Author: Jim Halley

JNJ – Ready to Buy the Dip? Johnson & Johnson Stock Is a Smart Buy

Written by Jim Halley on . Posted in JNJ, Stock Report.

Shares of healthcare giant Johnson & Johnson (JNJ -1.07%) are down more than 13% this year even as the S&P 500 is up 4%. In fact, the stock is trading only a bit higher than its 52-week low. Could the stock’s recent drop provide an opportunity? Johnson & Johnson has long been one of the favored stocks for income-oriented investors. Here are five reasons why Johnson & Johnson could be a smart buy now.

1. Johnson & Johnson shows consistent growth

Last year, the company’s revenue grew 1.5% to $94.9 billion, and its guidance points to 4.5% to 5.5% growth this year, with the expected range falling between $96.9 billion and $97.9 billion. This shouldn’t be surprising, because the company has been able to increase revenue for seven consecutive years.

Johnson & Johnson has increased annual revenue by 33.1% over the past decade and earnings per share (EPS) by 39.9% in that period. Last year was an exception as the company reported EPS of $6.73, down 13.8%, thanks in large part to inflation, increased supply chain costs, and the adverse effect of a strong dollar on the company’s overseas sales.

Company CEO Joaquin Duato said he expects J&J’s pharmaceutical segment alone to produce $60 billion in annual sales by 2025, with the biggest drivers in that segment to be Darzalex, Tremfya, Erleada, and Uptravi.

Darzalex, a multiple myeloma therapy, had $7.9 billion in 2022 sales, up 32.4%. Tremfya, a severe plaque psoriasis and psoriatic arthritis drug, brought in $2.7 billion last year, up 25.4%. Prostate cancer therapy Erleada had $1.8 billion in revenue, up 45.7%. Uptravi, used as a pulmonary arterial hypertension therapy, had $1.3 billion in sales, up 6.9%.

Duato said he also expects big growth this year from three recently launched therapies: Spravato, used to treat major depressive disorders, and two drugs for patients with relapsed or refractory multiple myeloma, Carvykti and Tecvayli.

Chart showing Johnson & Johnson's annual revenue level and diluted annual EPS down since 2022.

JNJ Revenue (Annual) data by YCharts

2. It’s a safer harbor in an uncertain market

Johnson & Johnson is the type of stock that people seek to protect their investments when no one really knows where the market is headed.

The company’s track record of performing well during recessionary periods is the reason why. Inflation and interest rates are still an issue, and there’s a big concern about the health of the banking industry. Those uncertainties point to more bumpy months ahead in the markets.

Healthcare spending and healthcare stocks in general tend to be less affected by economic downturns. Johnson & Johnson, with more than 140,000 employees and more than 135 years of experience, is considered a safe bet within the industry.

3. The dividend will likely get even better

Johnson & Johnson has increased its quarterly dividend for 60 consecutive years and is expected to do so again next month, when it traditionally has announced its quarterly dividend increase. The most recent increase was 6.6% to $1.13 per share last April. 

At its current price, that works out to a yield of around 2.97%, well above the S&P 500 average of 1.74%. The company’s strong cash flows should allow it to continue raising that dividend, even with a current payout ratio of 68%.

4. Abiomed should boost medtech sales

Johnson & Johnson completed its $16.6 billion acquisition of heart pump maker Abiomed in December. The company said it expects the deal to boost results by 2024. Its salesforce and supply chain should help the maker of Impella heart pumps increase its already strong sales.

In fiscal 2022, Abiomed reported $1.03 billion in annual revenue, up 22%, and a gross margin of 81.8%.

Johnson & Johnson’s MedTech segment sales last year were $27.4 billion, up 1.4%. The growth was led by increased sales from the company’s contact lenses, wound closure products, and electrophysiology products.

The cost of the Abiomed deal will have a small effect on adjusted EPS this year, but the company said it should add $0.05 to adjusted EPS in 2024 — and even more so after.

5. The stock is priced to sell

Johnson & Johnson’s popularity with income investors means it usually isn’t underpriced, but thanks to its share drop, it is trading for roughly 22 times earnings, close to its lowest price-to-earnings ratio over the past five years. 

Bear in mind that once the company’s spinoff of its Consumer Healthcare segment takes place (probably later this year), the company’s margins should increase as that was the only company segment that saw declining sales in 2022.

AVXL – Why Shares of Anavex Life Sciences Rose 12.4% in February

Written by Jim Halley on . Posted in AVXL, Stock Report.

