Mad Hedge Biotech & Healthcare Letter
August 20, 2020
Fiat Lux
Featured Trade:
(ZOETIS CONTINUES TO DELIVER MORE BANG PER BUCK)
(ZTS), (PFE)
The isolation brought by the pandemic-induced lockdowns has increased people’s reliance on their pets.
In the past months, stories have circulated around the country about the animal shelters being empty for the first time in recent history.
Aside from seeing this as a feel-good report, it can also be perceived as an investing opportunity. For businesses that specifically cater to these products and services, this phenomenon can easily translate into growing revenue.
One of the pet-related companies that benefited from it is Zoetis (ZTS).
Zoetis offers an extensive range of products that cater to both pets and even farm animals. Their list includes drugs, diagnostics, pesticides, and vaccines.
Originally, Zoetis was a subsidiary of biotechnology and healthcare giant Pfizer (PFE). It eventually broke away from its parent company and entered the stock market sometime in 2013.
For roughly seven years, Zoetis stock has impressively trounced the average market returns – and that momentum is projected to continue in the next five years.
In the second quarter of 2020, Zoetis reported $1.5 billion in revenue. This is flat compared to last year’s report, but it still surpassed the consensus Wall Street estimate of $1.36 billion.
In terms of net income, the company reported $377 million or $.079 for each share. This showed a modest increase from the $371 million or $0.77 per share it earned during the same period in 2019.
Despite the turbulent situation in the US, the market still served as one of the positive contributors in Zoetis’ second quarter.
The company recorded a 6% year over year jump in its revenue in the US, allowing it to reach $832 million. Unfortunately, revenue for its livestock products dropped by 18% year over year.
Sales for its companion-animal offerings also increased by 19%, with the climb largely attributed to the upsurge in demand for Zoetis’ growing Simparica brands.
In May, Zoetis lowered earnings expectations for 2020 due to the coronavirus pandemic.
However, Zoetis stock managed to exceed expectations. In fact, the animal healthcare stock is up by over 20% in the past three months.
Given its positive performance in the second quarter, Zoetis has increased its full-year 2020 guidance.
The company anticipates an annual revenue of $6.3 billion to $6.476 billion, which is a leap from its previous estimate of $5.95 billion to $6.25 billion.
Projections for its earnings per share is now in the range of $3.14 to $3.32 from the previous $2.80 to $3.07.
More importantly, Zoetis is looking into expanding its massive roster.
Since its most recent product Simparica Trio, which is a three-in-one preventive treatment for dogs, garnered much success in the market, the company is expected to release at least two new products before the year closes.
Aside from that, Zoetis may also expand into new markets within the animal healthcare sector.
One of the telltale signs is the company’s recent acquisitions, which include Performance Livestock Analytics, Platinum Performance, and other regional diagnostic laboratories.
In 2019, Zoetis forged a partnership with Colorado State University to study the livestock immune system. This could signify the company’s interest in another service, such as providing antibiotics to animals that are identified as sources of meat.
The demand for animal healthcare products and services has been consistently reliable, with the market estimated to reach $177.1 billion in 2027.
With the need for these goods spanning across the globe, companies that offer cater to these markets can expect a steady revenue stream and growth in the years to come.
Among the companies in this sector, Zoetis is the biggest with trailing 12-month revenues of roughly $6.3 billion and a market capitalization of $75.72 billion.
It prides itself on a notable profit margin of 25.4% and an impressive 63.6% return on equity. Adding these two metrics to the fact that the company has a 35.6% quarterly earnings growth year over year makes Zoetis a safe and long-term bet.
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
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
Global Market Comments
August 20, 2020
Fiat Lux
Featured Trade:
STORAGE WARS),
(MSFT), (IBM), (CSCO), (SWCH),
Mad Hedge Technology Letter
August 19, 2020
Fiat Lux
Featured Trade:
(ROBINHOOD – TRADE WITH THE RICH AND GIVE TO THE POOR)
(TECH STOCKS)
In our world of the stock market, one of the big trends that are taking place is not only the digitization of the whole economy, but the secondary effect of a giant tsunami of day traders that are opening day trading accounts with their stimulus checks.
This is moving markets and we must take note!
