I See Two Very Different Opportunities in This Overbought Market
I’m getting into a legacy technology stock and an up-and-coming biopharma. Here’s why.
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In my column on Monday, I highlighted how many parts of the market feel like a casino right now. I noted that U.S. stock margin debt is at a record $1.5 trillion after surging over the past year. High margin levels have been correlated historically with market tops. We will see if things are different this time around.
This is not a U.S. phenomenon. Japan’s stock margin debt just hit its highest levels since 1990. The Nikkei would then go on to plunge by 80% over the next 18 years. And this in a country with a debt-to- Gross Domestic Product ratio near 250%, a demographic crisis. Also, the U.S. just had to intervene to support the yen for the first time since 2011. It also follows over 300,000 retail stock accounts getting liquidated in Korea last month as the Kospi imploded.
While the retail investor remains in a bullish mode, corporate insiders are signaling caution. Corporate insider purchases outnumber insider selling in just under 15% of companies with activity in July — the lowest level in just over two decades. Lockups expired on a good chunk of equity for employees and early investors at Space Exploration Technologies Corp. (SPCX) this week. And Jeff Bezos is dumping $4 billion shares in Amazon (AMZN). It’s big headline number, but a rounding error, given he still will own approximately $250 billion in equity. I must be getting old as my 60th birthday approaches. I still remember when $4 billion was real money.
My portfolio continues to be quite conservatively positioned. That said, I am still acting upon some limited opportunities within the current market. In the last week, I initiated new positions in two new names via covered call orders. Late last week, I pulled the trigger on Hewlett Packard Enterprise Company (HPE) to establish a decent-sized initial position. The pullback in technology through most of July brought the name into bargain territory. It is also one of few AI-related concerns I have bought in recent months. The company is evolving from a server vendor to a dominant owner of the networking layer. The stock goes for just over 15 times forward earnings and sports a 1.1% dividend yield. James “Rev Shark” DePorre did a good job writing the investment thesis up on this tech icon in more granular detail earlier this week.
I have also taken a much smaller position in NewAmsterdam Pharma Company N.V. (NAMS) via covered-call orders. The options premiums are large but not nearly as liquid as those around HPE. Despite a just over $3 billion market cap, the company gets little coverage in the financial media as it is headquartered in Europe.
This late but still clinical stage biopharma stock is advancing its sole product candidate, low-density lipoprotein cholesterol (LDL-C) lowering obicetrapib across six Phase 3 trials in patients afflicted with hypercholesterolemia, at risk for cardiovascular disease (CVD), or requiring additional LDL-C reduction associated with other conditions.
Trial results to date have been solid and the company is on course for its first European approval later this year. Some key study readouts across its pipeline should be disclosed by the close of 2026. The company has a solid balance sheet, and the current analyst firm consensus is that NewAmsterdam will hit $1 billion in sales by fiscal 2030. With the recent 25% pullback in the stock and large option premiums, NAMS merited a small covered call trade for my portfolio while I await further trial readouts and European approval.
At the time of publication, Jensen was long HPE and NAMS.
