“A market has never before come out of a recession with stocks at peak earnings multiples,” said Jonathan Golub, Chief Equity Strategist at Credit Suisse.
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
Mad Hedge Biotech & Healthcare Letter
May 19, 2020
Fiat Lux
Featured Trade:
(PFIZER’S LATEST COVID-19 VACCINE ENTRY)
(PFE), (BNTX), (MRNA), (INO), (CTLT), (SVA), (EBS), (MYL)
Clearly, the long-term solution to this health crisis, and possibly the only hope we have to returning to “normal,” is a safe and effective vaccine.
Companies and health experts around the world have stepped up to that challenge, with investors eagerly anticipating the stocks of the businesses to successfully deliver a vaccine to catapult in value overnight.
This is one of the driving forces behind Pfizer’s (PFE) relentless pursuit of a coronavirus vaccine.
Here’s a quick recap of where Pfizer was before this major announcement.
Pfizer was first recognized as an aggressive player in the vaccine race when the healthcare giant partnered with German biotechnology company BioNtech (BNTX).
After months of working together, Pfizer announced that it aims to produce 10 million to 20 million doses of COVID-19 vaccine by the end of 2020.
So far, Pfizer is testing at least four distinct variations of its vaccine called BNT162. The trials will test roughly 360 individuals, with the study expanding to involve thousands of volunteers if one or two variations of the vaccine indicate progress.
Conclusive data will be available in June or July this year. Meanwhile, Pfizer’s coronavirus vaccine candidate, co-created with BioNtech, is projected to be ready for launch by October.
In an effort to make room for the production of BNT162, Pfizer decided to outsource the production of some of its own branded products to various manufacturers such as Catalent (CTLT).
This move means that instead of paying contract manufacturers to produce millions of doses of a vaccine that might fail to even leave the warehouse, Pfizer has taken it upon itself to produce BNT162 in its own facilities.
According to the company’s estimates, it will cost approximately $150 million to produce BNT162. Since Pfizer is using its own facilities, it could jumpstart the distribution of up to 20 million doses of COVID-19 vaccine even before 2020 ends.
This move to ramp up the manufacture of an experimental drug candidate is a surprising gamble for Pfizer. However, the possibility of having millions of doses of this potential vaccine ready to ship at a moment’s notice could make it a worthwhile risk.
In terms of competition, Pfizer is racing against several biotechnology companies searching for a COVID-19 vaccine in the US and abroad.
One of them is Moderna (MRNA), which has a $19 billion market cap and funding access worth $2.4 billion including government endowment.
Moderna collaborated with Lona (OTC: LZAGY), which is an international chemical manufacturer, to scale up its production power.
Apart from this, smaller biotechnology companies like Inovio Pharmaceuticals (INO) and Novavax (NVAX) are involved in the COVID-19 vaccine race as well.
Inovio is backed by its history of vaccine research on the swine flu outbreak in 2009 and the 2013 avian flu.
Novavax, which has a modest market cap of $82.2 million, received government funding worth $4 million to help the company move forward with clinical trials.
Additional financial support was also sent by the Coalition for Epidemic Preparedness Innovations. In terms of manufacturing, Novavax has been working with Emergent BioSolutions (EBS) to meet production demands.
Outside the US, two of the frontrunners are Chinese companies CanSino Biologics and Sinovac Biotech (SVA).
The stocks of various micro-cap companies have been on the news since the COVID-19 vaccine race started. Several of these smaller firms used their newfound popularity to boost their stock price and generate additional capital to fund their operations.
I think there are several biotechnology and healthcare companies that warrant following. However, there remains a dearth of data on these companies working on the COVID-19 vaccine. Choosing the best stock from these names at this point demands too much guesswork, an investment strategy I have never endorsed.
The harsh reality is that most of these smaller companies will most probably never manage to get a program off the ground and into a conclusive efficacy trial. The main reasons are limited capital, restricted bandwidth, and lack of will to move forward.
Small companies, particularly in the biotechnology and healthcare sectors, typically lack the money and manpower to efficiently run a program without sacrificing the rest of their R&D efforts. For those companies that manage though, the pace will likely be too slow to actually merit a meaningful place in the market.
Investors looking to invest in the surging COVID-19 vaccine space should turn to companies that hold the greatest odds of success. That means larger and more established companies with global testing, regulatory, and manufacturing capacities.
This is not to dissuade anyone from taking a dip into the small-cap companies pool though.
Rather, I would recommend to simply keep these biotechnology companies on your watch list and see how the situation develops. After all, these are decent stocks on their own right.
Nonetheless, it’s still too early to tell how their long-term business models look like outside the search for a coronavirus vaccine.
In comparison, Pfizer has a proven track record of being a great investment. The company has been showing off a decent dividend growth for 10 consecutive years, reporting an annualized dividend worth $1.52 per share.
