Mad Hedge Biotech and Healthcare Letter
December 7, 2023
Fiat Lux
Featured Trade:
(CHALLENGING THE MAGNIFICENT SEVEN)
(LLY), (NVO), (RHHBY), (AZN), (AMGN), (VKTX), (MSFT), (NVDA)
If you thought the S&P 500’s dance floor was exclusively reserved for tech's Magnificent Seven, including the likes of Microsoft (MSFT) and Nvidia (NVDA), think again.
Galloping up from behind, with the confidence of a new sheriff in town, are Eli Lilly (LLY) and Novo Nordisk (NVO), blazing trails in the obesity drug market.
Eli Lilly, with its freshly minted weight-loss drug, has catapulted to an eye-watering market value of nearly $600 billion. That's a leap from less than $100 billion in just over five years – talk about a growth spurt!
On the other side, we have Novo Nordisk, hailing from Denmark and thus not a part of the S&P club. Nevertheless, they're no slouches, sporting a hefty $450 billion market cap, quadrupling in value over five years.
The latest to throw their hat into this lucrative ring is Roche Holdings (RHHBY). They've just penned a $3.1 billion deal to acquire Carmot Therapeutics. This isn't just pocket change – it's a clear signal Roche wants a piece of the weight-loss pie, currently dominated by Eli Lilly and Novo Nordisk.
Carmot Therapeutics, a U.S.-based outfit, is cooking up something special in the GLP-1 receptor agonists segment, a class of drugs stirring up both the market and cultural scene.
Roche, by acquiring Carmot, gains exclusive dibs on three promising drugs, all at different stages of trial.
Now, let's talk numbers.
Roche is shelling out $2.7 billion upfront with another $400 million on the line, based on performance milestones. Analysts reckon Roche is gunning for phase III trials to crash the Eli Lilly and Novo party.
But let's not kid ourselves – it's an uphill battle for market share, considering the head start the other two have.
As for the market's reaction? Roche's stock perked up by 2.5% in Switzerland, although it's still trailing by 15% this year. Eli Lilly and Novo Nordisk, meanwhile, saw a bit of a dip in early trading, despite a strong showing this year.
Ultimately, Roche’s goal isn’t just to focus on the drugs. Instead, the company is eyeing an integrated approach, combining pharmaceuticals, diagnostics, and expertise in cardiovascular and metabolic diseases. It's like putting together a high-stakes puzzle where every piece matters.
Furthermore, other pharma giants are joining the fray. For example, AstraZeneca recently entered a $2 billion deal with China’s Eccogene for a nascent obesity and Type 2 diabetes drug.
But here's the million-dollar question: Are we seeing a bubble in these slimming stocks? It's hard to pin down.
What we do know is that the global obesity epidemic isn't slowing down, and these drugs are showing results.
Take Lilly’s tirzepatide, for instance – it's making waves as both diabetes and obesity treatment, with trial participants shedding an average of 52 pounds.
The financial forecasts are staggering, projecting potential annual sales of $67 billion by 2032, and possibly $100 billion by 2030.
This means obesity drugs might outshine immuno-oncology treatments, another sector with sky-high prices and a vast patient pool.
But this prosperity brings a dilemma.
Eli Lilly's trading at a whopping 90 times this year's earnings forecast. Novo? They're at 39 times. These figures could spell an opportunity for the patient investor, or they could be a harbinger of overestimated growth.
To better navigate this, let’s consider the situation from a different angle. I suggest looking at the broader picture – the intersection of obesity with other conditions like heart disease and NASH. It's a fresh perspective, focusing on specific patient subgroups.
Taking this approach leads us to companies like Amgen (AMGN) and Viking Therapeutics (VKTX), each targeting a different slice of the obesity pie.
Amgen's got its eyes on obesity and heart disease, while Viking is tackling obesity and NASH. Early trials have shown promise, and these companies are exploring novel delivery methods like monthly injections and pill formulations.
It's worth noting that Amgen is more than just a one-trick pony – they've got Repatha for high cholesterol, which could be a game-changer if combined with their obesity treatment.
Viking, although smaller and riskier, is making waves with a drug that's shown significant liver fat reduction in trials.
So, what's the takeaway here?
Well, the obesity sector is ripe with opportunity, but it's also fraught with speculation and risk. Amgen, a solid bet with a 3.2% dividend yield, and Viking, a more speculative choice, are just two examples of the diverse strategies in play.
One thing's for sure: As competition heats up, prices for obesity meds are likely to drop, mirroring the trajectory seen with other high-priced drugs.
The obesity drug market is a complex, rapidly evolving beast. It offers a blend of incredible potential coupled with considerable risk.
