Mad Hedge Biotech & Healthcare Letter
September 30, 2021
Fiat Lux
FEATURED TRADE:
(THE BIRTH OF A TRUE INNOVATOR IN BIOTECH)
(NVAX), (MRNA), (BNTX), (PFE), (JNJ), (AZN)
Innovation and establishing groundbreaking frontiers are never straightforward. This high-risk, high-reward endeavor is littered with skeletons of failure along the way.
The situation is particularly prevalent in the biotechnology and healthcare sector. However, there are a handful of companies that manage to navigate the risks.
Novavax (NVAX) is one of them.
While the chance to become one of the early investors to buy Novavax at $5 has passed, I think the stock is still a good opportunity.
Right now, we’re at the foothills of its mid-phase potential—a few steps away from its high-growth stage.
At this point, what was previously assumed as a high-risk investment in Novavax can already be perceived as a calculated risk, and the reward can now be seen from a distance.
Simply put, there’s still a chance to invest in Novavax because its story is still being written.
So far, Moderna (MRNA) has a market capitalization of $183.50 billion, while BioNTech (BNTX) has $85.61 billion. In comparison, Novavax comes in positively cheap at $19.16 billion.
The key difference is that Moderna and BioNTech already have their COVID-19 vaccines out in the market.
As for Novavax, the biotech’s candidate, NVX-CoV2373, is still waiting for the green light for its first Emergency Use Authorization.
When government agencies begin letting Novavax distribute its COVID-19 vaccine, though, the stock is projected to soar.
The approval for NVX-CoV2373 is almost inevitable, as the vaccine showed an impressive 96.4% efficacy against the original strain—a higher percentage than Pfizer (PFE) and Moderna’s candidates.
If all goes well, the vaccine could be available by the fourth quarter.
As golfers would say, it’s only a chip and a putt from this point to get Novavax’s COVID-19 vaccine out in the market.
Given this projection, Novavax is expected to be the No. 3 COVID-19 vaccine distributor globally, easing out competitors Johnson & Johnson (JNJ) and AstraZeneca (AZN).
Despite not being a first mover in the COVID-19 vaccine race, Novavax can still seize a considerable market share.
The majority of the global population has yet to be vaccinated, and the company has already secured a deal for 2 billion doses in 2022.
On top of that, biotech has several agreements, including 100 million doses for the United States, 200 million doses for Europe, 150 million doses for Japan, and more than 1 billion doses for some developing countries.
In fact, the United States paid an advance of $1.3 billion for 100 million doses. That puts NVX-CoV2373 at roughly $13 per dose.
Although the purchase agreements are confidential, the prices for Japan and Europe are likely to be higher, while the developing countries will be given discounted rates.
At this rate, it’s possible that Novavax’s revenue in 2022 will be higher than its current market capitalization.
However, Novavax’s prospective path to becoming a high-reward investment will most probably come on the coattails of its COVID-19 vaccine, NVX-CoV2373.
Despite getting overtaken by Pfizer and Moderna in the COVID-19 vaccine race, there’s a critical area where Novavax has a massive headstart from its larger rivals: the COVID-19/influenza vaccine combo.
Not only does Novavax have several candidates well on their way to clinical trials, but the company’s combo vaccines also have the potential to outperform the majority—if not all—of its competitors aiming to market similar products.
So far, Novavax’s flu candidate NanoFlu appears to be a frontrunner as it meets all the primary endpoints set for Phase 3 clinical testing.
If everything falls into place, then Novavax would be able to bring a COVID-19/flu vaccine to market by 2025.
While three to four years may seem like a long time, keep in mind that neither Moderna nor Pfizer has a timeline for any potential product in this segment.
Although we don’t exactly know the future pricing for these combo vaccines, we can use the COVID-19 vaccine earnings of Pfizer and Moderna as guides.
Pfizer and BioNTech anticipate roughly $33 billion in revenue, while Moderna estimates more than $20 billion. Combined, that’s over $50 billion.
It’s evident that a combo vaccine would signify a multi-billion-dollar market, and obviously, more than one player would be taking a crack at it.
Nonetheless, the first to market could end up with the largest share—a fact that Pfizer turned into reality with its weeklong headstart over Moderna in the COVID-19 vaccine race.
While Novavax failed to keep up in this race, the company appears to be ready to seize its second chance to lead the way in the COVID-19/influenza combo vaccine race instead. Needless to say, this potentially blockbuster product could become an absolute game-changer.
Mad Hedge Bitcoin Letter
September 30, 2021
Fiat Lux
Featured Trade:
(THE APPEAL OF ETHEREUM)
(BTC), (ETH)
I’ll take you on a short journey on the next best thing after Bitcoin in crypto land.
Ethereum (ETH).