One thing almost universally preventing day traders from day trading is that it’s a hard hobby — and make no mistake, that’s what it is — to combine with a 50-hour-a-week job or full-time studies.
With the real unemployment rate almost surpassing 20%, there are tens of millions of Americans sitting around doing nothing.
At the same time, many entertainment options revolving around communal gatherings are cancelled for the foreseeable future.
There is undeniable evidence that many of the newly minted day traders are simply frustrated sports gamblers seeking a new addiction.
All this fuss with the growth of apps that, like Robinhood, offer commission-free trading, making it seem all but painless to enter the market and join us professionals at riding this bucking bronco.
This confluence of factors creates a perfect storm for uninformed day trading and brazen risk trading.
Watching the markets on a day to day basis, I can vouch that there is some peculiar price action taking place.
One example: Stocks of companies that file for bankruptcy almost always plunge to near zero for the common-sense reason that they are worthless.
But shares in bankrupt car rental giant Hertz, which should be moribund, exploded from 56 cents per share to more than $5 this month, before falling to less than $2.
I welcome the added volume in the market place, and the increased liquidity means the chances of the market lurching higher increases too, which we have seen with the S&P 500 index reaching new all-time highs partly fueled by the day traders' willingness to dive head first into monopolistic tech stocks and even penny stocks like Hertz.
Also, remember that many of these fresh day traders are Millennials who have an inherent bias towards the tech sector because they literally grew up with it in the palms of their hands.
Studies have shown repeatedly that the typical investor had odds of 0.5% of consistently beating the market.
The increased knowledge of this fact is what has driven the widespread move over the past decade into index funds that replicate such things as the S&P 500.
Robinhood, the stock-trading platform that popularized free trades, grew its user base from 1 million users to over 13 million in just four years.
That explosion of new subscribers forced older online brokerages to offer free trades, destroying their business models and forcing them to consolidate or go extinct.
With no knowledge about financial markets, how are these new traders placing their capital?
Robinhood regularly updates its list of the 100 most popular stocks that Robinhood traders put their money in, which predictably include big tech companies like Amazon (AMZN), Microsoft (MSFT), and Google (GOOGL).
Crazy or not, this list is the rough guide to new traders on where to invest.
Peloton (PTON) is another tech stock that has made this crisis their heaven by frontrunning the shelter-at-home trend, selling a treadmill with a screen on it and hooking up subscribers to fitness classes.
Not a brilliant model, but it will do for now.
They are on the top 100 as well.
I was highly bearish on Peloton before the crisis, but the virus has pumped life into the business model that was marginal at best when the lack of differentiation didn’t allow investors to put a higher premium on this stock.
Other stocks like GoPro (GPRO), Fitbit (FIT), Lyft (LYFT), and Uber (UBER) are pegged as companies that aren’t popular in the data.
GoPro labored to expand beyond its core market of outdoor enthusiasts and failed to pull mainstream users away from increasingly powerful smartphone cameras. Fitbit handed over the low-end market to criminal organizations like Chinese Xiaomi and ceded the high-end market to premium smartwatch makers like Apple.
Google agreed to acquire Fitbit last year for $7.35 per share, but that deal is now being closely scrutinized by U.S. and EU regulators.
If the deal is killed, expect a massive sell-off in Fitbit.
Without Google, Fitbit would be in serious trouble: Its revenue fell 23% annually in the first half of 2020 and it remained deeply unprofitable. Fitbit's share of the wearables market also fell from 7.8% in 2018 to 4.7%
The popularity or unpopularity of these stocks directly correlates to additional volume spiking in these names.
There is no coincidence that these “popular” stocks are some of the market winners of the Covid era and it will continue that way until the next market-changing event hits.
Not only do I love investing in tech stock, but the silver-haired investor loves it; and now we have data points with convincing evidence that young people are pouring their savings into the U.S. tech sector.
At some point soon, Americans won’t be able to achieve a middle-class standard of life unless they are leveraged deeply into the tech sector via the stock market.
Imagine if that market crashes, and the pain it would incur. We would go from a rapidly shrinking middle class to no middle class in a blink of an eye.
Welcome to the high stakes world of 2020!
“Life's too short to hang out with people who aren't resourceful.” – Said Founder and CEO of Amazon Jeff Bezos
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