Mad Hedge Biotech and Healthcare Letter
March 31, 2022
Fiat Lux
Featured Trade:
(A SUPERCHARGED BUY-AND-HOLD GEM FIRING ON ALL CYLINDERS)
(ABT), (PFE), (VTRS), (MRK), (OGN), (ABBV)
Sell-offs can be stomach-churning, but they also offer excellent opportunities to load up on shares of companies that are typically too expensive to purchase otherwise.
You can never go wrong when you opt for dividend stocks that are impressively stable and possess a solid track record that stood the test of time.
One name that fits this description in the biotechnology and healthcare sector is Abbott Laboratories (ABT).
Over the past years, Abbott has had its hand in diverse ventures ranging from BinaxNOW antigen tests and continuous glucose monitors to Pedialyte. That’s why it comes as no surprise that the company’s over $43.1 billion revenue in 2021 was generated from extensive sources.
While the rest of the world struggled financially during the pandemic, Abbott was able to leverage the strength of its business model.
Thanks to its diverse coverage of the healthcare market, Abbott was able to readily seize the high growth potential of diagnostic tests in the early stages of the COVID-19 pandemic.
This hold of the market expanded as more tests were needed due to the emergence of multiple variants. Since Abbott already had the technology at the ready, it was able to position itself as a first mover and leader in this segment.
In addition, its diverse portfolio and strategic partnerships translated to an increase in its quarterly revenue to more than 81% in the past five years. It has also boosted Abbott’s growth at twice the S&P 500’s pace and even flagship biotech and healthcare ETFs in the past five years.
Moreover, Abbott’s dividend has consecutively increased in the past 50 years, giving the company the title “Dividend King.”
Abbott’s dividend has increased by an impressive 77% in the last five years thanks to its significant participation in the COVID-19 testing kit market.
More importantly, a market sell-off won’t necessarily affect Abbott’s business. Given its track record, it’s safe to say that its dividend will keep rising in the years to come, thereby rewarding patient long-term investors.
Among the diverse divisions within Abbott, the most exciting is its Medical Devices segment. For years, the company’s innovations in this sector have gained praise from healthcare providers for their ability to combine technology and health under one umbrella.
This segment has greatly benefited from key acquisitions, with the $5.8 billion acquisition of Alere boosting its care diagnostics sector and $25 billion merger with St. Jude’s Medical dramatically expanding its medical device department.
So far, the company has created products for stroke prevention, electrophysiology, and cardiac monitoring—all of which have targeted high-growth segments.
In this particular area, Abbott’s key growth driver is a product called Libre Freestyle. This is an integrated continuous glucose monitoring device.
Basically, it is an implanted device that helps patients with diabetes to monitor their glucose levels. It communicates with an app and, depending on the patient’s condition, is connected to an automated insulin pump.
This effectively eliminates the need for the painful finger-sticking method or self-injecting insulin.
Abbott only has two serious competitors in this breakthrough diabetes-centered technology: Medtronic (MDT) and Dexcom (DXCM).
Despite their presence, Abbott holds the lead due to its more affordable price point, with Freestyle Libre sales increasing by $1 billion in 2021 to record a total of $3.7 billion.
Another interesting department for Abbott is its Established Pharmaceuticals sector. This segment covers established drugs like cystic fibrosis drug Creon, IBS treatment Duspatal, and influenza vaccine Influvac.
While this isn’t a fast growth segment, it has become an essential contributor to the company, with most of its sales coming from wholesale agreements overseas.
Suppose the movement from other Big Pharma companies is any indication. In that case, this segment may very well be on its way to becoming another spinoff organization like Pfizer’s (PFE) move to create Viatris (VTRS) and Merck’s (MRK) decision to develop Organon (OGN).
As a biotechnology and healthcare company, Abbott does not offer the typical buzz-worthy updates that investors in this space are on the lookout for.
Instead, the company has been actively developing products for diagnostics, medical nutrition, medical devices, and surgical tools. Moreover, it focuses on harnessing solid relationships with medical professionals and health insurers.
Unlike its spinoff company AbbVie (ABBV), Abbott is regarded as a financially traditionalistic business. It is a conservative Dividend King that’s steadily growing in its established business sectors, making it a buy-and-hold gem for patient long-term investors.
Mad Hedge Bitcoin Letter
March 31, 2022
Fiat Lux
Featured Trade:
(EVEN CHARLIE WARMS TO BITCOIN)
(DOGE), (SHIB), (BTC)
One of the biggest promoters of the U.S. economy for the past 50 years has been vice chairman of Berkshire Hathaway Charlie Munger.
