Global Market Comments
June 28, 2023
Fiat Lux
Featured Trades:
(TUESDAY, AUGUST 1, 2023 FLORENCE, ITALY GLOBAL STRATEGY LUNCHEON)
(CYBERSECURITY IS ONLY JUST GETTING STARTED)
(PANW), (HACK), (CSCO), (FTNT), (JNPR), (CIBR)
CLICK HERE to download today's position sheet.
One of the unfortunate aspects of the pandemic has been a tenfold increase in online fraud.
I get a dozen phishing attacks a day pretending to be Walmart, the Bank of America, and Amazon. And I never click on anything from Apple asking me to change my ID and password. The crooks are just getting too good.
However, where there are criminals there is investment gold.
The cybersecurity sector has been spurred upward with the rest of technology in recent months, creating a rare entry point on the cheap side of the longer-term charts.
The near-destruction of Sony (SNE) by North Korean hackers years ago has certainly put the fear of God into corporate America. Apparently, they have no sense of humor whatsoever north of the 38th parallel.
As a result, there is a generational upgrade in cybersecurity underway, with many potential targets boosting spending by multiples.
It’s not often that I get a stock recommendation from an army general. That is exactly what happened the other day when I was speaking to a three-star about the long-term implications of the escalating trade war.
He argued persuasively that the world will probably never again see large-scale armies fielded by major industrial nations. Wars of the future will be fought online, as they have been silently and invisibly over the past 20 years.
All of those trillions of dollars spent on big ticket, heavy metal weapons systems, like submarines and F-35 fighters ($122 million each) are pure pork designed by politicians to buy voters in marginal swing states.
The money would be far better spent where it is most needed, on the cyber warfare front. Needless to say, my friend shall remain anonymous.
The problem is that when wars become cheaper, you fight more of them, as is the case with online combat.
You probably don’t know this, but during the Bush administration, the Chinese military downloaded the entire contents of the Pentagon’s mainframe computers at least seven times.
This was a neat trick because these computers were in stand-alone, siloed, electromagnetically shielded facilities not connected to the Internet in any way. Here are essentially no secrets about anything anymore.
In the process, they obtained the designs of all of our most advanced weapons systems, including our best smart nukes. What have they done with this top-secret information?
Absolutely nothing.
Like many in senior levels of the US military, the Chinese have concluded that these weapons are a useless waste of valuable resources. Far better value for money are more hackers, coders, and servers, which the Chinese have pursued with a vengeance.
You have seen this in the substantial tightening up of the Chinese Internet through the deployment of the Great Firewall, which blocks local access to most foreign websites, including Wikipedia.
Try sending an email to someone in the middle Kingdom with a Gmail address. It is almost impossible. This is why Google (GOOG) closed their offices there years ago.
I know of these because several Chinese readers are complaining that they are unable to open my own Mad Hedge Trade Alerts, or access their foreign online brokerage accounts.
As a member of the Joint Chiefs of Staff recently told me, “The greatest threat to national defense is wasting money on national defense.”
Although my brass-hatted friend didn’t mention the company by name, the implication is that I need to go out and buy Palo Alto Networks (PANW) right now.
Palo Alto Networks, Inc. is an American network security company based in Santa Clara, California just across the water from my Bay area office.
The company’s core products are advanced firewalls designed to provide network security, visibility and granular control of network activity based on application, user, and content identification. To visit their website please click here.
Palo Alto Networks competes in the unified threat management and network security industry against Cisco (CSCO), FireEye (FEYE), Fortinet (FTNT), Check Point (CHKP), Juniper Networks (JNPR), and Cyberoam, among others.
The really interesting thing about this industry is that there really are no losers. That’s because companies are taking a layered approach to cybersecurity, parceling out contracts to many of the leading firms at once, looking to hedge their bets.
To say that top management has no idea what these products really do would be a huge understatement. Therefore, they buy all of them.
This makes a basket approach to the industry more feasible than usual. You can do this by buying the $435 million capitalized Pure Funds ISE Cyber Security ETF (HACK), which boasts CyberArk Software (CYBR and FireEye (FEYE) as its largest positions.
(HACK) has been a hedge fund favorite since the Sony attack.
For more information about (HACK), please click here.
And don’t forget to change your password.
Mad Hedge Biotech and Healthcare Letter
June 27, 2023
Fiat Lux
Featured Trade:
(THE INCONSPICUOUS STAR)
(BMY)
Do you remember the 1999 cinematic sensation "The Matrix?" Neo, the protagonist, had a choice: swallow the red pill to wake up to reality or the blue one to slumber in illusion. Perhaps our market could do with a similar reality check—swallow the red pill and recognize the true value of companies with hefty margins and cash rivers.
After all, not so long ago, the markets were all singing praises for pharmaceutical stocks, idolizing them for their deep cash coffers and ironclad resilience against inflation.
But in the theater of investment, the curtain has suddenly dropped on them, as the market's affection has pirouetted towards the exuberant dance of AI stocks, evoking memories of the late '90s tech bubble.