What happened

Shares of Anavex Life Sciences (AVXL -0.60%) rose 12.4% in February, according to data provided by S&P Global Market Intelligence. The clinical-stage biotech’s stock closed at $10.87 in January, then rose to a high of $11.93 on Feb. 7, the day the company announced first-quarter earnings. The stock closed the month at $9.52. The stock has a 52-week low of $7.13 and a 52-week high of $15.24. The stock is up more than 6% so far this year.

So what

The company focuses on therapies to treat neurodegenerative and neurodevelopmental disorders, including Alzheimer’s disease, Parkinson’s disease, and Rett syndrome, plus other central nervous system diseases. In its earnings report, company CEO Christopher Missling said the company was pleased with the progress of Anavex 2-73 (blarcamesine) in a Phase 2b/3 study to slow Alzheimer’s disease. Anavex 2-73 is a small molecule activator of the s-1 receptor.

In December, the company said the drug met primary and key secondary endpoints in the study. The study looked at 509 patients for more than 48 weeks and found those treated with the therapy were 84% more likely to show improved cognition on the Alzheimer’s Disease Assessment Scale-Cognitive subscale.

Missling said the company was close to releasing full results on the study, along with long-term studies on its therapies to treat Parkinson’s disease dementia and Rett syndrome, a rare genetic neurological and developmental disorder. 

Some of the other upcoming trial updates will include the 48-week data from the OLE Phase 2 study for Anavex 2-73 to treat Parkinson’s disease dementia, the enrollment completion of the Excellence Phase 2/3 pediatric clinical trial for Anavex 2-73 to treat Rett disease, the initiation of enrollment for the Phase 2/3 clinical trial for Anavex 2-73  to treat Fragile X disease, one of the most common causes of inherited intellectual disability, and the beginning of a Phase 2 clinical trial for Anavex 3-71 to treat schizophrenia.

Now what

While the news did give the stock a jolt, it didn’t last because there wasn’t a lot in the way of specifics for the clinical trials. Anavex doesn’t have any revenue, and it lost $13 million in the quarter. The company’s cash position didn’t change much, as it reported it had $143.6 million at the end of the year compared to $149.2 million on Sept. 30. Over the past two years, the Food and Drug Administration approved two new Alzheimer’s disease therapies, Aduhelm (Aducanumab), made by Biogen and Leqembi (lecanemab), made by Biogen and Eisai. It’s hard to call the field crowded, though, as no therapy has emerged yet as being that effective.

LNTH – Why Shares of Lantheus Holdings Rose This Week

Written by Jim Halley on . Posted in LNTH, Stock Report.

What happened

Shares of Lantheus Holdings (LNTH 3.46%) were up 21.2% for the week as of Friday afternoon, according to data provided by S&P Global Market Intelligence. The healthcare company released its quarterly results on Thursday, surpassing analysts’ forecasts for revenue and earnings.

The stock closed at $59.72 at the end of last week, then rose to as high as $73.44 on Friday, dropping to closer to $72 per share later in the day.

The stock has a 52-week low of $40.21 and a 52-week high of $87.47.

Lantheus’ shares are up more than 41% so far this year.

So what

Lantheus provides diagnostic agents, targeted therapeutics, and artificial intelligence (AI) solutions to help healthcare professionals diagnose and treat diseases. The company’s fourth-quarter and full-year numbers beat analysts’ consensus estimates. Lantheus reported revenue of $263 million for the quarter, up 103% year over year, and full-year revenue of $935 million, up 120%. The company said it lost $119 million in the fourth quarter, compared to a loss of $40 million a year ago. For the year, the company had net income of $28 million, or earnings per share (EPS) of $0.40, an improvement from a $71 million loss and an EPS loss of $1.06 in 2021. 

The company cited its expanded radiopharmaceutical oncology products and the success of Pylarify for the increased earnings. Pylarify (piflufolastat), which was approved in 2021 by the Food and Drug Administration, is a radioactive drug to help with the imaging of prostate-specific membrane antigen positive lesions in men with prostate cancer. It makes the lesions easier to read on a positron emission tomography (PET) scan, which is an imaging test that shows certain functions in tissues and organs. 

Now what

Lantheus presents a good long-term buy opportunity because it has become more profitable while expanding its portfolio of imaging agents for a variety of diseases.

