April 2023

April 12, 2023

Nine Options Positions expiring on Friday, April 21, 2023

Wednesday, April 12, 2023

Hello everyone,

I thought I would show you how many positions John has that are expiring on Friday next week and what John says to do about it. Some of you will have all or some of these positions. For those of you who are just watching and learning, these are examples of option trades that will pay you a handsome profit. (Provided, of course, a black swan doesn’t swoop over our heads between now and next Friday).

How to Handle the Friday, April 21 Options Expiration

Followers of the Mad Hedge Fund Trader alert service have the good fortune to own NINE deep in-the-money options positions that expire on Friday, April 21, and I just want to explain to the newbies how to best maximize their profits.

These involve:

Risk On

(TSLA) 4/$130-$140 call spread 20.00%

(BAC) 4/$20-$23 call spread 10.00%

(C) 4/$30-$35 call spread 10.00%

(JPM) 4/$105-$115 call spread 10.00%

(IBKR) 4/$60-$65 call spread 10.00%

(MS) 4/$65-$70 call spread 10.00%

(BRK/B) 4/$260-$270 call spread 10.00%

(FCX) 4/$30-$33 call spread 10.00%

Provided that we don’t have another 2,000-point move up or down in the stock market in the next eight trading days, these positions should expire at their maximum profit points.

So far, so good.

I’ll do the math for you on our deepest in-the-money position, the Tesla April $130-$140 vertical bull call debit spread. Since we are a massive $45.00, or 32% in-the-money with only eight days left until expiration I almost certainly will run into the April 21 option expiration.

Your profit can be calculated as follows:

Profit: $10.00 expiration value - $8.80 cost = $1.20 net profit

(12 contracts X 100 contracts per option X $1.20 profit per option)

= $1,440 or 13.64%.

Many of you have already emailed me asking what to do with these winning positions.

The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.

You don’t have to do anything.

Your broker (are they still called that?) will automatically use your long position to cover your short position in your debit spreads, canceling out the total holdings.

The entire profit will be credited to your account on Monday morning April 24 and the margin freed up.

Buffett is investing in Japan.

Why?

The five trading houses – Mitsubishi Corp, Mitsui & Co, Itochu Corp, Marubeni and Sumitomo – seems to check every box of Buffett’s stock picking criteria.

First, they are classic value stocks, with a forward price-to-earnings ratio of 6.8, far lower than the average 12.5 in the MSCI Japan Index.

Second, they have a better-than-expected dividend yield, 5.2% on average, versus 2.7% for the broader Japanese stock market.

Third, the companies produce lots of cash flow.

Additionally, Berkshire can borrow very cheaply in yen and essentially the liability in yen can help hedge the currency exposure of the Japanese stock holdings.

The Japanese trading firms, also known as sogo shosha, are highly diversified companies involved in a wide range of products and services, including energy, machinery, chemicals, food, finance, and banking. They have been vital to the Japanese economy and global trade since they emerged in the post – WWII period.

Trust you are all having a great week. Enjoy the rest of it. Hope it’s extraordinary.

Cheers,

Jacque

“In order to be irreplaceable, one must always be different.” Coco Chanel

April 12, 2023

Tech Letter

Mad Hedge Technology Letter
April 12, 2023
Fiat Lux

Featured Trade:

(TECH EARNINGS BECOME BIGGEST RISK TO TECH)
(COMPQ), (APPL), (ABNB)

Tech Earnings Become Biggest Risk to Tech

Tech Letter

In prior iterations of the CPI report, a set of data reflecting the current inflation trends in the US, a positive report would have sent the tech index, known as the Nasdaq (COMPQ), soaring.

Today, we got none of that.

Volatility has taken a nap for the time being – even to the downside.

Why is that?

This time around the tech market is already looking around the corner to earnings that are assumed to be terrible.

Most of the profit margin gains were accrued last year and in the first quarter of this year. The rest of the year, tech companies won’t be able to raise the price of services.

