Before we start, we are obliged to remind our viewers that this is not advice, only general commentary from Youth Investment Groups extensive research in this area.
Mesoblast (ASX:MSB, NASDAQ: MESO)
Mesoblast, a stem cell biotech, is on fire right now. Investors are rallying behind Mesoblasts' COVID-19 treatment (Remestemcel-L). Mesoblast's Phase 1 trial resulted in an 83% (10 out of 12) survival rate. Remestemcel-L is now under Phase 2 trials with 300 COVID-19 patients. A pleasing survival rate could see MSB erupt like a volcano.
Success is not new for Mesoblast. MSB experienced an impressive 100% growth in 2019. Mainly due to Mesoblasts' robust product pipeline ranging from chronic heart failure to lower back pain to pediatric diseases. Currently, Mesoblast's cardiovascular and lower back pain drugs are in stage 3 clinical trials. Combine a potentially viable COVID-19 treatment, and two FDA approved drugs, and you have a recipe for success.
Mesoblasts holds the most weight, (45%) in the portfolio due to its strong correlation to COVID-19. The biotech is receiving unprecedented traction because of its promising coronavirus treatment.
YIG views the current price of $3.69 as fair value. Mainly because of the controlled stock growth over the past month with a nice resistance backing between $3.50-$3.60. However, if MSB's COVID-19 treatment pulls through, we could see the biotech enter uncharted territories.
Kogan (ASX: KGN) is a rising leader in the digital retail space. KGN is an online shopping destination providing customers with everything from electronics to fitness equipment to pet beds and many more. Kogan sells its own products on both their website and Amazon Australia.
COVID-19 saw KGN explode by 150% in two months because the lockdown sent a tsunami of customers to online retailers. In turn, Kogan is stealing the market share away from Aussie retailers like JB-HI-FI. Overall, Kogan is a disruptive force in the retail industry and is set to surge during and after COVID-19.
Despite Kogan surging due to the virus, we see the innovative retailer, as a safe company with huge growth potential. Hence, Kogan holds a 35% weighting. Dividend investing is difficult at the moment, with the longevity and profits of certain companies under question. Kogan is ahead of the retail curve and can thrive during a crisis. Thus as Kogan grows, so too should their dividend. YIG's sees fair value for Kogan between $10.35-$10.55.
Zoono Group (ASX: ZNO)
Zoono Group (ASX: ZNO) is one of Australia's most traded hand sanitiser pharmaceuticals. ZNO rocked the ASX when their hand sanitiser, Microbe Shield, tested >99.99% effective against the feline coronavirus (a globally accepted substitute for COVID-19).
If we think logically, COVID-19 will fizzle out by a) viable treatments and b) if everyone who is not infected maintains excellent hygiene. Thus, ZNO is poised to surge off a second coronavirus wave.
ZNO holds the most risk and thus only sits at 20%. Zoono currently trades at $2.13. At $1.90, it holds considerable risk because it seems the hand sanitiser stock could'nt break out of the $1.90's. However, that changed today, providing optimism for the future.
The future severity of COVID-19 will dictate the potential growth. A second wave could ignite extreme investor backing. Whereas a recovery would see the biotech return to slow growth.
1.655 (5Y Beta). A beta above one means when the markets are up, the portfolio outperforms the market. However, this would have an adverse effect on the portfolio if the markets were bearish.
However, the portfolio’s beta is a theoretical correlation to the ASX. Considering investment theory is almost non-existent at the moment, I would focus more on the stocks growth potential.
1/3 stocks (KGN) pay a dividend. The additional cash flow would allow us to reinvest into KGN. Ultimately, generating higher dividends payments in the future. Considering ZNO and MSB are biotechs it is understandable they do not pay a dividend. However, if MSB becomes profitable a dividend should be on the horizon.
Having an investment plan can be difficult, but is essential. Our founder, Tyger Fitzpatrick, created a simple yet profitable investing strategy: Dynamic short term (DST). A DST is where you aim to capitalise on short-term surges and either pull out or hold to see if the growth comes to fruition. Investors should use DST’s only on companies with strong growth potential.
Both MSB and KGN meet the criteria for a DST. We can either pull out after KGN, and MSB surge off COVID-19 or opt-out and hold for the long term.
Alternatively, you can take the profit out but leave the original amount in for the long-term.
Portfolio’s gain/loss = up 8.8% (since inception 28/05/2020)
ASX gain/loss = up 2.4% (since 28/05/2020).
Last updated: 5/06/2020 market close
Kogan (ASX: KGN)
Zoono Group (ASX:ZNO)