Mad Hedge Biotech and Healthcare Letter
January 25, 2024
Fiat Lux
Featured Trade:
(FROM BIG TO BIGGER)
(UNH), (CI), (ELV), (CVS)
Today, let's talk about where the smart money's at in our whirlwind economy – healthcare and insurance.
And who's the king of the hill in this game? None other than UnitedHealth Group (UNH).
It's not just any old company; it's a health insurance juggernaut that's been on a growth tear, doubling its value in just five years. That's definitely something to write home about.
With a market cap closing in at $500 billion and revenues of $372 billion in 2023, it's a force to be reckoned with. If it doubles again, we're looking at a $1 trillion giant. That's uncharted territory for healthcare stocks.
Before anything else, let's hop in our time machine for a sec.
Around 10 years back, UnitedHealth was a mere $75 billion baby. Fast forward to today, and it's ballooned to around half a trillion. We're talking about top-dog status in the healthcare world.
Now, let's get down to brass tacks. UnitedHealth's bottom line might not be the stuff of legends – a 6% profit margin over the past year.
But hold your horses – with over $300 billion in annual revenue, that 6% turns into a cool $18 billion-plus in profit.
And guess what? They've been raking in even more lately – $21.7 billion over four quarters.
"But will it double in value in a year or two?" you ask. Maybe not that fast, but hey, it's done it in five years before.
So, could UnitedHealth hit that mind-boggling $1 trillion mark by 2030? I wouldn't bet against it.
After all, UnitedHealth isn't just playing in the health insurance sandbox. It's the biggest kid in the playground – the largest health insurer in the United States and the biggest healthcare company globally.
For context, its closest peers are Cigna (CI) with $90.44 billion in market cap, Elevance (ELV) with $111.87 billion, and CVS (CVS) with $95.08 billion. You get the picture.
But here's the juicy part – UnitedHealth loves to shop. It's like the Pac-Man of healthcare, gobbling up companies left and right.
Just last year, it bagged Amedisys for a cool $3.3 billion, hot on the heels of its $5.4 billion acquisition of LHC Group. Talk about making moves.
Now, for my fellow investors, here's the sweetener: UnitedHealth also pays dividends, with a 1.4% yield. It might not sound like much, but this company's got a knack for growing dividends. It's like owning a golden goose that keeps laying more golden eggs.
So, what's the secret sauce for UnitedHealth potentially hitting that $1 trillion valuation? Simple – growth, growth, and more growth. It's not just selling insurance; it's into analytics and isn't shy about snapping up companies to beef up its portfolio.
Let's talk numbers. Management is eyeing an annual earnings growth somewhere between 13% and 16%. If UnitedHealth keeps hitting these home runs, its stock value climbing higher isn't just a possibility – it's a likelihood.
"But is it a good buy?" I hear you ask. Well, trading at around 23 times its earnings, it's a bargain compared to the average healthcare stock at 28 times earnings.
Simply put, this baby's got room to grow, and investors might just be willing to pay a premium for this gem.
So, when will it hit $1 trillion? If UnitedHealth sticks to the S&P 500 index's average 10% annual growth, we're looking at 2030 for that milestone.
But knowing UnitedHealth, which often outperforms the market, it could be sooner if it keeps up its projected annual growth rate.
In a nutshell, UnitedHealth Group isn't just a safe bet – it's a potential goldmine. With its continued growth, strategic acquisitions, and reasonable price tag, it's a shining star in any investment portfolio.
Mark my words – this is one stock that could make its investors very, very happy by 2030.
Global Market Comments
January 25, 2024
Fiat Lux
SPECIAL EARLY RETIREMENT ISSUE
Featured Trade:
(HOW TO JOIN THE EARLY RETIREMENT STAMPEDE)
Mad Hedge Technology Letter
January 24, 2024
Fiat Lux
Featured Trade:
(THE EV REALITY CHECK)
(TSLA), (RIVN), (TOYOTA)
Sometimes tech trends start and stop and then start again.
It certainly felt that way for the EV industry when the Chairman of Toyota Akio Toyoda threw a damp towel on the progress of EVs taking over the world.
The Japanese Chairman told the world that he thought EVs will never account for more than a third of the market and that consumers should not be forced to buy them.
These ideas definitely go against the grain of the liberal democratic order.
Listen to the bureaucrats in Brussels and the left-wing establishment in Washington and it almost seems as if they want to ban oil and gas products.
Of course, the ban is certainly hyperbole, but the green movement towards lithium battery-powered cars has become quite political and partisan.