The company’s guidance for the first quarter of 2023 and the full-year also fueled investor optimism. The company said it expects first-quarter revenue to be between $280 million and $285 million, compared to $209 million in the first quarter of 2022. It also sees first-quarter EPS landing between $1.28 and $1.32, compared to $0.63 in the same period last year. 

Lantheus forecast full-year revenue to be between $1.14 billion and $1.16 billion and full-year EPS to be between $4.95 and $5.10.

The company also recently bought Cerveau Technologies, obtaining that company’s lead asset, MK-6240, a PET imaging agent that targets Tau tangles that are present in Alzheimer’s disease. With a growing population of those 65 and older, the number of people expected to be tested for Alzheimer’s is expected to rise and this market is a good opportunity for Lantheus.

Jim Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

BMY – Will These 3 Potential Blockbuster Drugs Lift Bristol Myers Squibb?

Written by Jim Halley on . Posted in BMY, Stock Report.

Shares in pharmaceutical company Bristol Myers Squibb (NYSE: BMY) are up a little more than 11% over the past year.

The company posted third-quarter revenue of $11.2 billion, a decrease of 3%, with one culprit being the loss of exclusivity for one of its blockbuster drugs, Revlimid. The blood cancer therapy reported sales of $2.4 billion, down 28% year over year. Before the end of the decade, blood thinner Eliquis and immunology drug Opdivo will also face patent cliffs.

Fortunately for the healthcare company, there are three other potential blockbuster therapies waiting in the wings: Sotyktu, Abecma, and Opdualag. The company has had triple-digit growth over the past decade in revenue and earnings per share (EPS) and that doesn’t seem likely to change, thanks to its newer therapies.

BMY Revenue (Annual) Chart
Data by YCharts.

Sotyktu could be a safer, more simple blockbuster

Sotyktu (deucravacitinib), a once-daily pill, was approved by the Food and Drug Administration (FDA) on Sept. 9 to treat moderate-to-severe plaque psoriasis. The drug also got a recent recommendation from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency for the same indication.

The recommendation will be reviewed by the European Commission, which could then approve it to be used in the European Union. It is an immunosuppressant that inhibits the allosteric tyrosine kinase 2 enzyme, seen in different kinds of inflammation. The company obtained the rights to the drug when it bought Celgene for $74 billion in 2019.

In less than a full month of sales, the drug pulled in $1 million in revenue. It is expected to challenge Otezla, made by Amgen as the lead drug to treat psoriasis. Bristol lists the drug’s price at $6,164 for a 30-day supply.

If plaque psoriasis is all Sotyktu gets approved for, it still could be a potential blockbuster as a first-in-class therapy for the malady, which affects more than 8 million people in the United States, according to the National Psoriasis Foundation.

Sotyktu also is being seen as a treatment for other immune disorders, which would really add to its blockbuster potential. As it is, the drug could already be prescribed widely by doctors because its approval doesn’t require patients to first try biologic drugs, making Sotyktu an option for previously untreated cases. Also, because the phase 3 study of Sotyktu didn’t show any cardiovascular events, it doesn’t contain a label warning such as is required of other JAK inhibitors, including Rinvoq, made by AbbVie, and Xeljanz, made by Pfizer.

Bristol certainly sees potential for the drug, as much as $4 billion in annual sales by 2030. It has it in a phase 3 study to treat psoriatic arthritis, and it is in phase 2 trials to treat Crohn’s Disease, two different types of lupus, and ulcerative colitis. 

Don’t look past Abecma

Abecma (idecabtagene vicleucel) is the first FDA-approved cell-based gene therapy for multiple myeloma, a rare cancer where abnormal plasma cells build up in the bone marrow, causing tumors in bones. The drug, a B-cell maturation antigen (BCMA)-directed CAR (chimeric antigen receptor) T-cell therapy, was approved in March 2021 as a fourth-line therapy for multiple myeloma patients. CAR T-cell therapies genetically modify a patient’s own T-cells to recognize and attack cancer cells.

The therapy, which cost more than $400,000 per treatment, is on pace to pull in at least $350 million in revenue this year for Bristol. Its sales are split between Bristol and partner 2seventy bio. Abecma did $107 million in sales in the third quarter, up 51% year over year. Through nine months of its first full year, Abecma brought in $263 million in sales.

Abecma is in a phase 3 trial as a third-line setting to treat multiple myeloma. 

Opdualag could take Opdivo’s place

Cancer therapy Opdualag, an intravenous solution that’s a combination of Bristol checkpoint inhibitor drugs — Opdivo and Relatlimab — was approved in March to treat metastatic melanoma.

