Mad Hedge Biotech and Healthcare Letter
August 31, 2023
Fiat Lux
Featured Trade:
(A ‘FRESH FACE’ IN THE DIVIDEND ARISTOCRATS INDEX)
(KVUE), (JNJ)
The S&P 500 Dividend Aristocrats Index has recently added a significant name to its ranks: Kenvue (KVUE).
Though referring to Kenvue as a 'newcomer' might seem paradoxical, given its impressive roster of iconic brands such as Tylenol and Band-Aid. This company has a remarkable 135-year history to its credit.
Brought to the market through a strategic spinout by Johnson & Johnson (JNJ), Kenvue debuted on the NYSE this past May, proudly showcasing a market capitalization nearing $79 billion. This masterstroke funneled a substantial $13.2 billion into JNJ's reservoir, an outcome of both debt offerings and the subsequent IPO.
The move emphasizes the strategic rationale behind the future plans of both companies: prioritizing agility, enhancing flexibility, and ensuring concentrated success.
It's then no coincidence that Kenvue soon found itself part of the portfolio of noteworthy ETFs such as ProShares S&P 500 Dividend Aristocrats (NOBL) and FT Cboe Vest S&P 500 Dividend Aristocrats (KNG). This recognition aligns with JNJ's established reputation as a dividend aristocrat.
A critical insight from S&P Global (SPGI), the guardian of this index, indicates an intriguing approach for the next two years: dividends from both parent JNJ and offspring Kenvue will be combined to determine their collective eligibility for this esteemed group. Post this period, while the specifics of S&P’s plan remain under wraps, indicators point towards Kenvue maintaining its prestigious position, especially if its revenue trajectory remains positive.
Meanwhile, Kenvue announced a promising 20-cent per share dividend as its introduction. Meanwhile, with JNJ's anticipated $1.11 quarterly payout and a bullish forecast for its 2024 free cash flow pegged at an impressive $26 billion, the emphasis on consistent, growing dividends is clear. JNJ's recent dividend of $1.19 per share, reflecting its progressive trend, further cements this.
Moreover, Kenvue's current dividend yield stands at 3.5%, impressively outperforming the average aristocrat yield of 2.5%.
In the valuation spectrum, Kenvue's shares are positioned at 17.9 times the projected 2024 earnings. While some might express skepticism over its valuation due to its newcomer status, Kenvue's robust financials and upward cash flow trajectory suggest a poised path for significant growth in the future.
Looking into its trajectory, it’s safe to say that the stock is reasonably priced. However, a thorough analysis mandates acknowledging potential headwinds.
Consider the challenges posed by an exceptionally strong 2022 cold and flu season. Moreover, we can't ignore the looming legal complications tied to talcum powder disputes.
A sigh of relief, though, is that the brunt of these talc-related litigations rests with JNJ, evident from its near-$9 billion settlement in April. Thus, concerns over Kenvue's liquidity and cash flow might be somewhat overblown.
JNJ's recent financial projections indicate an optimistic 12.5% growth in its 2023 adjusted earnings per share, year-on-year. They've also strategically classified their consumer health segment as "discontinued operations," anticipating a robust $20 billion boost in Q3, courtesy of the spinoff.
Evidently, this stock isn't just turning heads because of its dividend - though that's certainly a feather in its cap.
With a stable and progressively growing income stream, Kenvue stands resilient against economic headwinds and the erratic dance of market volatility. In the vast sea of the consumer healthcare industry, Kenvue is sailing strong. The currents are in its favor: an aging global population and a swelling demand for self-care products are the tailwinds pushing it forward.
To sum it up, Kenvue is presenting an intriguing cocktail of value, consistent income, and potential growth. For those with an eye on both income and value, Kenvue should certainly be on the radar.
Global Market Comments
August 31, 2023
Fiat Lux
Featured Trades:
(THE GOVERNMENT’S WAR ON MONEY)
(TESTIMONIAL)
CLICK HERE to download today's position sheet.
