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
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
February 19, 2021
Fiat Lux
Featured Trade:
(FEBRUARY 17 BIWEEKLY STRATEGY WEBINAR Q&A),
(USO), (XLE), (AMZN), (SPY), (RIOT), (T), (ZM), (ROKU), (TSLA), (NVDA) (TMQ) (TLRY), (ACB), (KO), (XLF), (AAPL) (REMX), (GLD), (SLV), (CPER)
Below please find subscribers’ Q&A for the February 17 Mad Hedge Fund Trader Global Strategy Webinar broadcast from frozen Incline Village, NV.
Q: Are we buying gold on dips?
A: Not yet. As long as you have a ballistic move in bitcoin going on, you don't want to touch gold. Eventually gold does get dragged up by the global bull market in commodities, but silver is more preferable since it moves up at twice the rate of gold in bull markets.
Q: Is it time to buy Amazon (AMZN) LEAPS?
A: Yes, I am looking for a move to $5,000 a share in Amazon with the onset of enormous GDP figures. Exploding consumer spending may be what breaks Amazon out of its current six-month range. I would do something like a two-year LEAP with the $3,600-$3,700 in Amazon. Be cautious and stay near the money. You should get like a 400% or 500% return on that LEAP at expiration, or sooner.
Q: What's your view on Tesla (TSLA)?
A: It looks tired—lower lows, lower highs. We’re in a short-term downtrend that could last several months. I’m holding off on buying Tesla until we find a bottom. I just have one $150 out-of-the-money call spread that expires in 20 days, and that’s it. We paired our position way back on Tesla. Wait for the market to come to you, if you can get Tesla under $700, that's a great time to buy LEAPS on Tesla.
Q: Are you still bearish on energy (XLE)?
A: Short term no, long term yes. You’re trying to catch a rally in a long-term bear market. Some people can do that, some people can’t. It’s the next buggy whip industry, the next American Leather, which completely vaporized.
Q: What about the calls for $100 oil (USO)?
A: Yes, after the markets went up $10 dollars in a day you always see calls for $100 oil. If the energy crisis in Texas shows us anything, it’s that we have to move away from oil as an energy source much faster than we thought because its distribution and production system freeze.
Q: Are you expecting a short-term correction (SPY)?
A: Yes but no more than 4%; there is still too much cash on the sidelines.
Q: Have airline leisure stocks run too far?
A: No, they are coming off of much lower lows so they can go to much higher highs. Almost all restrictions should be gone in six months—I’m trying to time my Australia trips and I think in six months may get to the point where, if you show proof of vaccination and submit to a 3 day test, they will let you into the country. But in six months you won’t be able to get an airline or hotel reservation.
Q: What about the AT&T (T) yield play and 5G play?
A: Yes, I still like AT&T and you should probably buy it about here. All these legacy telecom companies are going to have big moves once 5G accelerates allowing a vast expansion of streaming and other high-end services.
Q: Is CRISPR (CRSP) a good LEAP candidate?
A: Yes, and you can do something like the $200-$210 two years out because it’ll almost certainly get taken over before then.
Q: What’s a good LEAP for Tesla?
A: Wait for it to drop to $700 first and then buy something like the $900-$1000 two years out.
Q: What do you think of Apple?
A: Apple (AAPL) is taking a rest waiting for the 5G rollout to reaccelerate. Our target for Apple this year is $200.
Q: Do we sell in May and go away?
A: I would just go away and keep all your longs. The trouble is, trying to be ultra-smart and time all this stuff in a runaway bull market, you find it a lot harder to get in when you come back; you go “oh my gosh these things are up so much,” you don’t buy anything, and then it doubles. I’ve seen that a lot in the past, New York in 1971, Tokyo in 1987, Dotcom stocks in 1985, add US stocks in 2015.
Q: What do you think of Riot (RIOT) stock?
A: Wouldn't touch it with a ten-foot pole. If I didn’t want to buy bitcoin at $1, I'm not going to want to buy it at $51,000. Go elsewhere for your bitcoin advice, except you’ll hear the same thing: it will go up because it’s gone up. You should use it as a risk indicator. That’s essentially what all bitcoin analysts will tell you because there's nothing to analyze. There are no earnings, there's not even any physical presence anywhere to analyze, no customer support. If you can get seven 10 baggers like we did last year, with Zoom (ZM), Roku (ROKU), Tesla (TSLA), and Nvidia (NVDA) —why bother with cryptocurrencies?
Q: What are your thoughts on travel?
A: My take is that leisure travel is returning in mass but that the business travelers will shy away; and that will be true for this year but probably not next year. I think business travel will come back once it’s 100% safe and once all the companies are making money again and can afford travel.
Q: Is Trilogy Metals Inc. (TMQ) a good buy? It has Copper, Zinc, and some exposure to Gold and Silver.
A: Yes, it is a buy. Most commodity prices should double from these levels; and probably the smartest ones to buy are the ones that haven't moved yet—gold and silver, but silver especially. The world will come roaring back and it needs every possible metal it can get its hands on.
Q: What do you think of the cannabis stocks (TLRY), (ACB)?
