Mad Hedge Technology Letter
March 13, 2020
Fiat Lux
Featured Trade:
(Here's Another Tech Corona Play)
(TDOC)
Here is a great health-tech name for you that is up 10% in the past 30 days – Teladoc Health, Inc. (TDOC).
The fallout from the coronavirus has been brutal and we will see the first round of bankruptcies in a few weeks for companies who get hit with that debt service payment tsunami.
The Nasdaq is now down almost 30% in just 3 weeks and I can proudly say that the tech letter avoided the bulk of the carnage.
But aside from the fallout, the pandemic has underscored the desperate societal need and use case for health tech.
The unpreparedness of the U.S. administration has been cringeworthy, to say the least, essentially pigeonholing the virus as a non-American issue or an unreliable media ruse.
The consequences are a government and society bereft of a real health solution, not to mention testing kits.
Our policymakers are reeling.
As the administration has found out, this is not something that a 50-basis rate cut can solve.
Exposing the holes in our health system isn’t fun to do but this is where the use case for technology cross-pollinating with healthcare to create products and services to buttress these types of health scares comes into play.
Seeking alternatives to face-to-face health solutions is becoming a pressing issue.
Remote diagnoses through telehealth services could become an important tool, although physical testing for the virus would have to be done in person.
Influenza pandemics are the perfect environment to enlist services from these types of telehealth services that could disseminate important and crucial guidance and consultation to sick patients.
Especially in the initial screening process of judging whether patients’ needs - immediate action or not - could improve the efficiency of hospitals and clinics.
At the outset of the virus spread, many clinics globally were refusing to test potential sick people because the doctors themselves did not want to take the risk of getting sick.
The lack of ICU hospital beds in the U.S. has been highlighted as an Achilles heel and reducing the numbers of hospital visitors by categorizing them into different need-based groups would help the healthcare professional community on the ground.
We have been swamped by images from Wuhan, China of nurses and doctors being overworked and overwhelmed to sometimes death.
That must be avoided in the future.
Virtual patient traffic at privately held telehealth company American Well has risen about 11% since the first U.S. coronavirus death and an infusion of demand has been recorded at similar companies as well.
If it’s just the basic knowledge of whether going to the supermarket is safe or not or if flying on an airplane or not is feasible, people need to know.
Knowledge is power and knowledge is safety.
Some might get nervous about early viral symptoms and some might seek more information on how to stay safe.
Brad Younggren, Chief Medical Officer of 98point6, offering private text-based diagnosis and treatment via a mobile app, said their physicians were encouraging patients diagnosed with influenza to communicate if they do not improve.
Teladoc said it has been partnering with the Centers for Disease Control and Prevention (CDC) to provide near real-time surveillance data on the spread of the virus.
An $8.3 billion U.S. bill signed into law on Friday to fund the coronavirus outbreak response includes $500 million to waive certain restrictions on Medicare telehealth coverage. That provision is aimed at encouraging senior citizens to choose at-home virtual healthcare services.
Analyzing the tech markets today – they are showing signs of extreme stress.
Tech stocks have been utterly decoupled from fundamentals as the radioactive waste effect from the health scare floors any inkling of optimistic sentiment.
The drawdowns have been heavy which validates the tech letter going 100% cash for the short-term.
The policy missteps have added more turbulence to an already sensitive situation akin to lighting a match and throwing it into the tinder box.
What started out as an exogenous event has morphed into a broad set of externalities crushing whole industries such as travel, energy, banks, airlines, hospitality, and hotels.
Dealing with an oil crisis, health crisis, and interest rate crisis doesn’t just work itself through in a matter of days and tech companies are being repriced accordingly.
Teledoc is one of those companies to keep in mind once the chaos blows over.
“A squirrel dying in front of your house may be more relevant to your interests right now than people dying in Africa.” – Said CEO of Facebook Mark Zuckerberg
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
March 13, 2020
Fiat Lux
Featured Trade:
(MARCH 11 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (SPX), (LVMH), (CCL), (WYNN), (AXP), (JPM), (MSFT), (AAPL), (NVDA)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader March 11 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: What is the worst-case scenario for this bear market?
A: The average earnings loss for a recession is 13%. Last year, we earned $165 a share for the S&P 500. So, a recession would take us down to $143 a share. Multiply that by the 15.5X hundred-year average earnings multiple, where we are now, and that would take the (SPX) down to 2,200. However, if we get 100 million cases and 5 million deaths, as some scientists are predicting, we could get a 2008 repeat and a 50% crash in the (SPX) to 1,700. With the administration asleep at the switch, that is clearly a possibility. Nice knowing you all.
