The earth has been playing in heavy traffic for 4 billion years now,
said Jeffrey Klugger, science editor of Time Magazine
Mad Hedge Biotech and Healthcare Letter
February 8, 2024
Fiat Lux
Featured Trade:
(THE WEIGHT IS OVER)
(REGN), (NVO), (LLY), (RHHBY)
Let's look into something that's been buzzing in the healthcare sector, and no, I'm not just talking about the latest diet fad. I’m talking about obesity treatments — specifically, those groundbreaking drugs that are reshaping the market and, quite literally, the patients using them.
Yes, I'm looking at you, GLP-1 agonists. These bad boys have been making waves for their significant role in weight loss, but let's face it, there's always room for a bit of an upgrade, right?
Despite all the cheers and positive vibes around GLP-1 agonists, a little detail has been creeping up that's somewhat less than ideal — muscle loss.
It turns out, up to a whopping 40% of the weight shed isn't just fat saying goodbye, but muscle bidding adieu as well. Not exactly the parting gift patients were hoping for, and frankly, it's stirring up some concerns that could ripple through public health in the not-so-distant future.
This is where Regeneron (REGN) comes in.
This biotechnology company isn’t new to the scene, but it’s taking a fresh angle on the whole ordeal. Their game plan? A dynamic duo approach, combining trevogrumab or garetosmab with the well-known semaglutide (hello, Wegovy), aiming to refine the weight loss journey for those embarking on it.
Regeneron’s goal is clear: let's keep the muscle, lose the fat, and change the narrative on obesity treatments.
Now, for a little context, the obesity treatment arena has been somewhat monopolized by Novo Nordisk (NVO) and Eli Lilly (LLY), with their respective champions, Wegovy and Zepbound, leading the charge.
But here's where Regeneron is looking to carve out its niche, not just in improving the now but in eyeing the future post-treatment landscape. The million-dollar question they're tackling: once the weight's off, how do you keep it from coming back without those weekly jab appointments?
To know the answer to that question, I suggest you mark your calendars for May 2024 because that's when the magic starts. It will commence Phase 2 of the study aiming to test Regeneron’s combo and hopefully offer better results to the weight loss game.
Ultimately, the company aims to preserve, or even boost, muscle mass. Imagine that, weight loss without the unwanted goodbye to your gains.
While it's worth noting that while Regeneron is making waves with its innovative approach, they're not alone in the quest for muscle preservation. Other players are also in the mix, each with their own strategies to combat the side effects of GLP-1 agonists.
Roche (RHHBY), for instance, has set its sights on combining their anti-myostatin antibody with incretin treatments, expanding the battlefield into new territories.
However, Regeneron’s plans don’t end in the weight loss world.
Earlier this month, Regeneron threw another curveball with the acquisition of 2seventy bio's cell therapy pipeline. This move isn't just about expanding their arsenal; it's about integrating and innovating in ways that could redefine cancer treatment as we know it.
By blending Regeneron's antibody expertise with 2seventy's cell therapy prowess, they're transforming into a potential oncology powerhouse.
Now, let's look at the numbers. Regeneron's market cap is flirting with the $100 billion mark, proof of their performance and potential. With revenues dancing around the $13 billion mark for 2023 and a price-to-sales ratio that's eye-catching, to say the least.
Yet, with every high, there's a looming challenge. The patent cliff for Eylea, their golden goose, is on the horizon, threatening to shake up the status quo.
But if there's one thing Regeneron has shown us, it's their knack for innovation. Given everything the company has embarked on over the past months, it’s safe to say that they’ve got this issue covered.
Does that mean it’s time to yell "screaming buy" from the rooftops? I usually keep such big words under lock and key, but Regeneron? They're onto something. They're not just surviving; they're plotting a course to new horizons without putting all their eggs in one basket. That strategy? It's more than just good—it's golden.
So while the cautious among us might wait for the market to blink first, there's something to be said for getting ahead of the curve. After all, in the world of pharma, timing is everything, and Regeneron seems to have its clock set just right.
Global Market Comments
February 8, 2024
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(MSFT), (PANW), (V), (GOOGL), (CCJ)
I was awoken this morning by calls from Concierge members asking what to do when their Visa (V) options were assigned or called away. The answer was very simple: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
We have the good fortune to have five option call spreads that are deep in the money going into the February 16 option expiration. They include:
(MSFT) 2/$330-$340 call spread
(AMZN) 2/$130-$135 call spread
(V) 2/$240-$250 call spread
(PANW) 2/$260-$270 call spread
(CCJ) 2/$38-$41 call spread
In the run-up to every options expiration, which is the third Friday of every month, there is a possibility that any short options positions you have may get assigned or called away.
Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.
The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.
You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.
Let’s say you get an email from your broker telling you that your call options have been assigned away. I’ll use the example of the Visa (V) February 2024 $240-$250 in-the-money vertical BULL CALL debit spread.
For what the broker had done in effect allows you to get out of your call spread position at the maximum profit point 8 trading days before the February 16 expiration date. In other words, what you bought for $8.80 on January 10 is now $10.00!
All have to do is call your broker and instruct them to exercise your long position in your (V) February 2024 $240 calls to close out your short position in the (V) February 2024 $250 calls.
This is a perfectly hedged position, with both options having the same expiration date, and the same amount of contracts in the same stock, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.
To say it another way, you bought the (V) at $240 and sold it at $250, paid $8.80 for the right to do so, so your profit is $1.20 or ($1.20 X 100 shares X 12 contracts) = $1,440. Not bad for a 26-day defined limited-risk play.
Sounds like a good trade to me.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to buy a long (V) position after the close, and exercising his long February $240 call is the only way to execute it.
Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.
There are thousands of algorithms out there that may arrive at some twisted logic that the calls need to be exercised.
Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.
And yes, options even get exercised by accident. There are still a few humans left in this market to make mistakes.
And here’s another possible outcome in this process.
Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it. They’ll tell you to take delivery of your long stock and then most additional margin to cover the risk.
Either that, or you can just sell your shares on the following Monday and take on a ton of risk over the weekend. This generates oodles of commission for the brokers but impoverishes you.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they did train 50 years ago.
Avarice could have been an explanation here but I think stupidity, poor training, and low wages are much more likely.
Brokers have so many legal ways to steal money that they don’t need to resort to the illegal kind.
This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.
Some may also send you a link to a video of what to do about all this.
If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.
Professionals do these things all day long and exercises become second nature, just another cost of doing business.
If you do this long enough, eventually you get hit. I bet you don’t.
Calling All Options!
Mad Hedge Technology Letter
February 7, 2024
Fiat Lux
Featured Trade:
(IS BABA WORTH A TRADE?)
(BABA), (PDD)
Remember when Chinese tech was supposed to topple Silicon Valley?
That was just a few years ago and it is mind-boggling how the situation has had a sudden about-face.
Chinese tech has been left twisting in the wind of mediocrity while American tech has forged through and seized the opportunity to become the best tech industry on the planet.
Some of the weaknesses are quite glaring and the most obvious one comes in the form of Chinese e-commerce company Alibaba’s 75% nosedive from a 2020 record high.
The crash has flattened its valuation to an all-time low and put its market capitalization on a par with upstart rival PDD Holdings (PDD).
Alibaba’s revenue for the three months through December only rose 5.6% from a year ago, the slowest growth in three quarters amid difficult economic conditions and steep discounting.
Forward earnings estimates for the company have fallen about 4% over the past month.
China’s online retail market is saturated and the backdrop is getting worse.
Alibaba and JD.com are the old men in the nightclub club while fresh faces like Douyin Mall, run by TikTok owner ByteDance are chomping at the bit.
At the same time, persistent deflationary pressure and declining wages have driven a price war that is being won by discounters like Pinduoduo, the local equivalent of PDD’s Temu.
Alibaba is forecasted to cede market share as they face fierce competition from rivals like Douyin and PDD.
Another focus would be whether they are able to import new drivers to maintain their overall growth.
Alibaba spent $9.5 billion on share buybacks last year, a record high.
Revamp efforts led by the company’s new management include scaling down non-core business while stepping up investment in global expansion and artificial intelligence.
It’s focusing on improving core operations, including moving resources from its Tmall site to Taobao in order to better meet demand for cheaper products, though it may take time to see results.
This focus on lower prices will lead to weaker revenue growth, which is certainly negative to near-term sentiment and share price. The company’s core business growth will likely “remain lackluster in the next four quarters.
With many things in China, this is a race to the bottom and BABA is getting a proper taste of that Chinese medicine.
Lower prices are met with even lower prices and it becomes a war of attrition.
Investors don’t like to hear that.
In the most recent earnings report, net profit declined by 77%.
Overall sales growth last quarter rose by just 3%.
This company used to be a supercharged growth company and in just a few years, they have almost been swept into the dustbin of history.
BABA stock is down today over 5% from the poor earnings report as the stage is set for BABA to hardly grow at all in the foreseeable future.
Many from Gen Z have remarked how discount e-tailers like PDD’s Temu have flooded American social media platforms with ads.
This trend has resulted in negative impacts to BABA’s staying power in e-commerce and the profit margins are in the firing line as we speak.
At $73 per share, the stock might be in for a dead cat bounce for a trade.
