Mad Hedge Technology Letter
September 30, 2020
Fiat Lux
Featured Trade:
(AN EASY WAY TO MILITARIZE YOUR TECH PORTFOLIO)
(PLTR)
With funding from the CIA’s non-profit venture capital arm In-Q-Tel, Palantir (PLTR) is named after mystical orbs in J.R.R. Tolkien’s “The Lord of the Rings” universe that can see both the past and present and allow users to communicate over vast distances.
Palantir is effectively a secretive big-data firm co-founded by billionaire venture capitalist Peter Thiel that will make its stock market debut via a direct listing on Sept. 30 with a valuation of $22 billion.
It’s the gold standard of data mining stocks and I recommend investors consider buying and holding if you’re currently eyeing new opportunities.
The foundations beneath it could not be more rock solid with the CIA affording the company major access to recurring government revenue.
Not even a pandemic would be able to knock off this business model from the perch it sits on.
Up until now, what Palantir does and how it uses its troves of data is somewhat lost to all but the industry analysts and government officials, but that is all about to change with quarterly earnings reports.
In a nutshell, Palantir provides customized software to clients analyzing large tranches of data for reasons ranging from finding suspected criminals to improving companies’ manufacturing capabilities.
Summarizing their strategic operational zone even further, Palantir’s data platform is the go-to platform for U.S. intelligence agencies.
In the media, they have attracted significant controversy due to its work with government agencies, including Immigration and Customs Enforcement (ICE).
Palantir has yet to spin a profit, losing $580 million in 2018 and $579 million in 2019, but does that even matter when their products are so deeply embedded in the U.S. intelligence agencies’ everyday work?
As long as they are trending towards margin improvement, investors are most likely willing to give them a free pass.
Palantir's claim to fame is that its technology reportedly helped locate Osama bin Laden while zeroing in on terrorists in Afghanistan and Iraq.
The company acknowledges that government customers use its technology to kill people so investors not comfortable with the deeper meaning behind the technology should avoid this one and go with the softball versions of big tech.
Palantir gets both criticism and praise for the powerful nature of its data analytics software. For example, critics allege Palantir's profiling tools used by intelligence and immigration agencies sometimes operate under a cloak of secrecy with zero oversight.
Palantir’s tools are not just for killing bad guys, they have also signed up companies from sectors that include healthcare, energy, and manufacturing.
Another noteworthy development is the stranglehold on company decisions that the co-creators will have no matter what.
The Palantir IPO established three classes of stock, meaning the stock structure guarantees control of the company stays in the hands of creators Thiel, Karp, and Cohen.
The company’s financials are still behaving like a growth asset leading up to the IPO.
For the first half of 2020, Palantir reported revenue of $481.2 million, up 49% from a year ago. Also, it reported a net loss of $164.7 million, vs. a loss of $280.5 million year-over-year.
Palantir expects revenue to rise by about 47%, to around $278 million to $280 million for the rest of the year. For 2020, it expects revenue of about $1 billion, up 42%.
Palantir has two main services that analyze data: Palantir Gotham and Palantir Foundry.
A customized option, Palantir Gotham is used by companies, government agencies, and law enforcement to combine information to decipher previously unseen patterns and identify relationships between sets of data ranging from social media posts and addresses to license plate numbers and personal relationships.
The algorithm then summarizes content together to make broader conclusions from the data.
Meanwhile, Foundry is a ready-made solution focusing on clients ranging from pharmaceutical and automotive businesses to aviation companies like Airbus and is meant to cut down on the costs associated with Gotham, such as the need for multiple on-site engineers.
Who is the CEO?
Alex Karp.
A graduate of Stanford Law School.
Karp has been explicit in his belief for the need for Silicon Valley companies to work with the U.S. government and law enforcement agencies precisely because they are American companies.
Palantir refers to effective applications of its software such as combatting Ponzi conman Bernie Madoff to disaster recovery to thwarting cyberattacks and fighting child exploitation.
Not only that, Palantir’s software was deployed in the aftermath of Hurricane Florence in 2018 alongside Team Rubicon, an organization of military veterans that responds to disaster areas. With Palantir’s Gotham Operations module, the group identified and responded to neighborhoods in the greatest need of assistance.
Palantir also assisted the Center for Public Integrity and Georgetown University’s Journalism Program for an investigation into the death of Wall Street Journal reporter Daniel Pearl by militants in Pakistan in 2007.
The company says the software helped identify 27 individuals who took part in the kidnapping and killing of Pearl, tracking relationships and offering answers to questions surrounding his death.
How does the software directly help real-time U.S. soldiers in the field?
The firm also claims its software helped the U.S. military track insurgents in Afghanistan planting improvised explosive devices (IEDs) by finding correlations between weather patterns, command wire IED attacks, and biometric information found on explosive devices.