Akio Toyoda, chairman of the world’s biggest carmaker by sales, said that electric vehicles (EVs) should not be developed to the exclusion of other technologies such as the hybrid and hydrogen-powered cars that his company has focused on.
He said he believed battery EVs will only secure a maximum of 30% of the market – less than double their current share in the UK – with the remaining 70% taken by fuel cell EVs, hybrids, and hydrogen cars.
Mr. Toyoda argued that electric cars’ appeal is limited because one billion people in the world still live without electricity, while they are also expensive and need charging infrastructure to operate.
The chairman also pointed to Toyota’s recent announcement that it was working on a new combustion engine, saying it was important to give engine factory workers a role in the green transition.
In recent weeks, that strategy has been partially vindicated after Toyota revealed it had produced a record 9.2 million vehicles in 2023 with one month of the year still to go. The annual total is expected to exceed 10m.
At the same time, sales for January to November increased 7% to 10.2 million vehicles.
Koji Sato, the car maker’s chief executive, last year promised Toyota would sell 1.5 million battery EVs a year by 2026, and 3.5 million by 2030.
Tesla, the world’s biggest EV producer on an annual basis, reported 1.8 million deliveries last year.
Mr. Toyoda’s two cents come after electric car sales have slowed in the western world towards the end of 2023.
I am of the notion that in the short term, all the low-hanging fruit has been plucked by the EV buyers.
To find the next incremental buyer, it won’t be impossible, but that same type of excitement won’t exist.
The truth is that many consumers are still tied to the combustible engine.
On a recent trip to Japan, almost no local drove an EV and I witnessed almost no charging points.
If one of the biggest economies in the world isn’t convinced, then there is still a lot of work to do and I don’t believe that the Japanese will give up gas-powered engines so quickly.
In the short term, the demand weakness in EVs bodes ill for EV stocks like Tesla or Rivian.
Throw in the fact that EVs aren’t cheap and the cost of living crisis is forcing consumers to migrate to necessities which unfortunately doesn’t include a brand new Tesla.
Stay away from EV stocks in the short term and pile into the AI narrative.
Google's latest brainchild, the Gemini AI, has ignited curiosity – and intrigue – across the financial industry. Hailed as the company's most capable and versatile AI model to date, Gemini's potential to disrupt and reshape the financial landscape is undeniable. But how exactly is this multifaceted tool changing the game for banks, investors, and traders?
Meet Gemini: A Multimodal Mastermind
Unlike typical AI models limited to text or data, Gemini boasts true multimodality. It seamlessly ingests and analyzes information from diverse sources, including text (financial reports, news articles), code, images (charts, graphs), and even audio (conference calls). This holistic understanding, akin to human cognition, allows Gemini to perform tasks with unparalleled breadth and accuracy.
Here's a glimpse into Gemini's remarkable capabilities:
- Market Prediction: Analyzing historical data and real-time news, Gemini can forecast market trends with uncanny precision. Hedge funds are leveraging its insights to make informed investment decisions and hedge against risks.
- Fraud Detection: Sifting through vast amounts of financial transactions, Gemini can identify patterns indicative of fraudulent activity with a laser-like focus. This empowers banks to prevent financial crimes and safeguard customer assets.
- Algorithmic Trading: By extracting insights from complex financial data sets, Gemini can optimize trading algorithms, enabling firms to execute trades with lightning speed and minimize losses.
- Sentiment Analysis: Analyzing news articles, social media posts, and even public speeches, Gemini can gauge investor sentiment and market psychology, giving traders and portfolio managers a valuable edge.
Beyond Prediction: Gemini's Transformative Touch
Gemini's impact extends beyond just forecasting and analysis. It's revolutionizing the way financial institutions operate:
- Personalized Advice: Imagine wealth managers offering tailored investment strategies based on your individual financial goals and risk tolerance. Gemini's ability to analyze vast amounts of personal data makes this a reality, paving the way for hyper-personalized financial services.
- Automated Workflow Optimization: From risk management to compliance checks, Gemini can automate tedious tasks, freeing up human resources for strategic decision-making and client engagement.
- Risk Assessment and Forecasting: With its ability to analyze historical data and current market trends, Gemini can accurately assess financial risks and predict potential crises, allowing institutions to proactively mitigate losses and strengthen their resilience.
From Wall Street to Main Street: Who's Embracing Gemini?
While large financial institutions are leading the charge in adopting Gemini, its potential reaches far beyond Wall Street:
- Fintech Startups: Nimble and innovative, fintech startups are using Gemini to develop cutting-edge financial products and services tailored to underserved communities.