(THE COST OF CANCELLING OUT THE NOISE OF THE WORLD)
August 30, 2023
Hello everyone.
They are everywhere you look. People are wearing them. I’m not talking about the latest sneakers or the ubiquitous wristbands, I’m talking about headphones or earbuds. On public transport – trains, buses, planes, and even on scooters and bicycles, this piece of equipment is attached to the human ear. And even people just going about their daily lives in shopping centres, at the grocer, at the gym, or on a jog in the park, you can see these devices firmly nestled in the ear or over the ear, so the noise of the world is stopped, like it has become an offensive intrusion in our lives.
Where once the sounds of the world were considered benign and/or an unavoidable distraction, big business has now wrapped up noise and marketed it as a hazard to our health. I know excessive and prolonged noise is not healthy. What I am saying is that silence is now big business. Globally, the noise-canceling headphones market generated $13.1bn in 2021, a figure that is expected to more than triple to $45.4 bn by 2031, according to Allied Market Research data.
In Australia, Google searches for “noise-cancelling” and "earplugs” have steadily risen in Australia in the last five years. Earplug brands are now targeting parents by suggesting that their device will help prevent “burnout” while caring for children.
Are they helpful, and what are the costs of long-term use?
The technology that cancels out noise was first developed in the 1950s to reduce cockpit noise for pilots. Bose released the first commercially available headset in 1989, and this was also marketed for aviation. The headphones use a technology known as active noise control: a microphone picks up ambient sounds and an amplifier produces sound waves that are exactly out of phase. The result, when the opposite sound waves collide, is a canceling out of noise. They appear to work best for low-frequency sounds less than 1kHz, such as the roar of an airplane engine, the drone of road traffic, or the hum of an air conditioning unit.
We all know that too much noise is harmful to hearing, but it is also harmful to our broader physical health. Long-term pollution has been linked to increased risk of cardiovascular disease, including heart attack deaths and depressive symptoms. Strict guidelines stipulate that workers should not be exposed to more than the average of 85dB of noise – think of the noise of a blender – over eight hours.
Of course, there are certain settings where earplugs are necessary to prevent hearing loss, such as on building sites, in the military, at concerts, or in very loud work environments.
But in a recreational use setting, headphones can contribute to hearing loss when listening volumes are too high. As yet, we don’t have any regulations about the use of headphones or earbuds around recreational noise. Without us even realizing it, we may be damaging the neurons that attach to the sensory cells in the ear. These nerves that transmit information about listening in noise are the first to be damaged …. And research shows that a clinical audiogram may not detect this.
Many studies have shown that constant earplug wearing can result in new-onset tinnitus. It was found in one experiment that the tinnitus people developed was felt as “high-pitched”, which corresponded to the range the earplugs were blocking. Professor David McAlpine, academic director of Macquarie University Hearing in Australia argues that if you “stop putting sound into your ears… your brain overcompensates by turning up its internal gain.” Furthermore, McAlpine comments that “it completely alters your neural pathways.” So McAlpine sets us straight by saying that “monkeying around with the sound energy going into your ears is monkeying around with what your brain evolved to be doing.”
Workplaces are often noisy environments and pose a distraction to many employees. The pandemic forced many of us to work from home, and we came to realize how much noise we had been putting up with. But simply wearing noise-cancelling headphones at work should not be the broad solution to work noise. The design of the workplace needs to be addressed to incorporate areas where focused work can be done in quiet zones, while collaborative work can be done in other zones. We do have the “quiet carriage” on trains, so why not in offices and workplaces?
Much more research needs to be done in this area, but it seems to me that when we start to interfere with nature and how the human body is meant to work, negative consequences can manifest. Whether or not these devices do us harm, big business will still market them as a way to deal with the noise in our modern world and profit from it.
Cheers,
Jacquie
Mad Hedge Technology Letter
August 30, 2023
Fiat Lux
Featured Trade:
(BULLISH SIGNS FOR 2024)
(AMZN), (GDP), ($COMPQ)
In a fireside chat with some of Amazon’s (AMZN) key lieutenants, CEO of Amazon Andy Jassy ran out of patience.