It’s most likely the best profitable opportunity from the “established” crypto-assets today.
ETH is the 2nd largest cryptocurrency by valuation coming it at over $350 billion.
I know many of the readers out there have a hard time wrapping their heads around Bitcoin, and I will vouch that ETH could be the real “catch up trade” if the ride to $60,000 was missed in Bitcoin.
Let’s take a look at what's driving Ethereum's recent price action.
Why is Ethereum on the rise?
ETH was launched in 2015, and it's famous for being the first cryptocurrency with a programmable blockchain.
While other cryptocurrencies were using blockchain technology to record transactions, ETH offered a blockchain that developers could use.
Through ETH, developers can create decentralized apps (dApps).
These dApps are a fundamental part of some of the biggest current trends in cryptocurrency. They're used for decentralized finance (DeFi), which are platforms that provide financial services without a middleman, such as a bank. They're also used with non-fungible tokens (NFTs) — digital assets that people buy and sell as collectibles.
Offering a robust platform to build other apps on it is one of the biggest differences between bitcoin and ETH and also why ETH could have more upside to the price in the long term.
As of last count, about 80% of dApps are built on ETH.
Fortunately, ETH benefits from the first-mover advantage in this respect and will attract higher quality developers to work on dApps.
The development on dApps could create an ecosystem that supersedes anything bitcoin can produce.
Another critical reason for the higher prices in ETH is the asset is currently going through a series of structural upgrades.
The Ethereum network’s long-planned upgrade to a scalable, proof-of-stake consensus model grows closer.
This should take place sometime at the end of October and Ethereum’s price could see some major movement around that time.
It’s plausible that we get a “buy the rumor, sell the news” type of price action meaning the lead up to upgrade could see some big up days with a modest sell-off when the upgrade comes through.
These upgrades will make ETH more scalable with faster transaction processing. It will also make ETH more secure and more environmentally friendly.
More specifically, Ethereum’s upgrade is better known as ETH 2.0 and aims to fulfill its original vision of the network to become an efficient, global-scale, and general-purpose transaction platform while retaining crypto-economic security and decentralization.
Should you buy Ethereum right now?
I believe ETH will be higher than Bitcoin in the future.
Why?
Its co-originator, Vitalik Buterin, is an Elon Musk type of figure in the crypto community — ready to move mountains and pull off miracles one after the other.
He was the guy that made ETH from scratch.
Second, it's the cryptocurrency of choice for creating dApps.
Ethereum 2.0 should be a big improvement that allows it to handle far greater numbers of transactions with much less energy usage.
It’s relevant in terms of volume and market cap meaning there is a minimal chance this will be a fly-by-night type of phenomenon.
After Bitcoin, ETH has been the most popular asset for institutions to pour their capital into because of the reasons I just said.
Access to ETH is also top-notch — available for purchase at most cryptocurrency exchanges. It's not hard to buy, unlike many irrelevant coins.
ETH prices continue to fight through the negative China news, but SEC Chairman Gary Gensler has reiterated his support for its regulation of crypto instead of the demise of it.
It has been rangebound from $1,750 to $4,000 highlighting the volatile nature of the asset.
It has settled around $3,000 today and I do believe it is setting up for a strong finish to 2021.
Ultimately, I do see ETH prices trending back to the $4,000 mark by the end of 2021 and next year should be ripe for a move past $5,000.
“The technical side of Ethereum's efficacy is 100% an engineering exercise.” — Said Founder of Ethereum Vitalik Buterin
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Global Market Comments
September 30, 2021
Fiat Lux
Featured Trade:
(WHAT TO BUY AT MARKET TOPS?),
(CAT), ($COPPER), (FCX), (BHP), (RIO),
(EUROPEAN STYLE HOMELAND SECURITY),
(TESTIMONIAL)
I will start today’s letter by listing six more data points showing how overbought stocks have become.
1) While the number of outstanding shares in the US has remained unchanged since 2006, thanks to M&A, buybacks, bankruptcies, and privatizations, the average weighted share price has more than doubled from $50.15 to $137.00.
2) The Volatility Index (VIX) has just jumped from a recent high of $29 to $21 today.
3) The Mad Hedge Market Timing Index has just soared from a recent low of 19 eight months ago to 30 today, still in “BUY” territory.
4) 2022 forward stock earnings growth maintains at 20%.
5) Almost every investor is bullish once more, now that their stocks are going up.
6) The stock market has had its best 18 months in history. Grizzled, long in the tooth readers can’t be more cautious right now.
This all leads to the urgent question of the day, WHICH stocks do you buy as we approach market tops? The answer is very simple. You buy cheap ones. And what are the cheapest stocks out there?
Commodity stocks.
My friend, Jim Umpleby, said that we are just entering a ten-year super cycle in commodities.