Yet, for the savvy value investors in the audience, this shift is less of a tragedy and more of a golden intermission.
They now have a chance to secure prime seats at discounted prices, notably at the performance of the pharmaceutical powerhouse, Bristol Myers Squibb (BMY).
As the market narrative unfolded this year, BMY's plotline took a 9% twist, veering away from the 12% uptick of the S&P 500 (SPY). I've earlier peeked behind BMY's curtains, shedding light on its promising pipeline.
So why does BMY steal the spotlight?
Bristol Myers Squibb is not merely an actor but a maestro orchestrating symphonies in cardiovascular, oncology, and immunology sectors. The jewel in its crown is its leading role in the lucrative and burgeoning realm of immuno-oncology.
Behemoths like BMY have a magic wand—they can either acquire promising new drugs or cultivate them in their own labs, thanks to their deep wells of expertise.
BMY has been striking high notes with its margin, powered by star-performing drugs like the cancer-fighting Opdivo and cardiovascular medicine Eliquis, both of which enjoy patent protection until 2028.
In the last act (over three years), BMY has introduced nine new characters to its play, which are predicted to rake in a whopping $4 billion in this year's box office sales.
These factors ensure BMY's marquee stays lit. Notably, it has earned an A+ profitability grade, with sector-leading EBITDA margin and return on equity of 43% and 23%, respectively.
Even though the first quarter's revenue seemed to tread water YoY (with a 1% dip after adjusting for currency effects), BMY's newest cast members have outshone the rest. This is demonstrated by new product revenue that soared from $350 million YoY to a hefty $723 million in Q1.
Peering into the future, BMY's management anticipates that the revenue from these nine new stars will breathe new life into their portfolio, contributing between $10 billion and $13 billion in annual sales by 2025.
This troupe includes the cardiovascular prodigy, Camzyos, which has been stealing the limelight with promising efficacy data. Given its record thus far, we can expect a considerable upside to its fair value of $66.
Despite the looming specter of generic pressures, Bristol Myers Squibb is in the throes of a grand product launch.
Aside from Camyzos, the newly launched stars anticipated to push BMY to greater heights include cancer combatant Opdualag (an extension of the Opdivo franchise), hematologic treatments Reblozyl, Abecma, and Breyanzi, and immunological medications Sotyktu and Zeposia.
Bristol's multi-pronged attempts to capture significant market opportunities should help navigate the stormy seas of the long-term patent cliff.
As a finale, BMY flaunts a sturdy BBB-rated balance sheet, featuring a safe net debt to TTM EBITDA ratio of 1.5x. It offers a respectable 3.5% yield, and the dividend is comfortably protected by a 29% payout ratio, with a 5-year CAGR of 7%.
BMY also has a trick up its sleeve to return capital to shareholders tax-savvy via share buybacks, currently having $7 billion in remaining buyback authorization. At a forward PE of just 8.2, BMY essentially gets a 12% earnings yield on share buybacks.
Lastly, I find BMY to be priced just right at $65.66 with the aforementioned PE of just 8.2. This valuation seems unfairly low for a company with a strong line-up of newer drugs.
While only a modest 4% EPS growth is predicted for the company this year and low single-digit EPS growth over the next couple of years, BMY management could stir up the plot and boost the bottom line with share buybacks at the current discounted price.
BMY, currently being snubbed by investors, provides a fantastic opportunity for value and income investors to scoop up high-quality stocks at the perfect price.
Its robust balance sheet, high margins, and portfolio of new drugs all add up to make BMY a compelling long-term buy for investors.
With the stock priced at a discount and offering a well-covered, attractive yield, income and value, investors could see significant returns over the long term.
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
June 27, 2023
Fiat Lux
Featured Trades:
(LAST CHANCE TO ATTEND THE THURSDAY, JULY 6 NEW YORK STRATEGY LUNCHEON)
(A BUY WRITE PRIMER), (AAPL)
CLICK HERE to download today's position sheet.
For the first time in five years, I’m back in the Big Apple!
Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Luncheon which I will be conducting in New York City on Thursday, July 6, 2023. An excellent meal will be followed by a wide-ranging discussion and an extended question-and-answer period.
I’ll be giving you my up-to-date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I’ll be throwing a few surprises out there too. Tickets are available for $299.
Space is very limited so get your orders in early.
I’ll be arriving early and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at an exclusive midtown private club near Central Park. The precise location will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for this luncheon, please click here or click on the Buy Now! above.
(JUNE 21, 2023 WEBINAR SUMMARY)
June 26, 2023
Hello everyone,
Hope you all had a great weekend.
This Post will summarize John’s most recent Webinar, which was last Wednesday, June 21, 2023.
Firstly, John issued an Emergency Geopolitical alert on Saturday, June 24 about a possible coup underway in Russia. The Wagner Group is marching on Moscow with the intent of overthrowing the government. John said that Putin took off in a plane which then disappeared from radar, meaning he has either been shot down or is flying low to keep his destination secret.
It could mean the end of the Ukraine war.
Nothing to do here as intelligence pours in over the weekend. The U.S. has satellites overhead and human intel on the ground.