It’s the end of the line for many.
Critical members of Amazon are still holding onto the rose-colored fantasies of the lockdown era, where workers made their living wearing pajamas all day and took snoozes whenever they wanted.
Not anymore was the message from Jassy.
Enough is enough.
Employees usually don’t have the 30,000-foot view that executives like Jassy have even if they pretend to sometimes.
The paradigm has shifted to the point where management wields all the bargaining power as tech companies trim the fat off their business model.
This spat epitomizes where we are right now in the tech cycle and the wider US economy as a whole.
Tech ($COMPQ) is in a holding pattern where the biggest and best are utilizing a strong balance sheet, but they aren’t doing something so amazing where we chase the hot money with more hot money.
Ironically enough, the US GDP annualized rate just got revised down from 2.4% to 2.1% as spiking interest rates and high inflation eat into growth.
Although companies like Amazon are still doing ok, it’s not to the point where key members of staff can lounge in their sleeping gowns and work one hour per day.
There is resistance from higher management demanding Amazon workers come back to the office.
The deeper underlying message here is that the US economy is still growing buoyantly enough and that signals strength going into 2024 for tech stocks.
There is a better than 50% chance that the US economy won’t enter a recession next calendar year and the tech sector will benefit as it grinds higher.
An important trend I have noticed is that tech shares can absolutely march higher in lockstep with accelerating bond yields.
Many believed this was counterintuitive and I admit, traditional orthodoxy has taught us to respect this inverse correlation.
However, this time-honored belief has come unstuck this year and fighting the Fed has been the tech trade of the year.
What’s next for Amazon?
This is a stark change from February this year when Jassy said he had "no plan" to force workers back.
But now, Jassy reportedly reiterated a rhetoric that has emerged in more recent months: don't comply with return to office, face the consequences.
In July, Amazon employees would be forced into a "voluntary resignation" if they refused to return unless they were one of the rare few who had obtained permission from the company's leadership—internally named the S-team.
Former Twitter CEO Elon Musk was the first tech executives who started this fad by firing 80% of Twitter’s staff when he acquired the company.
That philosophy has really gutted the bottom of the chain in tech companies and shares of tech firms will benefit from this through 2024.
Instead of paying for expensive workers to sit at home, tech management are summoning up shareholder returns in the form of dividends and share buybacks to extend the tech bull market to the end of 2024.
I am still bullish tech stocks moving forward and algos are still programmed to bet on a Fed pivot. Tech goes up until the Fed pivots.
"The rich invest in time, the poor invest in money." – Warren Buffett
Introduction
On August 29, 2023, Google made seismic waves across the tech industry by introducing its highly anticipated Enterprise Suite, coupled with the announcement of a groundbreaking AI chip. This pivotal moment in technology marks Google's renewed commitment to empowering businesses with cutting-edge tools and solutions while pushing the boundaries of artificial intelligence hardware. The synergistic impact of the Enterprise Suite and the AI chip promises to reshape the landscape of enterprise operations, paving the way for unprecedented innovation, efficiency, and growth.
Google's Enterprise Suite: A Holistic Approach to Business Solutions
The Google Enterprise Suite is an integrated collection of software and services designed to cater to the diverse needs of modern businesses. It offers an expansive array of tools, ranging from productivity and communication applications to advanced data analytics and security solutions. This suite is a testament to Google's deep understanding of the evolving demands of enterprises in an increasingly digitized world.
- Productivity and Collaboration Tools: The Enterprise Suite integrates the power of Google Workspace, providing businesses with tools like Gmail, Google Docs, Sheets, and Slides. What sets this suite apart is its enhanced collaboration features, allowing teams to seamlessly work together on projects, regardless of their physical locations. Real-time co-authoring, AI-powered suggestions, and integration with other popular enterprise software enable streamlined workflows and enhanced productivity.