Lately, he has taken his privileged position to opine about almost everything under the sun.
At some stage, people like us like to infuse the generation behind us with the right tools to navigate the global economy, and sharpening these instruments goes a long way in determining who became the ultimate winners and losers.
Charlie came out with sharpened elbows today describing a world in which “it’s never been harder for young people to make and keep their money.”
He then begins to dive into the topic of inflation and the financial destruction beset on a young population who are not only asset scarce, but whose salaries are lower in real terms than the young person 40 years ago.
Essentially, Charlie is encouraging young people to avoid the traditional financial system that benefited him so much in order to look for greener pastures.
Sometimes it really is greener on the other side of the fence and the first generation of crypto Billionaires can attest to that.
Becoming a crypto whale usually entails getting in early before the rest pile in.
Munger also lamented the hardship of young people purchasing property in a “desirable neighborhood in a city like Los Angeles.”
Mortgages backed by the US dollar and Fanny Mae have been instrumental in helping millions of hardworking Americans realize the American dream of owning their own home.
Obviously, the US property market in many parts of the country these days is out of control and even though it’s not directly linked to cryptocurrency, it’s directly linked to the US dollar which Bitcoin is an absolute competitor.
Munger couldn’t be righter that young people will not be able to copy and paste what worked before and that the ones who don’t adapt will not be able to achieve a life in a desirable city.
In a roundabout way, Charlie is espousing the virtues of Bitcoin even though he doesn’t know it.
Part of the bias he presides over is in the way young people get rich and age doesn’t make you want to get rich all over again in crypto after getting rich through the US dollar and stocks.
Investing in alternative strategies has never been more attractive, but there is a smart way to do it and an irresponsible way to do it.
In the last few years, Bitcoin has proved itself to be a great store of value and it appears that no matter what you throw at it lately, it won’t go down that much.
But then there is the scarier side of crypto that isn’t Bitcoin and things get suspicious quickly like somebody following you down a narrow, shady alley.
Many have thrown their life savings in these coins that are fashionably new and low cap and obscure thinking that they can get rich quickly when all that will actually happen is they'll lose their money in these coins that either fail or get the rug pulled.
Seeing coins like SHIB, DOGE, which were altcoins that actually did build a substantial market cap in the past, has only encouraged these people in their thinking that they can make a lot of money off of these coins when the reality is that these were only 2 among thousands of coins that got lucky.
Investing should be done with a purpose, otherwise, it becomes pure gambling and you'll likely fail.
That purpose could be Bitcoin as a means of decentralization, as a means of inflation hedge, or just as a currency that's easy to transfer. As long as you know what you support in your coin, you have a purpose that you believe in which is what investing is about, not closing your eyes and picking a coin.
Not only that you won't get rich, but you'll also lose your money in these coins. The only people getting rich will be those controlling the coin with their bags that are ready to sell.
But of course, there still are those projects with a purpose that can change the market, but you'll need a lot of time on your hands to find those new ones.
“Can we all please - I don't want anybody buying cryptocurrencies, okay? Stop it. Enough already. Or buy Bitcoin, don't buy Ethereum.” – Said Nvidia CEO Jensen Huang
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
March 31, 2022
Fiat Lux
Featured Trade:
(WHY SOLID-STATE BATTERIES ARE THE “NEXT BIG THING”)
(TSLA), (QS)
Tesla shares have recently gotten their mojo back, exploding by an incredible 60% in the past month, and that can only mean one thing: mass production of solid-state batteries is fast approaching.
For the last 30 years, the cutting edge of battery design has been trapped in lithium-ion liquid or gel states. This originally Japanese technology took us from the first generation of smartphones in the early 1990s to the 1,200-pound, 405-mile range behemoths of today.
Now it’s time for the next big thing.
Solid-state batteries, made of oxide, sulfide, and phosphate ceramics, have existed in labs for decades and are currently used in pacemakers and other small devices. But economic mass production has remained elusive.
That may be about to change.
Bill Gates-backed QuantumScape gained a listing on the New York Stock Exchange via a SPAC (special purpose acquisition corporation) with Kensington Capital Acquisition Corp. (click here for the link). The deal valued the company at $3.3 billion, a high figure for a firm with no salable product.
QuantumScape is a decade-old San Jose, CA-based startup which has been pioneering solid-state battery technology. It obtained a $100 million investment from Volkswagen in 2018. QuantumScape’s goal is to supply the batteries for an all-electric VW Golf by 2025.
And here is the big deal about solid state. It offers energy densities 2.5 greater than existing lithium-ion batteries. It also presents far less risk of catching fire when punctured, as we have seen dramatically on TV a few times over the last couple of years with unfortunate Teslas.