A: That is one of several small bubbles in the markets that I don't want to touch at all. How hard is it to grow a weed? Barriers to entry are zero. Massive competition from the black market, as about 30% of the cannabis demand is still going to your local drug dealer who doesn’t have to pay taxes, whereas you get double taxed with a pot company—35% retail sales taxes and then taxes on the profits on top of that. So no thank you, Mary Jane.
Q: Do you think Warren Buffet is still the leading thought contributor to personal finance, or is he outdated?
A: Berkshire Hathaway is up 10% this year, and the Dow is up only 2.8%, so I would say he’s still pretty well in touch with the markets; and he has very heavy weightings in Coca Cola (KO), Financials (XLF), and Apple (AAPL), as well as some energy stocks. Good discipline and good strategy never go out of style.
Q: Is the Texas energy disaster going to set the US’ way on renewable energy faster?
A: Yes, it does force people to consider the move into alternative energy sources much faster, especially when the old energy sources go to zero and then have whole states lose their power sources. Look how the governor of Texas is blaming frozen windmills, which only account for 7% of the Texas energy supply. What a joke! I’ll lend him my hairdryer and they’ll work. Notice the propensity to immediately blame others for their own mistakes. That is terrible leadership. Texas is going to turn blue.
Q: Is climate change overhyped in the US stock market?
A: Absolutely yes, that’s why I haven’t been buying any of these. They tend to be smaller companies, and ever since Biden got the lead in the primaries and the polls last spring this whole sector, and ESG investing in general, has been on an absolute tear and is wildly expensive. I call these feel-good stocks; people buy them because they make them feel good but very few of these actually make real money. I prefer to stick to the real money plays of which there are more than enough around.
Q: Do you like rare earth such as the Van Eck Vectors Rare Earth/Strategic Metals ETF (REMX)?
A: I do like rare earths. You need them for practically anything electronic. China's been withholding supplies again, which they like to do from time to time just to rattle our cage because we need them for all our weapons systems. But this is also prone to bubbles, so be careful when you buy it that you’re not paying up too much. By the way, the (REMX) ETF was brought out at the absolute peak of the last rare earth bubble, which we covered extensively 11 years ago. We got people in at the very bottom of rare earth, and things went up ten times. Then we got everybody out and people said I was being bearish too soon, so I never got invited to conferences again. After that, it went down for eight straight years.
Q: Don’t you think frozen windmills and solar speak for more reliance on oil than less? Biden administration limits on oil will drive up prices.
A: You’re right on the second part; creating shortage of supply will cause price increases. But frozen windmills are a result of lack of capital investment and planning. It turns out all of the windmills in the northern part of the US have electric heaters, so they don’t freeze because it gets colder up there. They didn’t do that in Texas to save money, and now they have lost about 7% of the total Texas energy supply. So bad management was the issue there. Penny-wise and pound-foolish.
Q: Are commodities in general in play? What is the best ETF for commodities?
A: The trouble with commodities is there is no one big catch all commodity ETF. However, you can expect one soon; as things peak or have big runs, they tend to generate new ETFs like new children because the demand is there. In the commodities world, there are lots of individual 1x and 2x ETFs like the gold ETF (GLD), the silver (SLV), the copper (CPER), and so on. But there isn’t one good basket I’ve found. You can always create your own by buying small amounts of each of the leading companies, which is probably the best thing to do.
Q: What is the best property value right now?
A: That would be Mississippi; they have the lowest housing prices in the United States. Unfortunately, low cost of living, low tax states also have the worst education systems, which doesn’t matter of course if you don't have kids. In the end, you get what you pay for. It’s OK if you don’t mind dealing with stupid people every day, which I do. I can always tell when I’m dealing with customer support in the deep south because literacy falls off a cliff.
Q: Should we get a 10% correction soon?
A: Probably not; the last 10% correction needed a presidential election to scare the daylights out of you, and there's nothing like that on the horizon now. Maybe we’ll get another 5% correction on a game stop type incident, but there's just too many people trying to get into the stock market now. People who were selling last March/April are the same people who are buying now.
Q: Is there a bright future for hydrogen?
A: No, electricity is infinitely scalable, and hydrogen isn’t. It’s about as scalable as gasoline because you have to move it around in big tankers, keep it at 434.5 degrees Fahrenheit below zero, which is very expensive and has an unfortunate tendency to blow up. So, I never bought into the hydrogen thesis, except for local use of fleets where everyone gets all their hydrogen from a central facility.
Q: What will be the best performing sector in the next 1-3 months?
A: Your bond short and your financials. It’s the same trade. And it’s the one sector that no one asked about today.
Q: Do you think bitcoin is a bubble poised to pop at some point?