In the short time since its launch, Opdualag has brought in $148 million in revenue (including $84 million in the third quarter), and the company has said it sees it having an annual revenue potential of $4 billion by 2029. It’s possible the therapy could replace Opdivo in its many applications as Bristol said it is looking at the therapy to also treat lung, liver, and colorectal cancers.

In Opdualag’s phase 3 trial for metastatic melanoma, it more than doubled the progression-free survival rate of patients compared to those just taking Opdivo. Opdualag is the first therapy to target two different immune checkpoints — LAG-3 and PD-1.

Jim Halley has positions in AbbVie and Pfizer. The Motley Fool has positions in and recommends Bristol-Myers Squibb and Pfizer. The Motley Fool recommends 2seventy Bio and Amgen. The Motley Fool has a disclosure policy.

PHAT – Why Shares of Phathom Pharmaceutical Jumped This Week

Written by Jim Halley on . Posted in PHAT, Stock Report.

What happened

Shares of Phathom Pharmaceuticals (PHAT 6.74%) were up 44.6% this past week, according to data provided by S&P Global Market Intelligence. The stock closed last Friday at $8.61, then closed at $12.36 on Friday. Despite the rise, the stock is down nearly 40% from its 52-week high of $19.95. 

So what

Phathom is a clinical-stage biotech company that specializes in treating gastrointestinal tract disorders. In 2019, it was spun off from Takeda Pharmaceuticals and Frazier Healthcare.

Its lead therapy is Vonoprazan, a potassium-competitive acid blocker. The drug’s possible approval by the Food and Drug Administration (FDA) as a treatment for erosive esophagitis has been pushed back because the regulator had concerns about trace levels of nitrosamine impurities in the drug, the company said on Jan. 3.

A few days later, Phathom announced positive Phase 3 trial information regarding the drug as a treatment for symptomatic non-erosive gastroesophageal reflux disease (NERD). Its the third positive Phase 3 trial for Vonoprazan, all on different indications. The company had hoped to launch the drug in the U.S. market this quarter, and if the company can solve its safety issues regarding the drug, it has the chance to be a blockbuster.

Now what

Investors are reading between the lines to see if perhaps the company is close to fixing its problems regarding Vonoprazan. It’s a risky stock at this point. The company reported a loss of $51.1 million in the third quarter up from $36.7 million in the same period last year. Phathom’s management has said that it has enough cash on hand to last it through 2024.

Jim Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

SVRA – Why Shares of Savara Soared This Week

Written by Jim Halley on . Posted in Stock Report, SVRA.

What happened

Shares of Savara (SVRA 2.62%), a clinical-stage biopharmaceutical company that specializes in rare respiratory diseases, were up 31.6% for the week as of Friday afternoon, according to data provided by S&P Global Market Intelligence. The stock closed last week at $2.09, then hit a 52-week high on Thursday at $2.82, and reached that point again on Friday. The stock is up more than 141% over the last year and has a 52-week low of $1.02.

So what

The company didn’t announce anything lately that would drive the stock forward, but its shares have been on a two-week rise. Its lead product candidate, molgramostim, is an inhaled granulocyte-macrophage colony-stimulating factor (GM-CSF) therapy in an IMPALA-2 phase 3 trial to treat  autoimmune pulmonary alveolar proteinosis (aPAP). The rare lung disease affects less than 5,000 people in the United States. The drug has been given Orphan Drug designation by the Food and Drug Administration (FDA) and the European Medicines Agency (EMA), along with Breakthrough Therapy and Fast Track designations by the FDA. The drug fared well in its phase 2 trial.

Savara has said it expects results from the phase 3 trial mid-year in 2024. David Ramsay, a member of Savara’s Board of Directors since 2017, did buy 36,000 shares of the stock on Jan. 3, but the stock’s surge likely has more to do with molgramostim’s progress. The stock has closed higher every day since Jan. 10.

Now what

The company, as of the third quarter, said it had $134 million, enough to fund operations through 2025. A lot is riding on how molgramostim fares in the phase 3 trial, particularly since the company lost $10.4 million in Q3, just slightly less than the $10.5 million it lost in the same period a year ago. Plus, molgramostim is the company’s only therapy in trials. As a long-term play, there’s plenty of risk to Savara stock despite its rise.

Jim Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

FDX – Why FedEx Stock Has Risen More Than 13% in 2021

Written by Jim Halley on . Posted in FDX, Stock Report.

