The stock market has been resilient during a tumultuous 2020 (the S&P 500 is up about 7% since January), but as many people have personally experienced this year, that performance doesn’t tell the whole story of the U.S. economy. One-third of Americans say they dipped into their savings or retirement stash in order to pay bills in August, according to the Pew Research Center. And only one-third of those who lost their jobs returned to the same job, while…
15% have had to take on different roles, and close to 50% of those people remain unemployed.
The rise in trades on zero-commission trading platform, Robinhood, is illustrative of the disconnect between the economy and the stock market. In the first four months of 2020, Robinhood added three million new accounts — half of which belonged to first-time investors. Robinhood has made it easy to make trades at no cost, and as a result, traders are making small bets on risky stocks. This trend has undoubtedly helped prop up the markets this year. It’s also helped to make them pretty unstable. Although Robinhood investors may not mind taking on some risk, it might be a good time to start cutting loose the particularly expensive stocks that are popular on the trading platform, including Sorrento Therapeutics (NASDAQ:SRNE) and Peloton Interactive (NASDAQ:PTON), in case the market’s bottom falls out.
1. Sorrento Therapeutics
Sorrento Therapeutics stock is up more than 190% this year, making it one of the hottest healthcare picks of 2020. The stock took off in May when its CEO, Henry Ji, offered Fox News an optimistic view on a COVID-19 antibody treatment: “If we have the neutralizing antibody in your body, you don’t need the social distancing. You can open up a society without fear.”
The company reported in June that its STI-4398 protein, or COVIDTRAP, was able to neutralize the coronavirus in preclinical studies. Sorrento stated that it was going to “submit all preclinical data for scientific publication in the next two to three months” as it looks to start clinical trials in order to evaluate the safety and effectiveness of COVIDTRAP. In September, the U.S. Food and Drug Administration (FDA) gave Sorrento the green light to proceed with phase 1 trials of its STI-1499 antibody treatment, also knows as COVI-GUARD. Sorrento is also working on a COVID-19 protein vaccine candidate, T-VIVA-19, which is not yet being tested in human subjects.
There’s a lot of excitement surrounding Sorrento and the possibility that it could bring a cure or vaccine to market. The problem is that other big names like Johnson & Johnson, Pfizer, and Moderna are also working on vaccines, and are much further ahead in their clinical trial programs. There are also treatments such as Gilead Science‘s remdesivir, which the FDA has granted an emergency use authorization (EUA) to treat COVID-19 patients, and the antibody cocktail from Regeneron, which President Trump took to treat his COVID-19 infection under compassionate use. (Regeneron has since submitted a request to the FDA for its cocktail to receive an EUA). Sorrento may be falling too far behind in the race to obtain FDA approval for its vaccine and treatments — assuming they even make it to phase 3 trials.
Today, shares of Sorrento are trading at a whopping 55 times its sales over the past 12 months. That’s up from just 11 times revenue a year ago. With just $16.7 million in sales through the first six months of the year, this company is clearly in its early growth stages. It has several immunotherapy and pain programs in clinical stages, but Abivertinib, which treats lung cancer, is the only one in phase 3. Abivertinib is also being explored in phase 2 trials as a possible treatment for COVID-19 cytokine storms, which occur when the immune system mistakenly attacks the body’s own cells rather than the virus.
2. Peloton Interactive
Fitness company Peloton is a slightly safer investment than Sorrento because it is already generating strong sales numbers, as its stationary bikes are proving more and more popular with consumers.
The company filed its fourth-quarter results on Sept. 11. Peloton reported sales for the period ended June 30 totaling $607.1 million, having grown by 172% year over year. Its revenue for the full year doubled to $1.8 billion, as Peloton has greatly benefited from consumers staying indoors amid the pandemic and opting to exercise at home rather than at the gym. Although Peloton reported a loss of $71.6 million for the year, its Q4 bottom line was a positive $89.1 million.
But here’s the issue: Investors who buy the stock today have to…
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