Roundtable: 3 Stocks Janet Yellen Would Hate

The Fed thinks biotech stocks are overvalued. Here's where they're right.

Jul 20, 2014 at 9:15AM

In the Fed's Monetary Policy Report submitted July 15th, Fed chair Janet Yellen called out social media and biotech stocks as having valuations that appear "substantially stretched" (i.e. overvalued). We asked our top contributors for stocks where they think the Fed is absolutely correct. Below are their thoughts.

George Budwell: I think investors have really lost sight of how much risk is involved in many clinical stage biotechs, pushing many of these companies into the stratosphere market cap-wise. Inovio Pharmaceuticals' (NASDAQ:INO) market cap of $566 million--despite a lack of late-stage candidates and an unproven platform, is a good example of this problem.

Inovio's most advanced clinical product is a DNA-based vaccine dubbed "VGX-3100". According to the company, we are close to hearing the vaccine's mid-stage results as a potential treatment for late stage cervical pre-cancer to early stage pre-cancer.

The problem is that DNA-based vaccines have repeatedly failed to produce immune responses in humans stronger than traditional protein-based vaccines. And Inovio's electroporation methodology doesn't appear to be the key to unlocking this technology's promise--based on the clinical trial results so far. As a result, I have a hard time believing investors have appropriately gauged the amount of risk inherent in Inovio's approach to drug development. 

Todd Campbell: GW Pharma (NASDAQ:GWPH) jumps to mind.

There's no question that GW Pharma has some intriguing therapies in its pipeline and GW Pharma has already proven that its marijuana based drug Sativex is well tolerated.

However, despite winning approval in Europe -- a major MS market -- for Sativex in treating MS spascity, sales have remained elusive, totaling just $13 million in the first quarter.

Investors have looked beyond those results to focus instead on Sativex's potential in treating cancer pain and a form of childhood epilepsy, but investors may be getting too far out over their skis on this one. The cancer pain indication is for use as a second line therapy behind commonly used opioids and the epilepsy patient population being targeted by Epidiolex is tiny.

Since GW Pharma's market cap is north of $1.2 billion and its annualized sales are roughly $50 million, investors are paying a rich 23 times sales to buy shares. At that valuation, GW Pharma will need to execute perfectly if it hopes to justify that price tag.

Brian Orelli: I like what Sangamo Biosciences (NASDAQ:SGMO) is trying to do. The current HIV medications beat back the virus, but can't kill it completely, requiring patients to take drugs for the rest of their lives. Sangamo seeks to create a functional cure modifying cells so they can't be infected by the virus. It doesn't get much more disruptive than that.

If it works.

And that's the rub with Sangamo Biosciences. The technology hasn't proven to work with high enough efficiency yet. Could it? Maybe. Perhaps. Hopefully.

If it does, Sangamo is certainly worth a lot more than its current $850 million market cap. But history has shown that new drug technologies tend to take a long time to work out the kinks. Just look at a chart of Isis Pharmaceuticals trading sideways from 2002 to 2012 as the company tried to get its antisense technology working. While there's certainly potential for a big reward, the risk of failure or a long delay before success makes it hard to see how the reward justifies the current valuation.

A blockbuster opportunity even Janet Yellen would call undervalued.
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Todd Campbell, George Budwell, and Brian Orelli have no position in any stocks mentioned. The Motley Fool recommends Isis Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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