Ticker Reports for November 16^th

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ORIC: Working with Two Pharma Giants, Analysts See +100% Upside

ORIC Pharmaceuticals (NASDAQ: ORIC) is a small-cap pharma stock. It aims to make a difference with its potentially "best-in-class" treatments. The company’s shares have not had a great year, returning -4% in 2024. However, analysts on Wall Street are bullish.

The average of five price targets released since the beginning of Sept. is $19.60 per share. The company’s stock price would have to rise 122% to reach that level. So, what is making these analysts optimistic about the stock? I’ll look to answer that question and provide my take on ORIC Pharmaceuticals.

An Introduction into ORIC’s Leading Drugs

ORIC has two drug candidates leading the way for the firm. One is ORIC-114. It aims to treat cancers that occur from mutations of the epidermal growth factor receptor (EGFR) and human epidermal growth factor receptor 2 (HER2) genes. These mutations commonly occur in non-small cell lung cancer (NSCLC). More specifically, it aims to treat exon 20 mutations and other atypical mutations.

An “exon” is a specific part of a gene, and different medicines work to remedy different exons of the same gene. A treatment designed to work on exon 19 will not necessarily work for a patient affected by an exon 20 malfunction.

The second treatment is ORIC-944, which is being developed to treat prostate cancer. It does this by trying to inhibit the Polycomb Repressive Complex 2 (PRC2). Overactivity of this protein group can silence genes that suppress tumor formation. ORIC-944 aims to reactivate these genes through suppression of the PRC2. The company has said that both treatments have “best-in-class” potential.

ORIC-944: Partnering with Pharma Giants

ORIC-944 is interesting. It doesn't aim to replace prostate cancer treatments. It wants to enhance their effectiveness by working with them. ORIC’s drug essentially aims to extend the time it takes for cancer cells to learn that they shouldn’t react to signals from other cancer treatments. The cancer cells build up this form of resistance over time, making the medicines ineffective afterward.

The success of ORIC-994 would prolong the effectiveness of those prostate cancer treatments, called AR-inhibitors. Currently, there are three main AR-inhibitors that ORIC-994 could work with. Combined, they do around $10 billion in annual sales, according to ORICs Chief Financial Officer.

ORIC has collaboration agreements to work with Johnson & Johnson (NYSE: JNJ) and Bayer (OTCMKTS: BAYRY) to improve their AR-inhibitors with ORIC-944. The other company, Pfizer (NYSE: PFE), is working to make its own PRC2 inhibitor. Positive results from Pfizer’s treatment provide confidence for ORIC-994’s potential.

From a business standpoint, it's attractive to combine forces with successful drugs. It relies on collaboration, not competition. This aligns ORIC with the interests of the large companies. It incentivizes them to help ORIC succeed. AR-inhibitors are extremely important when it comes to prostate cancer treatment. Dr. Patrick Pilié at the University of Texas MD Anderson Cancer Center calls them the "single biggest improvement in treating advanced prostate cancer in the last 5 to 10 years." This makes ORIC-944 an interesting drug to watch as it progresses through FDA trials.

ORIC-114 Exhibits Strong Results, but Greater Competition

As for ORIC-114, it appears that it faces significantly more competition. There is one drug approved for the atypical mutations that it looks to treat. Additionally, two others are currently in Phase 2 or higher trials to treat exon 20 mutations.

However, the initial results of ORIC-114 look good. Of the 27 patients studied, 18 saw a 75% or greater reduction in the molecules of the mutant EGFR gene that is causing cancer progression. Additionally, this reduction occurred in just four weeks, showing the treatment worked rapidly. One patient who had an atypical mutation saw a 100% depletion of mutant gene molecules.

The strong results from ORIC-114 and the work with big pharma on ORIC-994 make ORIC Pharmaceuticals a biotech stock to watch. At this point the stock is a highly speculative purchase, as both drugs have yet to even complete Phase 1 FDA trials.

