“You make the most money when things go from terrible to only bad,” said Tim Seymour of emerging market hedge fund, Triogem Asset Management.
Pfizer (PFE) has been widely recognized as one of the leading and largest vaccine makers in the industry.
Now, one of America’s biggest biotechnology companies will throw its weight behind German firm BioNTech (BNTX) in its quest to develop a COVID-19 vaccine.
Prior to this announcement, BioNTech has already been working inside China in collaboration with Chinese biopharmaceutical company Fosun Pharma (SHA: 600196).
Its partnership with Pfizer will entail efforts outside China and will be in collaboration with the University of Pennsylvania and the Bill and Melinda Gates Foundation. Specifically, the work will be done at sites in the US and Germany.
What we know so far about this experimental COVID vaccine is that it’s called BNT162.
Like the experimental vaccine from Moderna (MRNA), BioNTech’s version is also based on messenger RNA. Clinical trials will start by April.
BioNTech shares were up 55% following the announcement of this collaboration with Pfizer. Meanwhile, the giant biotechnology company’s shares jumped by 3.8%.
Before this coronavirus vaccine collaboration, BioNTech and Pfizer were already partners.
In 2018, the two companies agreed to work together in developing flu vaccines based on mRNA.
However, this recent expansion of their partnership gained more attention because of the intense focus on the efforts to combat the novel coronavirus.
The output of this partnership won’t be kept within the confines of the companies though.
According to Pfizer, any information or tool it comes up with will be shared with the entire scientific community.
The company also pledged its assistance to small biotechnology companies working on COVID-19 treatments and vaccines, going as far as offering its manufacturing power to help speed up the process.
Aside from its coronavirus efforts, the giant biotech has been working on plans to bolster its revenue streams.
Addressing the loss of exclusivity for seizure disorder drug Lyrica, an issue that weighed on the company’s top and bottom lines last year, Pfizer has been gearing up to merge the Upjohn unit with Mylan (MYL).
The merged companies will be called Viatris.
This is a good strategy. Since Upjohn is home to Lyrica and several older drugs nearing the end of their patent exclusivity, separating this unit will allow Pfizer to streamline its portfolio.
Instead of holding on to Lyrica as an anchor, the “new” Pfizer will focus on its new line of blockbuster drugs like breast cancer medication Ibrance and blood clot treatment Eliquis.
Apart from these, Pfizer is investing more on marketing its rising stars like Vyndaquel. The company’s pipeline is also filled with potential blockbusters particularly its 20-valent pneumococcal vaccine.
Although the Upjohn-Mylan merger will inevitably lower Pfizer’s dividend, shareholders of the giant biotech will still own part of Viatris. That means they would have a share in the dividend of the merged companies as well.
The combination of the dividends from both Pfizer and Viatris would total to roughly the same amount as the “old” Pfizer, which currently yields 5%.
What we’re experiencing right now is definitely unprecedented. COVID-19 has mutated from a respiratory disease affecting a single province in China into a global threat endangering everyone’s physical and financial well-being.
However, there’s always good news.
From an objective perspective, this coronavirus crisis has provided a rare opportunity for investors. After all, stock market corrections are actually quite common occurrences.
Looking at each correction in equities in the past, you can see that these were eventually triggered by a bull-market rally.
Remember, the ongoing vaccine research conducted by companies worldwide will yield results sooner or later. So even if COVID-19 is here to stay, it will no longer be a deadly threat in the long run.
In times like these, I think it’s more prudent to consider major biotechnology stocks when looking to invest.
This is because they have a higher capacity to keep trucking through this health crisis and to deal with its aftermath.
Despite the growing fear that this pandemic will lead us to a recession, Pfizer can still be easily categorized as a profitable company.
Considering that it’s trading at merely 13 times its expected earnings, this stock is quite a bargain.
Pfizer has a strong cash flow. Its long history shows that it has also weathered economic storms.
More importantly, it has a product pipeline that we find essential regardless of pandemics and strict quarantines. It doesn’t hurt that they’re priced attractively as well.
Global Market Comments
March 26, 2020
(REVISITING THE GREAT DEPRESSION)
(EXPLORING MY NEW YORK ROOTS)
Don’t underestimate trading algorithms.
The “Buy the Dip” psychology is broken and computerized trading has completely flooded the market with its personality.
That is exactly the dynamic of the current tech market, and it will mountain of generous offerings to reverse the trend in the form of monstrous stimulus and cash handouts.
As we entered 2020, the sentiment was sky-high, geopolitical tensions relatively calmed and three recent interest-rate cuts from the Federal Reserve drove tech stocks to record levels.
