Mad Hedge Technology Letter
February 2, 2022
Fiat Lux
Featured Trade:
(GOOGLE IS STILL ON SALE)
(GOOGL), (ARKK), (MSFT), (AAPL)
Google (GOOGL) shares were up 65% last year and I would still call the name cheap in 2022.
It’s interesting for me to see ARK (ARKK) Funds CEO Cathy Woods claim that growth is on sale now.
I take the other side of the argument and would pontificate that quality is for sale, like Google, who has carved out an unrivaled position in the digital ad space.
Their cash cow business is so effective that they are set to achieve $100 billion in free cash flow by 2023.
It’s mind-boggling that a company of this magnitude still trades at a discount even though generating more free cash flow than Apple (AAPL) and Microsoft (MSFT).
Google’s ad revenue was up to $61 billion which was up from $46 billion last year.
These numbers are staggering because of the sheer math it takes to jump to 33% when we are talking about over $50 billion.
Google is so big that the law of large numbers works against them, but they still shrug that off and register these outlandish numbers.
This company is one of the sure-fire bets in tech along with Microsoft and it’s no surprise that the best companies are taking the rest of the market on their back to diffuse this recent volatility.
The plaudits don’t stop there with their critical cloud division growing 45% year over year to $5.5 billion.
The cloud and ad revenue serve as the structural stabilizers to a healthy business and all signs point to Google having tremendous value as a stock.
Google also announced a 20:1 stock split which should allow investors with smaller bank accounts access to the stock.
Apple and Tesla saw huge inflows after they announced stock splits and I see no reason why this should be different for Google.
Fortunately, it appears that supply chain bottlenecks aren’t materially damaging Google’s ad demand.
Now Google is on the verge of cruising by $2 trillion in market cap.
Since we are in a market where outperformers are rewarded, Google is in great shape for 2022 when supply chain problems are set to improve.
I have repeatedly said to stay away from those companies that cannot meet expectations and aren’t cash flow-positive.
There is no more free money to subsidize poor management or a poor product or both.
When we analyze Google’s ad business from a microeconomic level, then it’s easy to understand that businesses cannot get rid of their services because of its deep application for consumers.
People also want deals.
They're looking for value.
For shoppers, Google made it possible to browse and discover the hottest deals for major moments like Black Friday and Cyber Monday on Google Search.
For merchants, Google made it even easier to list promotions via automated imports from third-party integrations like Shopify and WooCommerce.
Google is easily selling ad inventory, attracting new customers, and building brand loyalty.
In the holiday season, the number of merchants using promo features jumped 280% year over year.
Retailers are also turning to Google to help them transform and accelerate growth such as Warby Parker, who drove a 32% year-over-year increase.
They accomplished this by not only opening stores and expanding their contact lens business but also by tapping into Google across services.
Omnichannel bidding, smart shopping campaigns and an expanded presence in Google Maps to promote in-store eye exams contributed to Warby Parkers’ success.
Google is making it easier for viewers to buy what they see and simpler for advertisers to drive action with innovative solutions like product feeds and video action campaigns and emerging formats like live commerce.
Backcountry.com generated a 12-1 return on ad spend with product feeds in 2021 and plans to double its investment in 2022, while Samsung, Walmart, and Verizon partnered with creators to host shoppable holiday live stream events in the U.S.
In short, Google has pricing power, and its strategic position is such that it’s hard not to see rampant growth ahead in the short and long term.
Its cash position is enviable to any tech or non-tech company and at some point a dividend is inevitable.
Even with its success, Google is still investing aggressively for the future and is part of every cutting-edge technology from artificial intelligence to self-driving and even the metaverse.
“Based on my experience, I would say that rather than taking lessons in how to become an entrepreneur, you should jump into the pool and start swimming.” – Said Co-Founder and Former CEO of Uber Travis Kalanick
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 2, 2022
Fiat Lux
Featured Trades:
(A NOTE ON OPTIONS CALLED AWAY)
(TLT)
Mad Hedge Biotech and Healthcare Letter
February 1, 2022
Fiat Lux
Featured Trade:
(A SHIFT IN NEUROSCIENCE BIOTECH)
(BIIB), (AXSM), (PFE), (BMY), (MRK), (NVS), (ABBV), (GSK), (JNJ), (LLY), (RHHBY), (TAK)
Industry experts typically describe mergers and acquisitions as the life force that propels the biotechnology and healthcare sector forward.
Based on that description, it’s safe to say that the segment’s health has plummeted, considering the sluggishness observed last year.
In 2021, the M&A of this industry had fallen to one of its lowest recorded levels in history.
During this period, the deals only amounted to $108 billion for the entire year. This number was approximately 40% of the total recorded in 2019.
Despite the sluggishness in 2021 and the relatively slow start in 2022, this year is still projected to push the would-be buyers into more aggressive action.
After all, several key products are facing patent expiration before this decade ends.
The list includes Big Pharma players like Pfizer (PFE), Bristol Myers Squibb (BMY), Merck (MRK), and Novartis (NVS).
This means that a massive deal might be on the horizon, pretty much when AbbVie (ABBV) executed its jaw-dropping $63 bill acquisition of Allergan in 2019 following its problems with generics competing against its blockbuster drug Humira.
Aside from patent protection concerns, another factor in play is the intense competition in lucrative research sectors such as immunology, neurology, rare diseases, and oncology.
Add to this the constant pressure of Congress to pull down drug prices, and it becomes apparent why companies—big or small—turn to mergers and acquisitions for survival.
Simply put, biotech and healthcare companies have no other choice but to be aggressive in looking for external innovation to secure the continuous transformation of their businesses.
