Weighing in on the “Stocks are Over-Valued, it’s a bubble” debate

The markets hit new highs yet most of the discussion revolves around why that shouldn’t be happening. In this post, I’d like to address the “Stocks are over-valued” argument.

I’ll be presenting three charts based on our Value Scores, Financial scores and Trend Scores. These scores are calculated on a scale from 0 (the worst) to 6 (the best) for the 6000 or so stocks that we track. A score of 2.5 to 3.5 is roughly “middle of the road”, not too bad and not too good. So scores below 2.5 are considered “poor” and scores above 3.5 are considered “good”.

When calculating the Value Score we would consider the following scenario to be equivalent to “reasonable value” with the expectation that some stocks would score even better on some or all of these parameters and be considered “deep value”

  • PE between 0 and 16
  • PEG between 0 and 1.2
  • Price-to-Sales less than 2
  • Debt-to-Equity less than 1
  • EV to EBITDA less than 10

With this first chart we get right into the value debate. This chart shows the percentage of stocks in our universe that are over-valued or somewhat over-valued; in other words, with a Value Score below 2.5

As you can see, the number of over-valued stocks has not risen much in the last year. There may have been a spike in January 2014 but the numbers have come back down and are more or less within the average range now.

At this point, you might be saying “Wait! Look how high the percentage is; almost half of stocks are at least somewhat over-valued.”

My answer is that you can’t look at a value statistic like this in isolation. It is instructive to also look at the financial condition of the market. Our next chart does just that.

To calculate our Financial score, we use a combination of PE, Debt-to-Equity, Y-O-Y Revenue Changes, Y-O-Y EPS Changes, Last quarter Cash Flow and ROE.

This chart shows that the number of stocks with mediocre to poor financials is currently up around 55%. This suggests that there are some problems lurking within company fundamentals for roughly half the stocks in the market; however, it can also be seen that the situation has been improving over the last two quarters.

Finally, if this was a bubble we would expect to see stock prices rocketing higher. Our next chart looks at Trend Performance Scores to see how many stocks are currently in solid up-trends.

Our Trend Performance Score combines the evaluation of moving averages (20-day EMA, 50-day EMA and 200-day EMA), DMI, Aroon and MACD into one trend score.

This chart indicates that barely 25% of stocks can currently be considered to be in solid up-trends. That sure doesn’t seem like a bubble to me.

Conclusion —

Unfortunately, there are no earth shattering conclusions to be drawn from our three charts; however, there are still two things that can be determined from reviewing this data.

First, the “doom-and-gloom, stocks are over-valued, it’s a bubble” crowd seem to be wrong (again). Our Valuation chart and Financial chart do indicate that not every stock is a good value or has perfect fundamentals; however, that is normal! Growth stocks (and many small caps), for example, would seldom fall into the “good value” category and would often find themselves in a less than great financial score category. The fact that our charts shows the market roughly split down the middle with half of stocks a decent value and half of stocks somewhat over-valued is not such a bad thing.

Second, with only 25% of stocks in a solid up-trend, I think the analysts and investors who say the market has more room to run are correct.

With stocks doing “more or less OK” in terms of valuation and fundamentals and the majority of stocks just muddling along in terms of price levels, it seems the path of least resistance is up.

So, no bubble. Short of some global conflagration turning markets upside down, “buy the dip” is still the order of the day.

Posted in Stock Analysis | Leave a comment

RGRX – penny stock with approaching financial deadline

Very seldom does a penny stock interest us, but we are intrigued by the potential now offered by RGRX.  Regenerx Biopharmaceutical is an early developer of applications for synthetic Thymosin Beta-4, a natural occurring peptide.

RGRX  acquired the rights to this novel peptide from the National Institute of Health (NIH) in 1999. This intellectual property for Thymosin Beta 4 (Tβ4) allowed the company to direct its focus on tissue protection and repair in multiple disease indications.

According to the company’s website:

” RegeneRx Biopharmaceuticals, Inc. is a clinical-stage drug development company focused on tissue protection, repair and regeneration with an extensive portfolio of product candidates for first-in-class therapeutic peptides.