- Advanced Analytics: The Enterprise Suite brings forth advanced data analytics capabilities powered by Google Cloud's BigQuery. Businesses can harness the potential of big data to extract actionable insights and make data-driven decisions. This is a substantial leap forward in the quest to convert raw information into a strategic advantage.
- Enhanced Security Solutions: With an increasing number of cyber threats targeting businesses, the Enterprise Suite prioritizes security. Google's advanced security infrastructure, including robust encryption, multi-factor authentication, and real-time threat detection, fortifies the suite against potential breaches.
- AI-Powered Customer Engagement: One of the standout features of the Enterprise Suite is its AI-driven customer engagement tools. These enable businesses to provide personalized experiences to their customers, using data to understand their preferences and behaviors. This creates stronger connections, fosters loyalty, and enhances brand reputation.
- Unified Communication: The suite integrates Google Meet, offering businesses a secure and high-quality video conferencing platform. With seamless integration across devices, teams can connect and collaborate effortlessly, fostering meaningful communication regardless of geographical boundaries.
The QuantumLeap AI Chip: Redefining Artificial Intelligence Processing
Alongside the Enterprise Suite, Google unveiled its groundbreaking AI chip, QuantumLeap. This chip represents a quantum leap indeed, as it marks a substantial milestone in the development of AI-specific hardware, transcending the boundaries of conventional processing.
- Quantum Processing Power: QuantumLeap is designed to accelerate AI computations by leveraging quantum processing capabilities. Traditional computing methods are bound by the limitations of classical bits, but QuantumLeap harnesses the power of quantum bits (qubits) to process a multitude of calculations simultaneously. This results in an exponential increase in processing speed for AI algorithms, making complex tasks achievable in record time.
- Deep Learning Optimization: Deep learning, a subset of AI, requires extensive computational power. QuantumLeap's architecture is tailored to enhance deep learning processes, enabling more layers and neurons in neural networks. This results in the creation of more accurate and sophisticated AI models, which have applications across various industries, including healthcare, finance, and autonomous systems.
- Energy Efficiency: AI computations are notorious for their energy-intensive nature. QuantumLeap addresses this challenge by employing quantum coherence properties to significantly reduce energy consumption during AI processing. This energy-efficient design not only reduces operational costs but also aligns with sustainability efforts.
- AI at the Edge: QuantumLeap's compact design allows for efficient integration into edge devices, bringing AI processing closer to the data source. This is particularly advantageous for applications requiring real-time decision-making, such as autonomous vehicles and IoT devices.
- Future-Proof Architecture: Google's QuantumLeap is engineered with scalability in mind. Its architecture can adapt to evolving AI paradigms and algorithms, ensuring that the chip remains relevant and effective in the face of rapidly advancing AI technologies.
Synergy between the Enterprise Suite and QuantumLeap AI Chip
The announcement of both the Enterprise Suite and the QuantumLeap AI Chip on the same day is not coincidental. The two innovations share a symbiotic relationship that promises to revolutionize the way businesses operate.
The Enterprise Suite's AI-driven tools can leverage the unparalleled processing power of QuantumLeap. This means that data analytics, customer engagement, and other AI-based functionalities will see exponential improvements in speed and accuracy. Similarly, the QuantumLeap AI Chip can enhance the AI capabilities within the Enterprise Suite, enabling businesses to develop and deploy more sophisticated AI models to gain deeper insights and deliver more personalized experiences to their customers.
Conclusion
Google's unveiling of the Enterprise Suite and the QuantumLeap AI Chip on August 29, 2023, signifies a watershed moment in the trajectory of technology and enterprise innovation. The Enterprise Suite empowers businesses with a comprehensive suite of tools that span productivity, security, analytics, and customer engagement. Paired with the QuantumLeap AI Chip, businesses can harness the power of quantum processing to elevate their AI capabilities to unprecedented levels of efficiency and sophistication.
As Google propels the boundaries of technological possibility, the Enterprise Suite and QuantumLeap AI Chip stand as a testament to the transformative potential of innovation. The convergence of these two groundbreaking offerings not only shapes the future of enterprise operations but also showcases Google's commitment to shaping a smarter, more connected world.
