Profiting from the Gottlieb Effect

A few days ago, I wrote that Personal Finance Income Portfolio holding Altria Group (NYSE: MO) may benefit from the recently announced departure of Scott Gottlieb as commissioner of the U.S. Food and Drug Administration (FDA). I also noted that shares of MO have rallied more than 30% over the past two months. A third of that gain has occurred during the two weeks since that rumor was confirmed as fact.

Although a temporary successor has been named, we do not yet know if he will be appointed as the next commissioner. It may be premature to assume that the FDA’s stance towards reduced risk products (RRPs) and medical marijuana may soon change. Recently, Altria invested nearly $15 billion in those two businesses via stock purchases in privately-held JUUL and publicly traded Cronos Group (NSDQ: CRON).

For what it’s worth, the FDA’s acting head made this comment regarding RRPs such as e-cigarettes:

E-cigarettes: are they terrible or good or in-between? We need more research, and it’s a very big deal from a public health point of view.

That type of research could take several years to complete and may prove to be inconclusive. There are many risk factors at work, so isolating just one of them is difficult.

However, the stock market is forward-looking. Already, there have been big price swings in stocks that may be affected by a change in FDA policy. Gottlieb was a vociferous opponent of RRPs. His successor may ultimately prove to be more accommodating if the data supports RRPs. Here’s how to play the current trend.

Trial and Error

It appears the stock market believes that Gottlieb’s successor may prove to be less hostile towards tobacco products. For example, cigarette manufacturer Phillip Morris International (NYSE: PM) is up 35% since the start of the year.

Less clear is how a change at the top of the FDA may affect many health care stocks, especially the biotech sector. The day Gottlieb’s departure was announced, the health care sector lost nearly 3% of its value. That same day, Altria and Phillip Morris increased slightly in value.

Gottlieb was a strong proponent of experimental treatments for cancer. He was instrumental in reducing the regulatory hurdles required to move an unproven drug through trial stages. Now that he’s gone, it remains to be seen if Gottlieb’s successor will be as supportive, especially since many of those trials have failed to live up to their lofty expectations.

Over the past twelve months, the benchmark SPDR S&P Biotech ETF (XBI) has gone nowhere as shown in the chart above. This suggests that the FDA’s ability to make something succeed is weaker than it would like to believe. The FDA can deter tobacco merchants from selling their products to willing consumers. However, it can’t ensure a positive outcome for experimental drug treatments.

Betting on the Consumer

Politics aside, Gottlieb’s tenure may serve as a referendum on the effectiveness of government intervention. He did everything in his power to impede the RRP business, which continues to grow.

At the same time, the biotech sector has few clear victories to declare despite Gottlieb’s best efforts to push it along. It appears the “Gottlieb Effect” on the stock market may be as ephemeral as the placebos that the FDA regulates.

That being the case, perhaps the safest bet to make is on consumer behavior. One person who is betting on a positive outcome is my colleague Jim Fink, who holds a position in Altria in his Velocity Trader service.

Jim Fink has racked up an impressive track record by anticipating trends and acting before the rest of the investment herd. He’s now making this bold promise:

“If I don’t deliver 24 triple-digit winners over the next 12 months…I’ll give up $1,950.”

Jim can confidently make that promise, because he has developed a proprietary trading system that makes huge gains, whether the market is going up, down or sideways.

By following just a few simple steps, Jim’s system allows you to take regular stock movements of 8%, 17%, or 34% and amplify them to generate profits of 100%, 300%, even 800%.

Want to know how Jim does it? Click here now for a free presentation.