Market Monitor: Richard Steinberg
Steinberg Global Asset Management President & Chief Investment Officer
Novocure is an oncology company developing a cancer treatment utilizing a proprietary therapy called Tumor Treating Fields, the use of electric fields tuned to specific frequencies to disrupt solid tumor cancer cell division. NVCR ‘s Optune is an electrical device resembling a cap with wires which produces electrical fields (called Tumor Treatment Fields or TTF) tuned to specific frequencies to disrupt cell division, inhibiting tumor growth causing the affected cells to die. Optune has been approved for treatment of glioblastoma. When used together with chemo, the results are dramatically improved by 36 to 60%. Novocure was founded by an Israeli biophysicist who proved its efficacy in mice. We have a target price of 54, based on use for glioblastoma alone. However, if approval is obtained for other brain tumors or solid tumors below the neck, our target may be conservative.
Yelp Inc. operates a platform that connects people with local businesses in the United States, Canada, and internationally. The company’s platform covers various local business categories, including restaurants, shopping, beauty and fitness, arts, entertainment and events, home and local services, health, nightlife, travel and hotel, auto, and others. Yelp provides reviews on local businesses. This pick is a play on Millennials who can’t make a decision without consulting an app first. The company sells advertising to small businesses and are helped by an improving economy. Over the last 5 years, revenues have compounded at 43% and are now approaching an inflection point for network effects and scale. While the stock trades at 74X next year’s earnings of $0.55 per share, it trades at only 24X free cash flow and has no debt. At a $3.4 billion market cap, the stock could be an acquisition target for Google or Booking.com. We have a price target of $64.
American Tower Corporation (AMT)
American Tower, one of the largest global REITs, is a leading independent owner, operator and developer of multitenant communications real estate with a portfolio of over 160,000 communications sites. Along with fellow REITs Crown Castle (CCI) and SBA Communications (SBAC), AMT is part of an oligopoly that controls the U.S. cellular tower market. AMT also generates about 44% of its revenue from outside the U.S. The stock trades 17.7x next year’s free cash flow estimate of $8. Their business has a wide moat that provides critical infrastructure and benefits from high barriers to entry and high switching cost. They also generate recurring revenue backed by long-term contracts, and once a tower is constructed, capex requirements are low. AMT should benefit from continued data consumption growth and the eventual deployment of 5G in the U.S. International growth should be even stronger, benefiting from data consumption growth and industry consolidation. AMT has recently been hit because of elevated churn in India due to carrier consolidation and a strong U.S. dollar, which will be a headwind for international earnings. Nevertheless, we like the long-term story, especially at the current price. We have a price target of $180.
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