Mad Hedge Technology Letter
December 14, 2022
Fiat Lux
Featured Trade:
(TESLA IN TROUBLE)
(TSLA)
Tesla (TSLA) stock is now toxic.
Many are surprised.
TSLA stock was once the darling of tech that could do no wrong.
The stock fetched a high premium punching above its weight.
That was then and this is now.
Then CEO of Tesla Elon Musk bought Twitter and everything changed.
He took a financial hit from the acquisition and investors are still not sure this purchase will weigh down his other companies.
Even more concerning is Musk’s entrance into American cultural wars and political punditry where he has tweeted fiercely about controversial topics lately.
This area is a black hole for tech entrepreneurs.
Losing half of a customer base is not a good business strategy and Musk is finding this out the hard way.
He has tweeted that the reason for his behavior is to “save mankind” or “nothing else matters.”
Try telling that to owners of Tesla shares.
They have been losing money hand over fist lately as Tesla shares have cratered while other tech stocks experience a mild renaissance.
Tesla has deflated by half a billion dollars in market cap lately.
Tech shares lurched upwards yesterday fueling a strong rally after weak inflation data.
However, there was one stock that was noticeably lagging big time.
Tesla was down 4% as investors used it as a good reason to dump the stock. Tesla shares are down again today – it’s almost like Groundhog Day.
There has also been a massive uptick in Democrats dumping Tesla shares and posting their actions on Instagram while claiming to have sold their Tesla car.
Musk alienating Tesla owners’ way of thinking and way of life spells lower future revenue.
Musk is simply shutting off the path for more Joe Biden-loving investors, and that’s bad news for the stock short-term since most owners of Tesla shares are Democrats.
There are also other issues percolating under the hood.
Slumping demand in China is forcing the electric-vehicle maker to slow production and delay hiring at its Shanghai factory.
Activist Tesla investor, Ross Gerber, is calling for the board to add a director who would represent retail shareholders.
This is after news reports of Musk sleeping at San Francisco’s Twitter headquarters.
Investors also feel that part of the reason Tesla shares have sold off is because the CEO isn’t paying attention to Tesla while he works on Twitter.
Musk reiterated that he “continues to oversee both Tesla & SpaceX, but the teams there are so good that often little is needed from me.”
“Tesla Team has done incredibly well, despite extremely difficult times,” he said earlier in the day, citing the European energy crisis, real estate downturn in China, and US interest rates as macroeconomic challenges.
The volatile recent stretch muddies the close of a year in which Tesla is still expected to achieve record sales and retain its crown as the world’s largest EV maker.
It hasn’t been immune, however, from the slowdown in China’s car market and recessionary conditions in Europe.
Tesla expects to come up just short of the 50% growth in vehicle deliveries that the company has repeatedly said it’s expecting over several years.
Tesla’s plant in Austin, Texas is scaling slower than expected, with a new form of lithium-ion battery cells not yet ready for volume production.
In China, Tesla plans to cut production on the Model Y and Model 3 production lines in Shanghai by about 20%.
There are some silver linings.
The company recently started delivering its long-awaited Semi truck several years late and plans to finally start producing its first pickup, the Cybertruck.
Tech investors need to be careful about TSLA for the time being and understand that it doesn’t command a hefty premium like it once did.
I believe that there are plenty of other tech companies to focus on when tech stocks start to buck the negativity of 2022.
Profitable software stocks with a strong balance sheet should be at the top of your list.
“We’re here to put a dent in the universe. Otherwise why else even be here?” – Said Co-Founder of Apple Steve Jobs
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
December 14, 2022
Fiat Lux
Featured Trade:
(THE LAZY MAN’S GUIDE TO TRADING)
(ROM), (UXI), (BIB), (UYG)
(TESTIMONIAL)
Two years ago, I put my wife’s entire 401k into your “Lazy Man’s” portfolio. Then I forgot about it.
Yesterday, I opened it up to take a look at it and I almost fell out of my chair. It was up 50%! In only two years!
Thank you for under-promising and over-delivering. My wife thanks you even more for setting up a more comfortable retirement for the both of us.
Next time you’re in town, we would love to take you out to Billy Bob’s for dinner and we’ll buy you the biggest steak you have ever seen. They have a stock ring INSIDE the restaurant.
Thanks a “million”!
George
Fort Worth, Texas
Tuesday
December 13, 2022
Hello everyone,
The CPI has been released and the markets breathed a sigh of relief as the numbers were softer than expected. Investors are hoping that this is the beginning of the end of inflation. All eyes are now on the Fed.
Bankman-Fried has been delivered more than a slap on the wrist. We have just learned that he has been denied bail in the Bahamas on FTX fraud charges as the judge has cited him as a flight risk.
What a foolish man he has been. Evidently, there was not a lot of grey matter working to determine the consequences of his actions.