- Investment Firms: From mutual funds to hedge funds, Gemini is equipping investment firms with the tools to make data-driven investment decisions and outperform the market.
- Regulators: Regulatory bodies are exploring Gemini's potential to analyze complex financial transactions and detect systemic risks, enhancing market stability and investor protection.
The Ethical Equation: A Shadow on the Bright Horizon?
As with any powerful technology, concerns regarding Gemini's ethical implications linger. Some key questions loom large:
- Bias and Fairness: Can an AI model trained on vast amounts of financial data, potentially reflecting historical biases, perpetuate inequalities in the financial system?
- Transparency and Explainability: How can financial institutions using Gemini ensure transparency in their AI-driven decisions, particularly when it comes to high-stakes transactions?
- Job Displacement: Will automation fueled by Gemini lead to job losses in the financial sector, and if so, how can we mitigate the impact on displaced workers?
Addressing these ethical challenges is crucial to ensure that Gemini's power is wielded responsibly and inclusively. Open dialogue, collaboration between tech companies and financial institutions, and stringent regulatory frameworks are essential steps in navigating this ethical minefield.
The Future of Finance: Coexistence or Collision?
Gemini's arrival doesn't spell the end of human expertise in finance. Instead, it marks a shift towards a collaborative future where humans and AI work in tandem. AI models like Gemini can analyze data, identify patterns, and make informed recommendations, while human oversight and ethical judgment remain paramount.
This human-AI symbiosis holds immense promise for the future of finance. Imagine a world where:
- Everyone has access to personalized financial advice tailored to their unique needs and goals.
- Markets are more efficient and resilient, with AI mitigating systemic risks and ensuring investor protection.
- Financial crimes are detected and prevented proactively, safeguarding the integrity of the financial system.
Concluding Thoughts: A Paradigm Shift in the Making
Google's Gemini AI is not just a powerful tool; it's a harbinger of a new era in finance. By embracing its potential and navigating its ethical considerations thoughtfully, we can unlock a future where AI empowers financial institutions to serve their clients better.
(THE 2024 RATE CUT STORY HAS RISKS WE SHOULD ALL UNDERSTAND)
January 24, 2024
Hello everyone,
The subject of rate cuts in 2024 has been making headlines for the last several months. But has the Fed definitively said it will lower interest rates sharply this year? Rising geopolitical tensions and the potential for political turmoil could combine to throw a spanner in the works for investors who are hoping the Federal Reserve will enact sharp interest rate cuts this year.
I know no one wants to hear this – but I’m just throwing it out as a possibility.
The futures market is anticipating cuts – but is it ignoring risks that could force the Fed and its global central bank counterparts into a less accommodating posture? The equity rally of the past couple of months was driven by the emergence of a Goldilocks disinflation thesis that would allow central banks to cut rates early and aggressively (ahead of elections).
JPMorgan, among others, believes the disinflation process is likely to slow or stall in 1st H24, in part due to the impact of shipping/supply chain disruptions and upside risk for energy prices. Tensions in the Red Sea and the U.S. presidential election are risks to the ongoing disinflationary process.
Later this week, we get a better look at the economic picture. On Thursday the Commerce Dept. releases its initial estimate of fourth quarter GDP growth, and on Friday the personal consumption expenditures price index, a key inflation measure that’s watched by the Fed, is released.
Netflix closed at $480.33 on January 17 when I recommended you scale in…
Netflix added 13.1 million subscribers during the fourth quarter. It now has 260.8 million paid subscribers. The stock jumped 8.66% after earnings yesterday.
In the third quarter, there were 8.76 million paid memberships added and this fourth quarter easily tops that number. Earnings exceeded expectations.
Netflix is on a journey to transform from targeting subscriber growth to focusing on profit, using price hikes, password crackdowns, and ad-supported tiers to boost revenue. Furthermore, the company is going the extra mile by making its ad tier more attractive to advertisers, - by bolstering its sales teams and ad operations to “meet brands where they need us and how they need us.” Long-term revenue is their focus.
Boeing (BA) opened at $202.63 and closed at $206.30 on January 17, 2024. (This was another stock I recommended on January 17).
Boeing (BA) closed at $211.50 on January 23, 2024.
Berkshire Hathaway (BRK/B) closed at $368.06 on January 22, 2024. My newsletter focused on the stock that day and recommended buying in.
Closing price on January 23, 2024, = $372.14.
These are just some of the stocks I have recommended since last week. All of them are higher in price after recommendation.
Even though we may get a pullback or some choppy sessions, keep buying on the dips.
Enjoying Gold Coast beaches in the late afternoon.