For investors willing to ride out the storm, the rewards could be substantial. Meanwhile, for those seeking exposure to the growing sector without the associated risks, a diversified investment strategy could be key.
(META), (GOOGL), (SNAP), (JPM), (GS), (ISRG), (TDOC), (AMZN), (BABA), (TSLA), (GM), (MSFT), (NVDA)
In the whirlwind world of artificial intelligence (AI), savvy investors are always sniffing out the next big thing. I’m not just talking about quick bucks here, but the kind of long-term innovation that transforms pocket change into fortunes.
Look at Meta Platforms Inc. (META), Alphabet Inc. (GOOGL), and Snap Inc. (SNAP). These tech behemoths are not just playing the AI game; they're redefining it, primarily through digital advertising.
But here's something to think about: is this a sprint for immediate gains or a marathon towards groundbreaking AI advancements?
Let’s first take a look at the here and the now. It's no secret that tech giants are cozying up to AI like it's the Holy Grail of digital advertising.
Take Meta Platforms, with its sprawling social media empire. They're using AI to tailor advertising experiences so personally, it's almost eerie.
Then there's Alphabet, using AI to spice up Google's search algorithms, luring in advertisers like bees to honey.
And Snap Inc.? They're on the same boat, with Snapchat morphing into an AI-driven advertising powerhouse.
For investors on the prowl, this is like striking oil. Enhanced user engagement and targeted advertising powered by AI? That's music to the ears of anyone looking for a quick revenue bump.
In the short run, these companies are looking like gold-plated investments. But this isn’t where it ends. After all, when sizing up these companies as investment opportunities, it's crucial to weigh their current AI exploits against their future impact.
Let’s go back to Alphabet. Their investment in DeepMind and other futuristic AI projects might not be filling their coffers right now, but they're setting the stage for Alphabet as a trailblazer in AI innovation. For long-term-focused investors, this is where the true allure lies.
Meta is also another prime example of AI-driven evolution. With their AI algorithms in content curation and targeted ads, they're not just generating revenue; they're reinventing it.
And let's not forget their hefty bet on the Metaverse, blending AI with virtual and augmented reality. This dual approach – cashing in on AI now while sowing seeds for the future – makes it an attractive investment.
Meanwhile, Snap’s game is all about enhancing user experience on Snapchat through AI. Their filters and lenses are more than just fun; they're a magnet for innovative advertising. For investors, Snap's continuous AI advancement signifies a promising growth potential in the social media landscape.
Clearly, Meta and Alphabet, with their diverse AI applications, hint at massive long-term growth. As for Snap, its laser focus on AI in social media might just turn it into a niche market leader.
However, AI's tentacles are reaching far beyond just tech companies.
In banking, powerhouses like JPMorgan Chase & Co. (JPM) and Goldman Sachs Group, Inc. (GS) are diving deep into AI. JPM is using it for everything from risk management to personalized banking, while Goldman Sachs harnesses AI for data analysis, market predictions, and customer service.
Switching gears to healthcare, Intuitive Surgical (ISRG) is leading the charge in AI-assisted robotic surgery, offering a glimpse into future medical technologies. And Teladoc Health (TDOC) is reshaping healthcare delivery by blending telemedicine with AI.
In retail and e-commerce, giants like Amazon (AMZN) and Alibaba Group Holding Limited (BABA) are leveraging AI to transform everything from personalized shopping experiences to logistics and supply chain management.
And let's not overlook the automotive industry. Tesla (TSLA) is pushing the envelope with AI-powered self-driving technology, steering the future of transportation, while General Motors Company (GM) invests in AI for autonomous driving and connected cars.
In the realm of technology and communications, Microsoft (MSFT) and NVIDIA (NVDA) are pivotal. Microsoft's AI investments are driving growth in its Azure cloud platform and Office 365 suite, while NVIDIA's GPUs are critical components powering a multitude of AI applications.
This extensive AI integration indicates a buffet of opportunities for investors to stake a claim in companies leading the AI revolution, across diverse industries. The companies I've spotlighted are more than just players in this game; they are potential pioneers of a future reshaped by AI. I urge you to not just watch them but to consider them seriously in your investment strategy.
Mad Hedge Technology Letter
December 6, 2023
Fiat Lux
Featured Trade:
(POSITIVE SIGNS FOR 2024)
(AMZN), (APPL), (GOOGL), (MSFT), (TSLA), (META), (NVDA)
There have been a lot of whispers as to who the tech leadership group could be in 2024.
The notion that for the tech rally to continue, more participation is needed is unequivocally false.
A strong but narrow group of tech stocks coined the magnificent seven don’t need smaller stocks to help buoy the broader tech indices.