Jim should know. He is the CEO of Caterpillar (CAT), a company I have been following for 45 years. I even have one of their cool worn yellow baseball caps from years past.
Thanks to the 2017 tax bill, companies can now buy Caterpillar’s bulldozers, backhoes, and heavy trucks, and expense 100% of the investment in the first year. (Last year, I bought a new $162,500 Tesla Model X using the same break). That makes a purchase of (CAT)’s products one of the best tax breaks ever.
Needless to say, this has created a stampede to buy the companies heavy machinery because they fear this tax windfall will be reversed by the next administration. This is equipment with a 30-year life or longer.
Industrial commodities are in fact the perfect sector to buy right now. Take a look at the long-term chart for copper prices, which are a great bellwether for the entire industry. They are imminently poised to make a long-term upside breakout.
Copper last peaked at the beginning of 2011, when the Chinese infrastructure build-out suddenly outdrew to a juddering halt. Prices cratered from $4.60 a pound to a lowly $1.90. Mines were sold off, mothballed, or permanently closed at a record rate.
Copper prices fell so low that the US Mint finally started making a profit on pennies they struck.
Then a funny thing happened.
Copper will soon bottom, assisted by the global synchronized economic recovery I have been writing about for years. The recent collapse of the Chinese real estate market prompted by the China Evergrande Group will eventually give us a great entry point.
The share prices of copper and other major commodity producers will go ballistic. Freeport McMoRan (FCX), the world’s largest copper producer, (whose management is a long-time reader of this letter) has just seen its stock jump ten-fold from a near $4.00 a share to $46.00. It is now back at $33.00.
You may think that it’s too late to get into the commodities space, but you’d be wrong. Having covered the sector for nearly a half-century there is one thing you learn quickly. While you can shut down a mine in weeks, it can take years to bring them back on line.
As for developing a new mine from scratch, that can take a decade by the time you get design, permits, infrastructure, equipment, and labor in place.
My Australian readers tell me that (BHP) is flying young skilled workers from Brisbane an incredible 2,000 miles to work in Northwest mines in a six weeks on - six weeks off work schedule and paying them $200,000 a year to do it. And they’re making a profit doing this!
The bottom line here is that a short squeeze has developed for industrial commodities which will last for years.
Oh, and that global economic recovery? It is on vacation until delta ends. That could happen in a few months, and no more than a year.
At least you have something to buy now besides more technology stocks. As much as we here at the Mad Hedge Fund Trader all love them for the long term, they are extremely overbought for the short term.
Tech always comes back.
Commodities Are In Our Blood
I have just seen the movie “Dunkirk” for the second time, a film that is close to me because I knew several of the participants. A boat that made the crossing memorialized with a bronze plaque moored in the canal in front of my West London mansion for several years.
I also recall a lunch I had with British comedian John Cleese many years ago (he is my height) soliciting an investment in my hedge fund. He kept his money, but I recall with great humor his version of homeland security.
The English are feeling the pinch in relation to recent geopolitical events, and have therefore raised their security level from "Miffed" to "Peeved."
Soon, security levels may be raised yet again to "Irritated" or even "A Bit Cross." The English have not been "A Bit Cross" since the blitz in 1940, when tea supplies nearly ran out.
Terrorists have been re-categorized from "Tiresome" to "A Bloody Nuisance." The last time the British issued a "Bloody Nuisance" warning level was in 1588, when threatened by the Spanish Armada.
The Scots have raised their threat level from "Pissed Off" to "Let's get the
Bastards." They don't have any other levels. This is the reason they have been used on the front line of the British army for the last 300 years.
The French government announced yesterday that it has raised its terror alert
level from "Run" to "Hide." The only two higher levels in France are "Collaborate" and "Surrender." The rise was precipitated by a recent fire that destroyed France 's white flag factory, effectively paralyzing the country's military capability.
Italy has increased the alert level from "Shout Loudly and Excitedly" to
"Elaborate Military Posturing." Two more levels remain: "Ineffective Combat Operations" and "Change Sides."
The Germans have increased their alert state from "Disdainful Arrogance" to
"Dress in Uniform and Sing Marching Songs." They also have two higher levels: "Invade a Neighbor" and "Lose."
Belgians, on the other hand, are all on holiday as usual; the only threat they
are worried about is NATO pulling out of Brussels.
The Spanish are all excited to see their new submarines ready to deploy. These beautifully designed subs have glass bottoms so the new Spanish navy can get a really good look at the old Spanish navy.
Australia, meanwhile, has raised its security level from "No worries" to
"She'll be alright, Mate." Two more escalation levels remain: "Crikey! I think we'll need to cancel the barbie this weekend!" and "The barbie is canceled." So far no situation has ever warranted use of the final escalation level.
-- John Cleese - British writer, actor and tall person.
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