October 2020

Can Regeneron Trump Other COVID-19 Rivals?

If the experimental COVID-19 treatment of Regeneron Pharmaceuticals (REGN) is good enough for the US president, then this stock should be given more attention not only by the media but also by investors.

One of the biggest stories this October is that President Donald Trump got infected with COVID.

The bigger story for the stock market though is his choice of treatment.

According to his medical team, Trump was given Regeneron’s antibody cocktail, called REGN-COV2, which was actually developed based on the same technology used in the company’s experimental Ebola treatment.

Although REGN-COV2 is still in the trial phase, reports that Trump already beat COVID just three days since his diagnosis are doing wonders for the stock.

Apart from REGN-COV2, Trump also received Gilead Sciences’ (GILD) Remdisivir as well as dexamethasone, a common generic steroid he once touted as a “miracle COVID-19 cure.”

The president was given aspirin and famotidine, which is more widely known as Johnson & Johnson (JNJ) and Merck’s (MRK) Pepcid.

On top of these, he took zinc, Vitamin D, and two immune-boosting supplements.

Compared to how far Gilead’s Remdesivir has gone in terms of offering treatment to COVID-19 patients with severe symptoms, Regeneron’s candidate is nowhere near the finish line.

Among all these drugs, however, Regeneron enjoyed the most advantage, with its stocks rising to roughly 5% since the announcement. Gilead also experienced a boost from the news, with a 3% jump.

What does this mean for investors?

Well, this news triggered aggressive buying of Regeneron shares. As expected, the unusually heavy volume pushed the stock price up.

While it would be tempting to join the market mob in buying a hot stock in the hopes of it getting even hotter, you might want to consider switching gears instead.

Hot stocks that dominate the news tend to cool and end up sliding at some point.

Rather than buying Regeneron stock right now, think about buying its bullish call options.

Options are always cheaper than their associated stock, which means you’ll be less at risk if something happens that lowers the stock price.

Even if the stock continues to advance, investing in options will still ensure that you get a nice return.

After all, each options contract represents 100 shares of stock.

To date, Regeneron’s stock is up 7.2% at $605.

That means you should buy bullish November $600 call options for roughly $40 with the expectation that REGN-COV2 gets approved—or at least stays as a strong contender until the next earnings report.

Since Regeneron released its 2019 third-quarter earnings report on November 5, it’s reasonable to assume that the company will follow the same timeline for 2020.

Therefore, setting the expiration to November ensures that you cover its third-quarter earnings report this year.

Aside from that, you’ll have enough time to gauge the success of REGN-COV2 and how the results will affect the stock price.

If the company’s share price reaches $665 at the expiration date, which is its peak price in the past 52 weeks, the call would be worth $65. If it hits $700, then the call will be worth $100.

For context, Regeneron stock has been anywhere between $279.22 and $664.64 in the past 52 weeks.

If REGN-COV2 gains approval, its projected 2021 sales could reach $1.8 billion. Meanwhile, its 2022 sales could hit $2.4 billion, with a decline to $1.7 billion by 2023.

Outside its COVID-19 efforts, the company has a promising portfolio to keep investors interested.

Regeneron’s annual revenue for its marketed drugs has been consistently climbing since 2012, with the biotechnology company’s earnings beating estimates in the last four quarters.

At the moment, the company has over 30 programs in its pipeline, 9 of which are in Phase 3, ensuring that its portfolio still has so much room for growth.

At the height of the pandemic, Regeneron maintained its stellar balance sheet in the second quarter.

One of its top-selling drugs is atopic dermatitis medication Dupixent, which it developed with Sanofi (SNY), with $770 million in sales for that period alone.

Looking at the drug’s track record, Dupixent is projected to rake in $6.3 billion in sales in 2021.

However, the top performer in the second quarter is eye injection Eylea, which contributed $1.1 billion in sales.

Meanwhile, skin cancer treatment Libtayo generated $63 million and cardiovascular disease drug Praluent raked in $47 million.

Regeneron also finished the second quarter with $943 million in net cash flow, which is a massive jump from the $188 million it reported in the same period in 2019.

