2020 Archive - Mad Hedge Fund Trader

It's All About the Cloud

The x-factor for the last tech generation has been none other than – the cloud.

Any portfolio manager that hasn’t aligned performance with this transformational phenomenon is most likely not a portfolio manager anymore.

Now, as we enter into an unknown world, if you thought the cloud was the x-factor of the tech in the last generation, then the 2020s will make the cloud contributions to growth in the last generation appear meek.

About 1/3 of small businesses recently surveyed admitted there is really no path back to reopening. Who would really want to shoulder financial risk in an economic environment that outwardly punishes businesses that operate around anonymous customers in close proximity?

Many of these owners, even with generous government funding, have chosen not to fight against the path of strongest resistance.

When the dust settles, even if a vaccine arrives out of thin air tomorrow, the work at home thing, or should I say the work from anywhere but the office phenomenon will persist like a bad flu, no pun intended.

The Cloud is the winner, and everything associated with it will drive the economy forward.

It has emerged as the cog in the works, that no company can live without.

Not only is the cloud highly effective but it's also cheaper than traditional systems.

It also provides nimbleness in scaling up or down computing capacity according to business requirements.

Search for growth companies that do not deploy the cloud as a critical pillar of operational execution.

They hardly exist now.

Whether it’s the vanguard of the cloud plays such as Amazon (AMZN), the second in show nipping at Amazon’s heels, Microsoft’s (MSFT), or any other small cloud play, they are all profiting off the monstrous pivot to digital commerce and cord-cutting.

In China, Tencent, Alibaba, and Huawei are cloud companies doing so well that the U.S. government has tried to shut them down to allow a wider moat around U.S. companies.

What’s the simplest way to carve out significant exposure to cloud equities?

A barrage of ETFs (exchange-traded funds) has come online to serve your needs.

They are also durable enough to endure stormy and uncertain times.

Here are three that should whet your appetite.

The First Trust Cloud Computing ETF (SKYY) tracks a modified equal-weighted index of infrastructure, platform, and software cloud companies. Microsoft, Amazon, and Alphabet are its secret sauce.

The Global X Cloud Computing ETF (CLOU) consists of companies that are positioned to benefit from the increased usage of cloud computing. While Amazon, Microsoft, and Alphabet are included in the portfolio, the fund’s top holdings are pure-play cloud companies like Zscaler (ZS) and Shopify (SHOP).

The WisdomTree Cloud Computing ETF (WCLD) tracks an equal-weighted index of emerging companies with DocuSign (DOCU) and RingCentral (RNG) among the largest holdings.

What’s more, let’s remember that every cloud company is about to embark on a massive round of expense cuts by getting rid of the physical office.

Twitter (TWTR) even has allowed workers to work from home on a permanent basis.

Yes, this means San Francisco commercial real estate prices are about to nosedive, but as it relates to the tech industry, operation costs will benefit in one fell swoop boosting earnings.

This also paves the way for many tech companies to re-establish tax headquarters in Nevada, Texas, or Florida which will act as another supercharger to growth.

Elon Musk has called out the Bay Area politicians in Alameda County, California because of a convoluted response and conflicting rules with regards to restarting the Fremont, California factory.

Covid-19 is most likely the straw that breaks the camel’s back as many Bay Area tech workers start to question what on earth they are doing paying $4,000 per month to rent a “cozy” 400 square foot apartment in Cupertino or San Francisco.

The mass exodus from high tax states to low tax states is just another supercharger out of many cloud superchargers on top of growth.

What more can I say?

May 20, 2020 - Quote of the Day

Tech Letter

“It's better to be a pirate than to join the Navy.” – Said Co-Founder of Apple Steve Jobs

May 20, 2020 - MDT Pro Tips A.M.

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

May 20, 2020

Diary, Newsletter, Summary

Global Market Comments
May 20, 2020
Fiat Lux

Featured Trade:

(THE HYPER-ACCELERATION OF 5G)
(AMZN), (5G), (CCI), (MSFT), (NFLX), (APPL)

The Hyper-Acceleration of 5G

Diary, Newsletter

I will explain to everyone why a wonky side effect of coronavirus is supercharging the 5G revolution.