For 10 years, traders and the algorithms they harnessed were handsomely rewarded by aggressively betting against elevated volatility.
Cogent chart trends are the algorithms’ lustful partner in bed and now that every single short-term model is flashing sell, sell, sell – there isn’t much bulls can do to fight back.
Many tech hedge funds have settled on similar conclusions – the best defense right now is unwinding portfolios to return to cash.
Incessant margin calls roiling any logical strategy has struck fear into many traders who levered up 10X.
What you could possibly see is the Minsky moment: That stability ultimately breeds instability because the only input in which becomes the difference make is volatility producing massive violence on upside and downside moves.
The ones who can absorb elevated risk are nibbling and unleveraged hoping to time the turn when stocks finally react positively to good data.
The current battle in the fog of war is that of two different economic scenarios that have direct influence in which ways the algorithms flip – either shutdown the country ala Wuhan, China for an extended period of time or send the troops back to work.
Hedge fund billionaire Bill Ackman gave his 2-cents restating his passionate plea for a 30-day-shutdown to fight the coronavirus pandemic.
Former Goldman Sachs CEO Lloyd Blankfein is in favor of sending back the asymptomatic younger generation workers sooner than later.
Initially, Blankfein gave his backing for “extreme measures” in order to flatten the curve, but promoted healthy workers returning “within a very few weeks.”
Blankfein’s argument rests on that if people don’t go back to work, the economy might become too damaged to recover from inciting another crash.
This contrasts starkly with Ackman’s idea of “testing, testing, testing”, which would theoretically dismantle the potency of the virus but take longer for the economy to restart.
U.S. President Donald Trump has relayed his desire to open up business by Easter Sunday.
So as mostly professional politicians hash out a towering aid package of over $2 trillion, firms will get more of an indicator of how and when the business world opens up again.
Trading algorithms are on a knives edge because of the uncertainty – until they are illegal – it is something we are stuck with.
These trading formulas are preset based on biases that start with a series of inputs and the most critical input is volatility or better known as the fear index.
If the lockdowns are extended, the flood of negative news will force algorithms to sell on the extra volatility.
When things go bonkers, many of these preset formulas sell which exacerbates the down move further simply because more than enough people have the same preset algorithm.
Cutting position size when market volatility explodes is not a farfetched theory and is quite a common trading nostrum.
Even if many of these trades would be good long-term bets, many trading algorithms are focused on short-term trades and by this, I mean milliseconds and not days.
Another input into trading algorithms are Twitter feeds.
The platform is scraped for keywords from mass media news sources and synthesized into a specific output that is fed into a computer algorithm.
These headlines offer insight into what the sentiment is for the trading day – negative, positive, or neutral.
This scraping of data is especially relevant in today’s chaotic trading world where 10% moves up or down in one day is the new normal.
Because of Dodd-Frank Wall Street reform, many of the big banks have shuttered trading operations hurting the market’s liquidity situation causing spreads to widen and down moves to accelerate.
But now that the Fed has landed the Sikorsky UH-60 Black Hawk on the helipad and the money is waiting to helicopter down as they have announced “unlimited” asset buying and guaranteeing of corporate bonds to aid financial markets.
How does computerized trading roil markets?
Here is an example. A recent trading day included more than $100 billion of selling, the worst week since the financial crisis and was triggered by a hedging strategy called “vol targeting”—using volatility as a central input in trading decisions—and other systematic tactics.
Funds making decisions based on volatility, including some with names such as volatility-targeting funds and risk-parity funds, have risen in popularity.
Risk-parity funds manage an estimated $300 billion.
Risk parity is an approach focused on allocation of risk, usually defined as volatility, rather than allocation of capital.
That is what we have now – a cesspool of risk parity hedge funds layered by high frequency funds layered by short/long vol funds layered by arbitrage funds all levered 15X.
The take into consideration that they are supercharged by massive volume-based computer algorithms and trying to head for the exit door at the same time.
Ironically, this could be one of catalysts for shares to recalibrate and head back up north as traders start to front-run the peak of the health crisis.
Let’s hope that it happens sooner than later and that the government doesn’t manage to screw up delivering the helicopter money.
Global Market Comments
March 25, 2020
(LEARNING THE ART OF RISK CONTROL)
The coronavirus disease (COVID-19) outbreak continues to inspire terror across the globe.
To date, there are roughly 398,107 confirmed cases and over 17,454 documented deaths, pushing communities to take proactive measures to stem the tide of this global pandemic.