Cheers,
Jacquie
Global Market Comments
January 24, 2024
Fiat Lux
Featured Trade:
(A BUY WRITE PRIMER)
(NVDA)
Mad Hedge Biotech and Healthcare Letter
January 23, 2024
Fiat Lux
Featured Trade:
(PHARMA'S AI PLAY: A MASTERSTROKE OR MISFIRE?)
(AZN), (ILMN), (NVDA), (SDGR), (EXAI), (SNY), (BAIVF), (SNY), (GOOGL), (PFE), (IBM), (NVS), (BAYR), (RHHBY), (VRTX), (JNJ)
Faced with an aging blockbuster pipeline and a competitive landscape where some of its rivals are sprinting ahead, AstraZeneca (AZN) is making a bold move - doubling down on Artificial Intelligence (AI).
This isn't just about keeping up with the Joneses (or in this case, their industry rivals); it's a calculated gamble with the potential to redefine drug discovery. The million-dollar question is: will this tech-savvy move send its shares soaring or just keep it in the running?
Let's address the elephants in the room of drug development. It's a long and winding road, with more dead ends than a maze in a horror movie. The usual grind? Spend ages finding a glimmer of hope in therapy targets and molecules, only for a paltry 21% to get the regulatory thumbs up after clinical trials.
So, you can bet your bottom dollar that if there’s a technology promising to up those odds and speed things up, companies will be jumping on the bandwagon faster than you can say "biotech boom."
And AstraZeneca? They are fully committing to AI, making significant waves in the field.
Case in point: their recent team-up with Absci, an AI drug discovery outfit. They're talking about developing a cancer-fighting antibody, with a potential payout of up to $247 million in milestone payments. If this pans out, it could be the first of many high-fives between the two.
But AstraZeneca's history with AI extends beyond this collaboration. Last September, they put up to $840 million on the line with Verge Genomics, aiming to tackle neurodegenerative diseases.
Add to that their work with Illumina (ILMN) and Nvidia (NVDA) in 2021 for some supercomputing firepower, and you've got a company that's serious about its AI game. They’ve even got a couple of AI-bred candidates in their pipeline, though it’s hush-hush on how those are faring.
And before you think it’s all about the new kids on the block, AstraZeneca has been rubbing elbows with Schrodinger (SDGR) since before 2020, working on making their biological medicine modeling sharper than a tack.
However, AstraZeneca is far from being the lone ranger in this new frontier.
Exscientia (EXAI) and Sanofi (SNY) are pairing up to take on COPD with an AI-driven approach. Meanwhile, BenevolentAI (BAIVF) played matchmaker between baricitinib and its new role as a COVID-19 treatment contender.
Over at Google’s (GOOGL) DeepMind, they’ve cooked up AlphaFold, an AI program adept at unraveling protein structures – a feat that’s akin to finding a map to hidden treasure in drug design.
And let's not forget the big guns. Pfizer (PFE) has teamed up with IBM’s (IBM) AI and supercomputing prowess, a partnership that’s been pivotal in accelerating the development of COVID-19 treatments like Paxlovid.
Novartis (NVS) is another key player, wielding AI to shave years off its drug development timeline, a strategy that could redefine the pace of pharmaceutical innovation.
Not to be outdone, Roche (RHHBY) is utilizing AI for a spectrum of tasks, from target identification to the virtual screening of molecules, illustrating the technology’s versatility in the drug discovery process.
Bayer (BAYRY) is also making a significant bet on AI to uncover new therapies, focusing on areas like immuno-oncology and cardiovascular diseases, areas with immense potential for groundbreaking treatments.
Vertex Pharmaceuticals (VRTX) and Johnson & Johnson (JNJ) are part of this evolving landscape as well, leveraging AI to enhance various stages of drug development. Their involvement underscores the widespread adoption of AI across different phases of the pharmaceutical process, from initial research to clinical trials.
Now, let’s go back to AstraZeneca. Best-case scenario? They cut their R&D budget, which was a cool $9.8 billion in 2022 while keeping the pedal to the metal on their clinical trials.
Worst case? Their AI bets don't pay off big time. But let's be real, with AI tech moving faster than a New York minute, that's looking less and less likely.
So, should you invest in AstraZeneca stocks right now? Not so fast. Jumping on the AI bandwagon isn't a golden ticket on its own.
Remember, everyone and their mother in big pharma is chasing the same AI dream. For now, it’s a case of watch, wait, and see how this fusion of AI and pharmaceuticals reshapes the landscape of drug discovery and development. Keep your ears to the ground – this is one race you don't want to miss.
