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An Important Update on 2 of My Real-Money Portfolio Holdings

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.

If you're a subscriber of my $100,000 Real-Money Portfolio, then you know I've been focusing on stocks that have the potential for serious multi-year gains. By definition, this means stocks that are out of favor right now. And in the face of a tough stock market this spring, many have them have stayed out of favor. 

The portfolio is off roughly 7%, but I'm undeterred because I know I own a basket of compelling long-term opportunities and expect my patience to be rewarded -- handsomely.

The key for these stocks is to start delivering on the thesis I've laid out for them. As an example, I was early to the game with my pick of battery maker Exide Technologies (Nasdaq: XIDE), as the company went on to offer another dismal quarter after I bought it. Yet Exide has begun to turn the corner, with shares beginning the month trading at just $2.30, but since rallying 35% to above $3. I'm still underwater with this pick, but I expect the company's turnaround efforts to slowly being recognized by more investors, eventually getting this stock back above $5, where it stood last summer.

The FDA validates this biotech stock
Another pick in portfolio is showing signs of life as well. Shares of Ligand Pharmaceuticals (Nasdaq: LGND) are up more than 20% this week on word that the Food & Drug Administration (FDA) is likely to approve the drug carfilzomib when it votes on July 27. This is a blood cancer drug being developed by Onyx Pharmaceuticals. (Nasdaq: ONXX), which traded up a hefty 40% on the news.

Why is this good news for Ligand? 

Because this drug has been paired with Ligand's captisol technology, which has clearly boosted the drug's efficacy in clinical trials. Captisol works to make existing drugs more stable, leading to more precise dosing, which I discussed in February.

As I noted back then, Onyx's "carfilzomib could be on the market a year from now. The company and the analysts who follow Ligand say this drug also has the potential to be a blockbuster." Now, it appears that sales will begin in 2012, not in 2013 as I anticipated, which means that Ligand's 2.7% royalty streams on carfilzomib sales will help bring in cash as soon as the third quarter.

The opportunity for captisol -- in tandem with carfilzomib -- may be even greater than many analysts had been expecting. Onyx apparently intends to test the drug in higher doses, which would call for a higher usage of captisol as well. As of now, analysts expect carfilzomib generate $350 million to $550 million in sales by 2016, which translates into $10-15 million in annual royalties for Ligand by then. Onyx is also working with another captisol-enhanced drug -- Opromozib -- which is currently slated to enter Phase II clinical trials. 

I am equally intrigued by the validation that likely (though not guaranteed) FDA approval brings to the technology. Ligand is working with a range of other drug firms, and a rejection might have led those partners to second-guess their own captisol-related drug development efforts.

Risks to Consider: As is the case with any biotech, it's virtually impossible to gauge any sort of timeline of future activity. Many of the key drivers for this stock are out of Ligand's hands and in the hands of partners. This stock could be dead money for a few quarters, or we may hear of more stock catalysts in coming months. That's why I implore investors to think of this and other stocks in my portfolio as multi-year opportunities. 

Obviously, I'd love to secure major gains much sooner, but these stocks are quite inexpensive precisely because the timing of an upward move for each of these stocks is unclear. I only know that, for the most part, these stocks are trading near a floor in terms of valuation. 

Action to Take --> We're getting close to the start of earnings season. In coming weeks, I intend to give you a fresh deep look at the stocks in my portfolio because I want you to have a clear sense of what to expect on upcoming conference calls. 

For now, please know that everyone one of these stocks still retains the initial investment thesis that attracted me to them. More to the point, these stocks could hit a rough patch if the market takes a fresh tumble. So if you own any of these stocks, then please stand firm. Long-term patience will be rewarded in many of these names.

[Note: Be sure not to miss a single thing and have $100,000 Portfolio updates sent to your email inbox, free for a limited time, as soon as they're published by signing up here.]

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of XIDE, LGND in one or more if its “real money” portfolios.

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