More importantly, this biotechnology and healthcare company is showing no signs of slowing down anytime soon. In 2019 alone, Pfizer introduced six new drugs on the market and shared that it has 95 more in its pipeline.
Keep in mind as well that Pfizer’s current price of roughly $37 per share -- a far cry from its 52-week high that reached $44.56 -- is significantly lower than the industry average at the moment. For a stock that presents such a wealth of opportunities, Pfizer offers significant value to its investors.
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
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
Mad Hedge Technology Letter
May 18, 2020
Fiat Lux
Featured Trade:
(CHINA’S BIG SEMICONDUCTOR PLAY),
(SMH), (SOXX), (DOCU), (AKAM), (NVDA), (AMD), (XLNX)
We received a convincing data point as to why we trade cloud companies and not the semiconductor chips.
The rift between blacklisted telecom equipment giant Huawei Technologies and the U.S. administration has had a dramatic side-effect on the business models of U.S. chip companies.
The U.S. commerce department now will require licenses for sales to Huawei of semiconductors made abroad with U.S. technology signaling more turbulent times ahead.
Huawei is the Chinese smartphone maker and telecom provider who has stolen intellectual property from the West and used mammoth subsidies funded by the Chinese communist party to build itself into one of the premier telecom equipment sellers and number two maker of smartphones in the world.
I seldom issue trade alerts on semiconductor chip companies because I'd rather not compete with the Chinese communist party and their capital funding capacity.
China is hellbent on subsidizing its own chip capacity as many Western chip companies are blocked from doing deals with them.
A recent example is the Chinese communist party injecting $2.25 billion into a Semiconductor Manufacturing International Corp. wafer plant to ramp up development in the sector.
To read about this, click here.
Exploiting the economic freedom and laws of the West has worked out perfectly for Chinese tech enabling them to develop juggernauts like Tencent and Baidu.
In fact, state-sponsored hacking of Western intellectual property is not considered a malicious activity in China.
There is the Chinese notion that everything is fair game in business and war and protecting company secrets falls on the shoulders of the cybersecurity sector.
To read more about the fallout in the West from China’s aggressive trade strategy, click here.
The concept that you should only blame yourself if you allow your secrets to get stolen prevails in China.
The consequences are impactful with U.S. chip companies suffering large drops in revenue without notice.
Leading up to the coronavirus, chip companies experienced a revenue slide of 12% in 2019 to $412 billion largely due to the trade war.
An example is Xilinx Inc. (XLNX) who will fire 7% of its workforce citing lower revenue from Huawei and delayed adoption of superfast 5G networks.
Along with the West getting smacked by the trade war, the ripple effect of increased uncertainty and guide-downs across the semiconductor supply stems from China’s economy being hit even worse than the U.S. economy.
There are no winners here and it will be a hard slog back from the nadir.
Either way, the sabre-rattling doesn’t stop here and each tweet and counterpunch will cause heightened volatility in chip shares.
Then consider that the existence of supply chains will most likely uproot, and we got indication of that type of activity with Taiwan Semiconductor’s (TSM) announcement to build a new chip factory in Phoenix.
To read more about this impactful deal then click here.
This would have never happened during prior administrations where all manufacturing was offshored to China.
As it stands, China has been circumventing existing U.S. law to clampdown chip sales by buying U.S. chips from 3rd party channels.
Once many of the supply chains come back, it will be almost impossible for Chinese to procure those same chips.
The Taiwan semiconductor manufacturing facility in Arizona will ultimately employ 1,600 high-tech workers.
Building is slated for 2021 with production targeted to begin in 2024.
Moving forward, the U.S. administration will make it implausible for many U.S. chip companies to offshore using the reasons of national security and domestic job demand to ensure that many factories are rerouted back to U.S. shores.
The boom and bust nature of chip companies make for treacherous spikes and drops in share prices.
The insane volatility is why I stay away from them as the Mad Hedge Technology Letter mainly opts for short-term options trades.
Nvidia (NVDA) and AMD (AMD) are great individual chip stocks that I would encourage readers to buy and hold.
Another option is to just park your money in the semi ETF VanEck Vectors Semiconductor ETF (SMH) or iShares PHLX Semiconductor ETF (SOXX).
On the flip side, cloud stock’s backbone of recurring monthly revenue is just too savory.
The constant cash flow with minimal international risk along with pristine balance sheets is what makes U.S. cloud companies top on the list of trade alert candidates.
That won’t stop anytime soon as the pandemic has offered us more conviction into the moat between cloud stocks and the rest of technology.
I apologize if I sound like a broken record, but I love my Akamai’s (AKAM) and DocuSign’s (DOCU), they have the growth portfolio that backs up my thesis.
Buy cloud stocks on the dip.