In its wake, an increasing number of government officials and health professionals like the US Centers for Disease Control (CDC) have advised patients to take advantage of telemedicine and virtual health systems as much as possible. This is particularly helpful for those with respiratory symptoms since using these platforms could minimize contact with others along with the spread of the virus.
One of the no-brainer beneficiaries of this advice is virtual healthcare services provider Teladoc Health (TDOC).
Basically, companies like Teladoc offer personalized care without the need for patients to leave their houses. Although the kinks have yet to be worked out, the telemedicine sector should be expected to skyrocket in the weeks and even months ahead.
In fact, Teladoc shares gained 9% since February 19 — a good sign for the company especially since the broader market went down by roughly 20% over the same period.
Earlier this month, Teladoc disclosed that the number of patient visits registered in its system showed a 50% increase week over week.
Ever since COVID-19 hit the country, the company has been fielding at least 15,000 visits on a daily basis, reaching over 100,000 weekly. Teladoc shared that it has been experiencing “visit demand consistent with peak flu volumes.”
The convenience that companies like Teladoc provide can ease the burden on the broader healthcare system, which has been overworked with COVID-19 cases.
Another factor that could have contributed to Teladoc’s increasing patient load is the decision of some major health insurers to waive the patient costs for telemedicine visits.
So far, Humana (HUM), Aetna (AET), and Cigna (CI) confirmed that this policy will be relaxed throughout the national health emergency.
Needless to say, this announcement was highly appreciated by their clients, with Teladoc reporting that over half its patient visits in the past weeks are from first-time users.
However, this isn’t exactly Teladoc’s first big break.
Even prior to the pandemic and the recommendations from health experts, Teladoc has been quite impressive on its own.
Throughout the years, Teladoc has been consistent in reporting strong growth metrics. Since it went public in 2015, the stock has skyrocketed to 330% compared to the 30% gain for the S&P 500.
Reviewing its fourth-quarter earnings report for 2019, it’s clear that this is a stock for long-term investors. Based on the management’s commentary and how the story is playing out in the past months, there’s a good possibility that investors will be richly rewarded as well.
In 2019 alone, Teladoc added a total of 14 million new members to record an impressive growth rate of 61%. The company closed the year with 36.7 million patients registered in its system.
In terms of revenue, Teladoc delivered $156.5 million, showing off a 27% jump year over year.
This is particularly impressive as it eclipsed the high end of its guidance, which fell somewhere between $149 million and $153 million. It also beat the consensus estimates of analysts at $152.95 million.
This increase in revenue was bolstered by strong growths both in the US and the international markets. Its subscription-access fees reached $127 million, which was a 24% increase year over year.
Fees collected from visits showed quicker growth to contribute $29.5 million, demonstrating a 47% jump compared to the same period in 2018.
Total office visits increased by 44%, climbing to 1.24 million and surpassing the company’s guidance range of 1 million and 1.2 million as more and more patients opt for the subscription-based plans.
Meanwhile, its paid memberships in the US climbed 61% year over year to reach 36.7 million while its fee-only access soared by 104% to jump to 19.3 million members.
While 2019 was definitely a good year for the company, it’s difficult to downplay the reality that its impressive adoption curve recently could make 2020 an even better year for Teladoc.
Looking at how the company has been thriving, two things could happen for Teladoc.
One possibility is for it to develop into one of the most disruptive companies in the industry. The second possibility is that it will get acquired by a bigger player.
No matter what happens, the outcome will be a win-win for its investors.
Global Market Comments
March 24, 2020
(TEN SIGNS THE MARKET IS BOTTOMING),
(FXI), (BRK/A), (BA), (DAL), (SPX),
(INDU), (UUP), (VIX), (VXX), (AAPL)
I spent the morning calling some big hedge fund friends asking what they are looking for to indicate the market may be bottoming. I’ll give you a warning right now. None of the traditional fundamental or technical measures have any validity in this market.
Markets will need to see at least one, and maybe all of these before they launch into a sustainable recovery. The good news is that several have already happened and are flashing green.
1) Watch New Corona Cases in China
The pandemic started in China and it will end in China (FXI). The president of China, Xi Jinping, has already announced that the epidemic is over and that the country is returning to normal. The country is donating thousands of respirators and millions of masks to Europe and poor countries all over the world. China was able to enforce a quarantine far more severe than possible in the West, such as using the army to surround 60 million people for a month. So, the results in the Middle Kingdom may not be immediately transferable to the US.
If we do get an actual fall in the number of cases in China, that could indicate the end is near. To keep track, click here.