Palantir has also sold its software to the Salt Lake City Police Department, helping officers reduce the time it takes to perform complex investigations by 95%.
Predictive policing models that base conclusions on historical data can sometimes not work, meaning that there is the chance of a slipup or wrongfully identifying a problem that isn’t a problem.
Reading about Palantir’s business model, it’s easy to see how they could put themselves in a political mess with the software being used to “find people in the U.S. who are undocumented.”
Granted, this tech company is not for everyone which is why many global brands such as Hershey’s, Coca-Cola, Home Depot, and American Express have terminated relationships.
Lastly, there is word that their services are not exactly cheap, but that is the cost of doing business in 2020 where data analysis is the new oil.
With a roadmap of constant 40% revenue growth for the foreseeable future and a death grip on recurring revenue provided by the CIA, it’s hard to ignore the robustness of their plan moving forward.
If you thoroughly believe in the U.S. military and are okay supporting a data firm that offers software services to it, then I would suggest buying every dip in Palantir from now to eternity.
There are worse investments out there.
“The best entrepreneurs know this: every great business is built around a secret that's hidden from the outside.” – Said Venture Capital Peter Thiel
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
September 30, 2020
Fiat Lux
Featured Trade:
(INDUSTRIES YOU WILL NEVER HEAR FROM ME ABOUT
Industries You Will Never Hear from Me About.
The focus of this letter is to show people how to make money through investing in fast-growing, highly profitable companies which have stiff, long-term macroeconomic and demographic winds at their backs.
That means I ignore a large part of the US economy, possibly as much as 80%, whose time has passed and are headed for the dustbin of history.
According to the Department of Labor's Bureau of Labor Statistics, the seven industries listed below are least likely to generate positive job growth over the next decade.
As most of these stocks are already bombed out, it is way too late to short them. As an investor, you should consider this a “no go” list no matter how low they go. I have added my comments, not all of which should be taken seriously.
1) Realtors - The number of realtors is only down 10% from its 1.3 million peak in 2006. I have always been amazed at how realtors who add so little in value take home so much in fees, still around 6% of the gross sales price. Someone is going to figure out how to break this monopoly. The Internet is begging to destroy this business model.
2) Newspapers - these probably won't exist in five years, as five decades of hurtling technological advances have already shrunk the labor force by 90%. Go online or go away. Good thing I got out in time….40 years ago.
3) Airline employees - This is your worst nightmare of an industry, as management has no idea what interest rates, fuel costs, or the economy will do, which are the largest inputs into their business. Pilots will eventually work for minimum wage, or for free, just to keep their flight hours up.
4) Big telecom - Can you hear me now? Nobody uses landlines anymore, leaving these companies with giant rusting networks that are very costly to maintain. Since cell phone market penetration is 90%, survivors are slugging it out through price competition, cost cutting, and all that annoying advertising. How many Millennials even have land lines? About 30%.
5) State and Local Government - With employment still at levels private industry hasn't seen since the seventies, firing state and municipal workers will be the principal method of balancing ailing budgets. Expect class sizes to soar to 80 or go entirely online, to put out your own damn fires, and keep the 9 mm loaded and the back-door booby trapped for home protection. Anyone who sells to local governments is toast.
6) Installation, Maintenance, and Repair - I have explained to my mechanic that the motor in my new electric car has only eleven moving parts, compared to 1,500 in my old clunker, and this won't be good for business. But he just doesn't get it. Electric cars will soon price internal combustion ones out of the market.
The winding down of our wars in the Middle East is about to dump a million more applicants into this sector. The last refuge of the trained blue-collar worker is about to get cleaned out.
7) Bank Tellers - Since the ATM made its debut in 1968, this profession has been on a long downhill slide. Banks have lost so much money in the financial crisis, they can't afford to hire humans anymore. Thanks to the pandemic half of the big national branch networks have been closed.
It hasn't helped that hundreds of banks have closed during the recession, with many survivors merging to cut costs (read fire more people). Your next bank teller may be a Terminator.
Out With the Old
And in With the New
Mad Hedge Biotech & Healthcare Letter
September 29, 2020
Fiat Lux
(WHY THE PANDEMIC ISN’T STOPPING ELI LILLY’S WINNING STREAK)
(LLY), (PFE), (MRNA), (AZN), (GILD), (INCY), (REGN), (NVO), (BIIB)
Vaccine developers have taken center stage on Wall Street since the pandemic started, with companies like Pfizer (PFE), Moderna (MRNA), and AstraZeneca (AZN) enjoying soaring share prices for months now.
One of the primary reasons for this popularity is the US government’s Operation Warp Speed, which poured $11 billion into its chosen COVID-19 vaccine programs.
Realistically, the cold, hard truth is that a COVID-19 vaccine will not be the panacea for this deadly virus.
While the vaccine developers are rushing to complete their clinical trials, more people continue to die from COVID-19.