He used customer funds to make political donations to both Democratic and Republican candidates. Apparently, he was trying to influence the direction of policies and laws in relation to cryptocurrency and the industry in general
He also stole money from FTX clients and parked it in his own hedge fund.
Well, you might not own a hedge fund, but you might own a property, or even be renting one out. If so, more of the same macro-economics in relation to real estate is in the crystal ball for 2023. Escalating demand and tight supply are likely to see rental increases persist, but more so in the capital cities than in the regional areas.
Higher interest rates are reducing borrowing capacities and reducing property prices. In 2023, expect this trend to continue.
If we look to the long term, when prices decline, interest rates stabilize and wages grow, we hope to see market conditions improve.
Always be mindful of a black swan lurking in the shadows. Hang on tight during the volatility. It, too, will pass.
I’ll be holding a Mad Hedge Christmas zoom get-together on the weekend. All welcome. Will send out the link in 24 hours.
Share your story with other Mad Hedge clients and pick up lots of good hints for trading the market.
All the very best.
Cheers,
Jacque
"Never let the fear of striking out keep you from playing the game." - Babe Ruth
Mad Hedge Biotech and Healthcare Letter
December 13, 2022
Fiat Lux
Featured Trade:
(A LONGER-TERM INVESTMENT FOR PATIENT BIOTECH HOLDERS)
(AMGN), (HZNP), (JNJ), (SNY), (ABBV)
Amgen (AMGN) announced what could be the biggest M&A deal in the biotechnology world this 2022.
The giant biotech disclosed its deal to acquire Horizon Therapeutics (HZNP) for $27.8 billion in cash, amounting to roughly $116.50 per share which is quite a move for Amgen. Prior to this, Amgen was engaged in an aggressive bidding war against fellow bigwigs Johnson & Johnson (JNJ) and Sanofi (SNY).
While they is a massive company with a market capitalization of $140 billion, shelling out $27.8 billion is still a significant risk.
Aside from that, Horizon is based in Ireland; Irish takeover rules Amgen and its competitors needed to comply with repeated disclosure of its key documents throughout the course of the negotiations.
This begs the question: Why was Horizon so sought-after by some of the biggest names in the biotechnology and healthcare world?
One reason is that all companies, regardless of size, need a blockbuster—and this doesn’t spare Amgen and its peers.
Actually, Amgen has been preparing for patent expirations of some of its top-selling drugs for years. By 2030, the company would be dealing with the threat of a very serious decline in revenue of key products Otezla and Enbrel. When that comes, these two blockbusters would need to battle it out with the slew of generics and biosimilars raring to compete with their market share.
Meanwhile, Enbrel, which is projected to rake in $4.1 billion in revenue in 2022, will face biosimilar competition as early as 2023. Its main and biggest rival, AbbVie’s (ABBV) Humira, will lose patent exclusivity next year. That opens the floodgates for biosimilars and generics, pushing back against Enbrel’s share of the market while attempting to take over Humira’s.
Looking at how much these blockbusters contribute to Amgen, it’s projected that $10 billion or approximately 40% of the company’s revenue could be lost by the end of the decade.
This is where Horizon comes in.
The most crucial among Horizon’s products is Tepezza, which targets a rare condition know as thyroid eye disease. Based on its performance since getting launched in 2020, this drug is estimated to rake in roughly $2 billion in 2022.
Another potential blockbuster from Horizon is Krytexxa, which was developed for uncontrolled gout, and is projected to record $706 million in sales this year.
The third potential blockbuster is Uplinza, which targets an autoimmune disease called neuromyelitis optics spectrum disorder. This product is anticipated to reach $159 million in sales in 2022.
These three could bring in roughly $3.3 billion in revenue for 2023.
Based on the company’s pipeline and portfolio, it can add $2 to $5 billion of new product sales from 2024 to 2030. Needless to say, this would offset the patent cliffs faced by Amgen.
In terms of pipeline, Horizon has several of promising candidates as well. In 2021, the company acquired a biotech named Viela Bio. At that time, the smaller company’s candidates focused on inflammatory diseases and are valued at $3.1 billion.
On top of these, Horizon’s pipeline has candidates targeting rare diseases like myasthenia gravis, lupus, and Sjogren’s Syndrome. With Amgen’s size, experience, and resources, the development of these products would most likely be accelerated.
Originally, Horizon’s strategy was to keep buying clinical-stage treatments from smaller biotechs then pushing them through to commercial approval. Since then, it has transformed into a company that develops its own candidates targeting rare diseases and lucrative markets. Given its portfolio and pipeline, Horizon seamlessly fits with Amgen’s strategy.
Overall, this acquisition is an excellent deal for both companies.
While Amgen shareholders shouldn’t expect any significant increase in dividends any time soon or substantial share buybacks, it’s reasonable to believe that the company is poised for more growth in the coming years.
This makes Amgen a worthwhile buy for longer-term investors who are committed to staying with the company until 2030 or longer.