2) Watch Corona Cases in Italy
Italy quarantined two weeks before California so we should get an earlier answer there. The numbers are reliable, but we don’t know the true extent of their quarantine. After all, this is Italy. Also, Italy has a much older population than the US (that Mediterranean diet keeps Italians alive forever), so they will naturally suffer a higher death rate. However, a decline in cases there will be proof that a western-style shelter-in-place order will work. To keep track, click here.
3) Watch Corona Cases in California
The Golden State was the first to quarantine ten days ago, so it will be the first American state to see cases top out. On Monday, we were at 1,733 cases and 27 deaths, or one in 1.5 million. However, it is a partial quarantine at best, with maybe half of the 20 million workforce staying home. When our cases top out, which should be the week of April 13, it could be an indication that the epidemic is flagging. To keep track, click here.
4) Watch Washington
Passage of a Corona Economic Recovery Bill could take place as early as Friday and could be worth $2 trillion. Add in the massive stimulus provided by the Federal Reserve, a large multiple of the 2008-2009 efforts, and $10 trillion is about to hit the economy. Warning: don’t be short an economy that is about to be hit with $10 trillion worth of stimulus.
5) Watch the Technicals.
Yes, technicals may be worthless now but someday in the future, they won’t be. The stock market has traded 20% below the 200-day moving average only four times in the last century. The Dow Average (INDU) was 32% below the 200-day moving average at the Monday low. The next rip-your-face off short-covering rally is imminent and may initially target that down 20% level at $21,496, or 18% above the Monday low.
6) Watch for the Big Buy
Value players are back in the market for the first time in six years, the last time the S&P 500 (SPX) traded at a discount to its historical 15.5X earnings multiple and are circling targets like hungry sharks. Watch for Warren Buffet of Berkshire Hathaway (BRK/A) to buy a large part of a trophy property, like a major bank or airline. He’s already stepped up his ownership in Delta Airlines (DAL). I’m sure he’s going over the books of Boeing (BA). Warren might even buy back his own stock at a discount to net asset value, down 31.4% in a month. Any move by Warren will signal confidence to the rest of the markets.
7) Watch the US Dollar
With US overnight interest rates having crashed by 1.5% in recent weeks, the US dollar (UUP) should be the weakest currency in the world. The greenback overnight became a zero-yielding currency. Instead, it has been the strongest, rocketing on a gigantic global flight to safety bid. When the foreign exchange rates return to rationality, the buck should weaken, as it has already started to do after last week’s super spike. A weak dollar will be good for American companies and their stocks.
8) Watch the (VIX)
We now know that the Volatility Index (VIX), (VXX) was artificially boosted last week by hundreds of short players covering positions with gigantic losses and going bust. Now that this is washed out, I expect volatility to decline for the rest of 2020. It has already fallen from $80 to $49 in days. This is a precursor to a strong stock market.
9) Watch the Absolute Value of the Market
There could be a magic number beyond which prices can’t fall anymore. That could be yesterday’s 18,000, 17,000, or 15,000. Some 80% of all US stocks are owned by long term holders who never sell, like pension funds, corporate crossholdings, or individuals who have owned them for decades and don’t want to pay the capital gains tax. When the ownership of that 20% is shifted to the 80%, the market runs out of sellers and stocks can’t fall anymore. That may have already happened. Similarly, a final capitulation selloff of market leaders, like Apple (AAPL) may also be a sign that the bear market is ending. (AAPL) is off 34.40% since February.
10) Watch John Thomas
I am watching all of the above 24/7. So rather than chase down all these data points every day, just watch for my next trade alert. I am confined to my home office for the duration, probably for months, so I have nothing else to do. No trips to Switzerland, the Taj Mahal, or the Great Pyramids of Egypt for me this year. It will just be nose to the grindstone.
Stay Healthy and we’ll back a killing on the back nine.
It will be inevitable – the 5G shift in 2020 will be delayed.
Last year, 5G was available on only about 1% of phones sold in 2019 and demand has cratered this year because of exogenous variables.
Up to just recently, Apple (AAPL) was the bellwether of the success of tech with wildly appreciating shares due to the expected ramp-up to a new 5G phone later this year.
Well, things are more complicated now.
I will be the first one to say it – the new Apple 5G iPhone will be delayed until 2021 – the project has been thrown into doubt because of a demand drop off and headaches with the supply chain in China.
The phenomenon of 5G cannot blossom until consumers can upgrade to 5G devices.
Concerning all the media print of China Inc. going back to work, don’t believe a word of it.