Long term, the stock has lost its luster and lost its mojo.
BABA shouldn’t be touched with a 10-foot pole as the entire Chinese economy goes through the motion of a slowly forming zombie corporate structure.
(THREE STOCKS TO BUY IN 2024)
February 7, 2024
Hello everyone,
The stock market has started the year in a positive mode with big tech rallying strongly. The S&P 500 is up around 4% year to date after a 24% rise in 2023.
What could sour the mood?
Political tensions, still-high inflation levels, and uncertainty about when the U.S. Federal Reserve will cut interest rates.
All these factors have raised questions about which sectors – and stocks – will outperform looking ahead.
Let’s concentrate on three, I believe will perform well this year.
1/ Microsoft (Stock Price as of 02/06/24 - $403.66)
This company has a focus on cloud computing and mobile technology. Microsoft’s Windows operating system dominates the PC market globally at around 90%. Robust revenue from other segments like Azure, Office 365, and Dynamic CRM are contributing to revenue.
Last week, Microsoft reported a 17.6% year-over-year increase in its revenue for its quarter ending Dec. 31.
Microsoft has a huge diversity in software applications making it a key player in digital transition. It has a strong presence in cloud infrastructure and ties with Open AI making it well placed to meet the rising demand for generative AI.
Over the last 12 months, shares in Microsoft are up almost 60%. Of 52 analysts covering the stock, 48 give it a buy or overweight rating at an average price of $460.37, according to FactSet data. This gives it an upside potential of almost 12%.
My Recommendation: Buy the stock on dips. Average in.
Option Recommendation: One-year LEAPS out of the money.
2/ ExxonMobil
Despite the mixed sentiment on the energy sector presently, amid ongoing geopolitical uncertainties and fluctuating oil prices, I am optimistic about this stock for the long term.
Last week, the stock reported quarterly earnings that beat analysts’ expectations, but profit fell compared to a year before on lower oil prices.
Let’s scan the long-term horizon for this stock.
# Long-term potential from low-carbon investments.
# Strong balance sheet supporting higher capital returns.
A key catalyst is in the pipeline for Exxon with its acquisition of Pioneer Natural Resources valued at almost $60 billion. The deal is expected to close by mid-2024.
Production volume in the Permian Basin located in West Texas and New Mexico is tipped to more than double to 1.3 million barrels of oil equivalent per day once the deal closes.
Other opportunities include growth prospects from the company’s discoveries in Guyana between 2025 and 2026.
Over the last 12 months shares in ExxonMobil are down over 8%.
Of 29 analysts covering the company, 19 have a buy or overweight rating on the stock at an average price target of $124.94, giving it an upside potential of around 22.5%, according to FactSet data.
My Recommendation: Buy small parcels in this stock now. Average in.
For those who trade Options: One-year LEAPS out of the money. You could look at 105/110 or even 110/115. Expiration: January 17, 2025.
You can buy the stock or do the option or do both.
Analyst Price Projections for ExxonMobil
Barrick Gold (Stock Price as of 02/06/24 - $15.09)
Beyond tech and energy, metals get a big tick also, and I favor Canadian miner Barrick Gold here.
There is a positive outlook on gold due to geopolitical uncertainties, making it a reliable safe haven investment during economic challenges. Spot gold prices are up around 7.5% over the last 12 months.
Kevin Teng, CEO of Wrise Wealth Management Singapore argues that despite the lag in performance among gold miners compared to the rising gold prices since 2023, Barrick Gold, being one of the largest gold miners, is poised to benefit from the expected price recovery.
Teng goes on to explain that he is expecting a “sequential improvement” in the company’s output following the expansion in its production of copper production to 240,000 metric tons from the current 150,000 metric tons in its Lumwana copper mine in Zambia. A similar boost in production levels is also expected at its Reko Diq copper-gold project in Pakistan.
So, it is apparent that Barrick Gold’s expansion plans collectively position it for potential growth in the coming year.
Shares in Barrick Gold are down over 15% over the last 12 months.
Of 23 analysts covering the company, 16 have a buy or overweight rating on the stock at an average price target of 29 Canadian dollars ($21.52), giving it an upside potential of almost 40%.
My recommendation: Buy the stock in small parcels. In other words, average in.
If you trade options, I suggest one-year LEAPS. You could look at the 15/17 January 17, 2025, Bull call spread LEAPS.
You can just buy the stock or just do the option. Some people buy the stock and do the option. It’s your choice as are the number of shares or options you purchase.
Cheers,
Jacquie
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
February 7, 2024
Fiat Lux
Featured Trade:
(DUMPING THE OLD ASSET ALLOCATION RULES),
(WHY WATER WILL SOON BE WORTH MORE THAN OIL)