Market valuations reflect the state of expected future cash flows in a company.

Under this assumption, some could argue that most tech companies with staying power are almost a good buy at any price.

No-brainers would include a list of Microsoft, Amazon, Apple, and Netflix.

The health scare and the carnage associated with it has brought forward the tech industry as a whole to the forefront of the global economy.

When you mix that with the Fed hellbent on saving everything that has a heartbeat, it sets up conditions for heavy buying in an industry that is going to be king of the global economy anyway.

It is not a question of if, but when and the health phenomenon has accelerated the dramatic migration to tech by showing how business will be conducted in about 15 years.

The change took place in a blistering 4 weeks.

The clearest signal of who is really calling the shots in the equity market is looking at which companies are dragging it up.

Technology is shouldering the responsibility of the equity market by outperforming the broader market with many software companies’ share price higher than before the crisis.

For every Amazon or Microsoft, there is also a Macy’s or JC Penny showing that this is really a stock pickers market.

We have not only learned that tech companies are critical to our functioning as a society, but that large tech companies will be even more central than before even if they are currently losing gross revenue.

The relative gains to tech stemming from the coronavirus are equal or greater than an innovation of a game-changing product and will double the effect of 5G.

We are setting up for the Golden Age of 5G with tech poised to invade even more of the broader equity market.

One rough estimate notes that the 5G industry is expected to add about $40bn in incremental revenue to the semiconductor industry, add 5X growth in mobile data monthly traffic by 2024, and a $4.2tn boost to global economies from revenue streams connected to 5G in the next ten years.

I do agree that currently, the network effect is working in reverse order, but the positive force multiplier, when the economy is riding high again cannot be emphasized enough.

Digital revenue streams will effectively be pumped into every nook and crevice of the digital economy because of current modifications to the business environment.

When business does come back online, investors of physical assets will sell what they can at discounted prices to get into the digital ecosystem causing asset prices to explode as investors chase prices to the sky.

Do you remember commercial real estate guru and Colony Capital’s CEO Tom Barrack?

The company hoped to sell as much as 90% of its $20 billion property portfolio of hotels, warehouses, and other commercial real estate by the end of 2021.

They are also another big investor in nursing homes.

A real-estate pioneer who founded Colony in the early 1990s and is the firm’s chief executive and executive chairman, Barrack said he wanted to go “all digital.”

Rejigging the 29-year-old investment company represented an extreme response to the way technologies have been dismantling cash flow for almost every type of commercial real estate, and Barrack was met with fierce backlash from entrenched stakeholders regarding the new direction.

Commercial real estate and hotel operators have had to fight against the triple whammy of office sharing WeWork, short-term hotel platform Airbnb, and the coronavirus - a lethal three-part cocktail of malicious forces to the “traditional” model.

The coronavirus has proven Barrack was spot on with his synopsis, but he wasn’t able to get rid of Colony’s inventory of commercial real estate in the expeditious way he desired.

Other companies have taken a direct hit like 24 Hour Fitness who is pondering filing for bankruptcy, but I could say the same for a slew of companies like Colony Capital.

Another key manifestation of the current economic malaise is that regulators, antitrust, tax, foreign, and all of the above are less likely to disrupt big tech companies moving forward considering they may be the only ones able to get us out of a similar crisis in the future.

Government officials will be under rapid pressure to boost GDP levels and crimping big tech is counterintuitive to this overall goal.

I don’t agree with the glass half empty crowd who believe Amazon needs to be clamped down because of dominating retail during the time of the virus - if Amazon didn’t exist, the panic could have accelerated to an uncontrollable level creating anarchy in the streets.

The big boys have pushed soft power as a legitimate policy tool with Apple sourcing over 20 million face masks and is now building and shipping face shields.

Big tech is becoming like a mini-government in its own right.