People of the Middle Kingdom are sitting at home just like you and me by navigating around top-down government edicts.
Instead of the perilous commute in a country of 1.4 billion people, Chinese workers are fabricating attendance figures per my sources.
Overall data is grim – global smartphone shipments dropped 38% year-over-year during February from 99.2 million devices to 61.8 million – the largest fall ever in the history of the smartphone market and that is just the tip of the iceberg.
The new data point underscores the magnitude of how the coronavirus is sucking the vitality out of the tech ecosystem in China and thus the end market for global consumer electronics.
The statistic also foreshadows imminent trouble in the smartphone market as other regions have now shut down not only in China but the manufacturing hubs of South East Asia.
The outbreak squeezes both supply and demand.
Factories in Asia are unable to manufacture phones as usual because of obligatory government shutdowns and complexities securing critical components from the supply chain.
5G has been hyped up as the great leap forward for wireless technology that will usher in unprecedented new use cases supercharging global GDP — from driverless transport to robotic automation to smart football stadiums.
And coronavirus is just that Godzilla destroying 5G momentum down.
Mass quarantines, social distancing, remote work, and schooling have been instituted in American cities, meaning that the current network carriers are swamped and overloaded with a surge in data usage.
The Verizon’s (VZ) and the AT&T (T) Broadbands of America are currently focused on maintaining their current core customers, adding extra broadband to handle the increased load, and making sure the health of the network stays intact.
This is a poor climate to upsell products to beleaguered Americans who have just lost income and possibly their house because they cannot pay mortgages.
Services such as YouTube and Netflix (NFLX) have even decreased the quality of streaming on their platforms to handle the dramatic spike in extra usage in Europe with the whole continent locked down.
The Chinese consumer was the Darkhorse catalyst to ramp up the global economic expansion during the last economic crisis, picking up world spending in 2009.
On the contrary, this group of super spenders is less inclined to save the global economy this time around because they are saddled with domestic debt.
Just as unhelpful to Silicon Valley revenues, the technology relationship at the top of the governments are poised to worsen because of the health scare.
The U.S. administration has already banned the use of Chinese components in the U.S. 5G network amid suspicions the devices would be used for espionage.
Back stateside, I believe the U.S. telecoms will explicitly detail a sudden slowdown in the 5G network rollout during their next earnings report.
The telecom companies have been able to successfully handle the extra incremental load, but it has had to allocate resources to service the extra volume.
In the meantime, companies will shift to doing infrastructure and site preparation in anticipation of the re-build up to 5G, but that could be next to be put on ice if crisis management moves to the forefront.
Considering every 5G base station is being manufactured in Asia, one must be naïve in believing all is well and they will probably need to do what the 2020 Tokyo Olympics will shortly do – postpone it.
It’s not business as usual anymore.
This time it’s different.
The world just isn’t ready to digest such a shift in global business as 5G until the fallout of the coronavirus is in the rear-view mirror.
The 5G phenomenon underlying effect is to supercharge globalization into smaller networks of interconnectivity and that is not possible during a black swan event like the coronavirus which is the antithesis of globalization and interconnected business.
Just take the situation across the Atlantic Ocean in Europe, UBS Group AG, and Credit Suisse Group AG required clients to post additional collateral, and money managers in New York are preparing term sheets for ultra-rich Americans to urgently meet margin calls.
Many people are scurrying back to their doomsday’s shelter and that does not scream global business.
If you thought gold was the safe haven – wrong again – it experienced back-to-back weekly losses as margin pressures force fire sales of gold to raise cash.
Another glaring example are the assets of Eldorado Resorts Inc., controlled by the founding Carano family, which burned $28.7 million of stock in the casino entity to meet a margin call to satisfy a bank loan.
Things are that bad now!
Sure, telecom players might argue that a sudden influx of workers from home necessitates more investment in 5G, but if they have no income, all bets are off.
The capacity of 4G home broadband has proved it is good enough for today’s demands and it means the last stage of 4G will be a high data consumption longer phase before business lethargically pivots to 5G in 2021.
Verizon’s CEO Hans Vestberg said last year that half the U.S. will have access to 5G by the end of 2020, and I will say that is now impossible.
This sets up a generational buy in the Silicon Valley chip names involved in 5G after coronavirus troubles peak such as Nvdia (NVDA), Xilinx (XLNX), Qorvo (QRVO), and QUALCOMM Incorporated (QCOM).
Global Market Comments
March 23, 2020
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE GREAT DEPRESSION),
(INDU), (SPY), (GS), (MS), (FXI), (USO), (TSLA)