The law of large numbers also dictates price action meaning even if smaller stocks have the time of their life next year, they still won’t make a dent compared to the absurdly expensive tech stocks that are aiming at $4 trillion in market cap.
Therefore, I believe there is a high likelihood that these potent 7 stocks outperform the rest of tech yet again and I will explain why.
Faster growth rates and reasonable valuations bode well for mega-cap tech stocks.
The seven stocks I am talking about refer to Apple, Amazon, Alphabet, Meta, Microsoft, Tesla, and Nvidia, are responsible for 76% of the S&P 500's 2023 gain of nearly 20%.
Nvidia is up more than 200% year-to-date, and even Apple, the world's largest company, saw its stock price surge nearly 50% this year. The seven companies represent a collective $11.5 trillion in market value
The fundamentals are superior.
The seven mega-cap tech stocks have more attractive fundamentals when compared to the S&P 500's bottom 493 stocks.
They boast faster growth, higher profit margins, stronger balance sheets, and reasonable valuations on a relative basis.
And while price-to-earnings valuations are elevated for the tech stocks, when accounting for growth, they're actually in line with the rest of the market.
Mega-cap tech stocks cratered in 2022.
The sharp outperformance in the mega-cap tech stocks this year comes after a brutal 2022 in which a number of the stocks were severely punished because of the Fed hiking like they have never hiked before.
From their peak, Meta fell more than 70%, Nvidia dropped more than 60%, and Amazon's share price was cut in half in 2022.
The dominance of mega-cap tech in 2023 largely reflected a reversal of meaningful underperformance in 2022 so much so that the group of tech stocks fell a collective 39% that painful year.
The pullback was a healthy consolidation and psychologically, it feels like this bullish year means we are back to neutral.
There is a high chance that tech stocks rally on the belief that a recession will cause the Fed to drop interest rates.
Indicators are starting to look a little sluggish suggesting that earnings could come somewhat soft in the first quarter.
No doubt that the US consumer is stretched to its limit and thinking twice before spending.
The knock-on effect will be delayed iPhone purchases, delayed Tesla purchases and the other 5 of the Magnificent 7 could feel the slowdown as well.
Tech’s path to the recession could cause another rally into the recession when investors are likely to take profits when we finally arrive at the recession that every investor has been waiting for years.
In the meantime, there is a high likelihood that these 7 stocks will continue success in the short-term.
“Honesty is a very expensive gift, Don't expect it from cheap people.” – Said American Investor Warren Buffett
(HARVESTING RETURNS FROM COMMODITIES IN 2024)
December 6, 2023
Hello everyone,
In 2024 and 2025, the commodities area that will be a gold mine for investors will be precious metals.
I have been calling for you all to keep scaling into positions in precious metals for the entire year. 2024 will see the metals power up from their present position. And J.P. Morgan agrees.
The firm expects gold prices to hit a targeted peak of $2,300 an ounce.
Why will gold rocket next year?
J.P. Morgan believes slowing U.S. GDP growth will solidify expectations that the Federal Reserve will slash rates to head off a recession, with a cutting cycle equal to 100 basis points in the second half of 2024 pushing gold prices to new nominal highs.
Gold is vulnerable to a retreat toward the $1900 in the coming months, and if this comes to pass, it will set investors up to position themselves for the midyear rally.
Silver will also get a boost. It will push above $30 per ounce on the rate-cutting cycle, according to J.P. Morgan.
We could see a 6% return from precious metals by the end of 2024.
The global economy is expected to slow, but according to J.P. Morgan, it will avoid a recession from 2024 to 2025, which makes it difficult to give a decisive overarching call as to whether commodities as a whole will be bullish or bearish. The bank goes on to say that commodities are unlikely to benefit from inflation next year with core inflation expected to fall to 2.9%.
The price of a barrel of oil is expected to rise according to J.P. Morgan and they see $90 as a target for Brent Crude.
Natural Gas prices on the New York Mercantile Exchange are also forecast to increase according to J.P. Morgan. There will be solid demand growth, though the narrative won’t materialize until the second half of 2024.
J.P. Morgan forecasts the BCOM Energy Index will decline in the first two quarters of next year but deliver an 8% return in the third quarter and ultimately finish out the year with a 10% return.
If we turn our focus to agricultural commodities, we find that the bank has a bullish outlook on sugar with more modest gains across grains, oil seeds, and the cotton market throughout 2024. J.P. Morgan states that the BCOM Agriculture and Livestock Index is forecast to deliver peak returns of 8% in the second and third quarters before declining to 5% at year-end.
Cheers,
Jacquie
When John identifies a strategic exit point, he will send you an alert with specific trade information on 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
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