24. September 2021 | 11:28 CET
Alibaba, Kainantu Resources, MorphoSys - The turnaround beckons here
A stock that has fallen sharply can offer the chance to make significant gains relatively quickly. Kostolany once said, "What seems cheap can become much cheaper". In other words, one should be wary of reaching for the falling knife. The shares that you have on your watch list as turnaround candidates should be monitored as closely as possible in order to strike at the right moment. The first thing to do after a stock crash is to wait for it to bottom out. To do this, one observes the Company's earnings position. In addition, the Company's story should fit, and entry should be sought using chart technology. Then nothing stands in the way of more considerable price gains. Today, we look at three companies that could be on the verge of a turnaround.
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ISIN: ALIBABA GR.HLDG SP.ADR 8 | US01609W1027 , Kainantu Resources Ltd. | CA48301H1073 , MORPHOSYS AG O.N. | DE0006632003
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Alibaba - Chart technique remains bearish
In October 2020, Alibaba's stock was still trading at over USD 319. Since then, it went down to almost USD 149. Over the year, the stock has thus lost about 52%. Therefore, a doubling of the share price could be possible in the event of a turnaround. Competitor Amazon has also lost ground recently, but there is no comparison to Alibaba. The Company's founder himself unintentionally initiated the crash by speaking out critically about the government authorities.
Since then, obstacles have been placed in the Company's path time and again, such as with the initial public offering of Ant Financial. It had to be canceled after the government intervened. The IPO would have increased the value of the investment by several billion USD. Subsequently, there was a fine of USD 2.8 billion for antitrust violations. Most recently, Chinese state-owned enterprises have been pressured by the government to switch to state-owned cloud providers. Of course, this also affects Alibaba's cloud business, which has grown steadily in recent years.
Whether the Evergrande crisis will also affect the group is not yet clear. The crux is the uncertainty that the Chinese government is carrying into the Company. Looking at the fundamentals, the valuation is more than favorable. The price-to-earnings ratio is just over 15, and you have to go back to the 2014 IPO to find a similar low valuation. The majority of analysts rate the stock as a buy. What is missing for a turnaround is confirmation from the chart, and this is currently not in sight. Only above USD 178.18 would the downward trend be broken.
Kainantu Resources - Gold and copper deposits
Kainantu has also lost more than 50% from its highs. The Company owns two promising gold and copper projects in Papua New Guinea. The stock gained since March this year and recorded its high shortly after discovering 40.13 g/t gold at the KRL South project. However, shortly after the announcement, consolidation set in and the gains were almost given back. Yet, the Company's two KRL projects (North and South) are close to the K92 mine, which has one of the highest-grade deposits in the world.
In June, the Company announced the acquisition of the May River project, which consists of three parts, in the world-renowned Frieda River copper-gold district. The first two areas, which account for the lion's share at 1603 sq km, are owned by Hardrock. Prior to the acquisition, Kainantu is currently still conducting a field study to satisfy the quality. Only then can the Company decide on the final acquisition. As can be seen from the Company's announcement on September 21, the study's initial results have been good. The third area belongs to Niuminco, and this Company is currently having difficulties with the Minister of Mines, who has not approved the application for the extension of the license. Therefore, Kainantu has to wait and see how the situation develops.
One advantage for the Company is its good network in the Asia-Pacific region and its cooperation with Asia Pacific Energy Ventures Pte, which has already managed several large projects in the area. The current market capitalization is around CAD 10.5 million and can be considered cheap considering that there is still around CAD 1.6 million in the coffers for further exploration work. Kainantu is an emerging company that does not have much investor attention yet. One should have the stock on the watchlist, assuming rising gold and copper prices. The share may have formed a double bottom.
MorphoSys - Given the silverware out of its hand
In 2020, MorphoSys was trading at over EUR 125 and today is currently trading at just EUR 43. How could the former stock market darling come to this crash? Since co-founder Moroney took his hat in 2019, things have been going almost steadily downhill. The former boss wanted to turn the biotech company, which had ongoing licensing income, into a true pharmaceutical company. Before he had even implemented the plan, he left the Company. His successor, Jean-Paul Kress, went one step further and tried to add value for shareholders through acquisitions.
The acquisition of Constellation Pharmaceuticals for EUR 1.7 billion could turn out to be a mistake in the future, but just as likely a brilliant move. Constellation has two advanced-stage cancer drugs that could have the makings of blockbusters if clinical trials are successful. It is a bet on the future for which the Company paid a high price. To fund it, it ceded much of the safe royalty income from Tremfya, otilimab and gantenerumab. The royalties from Trefya alone are said to have brought in around EUR 30 million per year, of which the Company will not see a cent in the future.
The drug Monjuvi, from which the Company had expected a lot, fell short of expectations in terms of sales, and the management had to lower its sales forecast to EUR 180 million. MorphoSys can only really profit if the drug is a success on the US market, as this is the only market where the Company has a direct stake. The rest of the world is handled by Incyte, which then pays license fees. To leave the downward trend, the resistance at EUR 51.60 must be overcome. But even then, everything depends on the cancer drugs, which were bought at a high price. News on these drugs should be kept in mind if you want to speculate on a turnaround.
All three companies are dealing with some uncertainties. Alibaba is suffering from the Chinese government. The upside with this stock is its strong fundamentals. Kainantu is a relatively young company, which has already found quite large gold deposits. News is needed here to move the share price because the stock is still flying under the radar. MorphoSys wanted to turn the big wheel and now faces an uncertain future. A lot depends on whether the Constellation acquisition can be viewed positively in the end. It is essential to keep an eye on the chart technique for all stocks to get in when there are positive signals.