RegeneRx’s management team is focused on moving three distinct Tβ4-based drug candidates through clinical trials: RGN-137, RGN-259 and RGN-352. RegeneRx also holds over 60 issued patents or filed patent applications worldwide in order to enable and protect multiple indications and applications for its product candidates.

In addition to Tβ4, RegeneRx is developing Tβ4 peptide fragments for cosmeceutical applications, separate and distinct from the pharmaceutical peptide and formulations. RegeneRx intends to pursue strategic business relationships to develop these smaller peptides for the cosmeceutical market. “

The company has completed Phase 2 trials for RGN 259 eye drops, and for RGN 137, a topical ointment for E Bulosa.   RGN 352, an injectable for Multiple Sclerosis, and

RGN 457. an inhalation for Cystic Fibrosis and Bronchiectasis, are both in Phase 1 trials.

In March of this year the company announced that it has received a Notice of Allowance from the U.S. Patent and Trademark Office claiming compositions and methods for treating, preventing, inhibiting, reducing, or repairing tissue deterioration, injury or damage due to heart failure using Thymosin beta 4 (Tβ4), its isoforms and fragments, derivatives and analogs. The patent is projected to expire in July 2026. The Company holds similar patents issued recently in the US, EU and China.

As a development company, Regenerx has burned up capital while producing little or no revenue.  Consequently it has had to seek deep-pocket investors to continue operations which are aimed at developing, and then licensing its intellectual property.  Fortunately it has made contact with Sigma-Tau, a closely-held Italian company owned by the Cavazza family.  Sigma-Tau has been very successful financing other small biopharmaceuticals: SCLN, ENZN, SNGX, and QCOR.

Currently, Sigma Tau Finanziaria SPA owns 49.24%, and Officers and Directors control another 6% of the 31 million shares outstanding.  According to blogs and message boards, there could be as many as 3 million shares sold short – – – (FINRA numbers do not coincide with the SEC, probably because of market-maker discrepancies.)

However, this short holding could be a boon to share price if or when good news is announced by RGRX.  And that could come soon.

On May 13, the company issued a letter to shareholders

(read it here: http://www.regenerx.com/pdf/Letter-to-Shareholders_5-13-2013_Final.pdf )

In it they explained the need to raise $2 million, to carry on with their strategy to complete trials, license products, and pursue more patents.  The key paragraph however, was this:

It is important to note that we will need a portion of the projected capital before the end of the second quarter of 2013. If we are unable to raise any additional capital within this timeframe, as reported in our public filings, we will be forced to further reduce or cease operations, go dormant, sell some or all of our assets, or possibly face bankruptcy.

That deadline is fast approaching.  The question for any investor or trader is whether Sigma-Tau will allow RGRX to go bankrupt, or whether they will once more step in with a capital infusion.  It should be noted that in case of a bankruptcy, the primary patent on which Regenerx’s IP portfolio is built will revert back to NIH, and would not be available in the disposition of remaining assets by a bankruptcy court.

It is pure speculation to believe that S-T will once again come riding to the rescue.

But at a share price of just 6 to 8 cents, and a financial deadline fast approaching, RGRX could be a winner for the brave of heart.

Posted in Stock Analysis | Leave a comment

Better support for penny stocks

We wanted to let everyone know that we have improved support for penny stocks on our E-Zone Quick Quote page.

Previously, low-priced stocks were difficult to evaluate. The information got all scrunched up on the charts, E-Zone numbers were not rendered to the sufficient level of precision, etc.

All that has now been addressed. When you evaluate a penny stock, you will now see that the chart automatically scales to provide a full, detailed view of the calculated E-Zones. The entry and exit zone numbers are also given to four digits precision.

With these improvements, it will be much easier for penny-stock traders to evaluate price moves of only pennies or fractions of pennies.

Also, please be aware that many penny stocks are listed on pink sheets or over the counter bulletin board markets. Follow the link at the top of the Quick Quote page (it’s just to the right of the GO button) over to the Yahoo list of exchanges to find a list of all the exchanges that we support. Just above this link is an example of how to tack an exchange code onto a stock symbol so the Quick Quote page can pull the appropriate price data. Don’t forget, this also works for non-U.S. stock traders so they can evaluate stocks on foreign stock exchanges.

Happy holidays to all our users and good luck in your trading!

Posted in Uncategorized | Leave a comment