One positive note is that the company’s over $282 million in cash gives it enough funding until late 2026. The company currently doesn’t face the need to raise more capital, so shareholder dilution is not an immediate concern. ORIC will report further data from ORIC-114 in the first half of 2025.

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Freeport-McMoRan, Copper Demand Short-Term Pain, Long-Term Gain

Investing in basic materials stocks often requires looking around corners into an opaque future. That’s been the case for shareholders of Freeport-McMoRan Inc. (NYSE: FCX). For the last four years, the stock has been a better trade than it has been an investment. You can blame much of the volatility in FCX stock on the demand for copper.

Copper is a critical metal that is needed for many renewable energy applications such as electric vehicles (EVs), solar panels, and wind turbines. But it’s also a key metal that will be needed in the power-hungry data centers that are needed to fuel the demand for artificial intelligence (AI) applications.

Freeport-McMoRan is one of the largest diversified mining companies in the world. And the company’s large footprint in North and South America is particularly large when it comes to sustainable copper mining.

The company has seven different copper mines in Arizona and New Mexico. Currently the company is producing approximately 230 billion pounds of copper, but the company’s long-term forecast is for production of 800 billion pounds.

It’s a Matter of Perspective

Investing in mining stocks puts investors at the mercy of the underlying commodity. And skeptics will note that the price of copper remains under pressure. The market in North America and Europe is well supplied. And the metal hasn’t received the expected bump from stimulus measures in China.

It’s a simple matter of demand. The EV market has stalled with expectations that the Trump administration will cancel the $7,500 EV tax credit that was fueling demand. Renewable energy stocks are also under pressure as expectations are that public policy will shift towards oil and gas stocks.

But that may be shortsighted. While it’s not wise to fight the trend, it’s important to note that analysts still believe that there will be a copper shortage by 2028. And that’s expected to be a multi-year event.

In anticipation of this supply shortage, the expectation is that many manufacturers will try to lock up their supply by making deals with miners. And as the largest supplier of copper, Freeport McMoRan will be a name in demand.

Other Catalysts May Add to the Supply Shortage

To begin with, the Trump administration’s pledge to “Drill Baby Drill” is more friendly to oil stocks for sure. But the long-term objective seems to be part of an all-of-the-above approach to energy. There’s no indication that this will be an administration that is hostile to renewable energy.

You also should consider residential and commercial construction. If the U.S. is expected to be entering a period of strong economic growth, copper will be needed to keep up with housing starts.

And you shouldn’t ignore gold which has been one of the best-performing assets in 2024. The price is softening a bit as the dollar strengthens, but the long-term outlook for gold is still favorable, which also works in favor of Freeport McMoRan and FCX stock.

Let Time Work for You with FCX Stock

Stock charts tell a story. In the case of FCX stock, you would have done well if you started building a position in March 2020. Since then, the stock has delivered a total return of well over 300%. You would have also done well if you bought the stock 12 months ago. In that time Freeport-McMoRan stock is up 21.7%.

However, when you look at the price action in the stock over a longer period, you can see that this was the outlier. Much of the stock’s growth came from March 2020 to March 2021. In the last three years, the total return for the stock is around 9.5%. And if you expand the chart to 10 years, the total return is around 72%.

A dividend that yields just 0.7% isn’t going to be enough to have you hold the stock. And if you weren’t conflicted enough, with a trailing P/E ratio of around 31x, you’re paying a premium for FCX stock.

That said, time can be your ally. Analysts give Freeport-McMoRan a Moderate Buy rating with a consensus price target of $54, which is 24.5% higher than its closing price on November 14.

If you believe that there will be a copper shortage by 2028, you can start building a position with the stock at or below its current level of around $43 per share. FCX has shown solid support around $39 so you’ll be trimming your downside risk, and you can average into the stock.

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Time to Load Up on Home Builders?