On that note, I think there could be major acquisitions to be announced in 2022.
One deal I’m looking forward to is Biogen’s (BIIB) potential acquisition of Axsome Therapeutics (AXSM).
To remain competitive in the neuro stage, Biogen must keep up with the times—and a deal with Axsome might just be the solution.
Axsome’s size and price, with a market capitalization of $992 million, appear to be just the right fit for Biogen to gobble up.
More importantly, its portfolio is an excellent fit for Biogen. Both focus on neurological diseases, making their pipelines complementary to each other.
So far, Axsome has several leading candidates in the clinical stages.
One is AXS-05, which is a treatment for major depressive disorder (MDD).
Apart from MDD, this candidate is under late-stage review to target Alzheimer’s disease agitation.
In addition, Axsome is looking to advance AXS-05 in late-stage trials for smoking cessation therapy.
Needless to say, AXS-05 would go hand in hand with Biogen’s own approved, albeit controversial, Alzheimer’s drug Aduhelm.
Another promising candidate is AXS-07, a potential competitor of Pfizer and Novartis’ migraine medication. This drug has been submitted for FDA approval and might be launched by the second quarter of 2022.
There’s also AXS-12, which is a narcolepsy treatment candidate, and AXS-14, which is geared towards fibromyalgia. Both candidates are slated for FDA review by the third or fourth quarter of 2022.
For over 20 years, even the biggest and most powerful drug companies have stayed away from working on treatments specifically for the brain and central nervous system (CNS).
That’s not surprising considering the sheer number of failed programs in neuroscience, pushing drugmakers to believe that we still don’t have sufficient data on the subject, so the money might be better spent elsewhere.
Nowadays, though, the CNS landscape is starting to shift.
GlaxoSmithKline (GSK) recently embarked on reviving its CNS program by striking a $700 million deal with a smaller biotechnology company called Alector.
Meanwhile, Pfizer and Novartis reached an agreement with Biohaven Pharmaceuticals for the latter’s migraine treatment and Parkinson’s drug.
Aside from these, Johnson & Johnson (JNJ), Eli Lilly (LLY), Roche (RHHBY), and Takeda (TAK) are anticipated to secure CNS-centered deals soon.
Despite the lower number of M&A deals last year, the volume of strategic collaborations in the neuroscience sector climbed by about 50% in 2021 compared to its 2020 performance.
By 2022, this space is projected to become even more investable, considering the number of biotechnology companies focusing on CNS. Watch out for blockbuster deals in this sector.
Mad Hedge Bitcoin Letter
February 1, 2022
Fiat Lux
Featured Trade:
(BITCOIN THE BELLWETHER SHINES BRIGHTEST)
(BTC), (DOT), (DOGE), (SOL)
Caught up in the euphoria of crypto’s rise, all sorts of new altcoins were issuing their denominations as soon as they could figure out how to get to market.
Perhaps a moral hazard but certainly a sign of the speculative times of 2020.
Thousands of coins using thousands of celebrities came out of the woodwork to claim their coin was the best.
Of course, they weren’t.
Now, the crypto climate has drastically shifted to risk-off sentiment and the knock-on effect is hitting the obscure altcoins the most.
Sometimes, a clean palate is needed to really taste the quality of food and that’s what is happening in the crypto industry as we speak.
The “competitors” are falling by the wayside as the likes of Solana and Polkadot to Litecoin and Dogecoin promised to recapture the imagination of the crypto ecosystem.
Some even suggested an imminent rapid fragmentation of the crypto market into silos with different currencies dominating different areas like a Mongolian warlord in their prime.
But things haven’t worked out like that.
Bitcoin has cut its loss of market share this month and begun to regain ground, as baffled investors seek the relative safety of the biggest crypto coin while they grapple with an aggressive Fed and inflation shooting through the roof.
Bitcoin's share of the $1.68 trillion crypto market has risen to about 42%, from 39% two weeks ago - the first time it has registered an increase since dropping from a peak of 46% in mid-October, according to data from CoinMarketCap which tracks 17,225 cryptocurrencies across 458 exchanges.
Bitcoin has outperformed the industry at a time when the entire crypto market has fallen this month.
Nonetheless, the bellwether Bitcoin could continue to outperform its crypto rivals from the more hesitant investment climate.
The concept of the path of least resistance means that investors hideout in Bitcoin and spurn the Dogecoins and Shiba Inu coins of the world for now.
While most cryptocurrencies still take their price signaling from bitcoin, these currencies that were hyped up and marketed to the hills could find bids drying up quickly.
Pockets of strength will periodically emerge, and catching a few of those shifts will be incredibly important for performance this year.
Bitcoin has taken the bullets but hasn’t outright crashed and it shouldn’t, but I can’t say the same about these smaller coins.
Cryptocurrencies hyped for their blockchain application used to build decentralized finance applications have underperformed greatly to Bitcoin lately.
Solana, which jumped 100-fold in 2021, is down 47%, while Polkadot is down 41%.
The selloff that began in December has however been less volatile and seen lower volumes transacted than bitcoin's previous rout in May 2021, when it halved in nine days.
We are range-bound now and that’s a far cry from the crypto “winter” many have been calling for.
If another monster risk-off moment does come, the last place an investor wants to be exposed is the crypto minnows.
If Bitcoin does retrace 5%, it certainly will be felt more in the altcoins sub-genre.
Once we do recover and find some footing, we will look back at this moment and realize it was a time when we separated the wheat from the chaff in the crypto industry.
I believe that Bitcoin will continue to consolidate its position at the top of the crypto pecking order.
“Technology is a useful servant but a dangerous master.” – Said Norwegian Historian Christian Lous Lange