A: Yes, but who knows where that is; bubble tops are impossible to predict, especially when there are no valuation metrics. Bottoms can be measured with valuation metrics, but tops can’t because greed is an immeasurable quantity. However, it will certainly pop when they suddenly decide to increase the total outstanding number of bitcoins, which may seem unlikely now but is inevitable.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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
February 18, 2021
Fiat Lux
FEATURED TRADE:
(WARREN BUFFETT’S BIOPHARMACEUTICAL BETS)
(MRK), (ABBV), (BMY), (PFE), (NKTR), (VZ), (CVX), (AAPL), (BRK.B)
Aside from the recent big moves involving Verizon Communications (VZ), Chevron (CVX), and Apple (AAPL), Warren Buffett has also been busy with biopharmaceutical stocks.
Just before 2020 ended, Berkshire Hathaway (BRK.B) made notable changes in its positions particularly in Merck (MRK), AbbVie (ABBV), Bristol-Myers Squibb (BMY), and Pfizer (PFE).
Berkshire boosted its investment in Merck by 28.1% to reach 28.7 million shares.
Meanwhile, its AbbVie holdings were increased by 20% to hit 25.5 million shares.
It also added 11.2% in its investments in Bristol, totaling to 33.3 million shares.
In contrast, the company cut 3.7 million shares from its Pfizer holdings.
In terms of growth potential, these biopharmaceutical companies hold the most promising prospects in the next decade.
Merck, hailed as a vaccine stalwart, is behind the blockbuster cancer treatment Keytruda.
For context, Keytruda generated $14.4 billion in sales in 2020 alone.
Despite fears over the expiring patent exclusivity of this drug, the company still trades at roughly 11.5 times earnings and is actually projected to achieve 11% long-term EPS growth rate.
Merck also continues to leverage Keytruda in the development of the next generation of treatments in its pipeline.
In fact, the company recently sealed a clinical collaboration with Nektar Therapeutics (NKTR) to assess the effectiveness of Keytruda when combined with Nektar’s own bempegaldesleukin in the treatment of squamous cell carcinoma.
Other than expanding its oncology sector, Merck has been developing its animal health business as well. So far, this particular segment has grown by 7% year over year, reaching $4.7 billion in 2020.
If things work out, then Merck could emerge as a huge competitor against Pfizer’s own animal healthcare spinoff, Zoetis (ZTS), in the future.
To date, Merck has at least 31 candidates in Phase 2 trials and 25 more undergoing Phase 3 studies.
Needless to say, these will be valuable in enriching the company’s lineup especially with the challenges that Keytruda will face in the next years.
As for AbbVie, this company trades at approximately 8.3 times the earnings estimated in the next 12 months. This is well below its five-year average of 10.4 times earnings.
However, the company is projected to show at least 13% EPS growth rate in the long term.
Despite the challenges of 2020, with the company going down 2.6%, the long-term prospects for AbbVie remain positive.
Although AbbVie broke through the dermatology market following its acquisition of Botox-maker Allergan in the past year, it still has to contend with a major problem: arthritis medication Humira.
Humira is not only AbbVie’s top-selling treatment but also the best selling drug in the world today.
In 2020 alone, this anti-inflammatory treatment raked in $19.8 billion in sales. However, AbbVie might soon lose this edge since its exclusive rights to Humira in the US will expire in 2023.
Amidst the anxiety over this issue though, AbbVie continues to defy expectations.
Last year, the company reported a 65.9% growth in its net revenue despite the overall slowdown caused by the pandemic.
As for 2021, AbbVie is anticipating an even better year thanks to its portfolio diversification efforts.
To date, the company’s lineup now spans neuroscience, immunology, eye care, women’s health, and of course, aesthetics.
Meanwhile, Bristol Myers has been pegged to achieve roughly 8% growth rate in the long term. Right now, the stock trade at 7.9 times earnings estimated over the next 12 months.
Like AbbVie and Merck, Bristol has been dealing with patent expiration issues—a problem that pushed its stock down by 4.1% so far this year.
One of the major updates involving Bristol is its massive $74 billion acquisition of Celgene in 2019.
While the deal raised a lot of eyebrows at the time, it brought cancer blockbuster Revlimid into the company’s fold.
Revlimid, which still enjoys protection from a flood of generics for a few more years, has been pumping up sales for Celgene nonstop for over a decade. The drug is expected to generate the same, if not higher, profits for Bristol.
Two more blockbuster drugs in Bristol’s lineup are facing impending patent exclusivity issues, Opdivo, which would expire in 2028, and Eliquis in 2026.
Nonetheless, the positives outweigh the negatives for Bristol. After all, this company invested so much in diversification.
Sales of Opdivo, Revlimid, and Eliquis continued to trend upwards last year.
Opdivo alone managed to generate $7 billion in annual revenue, prompting Bristol to expand the indications for this product.
However, the more promising news lies in the updates that the recently launched products, like multiple sclerosis drug Zeposia and anemia treatment Reblozyl, are gaining traction in the market.
Thanks to the development of its pipeline, the company expects that its new product lineup would account for roughly 27% of its total revenues by 2025.
Overall, Berkshire’s choice of biopharmaceutical companies are offering promising growths in the next several years despite the setbacks they are facing today.
While some investors get alarmed over negative updates, it looks like the Oracle of Omaha is following his own advice: “Whether we're talking about socks or stocks, I like buying quality merchandise, when it is marked down.”