On top of Regeneron raking in huge rewards for ’s COVID-19 treatment if approved, the company also has other promising products in its portfolio—ones that can still sway investors in their favor regardless of REGN-COV2’s future.

Trade Alert - (DKNG) October 8, 2020 - SELL-STOP LOSS

Tech Alert

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

October 8, 2020 - MDT Pro Tips

MDT Alert

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

October 8, 2020

Diary, Newsletter, Summary

Global Market Comments
October 8, 2020
Fiat Lux

Featured Trade:

(IF BONDS CAN’T GO DOWN, STOCKS CAN’T EITHER),
($NIKK), (TLT), (TBT), ($TNX)
(TESTIMONIAL)

If Bonds Can’t Go Down, Stocks Can’t Either

Diary, Newsletter, Research

The U.S. Treasury bond market has suddenly ground to a halt, puzzling traders, investors, and hedge fund managers alike.

Today, the yield on the 10-year Treasury bond (TLT), (TBT) traded as low as 0.77%.

This is despite the U.S. economy delivering a horrific negative GDP growth during Q2. Growth is expected to rebound to 2-5% in Q3, depending on if there is another stimulus package from Washington, or not. 2021 could bring economic growth as high as an astronomical 10%.

If I blindfolded any professional money manager, told him the above and asked him where the 10-year Treasury yield should be, most would come in at around the 5% level.

So what gives?

I have put a great deal of thought into this and the answer can be distilled down to two letters: QE.

Global quantitative easing has created about $30 trillion in new money over the past 10 years. It has not been spent, it hasn’t disappeared, nor has it gone to money heaven. It is still around.

The U.S. Federal Reserve, the first to start QE in November 2008 during the Great Recession, ended it in October 2014. From start to finish, it created $4.5 trillion in new money. Over the past five years was wound down to $3.8 trillion by letting debt on its balance sheet mature.

Enter the pandemic. The expectation is that the new round of QE could exceed another $10 trillion or more.

Japan actually began its QE program in 2001, long before anyone else, to deal with the aftermath of the 1990 Japanese stock market crash and a massive demographic headwind (they’re not making Japanese anymore).

Some 20 years later, the Japanese government now owns virtually all of the debt in the country. When you hear about Japan’s prodigious 240% debt to GDP ratio, it’s all nonsense. Net out government holdings and there is no national debt in Japan at all. That’s why the Japanese yen is consistently strong.

After the 2008 crash, the Japanese government expended its QE to include equities as well. As a result, the government is now the largest single buyer of stocks in the Land of the Rising Sun. The Nikkei Average has risen by 234% since the 2009 bottom despite a miserable economic performance, and the yield on 10-year JGBs stand at a lowly 0.03%.

The European Central Bank got into the QE game very late, not until 2015, and its program continues anew, although at half its peak rate. The ECB has just renewed its plan to print a ton of new money.

Part of the problem is that the ECB is running out of bonds to buy, as it already owns most of the paper issued by European entities. That’s why 10-year German bunds are yielding a paltry -0.50%.

As a result, there is excess liquidity everywhere and this has broad implications for your investment or retirement portfolio. It could take as long as a decade before all of this artificial cash is removed from the global financial system.

For a start, bonds may not fall much from here, even if the Fed continues its near-zero interest rate policy for three more years, as promised.

Stocks can’t fall either with this much cash underpinning the market, at least not for a while and not by much. While company share buybacks have virtually disappeared this year, foreign investors have stepped in to pick up the slack.

It also means you can’t have a global contagion leading to a financial crisis. There is ample money available to refinance your way out of any problem when 70% of the world’s debt is still yielding close to zero.

The bottom line here is that global excess liquidity can cover up a multitude of sins. It means the price of everything has to go up, or at least stay level until that liquidity runs out. That includes stocks, bonds, your home, classic cars, and even that rare coin collection of yours gathering dust in a safe deposit box somewhere.

Yes, when the excess free cash runs out in a decade, there will be hell to pay. Until then, make hay while the sun shines.

