The story of the Eastman Kodak Company [NYSE:KODK] is a bizarre one.
For much of the 20th century they were the kings of camera film. A company that was so well known that its branding became a part of everyday life.
Anyone old enough to remember winding camera film will have had their fair share of ‘Kodak moments’. A genius tagline that became more than just simple advertising.
But, it wasn’t going to last.
By 2012, with digital cameras now dominating the industry, Kodak was going under. They had failed to adapt to the modern photographer’s needs. Ignorantly hoping that film would keep the company afloat.
It did not.
A year later though, after a painful bankruptcy, Kodak made its return. Reinventing itself with a focus on digital imaging. But it was still too little, too late.
Kodak couldn’t gain any traction and slowly but surely was on its way to another bankruptcy.
And by late 2017/early 2018 they got desperate. With the crypto bubble at its peak, Kodak decided to dive into the world of blockchain. Another venture that has yet to yield any solid returns.
So, by March of 2020, Kodak looked to be on the way out. Sinking to its lowest share price (US$1.55) since relisting in 2013.
That is until this week…
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An unlikely comeback for Kodak
In case you haven’t heard already, Kodak is making headlines once more this week.
On Monday, Kodak stocks closed at US$2.62 per share. Close to its all-time lows seen earlier this year.
By Wednesday though, in the midst of a trading frenzy, the Kodak share price hit US$60 at one point. Netting the brave few investors still in the stock a 2,190% gain!
In other words, this stock went absolutely bonkers.
Now, as of today, the stock has cooled off somewhat. Falling back down to US$29.50 at time of writing. But that’s still an insane 1,025% gain in just four days.
So, what caused the incredible breakout?
Trump did.
On Tuesday the US government announced a new US$765 million loan to Kodak. Money that won’t be used to make camera film or digital images, but rather drugs.
That’s right, Kodak is now pivoting into the pharmaceutical industry. A play that has seemingly come right out of left field.
Granted, Kodak did flirt with a pharmaceutical venture back in the late ‘80s. Acquiring drug-maker Sterling Drug for US$5.1 billion. A strategy that didn’t amount to much as the company was forced to sell Sterling’s assets just six years after acquiring it.
This time around though, things may be different. After all, they’ve got the backing of the US government. And it is a far more political decision than first meets the eye.
See, Kodak isn’t trying to find the next cure for COVID-19 or cancer. They’re not aiming to be a drug discovery company.
Instead, they are simply going to make ingredients for generic drugs. Ingredients that are typically sourced from China or India. And that is the key detail at stake here, dear reader.
As New York Governor Andrew Cuomo made very clear:
‘Never again do we want to rely on shipments from China or elsewhere in order to get lifesaving medical supplies.’
That is what makes this pivot by Kodak so interesting. Not because it is another desperate gamble from an ailing company. But because it is yet another turning point for US independence.
As Kodak’s executive chairman Jim Continenza notes:
‘Kodak is proud to be a part of strengthening America’s self-sufficiency in producing the key pharmaceutical ingredients we need to keep our citizens safe.’
Patriotic pundits
Now, keep in mind, this Kodak rally may not be sustainable. There is a good chance this plan could go up in smoke just like some of their other ventures.
At the very least, I certainly wouldn’t be touching their stock; either long or short. There is just too much volatility and speculation surrounding the stock right now.
However, that doesn’t mean you should ignore this story either.
Because the real takeaway is the precedent that it has set.
As I said earlier, this was a political decision. One that will provide the US with the ability to rely less on Chinese imports. And I can’t imagine it will be the last.
Trump has long pledged to ‘Make America Great Again’. In order to do that, he needs to make the US a manufacturing powerhouse once more. Which means relying less on China and incentivising local businesses to step up; just like Kodak.
It’s not just Trump either. Even Biden and his Democrats have put forward a ‘multi-hundred billion dollar program’ to revive US industries. Meaning that whoever is sitting in the White House after the upcoming election, US manufacturing will be the ultimate winner.
For that reason, we’re likely to see more of these ‘Kodak moments’.
Insane stock rallies on the back of government support and commitments. All because the US is turning its back on China.
And they’re not the only one…
Australia, like the US, is coming to grips with future of global trade. A world that is shaping up to rely less on China and embrace supply chain diversity.
My colleague, Greg Canavan, has been following this story closely for a while now. Detailing the inevitable ‘break-up’ between our nation and China. A development that will shake-up many of our industries, and lead to huge ramifications for investors.
I urge you to read Greg’s full report right here. It covers the topic in far more depth.
What I want to reinforce though, is that this break-up doesn’t have to be all bad.
While any major trade split will obviously lead to some difficulties, it will also open up new opportunities. Just like it has for Kodak’s new drug-making foray.
So, as an investor, you need to be on the lookout.
Because whatever comes next, opportunity will be lurking somewhere. Even in some of the unlikeliest of places.
Like a camera company, that was on the verge of another bankruptcy…
Regards,
 |
Ryan Clarkson-Ledward,
Editor, Money Morning
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