Expect market volatility on Monday. The markets are ripe for a black swan induced sell-off.
John will be monitoring the situation closely.
Webinar: The Fed Speaks (June 21, 2023)
Luncheons
July 6, 2023, New York
July 13, 2023, Seminar at Sea
July 19, 2023, London
July 27, 2023, Cortina d’Ampezzo
August 4, 2023, Vienna, Austria
Trade Alert Performance
June 0.47% MTD
2023 year to date +62.52%
+659.61% since inception
40 out of 44 trade alerts are profitable
Method to My Madness
Not much has changed. Lots of money in 90-day T-bills
Looking for a strong second half in stocks.
Expect a big rotation out of cash into industrials, commodities, and energy. Summer will present a great buying opportunity.
We shall wait and see what happens after the dust settles in Russia.
The best time to invest is after a 10% down move in the markets or a sideways consolidation, which is a time correction.
Global Economy – in Flux
Fed leaves rates unchanged at 5.00% - 5.25%.
Inflation plunges to 4.00 YOY. Much more than expected and the 11th consecutive decline.
Possibility of 2 more ¼ point rate rise to come.
ECB hikes interest rates from 3.25% to 3.50%.
Market Timing Index = extreme risk.
Tech stocks are peaking.
Investment in tech is broadening beyond the “Magnificent Seven” to industrials, commodities, and energy.
The Volatility Index hits a 2023 low of $13.50.
NVDA and TSLA hit new 2023 highs.
Airbnb – a good stock to own.
Buy gold on dips – it's sensitive to a decline in interest rates. Silver also.
John advises not to buy Bitcoin.
Instead, he wants everyone to focus on the following:
John Deere (DE) -buy on the next dip.
Caterpillar (CAT) LEAPS candidate
Boeing (BA) buy on the dip.
Freeport McMoran (FCX) buy on the dip.
U.S. Steel (X) – LEAPS candidate
Union Pacific (UNP) – buy on the dip.
Amgen (AMGN) at multi-year lows – LEAPS candidate
Goldman Sachs (GS) buy on the dip.
Morgan Stanley (MS) -buy on the dip.
BlackRock (BLK) buy on the dip.
Berkshire Hathaway (BRKB) buy on the dip.
Bonds
Bonds rally on Fed interest rate decision to one-month high at $103.75.
Keep buying 90-day T-bills now pushing a 5.2% risk-free yield.
Still looking like a 2.50% yield by end of 2023.
Junk bonds JNK and HYG are great high-yield plays (8%)
Still likely to hit $120 by year-end.
Any run to $100 on TLT you should be putting on LEAPS 2 years out.
Foreign Currencies
Dollar dumps on Fed decision of no interest rate rise.
Japanese Yen held back by low-interest rate policy.
Investors flee to safe haven short-term investments.
Economic data is pointing to a recession and 10 months of falling inflation is another indicator of a slowdown.
Dollar strength will be temporary. Look for new dollar lows by end of 2023.
Buy FXE, FXY, FXB, and FXA on dips.
Energy and Commodities
Even with a mild recession crude could lose $20 very quickly.
The Oil collapse is signalling a recession as is weakness in all other commodities. One of the worse performance assets in 2023.
Buy USO on dips as an economic recovery play.
China expects an LNG price spike later this year due to coming supply shortages and a recovering economy.
If you could only buy two stocks, John would recommend Tesla (TSLA) and Nvidia (NVDA). But you need a 10% correction before you do anything.
Mid-cap stocks that will do well. Airbnb (ANBN), Snowflake (SNOW), and Palantir (PLTR).
Buy UNG LEAPS 12/13 call spread 18 months out.
OXY – LEAPS candidate.
FCX – buy LEAPS on dips – target $100.
CCJ – buy on the dip.
Precious Metals
No Fed action to lower interest rates undercuts precious metals.
Interest rates rise in Europe and Australia aren’t helping either.
Gold is headed to $3000 by 2025.
Silver is the better play with a higher beta.
Russia and China stockpiling gold to sidestep international sanctions.
Severe short squeeze in copper developing, leading to a massive price spike later in 2023.
Barrick Gold – buy on the dip.
Newmont – buy on the dip.
SLV, SIL, and WPM – buy on the dip.
Real Estate
U.S. Housing starts to rocket up 21.7% to a 1.63 million annualized rate, the most since 2016.
The structural housing shortage is being felt acutely.
30-year fixed rate mortgage jumps back to 7.0%.
A tidal wave of millennial buyers underneath the market.
Home builder sentiment is up for the 10th straight month as it will be for the next decade.
CCI – bouncing along the bottom.
John will be traveling in July, but still working and monitoring the markets. It’s basically a working holiday for him. John’s next webinar will be in mid-August.
Have a good week.
Cheers,
Jacquie
Mad Hedge Technology Letter
June 26, 2023
Fiat Lux
Featured Trade:
(AMAZON JOINS THE PARTY)
(AMZN), (MSFT), (GOOGL), (NVDA)
