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
Global Market Comments
November 12, 2020
Fiat Lux
Featured Trade:
(IS USA, INC. A SHORT?)
(TESTIMONIAL)
Mad Hedge Biotech & Healthcare Letter
November 12, 2020
Fiat Lux
FEATURED TRADE:
(GILEAD IS THE CHOSEN ONE)
(GILD), (REGN), (LLY), (PFE), (AZN), (MRNA), (BNTX), (IMMU)
The fight against the coronavirus reached a major milestone when the US Food and Drug Administration (FDA) approved the first ever treatment for this deadly disease.
Unsurprisingly, the chosen leader for COVID-19 treatment to cross the full approval finish line is the same company that has been supplying the medication since the pandemic started: Gilead Sciences (GILD).
While Gilead’s Remdesivir has been widely used since January to treat severe cases of COVID-19, this FDA approval makes it official—a welcome piece of good news that pushed the stock up by 4% upon announcement.
Now, Gilead can broadly market Remdesivir under its official drug name, Veklury, to doctors and patients.
That means that other than the elderly and severe cases, Veklury can be marketed to COVID-19 patients as young as 12 years old.
Since Veklury gained approval, the drug has generated roughly $873 million in revenues.
Despite its limited market, this COVID-19 treatment actually ranked as Gilead’s second highest-selling drug in the third quarter of 2020—only behind the blockbuster HIV medication Biktarvy, which rose by 8% to contribute $4.55 billion.
As expected, Veklury’s popularity boosted Gilead’s 2020 performance.
Gilead’s total sales for the third quarter alone reached $6.5 billion, with $873 million coming from its brand new just-approved COVID-19 treatment Veklury.
For context, the company’s sales for the third quarter was only projected to grow by 2%. Veklury sales boosted this number to generate an 18% jump in revenue instead.
Clearly, Veklury injects a ray of hope in the declining sales for some of previous Gilead’s money makers like its hepatitis lineup, which saw a $210 million slide in revenue this quarter.
With this approval, Gilead is expected to pocket billions in Veklury sales as the company announced its plan to ramp up production to meet the global demand.
After all, governments are expected to stockpile the drug to be ready for future outbreaks.
In terms of its sustainability, Gilead is estimated to enjoy Veklury’s lucrative profits for a year or two until a COVID-19 vaccine gets fully approved or when herd immunity eventually kicks in.
Apart from Gilead, there are also other companies looking to cash in on this demand.
One of them is Regeneron Pharmaceuticals (REGN), which gained popularity after being used to fast track the COVID-19 recovery of Donald Trump during the campaign period. Another is Eli Lilly, which also applied for an emergency authorization for its antibody cocktail.
Most importantly, Veklury sets a promising precedent for other COVID-19 programs, particularly the vaccines.
If the ongoing trials yield positive results, then the vaccines of Pfizer (PFE), AstraZeneca (AZN), Moderna (MRNA), and BioNTech (BNTX) could quickly receive emergency authorizations.
Meanwhile, Veklury is not the only pandemic-defying achievement of Gilead this year.
Even before the pandemic broke, Gilead’s strategy has consistently centered on acquisitions.
This plan was kickstarted with its $12 billion acquisition of Kite Pharma in 2017.
This investment has been paying off as the company continues growth in Asia, specifically in China.
By 2022, Gilead is projected to generate over $1 billion in sales from its Hepatitis B lineup in this region alone.
While 2020 has not been the best year for mergers and even acquisitions particularly in the biopharmaceutical sector, Gilead seems to not be letting the pandemic ruin its plans.
In March, Gilead completed its $4.9 billion acquisition of Forty-Seven in an effort to own the rights to a blockbuster cancer drug called Magrolimab. This product is anticipated to bring more than $3 billion in annual sales.
Recently, the company announced yet another massive $21 billion deal to acquire Immunomedics (IMMU)—a value that is nearly 30% of Gilead’s $70.4 billion market capitalization.
Gilead’s deal with Immunomedics adds another potential blockbuster drug in its oncology lineup: Trodelvy.
Once approved, Trodelvy is expected to rake in $4 billion annually—a profit that would eventually pay off the $21 billion that Gilead shelled out to acquire Immunomedics.
Looking at profits from its recent acquisitions, Gilead can rake in roughly $2 billion in quarterly revenue just for Trodelvy and Magrolimab alone.
Overall, Gilead’s product lineup has clearly shown significant growth.
Its core portfolio has been consistently strong, and the full FDA approval of Remdesivir offered the company a short-term boost.
In terms of long-term growth, Gilead maintains the capacity to provide significant cash flow for its shareholders.
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
I would like to make another suggestion on a stock that is oversold. And I mentioned on John's webinar today.
The stock is Citrix Systems Inc. (CTXS).
