Kodak (NYSE: KODK) was suffering from its multi-year downward trend as the iPhone made the Kodak camera look like a dinosaur. However, out of nowhere, the camera company launched itself back on the investing scene after securing a $765 million COVID-19 deal. Kodak will now play a critical role in producing key materials and chemicals ingredients in US Pharmaceuticals. Investors who missed the announcement are kicking themselves for not getting in. Today’s article will provide our readers with a simple breakdown of the deal and whether YIG sees value.
Table of contents 1. Overview of the Kodak-COVID-19 deal. 2. Does YIG see value in an investment?
Kodak’s $765 million COVID-19 deal with the DFC
At face value, a connection between Kodak and COVID-19 might seem bizarre. However, it is the chemicals, key starting materials (KSM’s), used in the creation of film that creates the bridge between Kodak and the coronavirus.
Two months ago Donald Trump instructed the International Development Finance Corporation (DFC) to revitalise critical industries that would ensure the world was not caught out by another pandemic. DFC initially pinpointed the slowness of the pharmaceutical supply chain as a major issue. Almost all of the drugs we consume are manufactured over in China and India. The DFC wanted to bring some manufacturing over to America to ensure security and safety in drug production. Kodak’s colossal factory space remains largely inactive because of the lack of demand for Kodak film. Ultimately presenting the DFC, Kodak, and the United States drug production industry with an opportunity.
Under the deal, Kodak will focus on producing Key Starting Materials (KSM’s) and the active pharmaceutical ingredients. Optimism instantly spread like wildfire, especially as Donald Trump called the event “one of the most historic deals in US Pharmaceutical history”. Thus, it should be no surprise that the bulls drove a 300% rally in the morning. Since the morning Kodak suffered a 30% decline but still remains at an impressive 200% gain since Monday’s close.
Does YIG see value in an investment?
Before I begin, I am obliged to remind our viewers that this is not advice but rather investment commentary from extensive research
Short answer: Going long or riding the pullback holds the most value (opinion not advice)
Riding KODK’s pullback
Investors who missed today’s rocket might be eager to buy at the market open. However, that is likely greed telling you the stock will go to the moon. Now while Kodak’s event is a real catalyst and not a pump and dump, we should still see the sell-off continue. Investors are likely to continue to take their profits to come market open. Because a 200% paper gain is something you do not want to let go. However, once investors take their profits, we should be left with buyers, which should drive up the price. It this reversal that could potentially provide short-term investors with a nice gain. YIG would like to point out that what you might think is a reversal, the rest of the investing community might not. Thus, waiting for KODK to rise shortly after a dip is smarter than trying to guess the exact price Kodak should reverse.
Investing for the long-term
The timing hassle of short-term investors may encourage some investors to take a long-term approach to Kodak. Today’s announcement is a real catalyst and could mark the revival of the camera company for years to come (opinion not advice). The entry point on a Kodak investment should still matter to long-term investors. A possible window could open once all the short-term investors have left , and Kodak finds a more natural equilibrium.
Despite the optimism, some investors may have a strong bearish sentiment and are looking to short KODK. Investors can short KODK by buying put options or selling extremely bullish call options. While shorting may pay-off in the short-term, Kodak should follow an upward trajectory in the long-term. Because the COVID-19 deal is a true market catalyst and not that of a pump and dump. Thus, setting a shorter timeframe with a modest profit and loss target, because the trade could go wrong, is crucial for shorting KODK.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Senior Manager of YIG.