What happened

FedEx (NYSE:FDX) stock has climbed 13.57% so far this year. It began the year at $253.19 and closed at $294.82 on Monday. It’s down a little from its high point of $319.90 that it reached on May 27.

On June 24, the company announced its 2021 fiscal full-year earnings, with reported revenue of $84 billion, up 21.3% year over year. It also reported $5.23 billion of net income, compared to $1.29 billion in fiscal 2020.

Despite what were obviously strong numbers, the transportation stock has fallen a bit since the report from a high of $304.59 on the day of the report to a low of $291.24 on July 7. Why did the investors react with a collective yawn? A big concern among investors is the company’s rising labor costs, something FedEx alluded to in its fourth-quarter earnings call.

A logistics worker keeps track of packages in a warehouse.

Image source: Getty Images.

So what

Because FedEx stock was around $160 before the pandemic hit and because of its ensuing growth, some look at the company as a pandemic stock, but the growth in e-commerce continues to drive the company’s earnings.

The company said it expects full-year revenue of $90 billion in 2021, representing a growth of only 7%. That may not be what investors wanted to hear after the big increase in 2020, but it shows the company is still on the right track. Over the past year, it has increased cash from operations 41.10%.

FDX Cash from Operations (TTM) Chart

FDX Cash from Operations (TTM) data by YCharts

Now what

The growth in the demand for same-day product delivery will continue to buoy and bedevil shipping companies such as FedEx.

The impact of the pandemic is still being felt with supply chain difficulties being commonplace. What that means is that it will take increased spending on the part of shippers to keep up with competitors. The company clearly isn’t sitting on its hands. On July 16, it announced that its subsidiary, FedEx Express, was making a $100 million investment in Delhivery, a shipping company in India. Delhivery will sell FedEx Express products and services in India as part of the agreement.

At its current share price, FedEx still appears to be a buy. Its price-to-earnings (P/E) ratio of 19.42 is well below the 35.52 P/E of competitor United Parcel Service.

The company also made itself more attractive to income-oriented investors by raising its quarterly dividend 15% to $0.75 per share, giving it a yield of 1.93% at Monday’s share price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

CERE – Why Cerevel Therapeutics Is Up More Than 29% in the First Half of 2021

Written by Jim Halley on . Posted in CERE, Stock Report.

What happened

Cerevel Therapeutics (NASDAQ:CERE) closed Monday at $21.39, after starting the year at $15.55, a rise of more than 29% for the first half of 2021. Most of that climb came late last month after the company released positive phase 1B results regarding the use of its CVL-231 antipsychotic drug for schizophrenia patients.

According to Cerevel, CVL-231 was well-tolerated, with few side effects, in adult patients with schizophrenia. When taken once daily, the patients saw clinically meaningful antipsychotic activity compared to a placebo. The therapy works by reducing the release of dopamine in patients by manipulating M4 receptors in the brain.

The news regarding CVL-231 came on the heels of positive news regarding CVL-871, a therapy being developed for the treatment of dementia-related apathy. The Food and Drug Administration (FDA) gave the drug Fast Track designation in June, increasing the likelihood the FDA will expedite its review of the drug because it treats a serious medical condition and could meet a need that is unfilled.

Distorted view of a person having mental difficulties.

Image source: Getty Images.

So what

Schizophrenia, a serious medical condition characterized by incoherent and illogical thoughts, as well as hallucinations, is a very difficult disease to tackle. Though the incidence rate is low, affecting between 0.25% to 0.65% of the population, according to the National Institute for Mental Health, a study in the Lancet said the disease is one of the top 15 leading causes of disability worldwide. Another study in the Journal of Pharmacy and Therapeutics placed the incidence of schizophrenia patients not taking their medication ranging between 37% to 74%, due in part to the side effects from various medications.

If Cerevel’s treatment is as well-received in later studies, that would be a major breakthrough, making the disease more treatable. The compound annual growth rate for schizophrenia medication is expected to be 4.3% and reach $9.48 billion by 2026, according to a Fortune Business Insights report. 

Now what

The company has no revenue yet. CVL-231 and CVL-871 aren’t the only drugs in the company’s pipeline, so there’s plenty of reason for optimism for Cerevel, though as with any clinical-stage biotech company, there are more risks than guarantees.