Granted that thousands of bankruptcies from restaurants, nail salons, and yoga studio will be swept into the dust bin of economic history, but once the next iteration of the economic cycle turns up, tech is about to go gangbusters in a way many never thought imaginable.

Then if you bake a little 5G into the pecan pie, investors are justified to be salivating about the tech industry’s prospects.

Any deep-pocketed investors should be cherry-picking every quality 5G tech play possible because they will be the most supercharged sub-sector of tech once the economy is reset.

Any long-term investor with a pulse should buy Crown Castle International Corp. (REIT) (CCI) on any and all dips.

They are the largest owner of cell towers owning over 40,000 in the U.S.

May 19, 2020 - MDT Alert (AMN)

MDT Alert

Today, I would like to make one more suggestion and it is on a stock that has been oversold but has held support of the lower band on its daily chart.

The stock is AMN Healthcare Services, Inc. (AMN).

It is trading just above the lower band on its daily chart, which is $37.83 and as I write, AMN is trading for $43.32.

I am going to recommend a debit spread,

Here is the trade.

Buy to Open July 17th - $45.00 call @ $2.90

Sell to Open July 17th - $50.00 call @ $1.50

The net debit will be $1.40 per spread, with a maximum gain of $3.60 per spread.

Based on the nominal portfolio, limit the trade to 8 spreads or about 1.1% of the portfolio.

May 19, 2020 - MDT Alert (OSTK)

MDT Alert

Today, I would like to make another recommendation on a stock that does have weekly options. And I want to suggest a weekly covered call.

The stock is Overstock.com Inc. (OSTK).

OSTK reported already and reported a beat.

OSTK is trading around $17.64 as I write this.

Buy OSTK at the market at $17.64.

Then Sell to Open (1) May 22nd - $18 call for every 100 shares you buy.

You should be able to sell the May 22nd - $18 calls for $0.55.

Limit the stock purchase to 300 shares or 5.2% of the portfolio. If you buy 300 shares, it would mean you would sell 3 calls.

If the calls are assigned this Friday, the return will be 5.2% for 4 days.

May 19, 2020 - MDT Alert (HOG)

MDT Alert

HOG is trading around $22.25 as I write this. I would like to suggest you sell calls that expire this Friday.

My suggestion today is this.

Sell to Open (1) May 22nd - $23 call for every 100 shares you buy.

You should be able to sell them for $0.45.

These are the calls that expire in four days.

This alert applies only if you bought shares in HOG when I suggested it on May 5th.

May 19, 2020

Diary, Newsletter, Summary

Global Market Comments
May 19, 2020
Fiat Lux

Featured Trade:

(THE 2020 DARK HORSES OF BIOTECH)
(AMRN), (THOR), (SAN), (NBSE), (OHRP),
(MRNA), (MRK), (AZN), (VRTX), (RGLS), (ARWR)

The 2020 Dark Horses of Biotech and COVID-19

Diary, Newsletter

One of our dark horses came in a big winner this morning.

No, I did not go to the Golden Gate Fields race track on San Francisco Bay and win big on a horse with 5:1 odds, although I might as well have.

Moderna (MRNA) soared to $85 this morning on news of a successful trial of a new Covid-19 vaccine. We recommended it on January 19 at $17.78 for precisely this reason.

Never mind that the trial only involved a mere eight patients, involved RNA, and won’t be available in bulk for two years. That’s all the market wants to hear today.

So, if you are interested in playing the long shot game, I am re-running my January 9 research piece, which was sent out to paid subscribers of the Mad Hedge Biotech & Healthcare Letter. If you want to subscribe to the letter, which has been pulling in long shots on a weekly bases recently, please click here.

For all the flak the healthcare sector has received for the exorbitant prices of its products and services, there’s no denying the fact that this industry had an incredibly remarkable decade -- and biotechnology proved to be one of the most lucrative markets when it comes to stocks that actually double or triple in value, sometimes even overnight.

The primary reason for this is that no one could predict the success or failure of clinical trials with any degree of accuracy, forcing investors to take into account elements of surprise in the valuation process in biotech.