Hay

Testimonial

Diary, Newsletter, Testimonials

Don't worry, John.

Your posts are probably the least boring of any mentor(s) out there. Please keep up the good work.

By the way, I may have flown in that Tiger Moth back in the early 70s. My dad learned to fly on Tiger Moths right after the war in south England and we used to visit his home turf when I was a boy.

At Red Hill, we used to fly G-ACDC mostly, but I also had the privilege to ride in the Fox Moth and DH.60 Gipsy Moth. Small world. :)

Best wishes,

Stephen
Dallas, TX

October 8, 2020 - Quote of the Day

Diary, Newsletter, Quote of the Day

“October is one of the most peculiarly dangerous months to trade in stocks. The other are July, January, April, November, May, March, June, December, August, and February,” said American writer and humorist Mark Twain.

October 7, 2020

Tech Letter

Mad Hedge Technology Letter
October 7, 2020
Fiat Lux

Featured Trade:

(THE HOTTEST TECH GROWTH INDUSTRY)
(DKNG), (LVS)

The Hottest Tech Growth Industry

Tech Letter

One of the most lucrative untapped industries in the U.S. is sports betting, and in 2020, that means online sports betting.

The numbers have confirmed this with largely the male audience under 60 being avid sports gamblers and precisely tuning into sports matches just to put down a bet.

Online sports betting is a duopoly and I recommend investors look at DraftKings (DKNG), the other member of the duopoly is FanDuel.

Legislation has backed up this premise with instances nationwide and the pace of liberalization is picking up speed such as the state of Tennessee conditionally approving licenses for its first three online sports betting operators Wednesday, bringing the state one step closer to its proposed Nov. 1 launch date.

The Tennessee Education Lottery Board's Sports Wagering Committee approved licenses for FanDuel, BetMGM, and DraftKings.

The committee also approved its first supplier application and 26 additional vendor applications, according to a news release, adding to the 13 vendors approved in previous months. It will convene again on Oct. 5 and Oct. 16 to review more applications and additional information from the sportsbook companies that received licenses.

DraftKings provided third-quarter revenue guidance on National Football League betting.

The guidance was disclosed simultaneously with an equity offering of 32 million class A shares. Half the shares will be sold by the company and half by selling shareholders.

In its S-1 filing, DraftKings expects to report third-quarter revenue of $131 million to $133 million, a 41% gain relative to the third quarter of 2019.

The company said its total amount wagered is expected to have risen 460% in the third quarter year-over-year and that internet betting revenue was expected to be up 335%.

DraftKings expects its monthly unique players to be about 1.02 million in the third quarter, up 64% from the same period a year earlier.

As major sports resumed in the third quarter and amid keen investor interest in online sports betting, DraftKings stock had rallied more than 70%.

It is currently the second-largest U.S. gambling company behind only Las Vegas Sands (LVS).

The equity offering is being led by Credit Suisse and Goldman Sachs and the underwriters have the option to purchase an additional 4.8 million shares.

The deal follows an equity offering of 40 million shares—16 million by the company and 24 million by selling shareholders—in June at $40 a share.

The online sports betting industry has been hot and that is reflected in the M&A market last week with Caesars Entertainment announcing a $3.7 billion deal to acquire UK betting company William Hill. That deal is expected to be consummated during the second half of 2021.

Caesars and William Hill currently operate a U.S. joint venture with 20% and 80% equity ownership, respectively. Through this joint venture, William Hill runs online sports betting operations in each state and retail sports betting operations in Caesars’ properties.

Even though the in-person aspect of casinos has fallen off the face of the earth, the online sports segment hasn’t been stronger and I fully expect accelerated revenue growth in the mid-term.

I expect DraftKings and FanDuel to overperform in the short and long term and they look forward to long runway in front of them.

One caveat with its underlying stock is that traders will need to deal with volatility because of the immature nature of this industry and the stock being a fresh entrant into public markets.

Expect 5-7% volatility on most days which makes it better for a long-term buy and hold if one cannot bear the heightened volatility.