With almost a million deaths and over 30 million cases recorded to date, the need for treatments is more pressing than ever.
Among the companies working on COVID-19 treatments, one name has been quietly making headway: Eli Lilly (LLY).
So far, the company has two potential treatments that can cure COVID-19 patients.
One is its rheumatoid arthritis drug Olumiant, which the company developed with biotechnology firm Incyte (INCY).
Results showed that the treatment can lessen the days patients stay in hospitals when combined with Gilead Sciences’ (GILD) Remdesivir. Not only that, the combination also reduced the severity of the disease and allowed for less-intensive hospital care.
Once all the results have been tested and validated, Eli Lilly will seek an emergency authorization from the FDA.
Aside from Eli Lilly and Gilead Sciences, Pfizer is also working on a potential COVID-19 treatment. Although not much is known about the New York biopharmaceutical giant’s version of the antiviral drug, the target approval date is set in the second half of 2021.
Riding on the momentum of its successful Olumiant trials, Eli Lilly is working to extend its winning streak by being one of the first to develop a preventive COVID-19 treatment specifically designed for elderly patients.
Eli Lilly is developing the potent monoclonal antibody treatment, called LY-CoV555, with AbCellera. The Phase 3 trials conducted in nursing homes were launched in August and the company expects the results to be available by March 2021.
While using monoclonal antibody treatment is groundbreaking technology, Eli Lilly is not alone in the field.
The company faces considerable competition from other healthcare giants like AstraZeneca and Regeneron (REGN).
Nonetheless, the antibody market is massive enough for sharing, with this market estimated to rake in as much as $10 billion annually.
Conservatively speaking and assuming that Eli Lilly fails to attract major market share, there’s still a decent chance that the sales of LY-CoV555 can go beyond $1 billion every year starting 2022.
Outside its COVID-19 programs, Eli Lilly is a dominant player in the diabetes market, with Trulicity leading the charge along with up and coming products like Humalog, Jardiance, Basaglar, and Humulin.
The company is expected to attract at least 13.8% of the market share this year, ranking second only to Novo Nordisk (NVO) and its 30.7% hold of the sector.
In the second quarter earnings report this year, Trulicity sales showed a 20% year-over-year jump to reach $1.2 billion in that period.
This is an impressive performance as investors expect the diabetes drug to surpass its 2019 sales of $4.1 billion.
Although Trulicity delivers substantial sales, it is remarkable that Eli Lilly is not overly reliant on the drug.
In fact, the diabetes drug’s total revenue only accounts for less than one-fifth of the company’s overall sales.
To boost its presence in the diabetes market, Eli Lilly added another potential blockbuster in its pipeline: Tirzepatide.
This drug is projected to become “best-in-class for lowering glucose, weight loss, and cardiovascular risk.”
To date, Tirzepatide is undergoing Phase 3 trials to test it on diabetes, obesity, and heart disease. It is also queued in Phase 2 trials for the liver disease NASH.
The potential of Tirzepatide is hinged not only in being a diabetes drug but more importantly, as an obesity drug.
If successful, Tirzepatide is estimated to hit peak sales of $10 billion annually, with the number trailing by 2025 to record $3.7 billion.
Another potential moneymaker for Eli Lilly is Verzenio, which showed an impressive 56% increase in sales in the second quarter to contribute $208.6 million.
In a bid to expand its oncology pipeline, Eli Lilly is looking into adding a new indication for Verzenio as well.
The company recently released the promising results for the oral tablet as an early-stage breast cancer treatment.
If successful, this drug will be in direct competition against an industry leader, Pfizer’s Ibrance.
In terms of its neurology pipeline, Eli Lilly has also been active in developing its own Alzheimer’s program.
While most of the treatments are still in the early stages, the success of Biogen’s (BIIB) Aducanumab could provide a much-needed boost for Eli Lilly’s own Alzheimer’s candidates.
Eli Lilly offers an extensive product line that goes beyond its COVID-19 programs, underscoring the company’s resilience even during the pandemic.
After dominating in the diabetes sector, the company focused its efforts on becoming one of the top players in the oncology, immunology, and neurology fields.
Consequently, Eli Lilly has been consistent in posting first-rate earnings and revenue growth since 2017.
Eli Lilly markets treatments for life-threatening and chronic conditions, with the company owning the rights to products with consistently growing sales. It also has the ability to continuously boost its revenue stream thanks to its rich pipeline and strategic collaborations.
The COVID-19 pandemic may have negatively affected sectors of Eli Lilly’s business this year, but the company holds the qualities that make it a solid long-term investment.
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
September 29, 2020
Fiat Lux
Featured Trade:
I HAVE AN OPENING FOR THE MAD HEDGE FUND TRADER CONCIERGE SERVICE),
(SOME SAGE ADVICE ON ASSET ALLOCATION)