Companies that analysts believe to be prime candidates for acquisition early on in their life cycle would end up repeatedly failing to lure viable tender offers for years. Meanwhile, dark horses emerge from the leftfield and snap up the best deals.

A good case in point would be how experts and investors alike missed the mark on Amarin Pharmaceutical’s (AMRN) cardiovascular treatment Vascepa. On the outset, analysts pegged the new prescription omega-3 treatment as a failure and a money sinkhole.

Instead, Vascepa surpassed all expectations and is now hailed as the fish oil supplement to demonstrate clear-cut cardiovascular benefits to high-risk heart attack patients.

In 2019 alone, Vascepa grew by 85% compared to its 2018 report, coming in between $410 million and $425 million in sales -- and 2020 is expected to be an even better year for this drug as sales are estimated to reach between $650 million and $700 million.

Another example is synthetic protein maker Synthorx (THOR), which was initially tagged as an ominous stock.

The company proved detractors wrong when it went on to fetch huge offers from giant biotech firms, with Sanofi SA (SAN) winning the bidding war over Synthorx to the tune of $2.5 billion.

This new year, though, promises to offer more predictability, especially on the merger and acquisition front.

Several blue-chip biotechs are on the verge of key patent expirations in the next decade. On top of that, these companies are facing tremendous pressure from US politicians to cut down on the prices of their brand name drugs. Today, the State of California announced that it was going into the generic drug industry to undercut the majors.

These dual headwinds are expected to fuel an uptick in the demand for bolt-on acquisitions, which can provide the giant biotechs with healthy levels of profit via large sales volumes as they attempt to slash their slashes to acceptable levels.

With this in mind, big biopharmas will be willing to shell out top dollar to acquire promising companies this 2020.

Which biotechs have the goods to take full advantage of this acquisition demand?

One up and coming company tagged as a red-hot acquisition candidate is NeuBase Therapeutics (NBSE).

Founded in 2018, this Pittsburgh company has raked in $9 million in funding so far to develop treatments that target rare, genetic neurological disorders. Neubase’s platform called peptide-nucleic acid antisense oligonucleotide or PATrOL technology was developed at Carnegie Melon University.

Basically, this technology offers gene-silencing therapies for its patients suffering from rare genetic disorders.

In July 2019, NeuBase engaged in a reverse merger with fellow biotech innovator Ohr Pharmaceuticals (OHRP). This partnership is expected to rake in massive rewards since both companies greatly complement each other’s work.

NeuBase’s work zeroes in on curing rare genetic diseases via gene-silencing treatments while Ohr’s research is geared towards helping patients suffering from cancer cachexia and macular degeneration.

The combined efforts of these two should result in a wider reach as they offer cutting edge treatments to highly lucrative and specialized markets.

As of December 2019, NeuBase has a recorded market cap of $114.38 million. Considering all its assets and the way its pipeline is shaping up, NeuBase could easily be your best sleeper stock in 2020.

Another biotech company to watch out for this year is Moderna Inc (MRNA), which has raised a whopping $1.8 billion in funding over 10 rounds.

So far, this company has attracted blue-chip companies in the form of Merck and Co (MRK), which invested $125 million, and AstraZeneca (AZN) with $474 million so far.

In terms of stability, Moderna has been doing quite well for itself with $68.2 million in estimated annual revenue.

In 2019, Moderna shared that it has at least 11 programs set for clinical trials along with 20 development candidates. Its research leans towards producing cancer vaccines and localized regenerative therapeutics.

Its strategic alliances not only with AstraZeneca and Merck but also with Vertex Pharmaceuticals (VRTX), Biomedical Advanced Research and Development Authority, and even the Bill & Melinda Gates Foundation equip Moderna with a remarkable competitive edge against rivals Regulus Therapeutics (RGLS), Arrowhead Pharmaceuticals (ARWR), and CureVac.

I’m expecting huge movements in the biotech market in 2020 as the curtain rises on all these promising technologies and the rise of this industry becomes impossible to ignore.

The Buyers are Lining Up