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Progenity and Disney


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Progenity

This company is developing groundbreaking medical technology. Learn why we think now is a good time to buy.


Disney

A longstanding, well-established company that continues to evolve and add new sources of revenue.

Progenity: PROG

Progenity is a company that is developing medical devices that have potential to take their existing market cap from 146 million to 1 Billion dollars. We think this market revaluation will happen in the next 5 months. This change would put Progenity at roughly $16.70 a share. They are on a fire sale at the moment and we think this would be a good time to buy. The price has recently returned to lower levels because of a large short interest of 8 million shares. We think this is either a hedge to protect against a falling share price or it is a group that is set on this price falling further. This stock has seen a 99:1 insider buying. This shows the insiders think this price will go up. We do too and the reasons are below:


1. Preecludia Topline Results Anytime Between Now and the End of July

This lab test helps rule out a harmful medical condition that can be fatal to women that are pregnant. This condition is called preeclampsia and is the 2nd leading cause of maternal mortalities. The reason why this lab test is better than existing detection mechanisms is that it is the first ever to actually measure biomarkers that will allow physicians to confidently rule out or diagnose preeclampsia. Current detection methods are just looking for symptoms which can be helpful but do not actually confirm the medical condition. Also, patients must go through 4-5 tests which is an expensive and time consuming amount of energy the affected patient has to go through.


Progenity states that more than 700,000 women a year present symptoms of preeclampsia and would most likely take this test.  We think this could become a standard of care in maternal treatment and will potentially bring in 300 million a year from the 2-3 billion dollar market. We like the company’s business position because there is no competition at the moment for their lab test. If we see the results and if they have above 93% confidence in correctly ruling out the preeclampsia condition, we should see the stock price rise, maybe over double and then continue to rise in the coming months. We think this company is also very open to commercial partnerships to reduce the risk of having issues in manufacturing and distribution of their lab tests. After their topline results, they will commence a commercial launch in the back half of this year (2021). 


2. Directed Delivery System 2 (DDS2) Topline Clinical Results Q4 2021

This ingestible pill is a potentially disruptive platform and can help increase the safety of drugs while also increasing the efficacy in some cases. This ingestible pill can also do diagnostics and can examine the GI tract which is the full path that food takes when you eat. 

I will leave this link here to show you what else this pill does and the benefits. We think this technology will be bought out by a big pharma that already has interests in this technology, Abbvie (ABBV). Previously, Progenity has shown efficacy in preclinical trials using Abbvie’s GI tract drug and we think this would be something Abbvie is going to pounce on as Progenity ramps up their clinical trials of these tests. We should know the topline results by next year at some point. Another reason we like this company is that they do not have to go through the full FDA drug approval process. They are making a medical device which takes less extensive time to finish and make available (less cash burn). The DDS2 could pull in just from the GI tract market 1 billion a year.  They have other variants of this pill such as sample collecting and bacterial detection. This is an untapped market which we like to see in a company. Competition will be hard due to the patents granted recently over this technology. If the DDS2 topline results show strong efficacy and safety in humans, we think this will add around 300-500 million in the market cap. It really depends on the overall market environment and whether or not Wall Street starts liking this company. 


Final thought on PROG: We think Progenity will be successful and this is the best time to buy them as they are turning their business around. They have made the hard choice to cut half of their employees and halt their cash burning assets, but this has made them a more efficient business. 


Disclosure: We do own PROG securities/shares at the time of publication.

Disney: DIS

Disney is a stock that we believe you can't go wrong with. It is one of our favorites as it offers high rewards with relatively low risk. Disney is consistently coming out with incredible shows on Disney+ and with the ownership of Marvel, they will have plenty of opportunities to make TV shows and movies. This alone makes us want to invest into it. The stock is sitting at $183.95 currently with a decent run up in the past few weeks. They also had a record number of viewers for the England Vs. Italy Euro final game on ESPN. They have definitely figured out the entertainment market. 


Price Forecast

The price should continue to increase over time 

Current Price: $183.95

One Month: $185.50

One Year: $195.00

Two Years: $220.00


As Disney+ continues to grow its membership base, investors will feel more confident in the stock. The long awaited Black Widow movie finally released July 9th and already brought in crazy numbers on the streaming app. “Broken down, that’s $80M at the domestic box office, $78M in international box office, and over $60M in Disney+ Premier Access consumer spend globally.” They pulled in 60 million from their streaming app… This is only one week in as well, expect that number to continue to rise. They are shifting how we watch movies. For $30 I can get the movie right at the release date and watch it from the comfort of my own home. 


They have an upcoming earnings report August 12th after hours. Look for an increase in memberships to Disney+ and also theme park revenue. Disney has so many revenue sources that its fairly easy to look the other way when one is struggling (like the theme parks the last year and a half). They reported their second quarter earnings back in May and reported: “Diluted earnings per share (EPS) from continuing operations for the quarter increased to $0.50 from $0.26 in the prior-year quarter.” A solid increase and we expect this next earnings to be positive as well. 


Disney also stated in their quarter 2 earnings that the biggest detriment was the cost of operating their theme parks. “The most significant impact was at the Disney Parks, Experiences and Products segment where since late in the second quarter of fiscal 2020, our parks and resorts have been closed or operating at significantly reduced capacity and our cruise ship sailings have been suspended.” Just the cost of running the parks at such a low capacity has cost Disney billions of dollars. “Walt Disney Company CEO Robert Chapek announced that the Florida park system could approach full capacity by year’s end during the JPMorgan 49th Annual Global Technology, Media and Communications Conference.” If this is possible, Disney’s stock value could fly even higher. If DIS is able to get all revenue sources firing at the same time they will be poised for a run up in value. 


Being realistic, Disney+ is not the only streaming service out there… There are a lot of options out there which could be a reason for concern in that section of their balance sheet. As long as Disney keeps producing quality TV shows for Marvel, Star Wars, and other children's shows, they will be able to hold their own in the streaming space. People will hold multiple subscriptions to services if the product is quality and Disney+ has yet to miss in our opinion.


Going forward with this stock, “This year, Disney+ will expand to Eastern Europe, South Korea, Hong Kong and other markets. The company now expects to have 230 million-260 million Disney+ subscribers by 2024, up from its prior estimate of 60 million-90 million for the same time frame, with global subscriptions across all services reaching 300 million-350 million.” This is the exact reason why we believe this stock has huge upside.


Disclosure: We do own DIS securities/shares at the time of publication.

All stocks talked about we have invested in, and do not intend to give advice nor recommend acting upon the information.

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Until next week,


Brad Mitchell

Colby McCoy

and the Optifinancial Team

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