CTXS reported on October 22nd with an earnings beat. And from a technical standpoint, it is oversold.
My suggestion is going to be a debit spread. And I am I going to suggest you trade the December 4th expiration.
This gives the stock about two weeks to make a move into earnings.
Here is how you open the position:
Buy to Open December 4th - $115.00 Call for $3.60
Sell to Open December 4th - $120.00 Call for $1.60
The net debit will be $2.00 per spread.
Based on the tracking portfolio, I suggest you limit the trade to a 5 lot or 1% of the portfolio.
The maximum gain on a five lot would be about $1,500 or 150%.
Mad Hedge Technology Letter
November 11, 2020
Fiat Lux
Featured Trade:
(THE VULTURES AT ELLIOT MANAGEMENT)
(FFIV), (TWTR), (EBAY), (T)
Elliott Management’s dive into tech can be used as a leading indicator of which tech companies are great fixer-uppers.
Truth be told, Elliott Management, the vulture hedge fund, has a knack for finding those rusted cloud gems and polishing them shiny.
They don’t do this for free either, and making a killing on each of these turnaround stories usually has the same ruthless strategy.
Some of the prey were well-known within particular tech sector niches, like BMC, Novell and Informatica, but none were giants or household names.
Billionaire Paul Singer, notched sale after sale, reaping gains from the associated premiums on the acquisitions.
Most recently, his tech aspirations have increased with the pedigree of the company dwarfing in size he did before with stakes in eBay (EBAY), SAP, and AT&T (T).
This year, Elliott has already feasted on Twitter (TWTR) and SoftBank.
Part of the reason for slaying bigger dragons is because tech has gotten expensive with multiples expanding rapidly, and successfully leveraging usually works by going bigger and not smaller.
How does Elliott influence the change needed to raise the share prices?
First, getting his guys on the board to make decisions for the company.
He does this by getting his most trusted confidante and deal maker Jesse Cohn in the mix and he leads Elliott’s technology transactions.
He now sits on the boards of both eBay and Twitter.
Rather than scorching the earth for public change, he has worked in tandem with management at both companies.
Cohn is also supported by Elliott’s in-house Internet analysts, software analysts, operation analysts, consultants and stable of installed board members to help make decisions.
A decision they were at the forefront of was possibly firing Jack Dorsey at Twitter after identifying him as not maximizing profitability and revenue at Twitter.
Ultimately, Dorsey earned himself another quarter as CEO, but that’s how things work at Elliott, they run a tight ship.
Twitter said in a securities filing that a board committee formed this spring recommended that the current management structure remains in place for the time being.
The announcement gives Mr. Dorsey a reprieve after his performance was heavily criticized by Cohn and Elliott Management.
Twitter and Elliott reached an agreement in March in which the company agreed to appoint two board members and commit to $2 billion in share buybacks.
The agreement also included the formation of the new committee to study Twitter’s leadership, which effectively created a probation period for Mr. Dorsey to prove himself to the new investors.
So, does Elliott’s aggressive strategy work or fail?
The proof is in the pudding with Twitter shares up about 40% since bottoming out in March.
Twitter has expanded its userbase by about 23% since the fourth quarter of 2019.
So what now for Elliott?
Elliott is now one of the biggest investors in F5 Networks (FFIV), a Seattle company with a market value of about $8.8 billion.
They have spoken to the software company’s management about ways to appreciate the underlying shares which has not gone up in the past 365 days.
Shares have seriously underperformed to similar-sized cloud companies.
F5 Networks provides multi-cloud application services for the availability, security, performance, and availability of network applications, servers, and storage systems.
So far, they have announced plans to repurchase $1 billion worth of stock through fiscal 2022.
The buyback plan includes the accelerated repurchase of $500 million worth of stock in fiscal 2021.
The company said it targets double-digit adjusted earnings per share growth over the next two years and revenue growth of 6% to 7%, including software revenue growth CAGR of 35% to 40%.
These moves will help the company arrive at an inflection point in the transformation story where operating margins are poised to expand and revenue will accelerate, leading to sustainable double-digit growth
Elliott has also investigated some dubious decisions by F5’s management such as the company’s recent acquisitions of Shape Security Inc. and Nginx Software Inc., unhappy F5 overpaid without a clear integration strategy.
Elliott’ roadmap typically involves sizeable stakes in tech firms giving them the authority to throw their weight around behind the scenes.
Stock buybacks, acquiring company board seats, reducing expenses, acquisitions, wholesale management changes are part of their recipe for raising the stock price.
I have no reason to believe that Elliott will fail this time around after their string of tech successes and that leads me to recommend F5 Networks as a great buy the dip tech story.
The first stage of the turnaround is usually the most dramatic and noticeable with the follow-through to the flagging share price.
I wouldn’t be shocked if shares are up 25% from current prices in Q1 2021.