Last year, Apple pushed that extra level pricing of iPhone, and Airbnb charged that extra level for that vacation rental. Now – no more.

Tech consumers are at the extreme upper limit of what they can afford and in fact, have been going deeper into debt to pay for software, hardware, and streaming.

The credit card debt levels have been soaring, showing that consumers are paying more for each item but getting less for every tech product.

What does this mean?

Management will offer bleak tech forecasts.

Silicon Valley might use this underwhelming period as a great platform to throw out the kitchen sink with the bath water.

That’s what today’s price action is telling us.

The easy gains in tech share appreciation were secured in January and March.

Conditions for the same melt up have soured quickly, and not bouncing hard off a great inflation report is an ominous sign in the short term for tech shares.

Now is a time when the easiest path of movement is south in shares as many investors could be taking profits heading into the earnings season.

There are no catalysts for a short-term bounce.

One bright note is that the US dollar has continued its awful performance this year which is highly positive for global growth which tech companies more than participate in.

Hollowing out the tech consumers isn’t the greatest strategy, but until now, it has worked. However, at what point will they stop taking on debt to fund their latest purchase? We could be coming to an inflection point, and that is not good for tech stocks.

As it stands, U.S. inflation is at its lowest level in nearly two years, but underlying price pressures will be sticky for a while.

Inflation rose 5% last month from a year earlier, down from February’s 6% increase and the smallest gain since May 2021, the Labor Department said Wednesday.

The labor market cooled some in March, with hiring gains moderating and wage growth easing. Weekly jobless claims, a proxy for layoffs, are up from historic lows. Also, job openings have dropped—a signal that demand for workers is softening.

Even if the job market has cooled, it hasn’t cooled enough for inflation to crash.

Yes, many tech jobs have been cut, and I see that as a much needed solution to the excesses of Silicon Valley, but today is more of a story of the number one risk to the market shifting from inflation to bad individual performance.

Get ready for many tech companies to tell us why they won’t be doing great later this year.

Remember the market always looks forward, and at the end of last month I predicted a slow April; that forecast has been nothing short of perfect so far.

Quote of the Day - April 12, 2023

Tech Letter

“My goal wasn't to make a ton of money. It was to build good computers.” – Said Co-Founder of Apple Steve Wozniak

Trade Alert - (TLT) April 12, 2023 - TAKE PROFITS - SELL

Trade Alert

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

Trade Alert - (TLT) April 12, 2023 - BUY

Trade Alert

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

April 12, 2023

Diary, Newsletter, Summary

Global Market Comments
April 12, 2023
Fiat Lux

Featured Trade:

(I HAVE A NEW OPENING FOR THE MAD HEDGE FUND TRADER CONCIERGE SERVICE)

CLICK HERE to download today's position sheet.

April 11, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
April 11, 2023
Fiat Lux

Featured Trade:

(NOT NOW, BUT SOON)
(JNJ), (NVO), (LLY), (AMGN), (GILD), (ABBV), (BMY)

Not Now, But Soon

Biotech Letter

During times of market turbulence, many investors may find themselves hesitant to participate due to the uncertainty and risks involved. However, one potential strategy to weather the storm could be to seek out dividend stocks.

By investing in these types of equities, individuals can find a sense of stability and security, as they often offer a reliable source of income regardless of market fluctuations. In short, dividend stocks can serve as a safe harbor amid a choppy investment climate.

If you're looking for a healthcare stock with some serious street cred, check out Johnson & Johnson (JNJ).

Before delving into the company, knowing that JNJ’s stock price isn't exactly bargain-bin material is crucial. Still, it's not the most expensive pharmaceutical company out there, either. Novo Nordisk (NVO) and Eli Lilly (LLY) are commanding higher valuations, while JNJ’s peers like Amgen (AMGN), Gilead Sciences (GILD), AbbVie (ABBV), and Bristol-Myers Squibb (BMY) are trading at a lower price-to-free-cash-flow ratio.

