly corresponded with employees at the company, such as ex-general counsel Vijaya Gadde, to suggest suppression of certain information.
The subpoena marks an escalation in the ongoing panel’s inquiry after House Judiciary Chairman Jim Jordan described the agencies’ responses to previous voluntary requests as “inadequate.” He also said that none of the agencies had produced any documents responding to previous requests to date.
The agencies, on their part, have deemed the move unnecessary, stating that they have responded to earlier requests for information within the said deadline, and they have assured to continue cooperating appropriately with Congressional oversight requests.
Implications for Big Tech
For more than two decades, Section 230 of the Communications Decency Act has been a sanctuary and bedrock, fostering innovation in the tech industry by protecting the internet platforms from the legal liability for their users’ posts while also allowing them to decide what stays up or comes down.
However, even before the latest Congressional inquiry into allegations of censorship and collusion, this piece of legislation has been under siege from three fronts. This year the U.S. justice system, including the Supreme Court, would take on cases that would help it determine the limits of free speech.These cases could also determine the extent to which platforms have the authority or the responsibility to promote or remove content through their algorithms. This comes amid increased pressure from legislators to diminish the protections offered by Section 230, with many Democrats wanting platforms to remove more hateful content and Republicans wanting to leave up more posts that align with their views.
A scenario in which internet platforms owned and operated by big tech companies could be held responsible for the content that’s put up or taken down while being vulnerable to political influences regarding the kind of content that could be considered “appropriate” or otherwise at a given point in space or time, could turn the Internet, especially social media, into a legal minefield or a drab, disorganized mess.
General Counsel Halimah DeLaine Prado Alphabet Inc. (GOOGL) summarized GOOGL’s position by saying, “Without Section 230, some websites would be forced to over block, filtering content that could create any potential legal risk, and might shut down some services altogether.” She further added, “That would leave consumers with less choice to engage on the internet and less opportunity to work, play, learn, shop, create, and participate in the exchange of ideas online.”Civil society groups also expressed concerns that amid increased pressure to ensure compliance in a risky legal field in a more nuanced way, the for-profit tech companies would find it more cost-effective to simply censor everything.
In addition to muffling a lot of underrepresented voices, an Internet that’s a virtual equivalent of Disneyland populated with AI-generated happy and politically correct content would become an echo chamber that would drive down user engagement and advertising revenues, thereby impacting profitability.Hence, an effort to ensure survival in an environment of increased regulation could ironically result in Internet platforms shooting themselves in the foot.

(Maybe) A Middle Path?
On November 18, 2022, while reinstating controversial Twitter users Kathy Griffin, Jordan Peterson, and the Babylon Bee, Elon Musk, a self-described “free speech absolutist,” tweeted: “New Twitter policy is freedom of speech, but not freedom of reach.”
He added that Twitter would demonetize and not promote tweets containing hate speech or otherwise “negative” content. This approach is similar to the strategy employed by YouTube, a video-sharing platform owned by GOOGL, where the site’s algorithm suppresses some provocative content but is not entirely taken down.
Hence, just like it works on the rest of the Internet, users cannot see particular content or types of content unless they explicitly search for it.
The term “negative” could still remain open to interpretation and manipulation by for-profit organizations or the political ideology representing the majority worldview, and restricted visibility or access to ideas and viewpoints could induce radicalization and extremism. However, that could still be an improvement over Internet platforms swamped with compliance issues.
As parting food for thought, the Internet and society could become more open if‘The Right To Be Offended’ is accompanied by ‘The Responsibility of Dealing With Offence Peacefully.’

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Investors Alley by TIFIN

So Far, No Crisis

Last week’s earnings reports from a few different REITs indicated that commercial office space and commercial lending have not fallen into the crisis the financial media has warned of. The fear in the markets is that low office space occupancy will lead to declining property values and commercial mortgage defaults.

Also, since commercial mortgages are almost exclusively adjustable, rising interest rates hurt commercial property owners with sometimes significant increases in the cost of servicing their debt.

There have been anecdotal stories of downtown office buildings remaining mostly empty post-pandemic. There also has been a couple of defaults on commercial loans. The question now is whether these will be isolated problems or indicate a larger issue with commercial property (especially office buildings) and commercial mortgage lenders.

Last week, a couple of office building REITs, as well as one of the larger commercial loan REITs, announced earnings. Here is what they reported:

Boston Properties (BXP) owns office buildings in Boston, Los Angeles, New York, San Francisco, Seattle, and Washington, D.C. Those cities are often cited when discussing occupancy and value problems. For the first quarter, BXP reported FFO of $1.73 per share, beating the Wall Street estimate by five cents. The company increased its full-year FFO guidance by four cents, to $7.17 per share. The company reported positive net operating income growth and signed 522,000 square feet of office leases during the quarter with healthy GAAP and cash rent spreads. This office REIT posted very good first quarter results. BXP currently yields 7.8%.

Highwoods Properties (HIW) owns business district office buildings in Sunbelt cities, including Raleigh and Charlotte in North Carolina; Nashville, Tennessee; Atlanta, Georgia; Tampa, Florida; and Dallas, Texas. Highwoods reported FFO of $0.98 per share for the first quarter, beating the Wall Street estimate by five cents. At the end of the quarter, occupancy was 89.6%.

During its earnings call, the Highwoods management team acknowledged industry headwinds. They will selectively sell properties as the $518 development pipeline projects come online. The company appears to have a plan for the current market, and the 8.9% dividend yield makes the shares attractive.

Blackstone Mortgage Trust (BXMT) is a commercial mortgage REIT. The company owns a $26.7 billion senior loan portfolio across 199 loans. The portfolio has a 64% loan-to-origination value.

For the first quarter, Blackstone Mortgage Trust reported distributable earnings of $0.79 per share, up 27% over the year-earlier period. Management also noted that 3% of loans were non-performing, and the company had increased its reserves against defaults. The BXMT results highlight both the pros, greater interest income, and cons, higher chances of default resulting from higher interest rates. The shares yield 14.7% on a very well-covered dividend.

The earnings results from these three companies show that the businesses continue operating as expected, but caution levels have ratcheted higher. We are entering a period where market conditions could be very tough on less-than-well-managed companies, but provide once-in-a-decade opportunities to those with dry powder to invest.

Earnings results over the next few quarters will let investors separate the good from the scary in the commercial real estate sector.
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