Q: Do you think we’re still setting up for another roaring 20s?
A: Yes, absolutely. We could not have a roaring 20s unless we got a major selloff and clearing out of old positions like we're getting now. That flushes out all the old capital and positions and paves the way for people to set up brand new positions at really bargain prices. If you missed the 2009 bottom, here's another chance.
Q: Will the fiscal stimulus help defeat the coronavirus?
A: No, viruses are immune to money. They don’t take PayPal or American Express (AXP). The president has been able to buy his way out of all his other problems until now; there’s no way to buy his way out of this one.
Q: Is JP Morgan’s (JPM) Jamie Dimon getting a heart attack related to the financial crisis?
A: Probably, yes. In a normal time, the pressure of a CEO in these big banks is enormous. All of a sudden half of your small customers are looking at bankruptcy—the pressure has to be immense. You've got customers screaming for short term loan facilities, you’ve got risk managers asking for margin extensions. And you certainly don't want to buy the banks here. I think this may be the final selloff with legacy banks, from which they never recover. The banks will disappear and come back online.
Q: What would you do with a $45,000-dollar portfolio right now? I don’t do options.
A: Look at my story on Ten Leaps to Buy at Market Bottom. Use those names—Microsoft (MSFT), Apple (AAPL), NVIDIA (NVDA), etc.—and just buy the stocks. Buy half now and a half in a month. This is a time to dollar cost average. And you’re looking at doubles at a minimum 3 years down the road—at the end of this year if you’re lucky. Once the virus burns out, it will only take a couple months to do that. Then it will be off to the races once again.
Q: Since the 2018 low was never tested, what do you think of 2400/2450?
A: I think that’s great. And you can get a half dozen different analyses that all come up with numbers around 2400, 2500, 2600. That’s where the final low will be—where you get a convergence of multiple support lines and opinions.
Q: Will buybacks come back or are they over for now?
A: They will come back once markets bottom. Companies aren’t stupid; they don’t like buying their own stocks at all-time highs, but they certainly will come in with major amounts of buying when they see their stocks down 20% or 30%. That's certainly what Apple is going to do.
Q: Will luxury retail shares get killed in the current market?
A: Yes, especially stocks like (LVMH), the old Louis Vuitton Moet Hennessey. They’re already down 37% this year. When it becomes clear that we are in an actual recession, these luxury names across the board will get completely abandoned. By the way, I worked with the son of the founder of this company when I was at Morgan Stanley. We called him “Bubbles.”
Q: Are there any similarities to 2008?
A: Yes; it’s worse because the market is dropping much faster than it ever has before. The 52% selloff in 2008 was spread out over the course of 18 months. Here, it’s taken only 14 trading days to see half of the damage done back then. It’s truly unbelievable.
Q: What do you think about gold (GLD)?
A: Even though gold is going up, gold miners (GDX) are doing terribly because they are stocks. They get tarred with the same brush blackening all other stocks. This is exactly what happened during the 2008-2009 crash. Fundamentals go out the window in these kinds of trading conditions, but they always come back.
Q: Is Europe in recession?
A: Absolutely, yes. I saw an interview with the Adidas CEO (ADDYY) this morning on TV and they said sales are off 90% on a month-on-month basis. Their stock is down 49% this year. You can bet that every other consumer company in Europe is suffering similar declines.
Q: What will real estate do in the next 3 months?
A: It's impossible to price real estate so finely because it's so illiquid. However, I expect it to hold up here because of super low interest rates, and then keep rising over the long term. We’re not going to get anything like the crashes we saw in 2008-2009 because all the excess leverage is not in the real estate market now, it’s in the stock market, where we are getting a much-deserved crash. If anything, I’d be buying rental properties here in low cost cities.
Q: What if the Dow Average (INDU) reaches the 300-day moving average?
A: It’s a nice theory, but technicals are meaningless in the face of panic selling. You don't want to get too fancy looking at these charts. When you have a billion shares to go at market, the 200 or 300 day moving average means nothing.
Good Luck and Good Trading. And stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Mad Hedge Biotech & Healthcare Letter
March 12, 2020
Fiat Lux
Featured Trade:
(GILEAD SCIENCES’ CORONA BOOM)
(GILD), (FTSV), (SNY)
The possibility of a pandemic is a terrifying thought. Nowadays though, you can’t switch on the news or surf the Internet without seeing reports about the worldwide spread of the coronavirus disease (COVID-19). Unfortunately, the fear that we once hoped to never be realized has become a reality.