Let's not forget that JNJ isn't just a one-trick pony in the pharmaceutical game.

With around 30% of its revenue from medical devices, we can't compare it apples-to-apples with other pharma companies. Peers in the medical devices sector typically trade at higher valuation multiples, so it's essential to keep that in mind when evaluating JNJ's price-to-free-cash-flow ratio.

Moreover, this mega-brand dominates both the pharmaceutical and consumer goods scenes. With fingers in many pies - pharma, med tech, and consumer goods - JNJ has made quite the name for itself.

Despite being a seasoned player, Johnson & Johnson (JNJ) still has some spring in its step; come year-end, the company will be shaking things up with a spin-off of its consumer segment into a new entity, Kenvue.

JNJ’s upcoming spin-off is about sharpening its focus on what matters - its pharma business. And for good reason - this is where the big bucks are made.

The healthcare giant’s immunology and cancer drugs are outperforming the rest of the pack, with two key players, Stelara and Tremfya, delivering some serious sales growth last year. Together, they raked in a cool $12.3 billion, proving that sometimes, less really is more.

JNJ’s pharma segment is crushing it. Darzalex, the multiple myeloma med, racked up an impressive $8 billion in sales, a 32% boost from the previous year. Meanwhile, prostate cancer drug Erleada wasn't far behind, with a 45.7% increase in sales to $1.9 billion.

All in all, JNJ's pharma segment hauled in a massive $52.5 billion in revenue in 2022. Not too shabby.

Looking deeper into its performance in fiscal 2022, JNJ reported a slight increase of 1.2% YoY in sales, reaching $94.9 billion, but currency effects had a negative impact. However, adjusted earnings per share increased by 3.6% YoY, with operational growth at 9.2%.

The "Consumer Health" segment reported a 0.5% decline in revenue, but adjusted operating growth was 3.6%.

The "Pharmaceuticals" segment, responsible for more than half of revenue, increased sales by 1.7% YoY to $52.6 billion, with operational growth at 6.7%.

The "MedTech" segment increased revenue by 1.4% YoY to $27.4 billion, with operational growth at 6.2%.

For fiscal 2023, Johnson & Johnson is expecting revenue growth of 4.5% to 5.5% and adjusted earnings per share growth of 3% to 5%.

Despite the positive reports, JNJ investors are still anxious about the future primarily because of the impending patent expirations of existing products. Unfortunately, the company is heading towards a patent cliff, as it faces the challenge of replacing revenue from products with expiring patents.

Stelara generated $9.7 billion in revenue in fiscal 2022 and will lose patent protection in 2023. Simponi, which generated $2.2 billion in revenue in fiscal 2022 and will lose patent protection in 2024, are two of the biggest concerns.

These two products account for 12.5% of the company's total revenue and 22.5% of the pharmaceutical segment revenue. Replacing these sales will not be an easy feat.

Additionally, in 2027, JNJ will lose patent protection for two other vital drugs - Xarelto and Imbruvica, which generated $2.5 billion and $3.8 billion in revenue in fiscal 2022.

To resolve these concerns, JNJ is putting its money where its mouth is regarding innovation. The company invested a whopping $14.6 billion in R&D in 2022 alone, and it looks like it's paying off. With plenty of promising drugs in the pipeline, JNJ is poised to continue its growth trajectory in the coming years.

When it comes to dividends, JNJ is royalty. With a 60-year track record of annual dividend increases, JNJ company has earned the coveted title of Dividend King.

JNJ boasts a healthy payout ratio of 41% and a juicy dividend yield of 2.8%, well above the S&P 500's average yield of 1.7%. The company's steady cash flow quickly covers these payouts, making it a solid choice for investors seeking reliable income.

While JNJ may be a top-notch investment option in the long run, the current market conditions make it a tad pricey. So, for now, just give it a spot on your watchlist and wait for the dip to go for a bargain. Remember, patience is not just a virtue but also a lucrative strategy in investing.

jnj