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 and Healthcare Letter
January 31, 2023
Fiat Lux
Featured Trade:
(A SAFE HARBOR IN TUMULTUOUS TIMES)
(JNJ), (AZN), (BGNE)
Investors are still determining what to expect in 2023. The stock market could either gradually make a recovery or plummet deeper. In any case, it’s an excellent plan to add some high-quality stocks to your portfolio.
When choosing which company to invest in, it’s good to keep in mind Warren Buffett’s advice: "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes.”
A safe and reliable stock to bet on is Johnson & Johnson (JNJ).
JNJ recently disclosed its fourth quarter and full-year financial report, wrapping up a resilient showing in 2022 amid the macro headwinds. In fact, the stock is up compared to 2021, outperforming the broader market and underscoring JNJ’s position as an undisputed “blue-chip” leader.
Apart from highlighting JNJ’s position, this healthcare titan’s earnings typically serve as a bellwether for the rest of the companies in the biopharma space. This means that the relative rosiness of JNJ’s report could back up the belief that Big Pharma is one of the defensive havens in this tumultuous market environment.
In its fourth-quarter earnings call, JNJ shared some ambitious sales growth projections for the following years. For instance, pharmaceutical sales that reached $52.6 billion in 2021 are anticipated to hit $60 billion in 2025. While this is exciting for investors, the road to that goal would be challenging.
JNJ has recently been struggling with the declining sales of two major drugs. The first is its blood cancer treatment called Imbruvica, which has been losing its market share to newer drugs like AstraZeneca’s (AZN) Calquence and BeiGene’s (BGNE) Brukinsa.
On top of the falling sales for Imbruvica, JNJ would also need to battle it out with biosimilars of its top-selling anti-inflammatory injection called Stelara by the end of 2023.
Nonetheless, JNJ’s overall sales climbed by 6.2% in 2022, with the business’ pharmaceutical sector expanding a little faster at 6.8%. As for its medtech segment, it grew a bit slower at 6.1%.
Then, JNJ has the consumer health sector. The segment’s operational sales recorded only 3.9% growth, which was well below the company’s two key business units. Clearly, this division is holding back JNJ’s overall development.
In an effort to resolve this situation and enable the company to grow into a more streamlined business, JNJ plans to spin off the consumer health sector into a new and separate company. This will be Kenvue, which is expected to be launched by the second half of the year.
This move will turn JNJ into a nimbler and more rapidly growing business with a renewed focus on medtech and pharmaceuticals. Moreover, the planned spinoff could offer a short-term catalyst for JNJ stock.
On top of all these, JNJ will most likely announce its 61st consecutive annual dividend increase in April. It’s expected that the company will pay shareholders $4.52 per share every year, showing off a dividend yield of 2.67%. In comparison, the industry average is approximately 2.15%.
These issues cast some doubt on JNJ’s ability to hit its $60 billion target. Nevertheless, it reported a positive outlook for 2023. In its full-year guidance, JNJ projected sales to be between $96.9 billion and $97.9 billion. This indicates an annual growth rate of 5%.
Let’s circle back to the idea that JNJ serves as a good bellwether for the rest of the broader market. This Big Pharma leader is a part of the Dow Jones Industrial Average (DIA) and is included in the Top 10 names in the S&P 500. These are critical factors in using JNJ as an indicator for the rest of the companies.
If JNJ can deliver, or even exceed, EPS estimates and report positive earnings this 2023, then the projections are optimistic for other big companies expected to face similar headwinds.
Big Pharma notably outperformed the broader market in 2022, with investors looking into this segment as a safe harbor amid the economic and financial meltdowns. For context, the S&P 500 Pharmaceuticals industry sector increased by 5.6%. Meanwhile, the broader index fell by 19.4%.
Overall, JNJ is a top-quality stock that maintains a positive outlook in the long run amidst the short-term macro headwinds.
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
January 31, 2023
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(A BUY WRITE PRIMER)
(AAPL)
CLICK HERE to download today's position sheet.
Hi JT,
Working with you has changed my outlook on market behavior and has increased my profits significantly. With one day to go in January, I am up 11% this year and have a few very promising trades on going into February.
I did this being conservative in position sizes (sticking to the 10% of portfolio size) and not needing to step on the gas. Not only are the trade alerts very valuable for me, the market psychology I’ve learned has been great.
I can’t wait to see what happens when we get out of “no man’s land” and can take positions with even more conviction.
All the best,
Bob
Colorado
Mad Hedge Technology Letter
January 30, 2023
Fiat Lux
Featured Trade:
(A FEBRUARY AIR POCKET)
($COMPQ)
Tech shares have swung violently as the China re-open trade went from a false start in December 2022 to taking off in microseconds in 2023.
That lit a fire under tech shares and we’ve experienced epic gains, just look at Tesla’s 35% rise in just one month.
Bear market rallies genuinely provide those “rip your face off” up moves and the key is to get out of the way and try to hop on the bandwagon.
Now after a 10% gain in the tech-weighted Nasdaq index, investors are scratching their heads as to what comes next.
Could we hit a sudden air pocket and retrace performance?
There is still a 35.4% probability that the Fed will hike .25% at the March meeting which would represent .75% more of Fed hikes.
Right now tech shares are only pricing in .50% of interest rate hikes and any type of confirmation of that this week by Chairman Jerome Powell will trigger another leg up in the tech rally.
A .75% rise in the Fed Funds rate means that a higher chance of a “hard landing” increases and stock will sell off rapidly.
Tech shares are poised for a choppy start to the year as investors rely on incoming economic data and eyeball historical trends for clues
The problem is the scope of last year’s selloff makes historical comparisons difficult to use. In fact, last year’s big losers — like growth-obsessed tech and communications services stocks — are among the best performers this year, leaving investors wondering if the worst of the bear market decline is behind them.
Tech forecasts include a small earnings decline, higher borrowing costs, and persistent economic uncertainty, and the reason why stocks could do well through the year is because the bar is set so low.
However, after the great first month of 2023, positioning now has swung dramatically the other way with consensus building and assuming a soft landing.
As the soft landing consensus begins to spread, the individual company news begins to worsen.
Tech firms like Microsoft have issued weak guidance and brutal job cuts.
There hasn’t been another industry that has adopted the pace of job cuts like the technology sector which gives support to the nostrum that tech companies overshoot on the way up and overshoot on the way down.
Apple is about the only big tech company that avoided thrashing the number of jobs in Cupertino, and I believe that is a highly positive sign for the rest of the year.
Another substantial tailwind to the first month of the year has been the tanking of the US dollar.
It has cratered again the most prominent Western currencies and a weak dollar promotes global growth.
Bear in mind that many foreign firms borrow in US dollars and pay back using their own currencies.
I do expect the U.S. Central Bank to downplay the strength in the stock market to poo poo an earlier-than-expected Fed pivot.
The Fed is mostly all bark and no bite which is why dip buyers are so aggressive with their tactical decisions.
I believe after a transitory dip in tech shares, we are most likely off to the races unless the Fed can give us something believably hawkish.
The most important concept to understand is that this current iteration of the Fed is gladly tolerating minus real interest rates as gross interest rates don’t go parabolic.
Although on a personal level, I don’t think this is the right thing to do, at an economic level, this prevents a stock market crash and encourages dip buyers to come in and save the market because they know the Fed won’t pull the rug from underneath them.
Tactical active trading will continue to be the most prominent strategy in the equity market and tech shares moving forward.
“Your time is limited, so don't waste it living someone else's life.” – 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