With such technology, Tesla can cut battery sizes from 1,200 pounds to 500 pounds, chop $6,000 off the cost of production of each car, and further extend ranges because of less weight.
That would enable Tesla to enter the mass market with a $36,000 entry-level Tesla 3 or small SUV Model Y with minimal fuel cost and maintenance for the life of the car. This is how Tesla boosts production from last year’s 500,000 units to 5 million units annually by 2025. This is what the recent $700 Tesla share price is all about.
There are even more advanced battery technologies on the horizon. Samsung is working on graphene technology for its smartphones. The University of Chicago has developed a lithium dioxide battery seven times more powerful than those currently available. Silicon nanowire technology will become viable in three years that offer a further multiplication of ranges.
In the end, Elon Musk may surprise us all. In 2019, Tesla bought Maywell Technologies and their dry battery technology which can produce batteries at 16 times greater energy density at 20% less cost, giving a 20-fold improvement in battery performance.
That is a greater leap in energy densities than we have seen over the past decade when costs dropped by 80%.
As a long-time Tesla owner (chassis no. 125 of the assembly line), I can tell you that it has been a battle to keep up with Tesla’s rapidly emerging technology. As soon as I bought a Model X three years ago with a 275-mile range, a new 351-mile range was announced. I did get a great deal on the car though and I’ll never drive another vehicle.
As an old venture capitalist once told me, “When you’re in tech, you’re in the bakery business. You have to sell whatever you have in three days before it goes stale.”
For a YouTube video of Bill Gates explaining his involvement in QuantumScape, please click here.
Mad Hedge Technology Letter
March 30, 2022
Fiat Lux
Featured Trade:
(HITTING THE LOTTERY WITH MEME MANIA)
(GME), (AMC), (HYMC)
Meme mania is back and warping the equity markets – many thought they were left for dead.
They have come back in the past week as GameStop (GME) and AMC (AMC) shares have doubled.
The doubling isn’t just because of the extremely oversold nature of the stock market.
It’s not only that.
Even more critical, meme companies are finally embracing who they are – highly speculative in nature and presenting it as a positive to their investor base.
Management has gotten the memo and is pushing the boundaries yet again by stirring up the pot.
Readers with strong stomachs should only consider GME and AMC if they are willing to lose 100% of their principal because these stocks are in no way long-term buy and hold material.
Many traders have already gotten rich by catching parabolic moves, and management’s behavior signals there will be more to come from these highly volatile stocks.
Earlier this month AMC announced it was buying a stake in gold and silver miner Hycroft Mining Holding Corp (HYMC).
Acquiring a major stake in a tiny gold and silver miner that has been on shaky financial ground from a distance appears somewhat bizarre.
CEO Adam Aron is now starting to think more outside the box and traversing industries could play to their alternative audience.
Aron doesn’t need to play to institutional money since it was them that created high amounts of short interest in the stock.
Retail traders are the target audience and third-party external M&A announcements going forward where AMC can reach for the stars could whip up this base of investors.
They are taking over a highly dysfunctional miner with past management problems.
Now Aron views this company as an upstart minnow waiting for a turnaround story at a time when commodities are red hot.
It’s yet to be seen whether this type of move will impact the narrative of AMC but getting AMC out of the movie theatre business should be paramount.
Netflix has effectively killed the movie theatre business during covid and getting into commodities in a high inflationary environment is more sensible.
GME CEO Billionaire Ryan Cohen's investment company bought 100,000 shares of GameStop Corp taking Cohen's stake marginally higher to 11.9%, with the total number of shares owned at 9.1 million.
An oversized reason for the spiking shares is that there is still loads of short interest in these stocks.
Institutional money is still betting on big down moves and when the reverse happens, they must buy back the stock at higher prices to close positions which drives the stock even higher.
Cohen is also hoping to diversify GME’s business from a retail video game store.
He co-founded online pet products retailer Chewy and earlier this month said he now owns nearly 10% of Bed Bath & Beyond and wants the home goods retailer to explore alternatives including a full sale of the company.
He also plans to modernize GMEs business by building a NFT marketplace.
The management at these companies has realized that they can’t stand pat with the current businesses they overlook because they are outdated and lack sustainability.
The spiking stock price has offered them financial gunpowder to go after industries they never even thought about before as well as giving them more financial slack.
Upgrading their business model could go a long way to suppressing volatility in these stocks and making them into appealing long-term buy and hold companies.
They are a long way off from that today, but everyone needs to start somewhere.