As of March 31, the company had $343.3 million in cash. That’s enough, considering its research and development and administrative costs, to last 10 years.  In the meantime, investors will be watching the next trials for the company’s schizophrenia drug closely. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

SAVA – Why Cassava Sciences Stock Moved Higher Monday

Written by Jim Halley on . Posted in SAVA, Stock Report.

What happened

Cassava Sciences (NASDAQ:SAVA) stock, after closing at $95.34 on Friday, opened at $100.14 on Monday, a jump of 4.8%. Cassava stock actually went as high as $106.39 Monday before coming back to earth a bit at $99.32 at the close, but it was still 4.1% higher than it had been on Friday.

A person is shown as a puzzle with a piece being added by the hand of someone else.

Image source: Getty Images.

So what

There were some obvious and some not-so-obvious reasons why the stock rose. The obvious is the stock had a significant drop on Friday, falling 11.4%, and on Monday investors jumped in because they saw a good buying opportunity.

The best explanation for Friday’s drop was that the FDA’s (Food and Drug Administration) acting head said the agency is asking the Office of the Inspector General to conduct a review regarding the FDA’s decision to approve Aduhelm, an Alzheimer’s treatment from Biogen, to see if any interactions between FDA staff and Biogen broke agency rules.

While this doesn’t have anything directly to do with Cassava, the company has its own Alzheimer’s drug, Simufilam, in a phase 2 trial, and investors may have been concerned the agency would adopt stricter measures regarding other Alzheimer’s treatment approvals moving forward. 

There are two factors that may have buoyed the stock Monday. First, the company announced it has hired a clinical research organization (CRO) to oversee a phase 3 trial on Simufilam near the end of this year. While that was expected, it shows things are proceeding for the therapy and the company appears confident the drug will do well in its phase 2B trial.

The other news is Cassava will present findings regarding trials for Simufilam and SavaDx, its blood test for Alzheimer’s, at the Alzheimer’s Association International Conference at the end of this month in Denver.

Now what

At this point, no one really knows what impact the FDA’s investigation will have on other Alzheimer’s drugs. Part of the reason why Cassava has climbed 1,356% in the past year is the enthusiasm engendered for Alzheimer’s medicines by the FDA’s approval of Aduhelm, the first new Alzheimer’s drug approved in 20 years.

It is reasonable to be concerned the FDA may be more cautious regarding new Alzheimer’s drugs, but that remains to be seen.

The next big mover for Cassava will likely be the reaction to the company’s findings at the upcoming Alzheimer’s conference.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

WKHS – Why Workhorse Group Dropped Again Wednesday

Written by Jim Halley on . Posted in Stock Report, WKHS.

What happened

Workhorse Group (NASDAQ:WKHS) stock opened at $13.85, dropped to a low of $12.43 during the day and closed at $12.51, a one-day tumble of 9.61% on Wednesday.

Shares in Workhorse, a maker of electric trucks, have been a favorite among retail investors and were as high as $17 last week.

Green/yellow electric vehicle charging at a charging station.

Image source: Getty Images.

So what

There isn’t one reason for the tumble, but a number of factors. Workhorse, which lost out to Oshkosh Defense, a division of Oshkosh, on the contract to make the next-generation vehicles for the U.S. Postal Service, has lodged a formal complaint with the Federal Claims Court regarding the bid process.

On top of that, investors may have become wary in what has been a bad week for EV makers. Last week, The Wall Street Journal reported that the U.S. Department of Justice is investigating another EV maker, Lordstown Motors.

The news has sent shockwaves through the EV industry and on Wednesday, two other U.S. EV makers, Tesla and Canoo, also saw their shares plummet.

Then there are Workhorse’s financials, which are concerning. On the positive side, the company reported $521,000 in first-quarter sales, compared to $84,000 in Q1 2020. However, the company lost $120.5 million compared to $4.8 million in the same period in 2020.

Now what

Electric vehicles are still a growth industry. President Joe Biden has made it a goal to increase the production of electric vehicles and charging stations in the United States.

In the long run, that bodes well for Workhorse, but the company will likely face a lot of scrutiny in light of the Lordstown investigation.

There’s also plenty of mainstream competition on the horizon. Ford just introduced its F-150 Lightning electric truck, and General Motors, in January, launched a new start-up, BrightDrop, that will focus on making electric delivery vehicles.

Losing the bid for the Post Office fleet redesign hurts Workhorse, but there are plenty of reasons for optimism for the stock, even when it’s no longer a meme darling, if it can get its financial house in order.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

  • 1
  • 2

Copyright 2010. Elite Stock Chat. All Rights Reserved