The World Health Organization (WHO) has officially declared the coronavirus disease a pandemic.
The numbers are rising at an alarming speed, with over 1,300 confirmed cases in the United States alone and approximately 129,000 worldwide. As for the mortality rate, more than 4,700 people have died from this coronavirus disease.
Unsurprisingly, financial markets have taken a hit in recent weeks in response to the outbreak. The potential of an uncontrollable pandemic has wreaked havoc in the global economy instilling fear among investors.
With economists predicting that a full-scale pandemic could throw not only the US but also many developed countries into recession, the public has brace themselves for what lies ahead.
While a lot of companies are raking in profits enough to keep the wolf from the door, one biotechnology stock has been on a roll since the coronavirus outbreak went public: Gilead Sciences (GILD).
To date, Gilead has been hailed as possibly our best hope in discovering an effective treatment for the coronavirus.
Aside from being the first biotechnology stock to offer a solution to the outbreak, Gilead has another advantage over its rivals. It no longer has to start from scratch. Instead, the company reused Remdesivir, which is a drug it previously developed to cure Ebola but failed.
Basically, Remdesivir is designed as an antiviral drug that helps patients fight off viral infections. That means it targets not only the Ebola virus but also other types of viruses including SARS and MERS.
Since SARS and MERS are caused by the coronavirus as well, health experts believe that Remdesivir could be a treatment for COVID-19.
On January 31, doctors administered a dose of Remdesivir on a COVID-19 patient and discovered that the drug reversed almost all the major symptoms.
If Remdesivir proves to be the key to solving the COVID-19 outbreak, then Gilead will not only experience a massive performance boost but might even end up saving the world from a recession.
Despite this promising development, Gilead isn’t putting all its eggs in just one basket.
The company has recently made its first major purchase in three years in the form of a $4.9 billion acquisition of cancer biotechnology company Forty Seven (FTSV) — approximately twice as much as the latter’s market cap.
Gilead’s main draw for this huge deal is FTSV’s promising lead pipeline candidate Magrolimab, which is a treatment that targets various types of cancer such as myelodysplastic syndrome and acute myeloid leukemia.
What sets apart Magrolimab is that it targets CD47, which is typically called the “don’t eat me signal” molecule that cancer cells utilize to circumvent the immune system.
Although Magrolimab is still in its trial phase, the treatment showed a notable 40% response rate for hard-to-treat blood cancers and 50% for Myelodysplastic syndrome. The drug is also getting tested for lymphoma and ovarian, bladder, and colorectal cancers.
This latest deal is in line with some of Gilead’s biggest acquisitions in recent years like its $11.9 billion deal with cancer immunotherapy developer Kite Pharma in 2017.
Apart from these, Gilead has expanded its $5 billion partnership with Galapagos (GLPG) in the hopes of finally bringing another blockbuster in its lineup.
The two have been working on rheumatoid arthritis (RA) and Crohn's disease treatment Filgotinib, which has the potential to bring at least $1.3 billion in revenue in the next five years.
Once it hits the market, Magrolimab is expected to rake in $800 million to $1 billion in peak sales.
Although Gilead’s deal with Forty Seven has the highest price tag, it wasn’t the only acquisition of smaller immuno-oncology companies that happened recently. Merck (MRK) acquired AqQule for $2.7 billion while Sanofi (SNY) purchased Synthorx for $2.5 billion.
The COVID-19 pandemic has provided an unexpected opportunity for Gilead, and there’s no doubt that Remdesivir’s success will contribute to the company’s profits this year.
However, Gilead’s most promising growth driver is the rheumatoid arthritis lineup it’s developing with Galapagos. On top of these, it’s immuno-oncology pipeline is also shaping up to have some of the most exciting and promising candidates particularly for rare diseases.
The coronavirus pandemic has infused panic among the public, with more and more stocks getting dumped based on alarm and confusion. But as terrifying as this situation is, the best way to handle it is to remain calm and to put things in perspective.
Remember, solid companies will continuously achieve success in the long run no matter the temporary drawbacks in their stock prices. Buy those shares and simply hold on to them. Your future self will be grateful for that decision.
As fear continues to take over a lot of investors’ strategies, let me share with you one of my favorite pieces of advice from Warren Buffett: “Be fearful when others are greedy and be greedy when others are fearful.”