Investors and home buyers alike have watched eagerly as market optimism for homebuilder stocks has grown throughout the last year. The iShares U.S. Home Construction ETF (BATS: ITB), a benchmark for the broader industry, rose to a 1-year high in mid-October and is currently up more than 38% in the past 12 months.

The bullish view that has predominated in the homebuilder space may be due to anticipation of the Federal Reserve's first rate cut in years, which was confirmed in the FOMC meeting in September.

As of mid-November, the Federal Reserve has announced a second rate cut, and analysts are still expecting more to come. This could theoretically be a boon for homebuilders, as it reduces their costs of borrowing to finance construction projects. Still, the ITB has cooled a bit in the last month, tempering its year-long gains with a drop of about 6.5% since mid-October.

Could this represent a dip and an opportunity to buy select home construction stocks? A closer look at three companies in the industry reveals a more complex and varied picture.

MTH: Single-Family Home With Room to Grow, But Potential Barriers

Meritage Homes Corp. (NYSE: MTH) builds single-family attached and detached homes throughout the southern portion of the U.S. As an entry-level homebuilder, Meritage develops properties catering to first-time homebuyers, a group that has faced significant obstacles to home purchases in recent years.

Analysts at Raymond James recently downgraded Meritage to a "market perform" based on an expectation that the firm will face near-term earnings pressure. Other factors impacting this downgrade may include labor concerns related to policies proposed by the incoming Trump administration, the potential for higher mortgage premiums among buyers using Federal Housing Administration loans, and more.

Nonetheless, MTH shares have a "moderate buy" rating overall and, based on consensus price target estimates, upside potential of more than 20%. The company's forward P/E ratio is 8.5, considered competitive for the industry a potential sign that shares may be undervalued.

TOL: Success Navigating the Complex Luxury Space

Toll Brothers Inc. (NYSE: TOL) is a Pennsylvania-based firm developing residential and commercial properties. Its fiscal 2024 third quarter saw a 2% year-over-year improvement in home sales revenues while net income and earnings per share were each down slightly relative to the year before. However, delivered homes rose by 11% during that same period.

As a homebuilder operating in the luxury space, Toll Brothers has faced significant market volatility in recent years thanks to inflationary pressures and consumer concerns about the economy, both of which have driven customers to seek out more affordable housing options. The continued growth of the company's deliveries is testament to Toll Brothers relative success navigating this landscape.

Another bright spot for the company is its recent announcement of a partnership with Daiwa House to develop a new 73-unit luxury condominium property in West New York, a fast-growing portion of the broader New York City metro market.

Analysts rate Toll Brothers as a "moderate buy." They see a shift toward earnings growth of 8% for the homebuilding company.

KBH: Negative Impact of Mortgage Rates and Inflation

KB Home (NYSE: KBH) builds a variety of single-family homes for first-time and first-move-up homebuyers across most of the U.S. Like the firms above, the company's business has been impacted by customer sensitivity to mortgage rates and inflation. In KB's case, the impact was enough to cause the company to miss analystast quarter, while housing gross profit margin declined and the number of homes ordered predictions for profit in the l remained flat from a year prior.

Still, despite the challenges in recent months, shares of KB Home are up more than 46% in the last year and peaked at an all-time high of almost $90 around the time of the Fed's September 2024 meeting. Analysts are now cautious, rating the firm a "hold" and expecting the price to decline by 1.4%.

Assessing the Industry

Some companies in the homebuilder industry may present a compelling value proposition given their capacity to grow in select portions of the market. However, as KB Home demonstrates, others are facing external hurdles that limit their top- or bottom-line performance alongside a rapid increase in share price driven by hopes that lowered interest rates could stimulate sales. Together, these two factors may prompt investors to exercise caution.

🌟 Freeport-McMoRan, Copper Demand Short-Term Pain, Long-Term Gain

Ticker Reports for November 16^th

ORIC: Working with Two Pharma Giants, Analysts See +100% Upside