Midjourney prompt: “Google's New AI Enterprise Suite and AI Chip”
[not actually the product image]
Global Market Comments
August 30, 2023
Fiat Lux
Featured Trades:
(GOOGLE’S MAJOR BREAKTHROUGH IN QUANTUM COMPUTING),
(GOOGL), (IBM)
CLICK HERE to download today's position sheet.
I have been following quantum computing since they moved from the theoretical to the practical about five years ago.
The reason is very simple. They promise to bring a 1 trillion-fold increase in computing power at zero cost, promising to solve in seconds some of the world’s most vexing problems.
They also have the potential to ramp the stock market up at least ten times over the next decade and bring on a new golden age. No kidding!
Last week an academic paper leaked and was quickly withdrawn suggesting that Google has accomplished a major breakthrough in the field.
Google claims to have built the first quantum computer that can carry out calculations beyond the ability of today’s most powerful supercomputers, a landmark moment that has been hotly anticipated by researchers.
A paper by Google’s researchers was briefly posted earlier this week on a NASA website before being removed, claiming that their processor was able to perform a calculation in three minutes and 20 seconds that would take today’s most advanced classical computer, known as Summit, approximately 10,000 years. Yikes!
The researchers said this meant “quantum supremacy” when quantum computers carry out calculations that had previously been impossible, had been achieved. This dramatic speed-up relative to all known classical algorithms provides an experimental realization of quantum supremacy on a computational task and heralds the advent of a much-anticipated computing paradigm. This experiment marks the first computation that can only be performed on a quantum processor.
The system can only perform a single, highly technical calculation, according to the researchers, and the use of quantum machines to solve practical problems is still years away. But the Google researchers called it “a milestone towards full-scale quantum computing”.
They also predicted that the power of quantum machines would expand at a “double exponential rate”, compared to the exponential rate of Moore’s Law, which has driven advances in silicon chips in the first era of computing. That means a potential doubling of computing power every nine months with a halving of cost.
While prototypes of so-called quantum computers do exist, developed by companies ranging from IBM (IBM) to start-ups such as Rigetti Computing, they can only perform the same limited tasks classical computers can, albeit quicker. There is also a huge problem accessing stored data. Quantum computers, if they can be built at scale, will harness properties that extend beyond the limits of classical physics to offer exponential gains in computing power.
A November 2018 report by the Boston Consulting Group said they could “change the game in such fields as cryptography and chemistry (and thus material science, agriculture, and pharmaceuticals) not to mention artificial intelligence and machine learning . . . logistics, manufacturing, finance, and energy”.
Unlike the basic binary elements of classical computers, or bits, which represent either zeros or ones, quantum bits, or “qubits”, can represent both at the same time. By stringing together qubits, the number of states they could represent rises exponentially, making it possible to compute millions of possibilities instantly.
Some researchers have warned against overhyping the quantum supremacy, arguing that it does not suggest that quantum machines will quickly overtake traditional computers and bring a revolution in computing. Led by John Martinis, an experimental physicist from the University of California, Santa Barbara, Google first predicted it would reach quantum supremacy by the end of 2017. But the system it built, linking together 72 qubits proved too difficult to control. It eventually revamped the system to create a 53-qubit design it codenamed Sycamore.
The system was given the task of proving that a random-number generator was truly random. Though that job has little practical application, the Google researchers said that “other initial uses for this computational capability” included machine learning, materials science, and chemistry.
“It’s a significant milestone, and the first time that somebody has shown that quantum computers could outperform classical computers at all,” said Steve Brierley, founder of quantum software start-up Riverlane, who has worked in the field for 20 years and is an adviser on quantum technologies to the UK government. “It’s an amazing achievement.”
To illustrate where we are with Quantum computers today, think of it as 1945, when only five mainframe computers existed in the world, all in the US and England. That’s when IBM founder Thomas Watson famously predicted that “The total market for computers is five.”
Oops.
