Mad Hedge Biotech and Healthcare Letter
December 31, 2024
Fiat Lux
Featured Trade:
(SOMETIMES WALL STREET GETS IT WRONG)
(BMY), (AAPL), (MRK)
Mad Hedge Biotech and Healthcare Letter
December 31, 2024
Fiat Lux
Featured Trade:
(SOMETIMES WALL STREET GETS IT WRONG)
(BMY), (AAPL), (MRK)
Sitting in my stateroom aboard the Coral Princess, about 200 miles off Mexico's west coast, I found myself chuckling at the market's reaction to Bristol-Myers Squibb’s (BMY) latest developments. Sometimes Wall Street reminds me of my old physics professor - brilliant but occasionally missing the forest for the quantum trees.
Here's what caught my attention: BMY's stock has outperformed the broader market by +15% since July, yet still trades at a measly 7.91x forward P/E while its sector peers strut around at 20.53x. It's like finding a Ferrari in a used car lot, priced like a Corolla.
The cynics, of course, point to the patent cliff. "What about Eliquis in 2026? Opdivo in 2028?" they ask, wringing their hands. But that's exactly where it gets interesting.
Just earlier this month, BMY announced FDA approval for Opdivo Qvantig - their new subcutaneous version that cuts treatment time from 30 minutes to 5 minutes. If you've ever spent time in cancer treatment centers like I have, you know those 25 minutes make a world of difference.
BMY's commercial team expects this version to capture 75% of Opdivo's business, with 30-40% of patients switching from IV. That's not just convenience - it's strategic patent life extension.
Speaking of strategy, let's talk about their growth portfolio, which has quietly expanded 20% year-over-year and now represents 48.7% of their business.
Remember when Apple (AAPL) transformed from computers to mobile devices? BMY is pulling a similar pivot, just without the flashy keynotes.
Take their $14 billion Karuna acquisition. Their newly approved schizophrenia treatment, Cobenfy, targets a market projected to hit $15.23 billion by 2034. The timing here is masterful - monetization starts in early 2025, well before the patent cliffs hit.
Meanwhile, they're cleaning up their balance sheet faster than a neat freak with a new vacuum. They've already slashed $4.31 billion in debt this year, with plans to cut $10 billion by 2026.
Their free cash flow has grown to $13.8B, up 18.1% sequentially. At this rate, they'll have plenty of dry powder for more strategic moves.
But here's what really makes me scratch my head: while everyone's fixated on the patent cliff, BMY has quietly added 8 new oncology registrational trials in the past year. Their oncology trio - Opdivo, Yervoy, and Opdualag - is growing at 7.6% year-over-year.
Sure, Merck's (MRK) Keytruda is the 800-pound gorilla with $25 billion in sales, but BMY's playing a different game - diversification with shots on goal across multiple therapeutic areas.
Now, I'm not suggesting you back up the truck tomorrow morning. The stock might see some pressure after the January 3, 2025 ex-dividend date, possibly testing support at $51 or even $48. But with a 4.45% dividend yield and a valuation at half its historical average, patient investors might find this an interesting entry point.
Speaking of timing - Wall Street's greatest fortunes were made by investors who saw value where others saw problems. Right now, most analysts are staring at BMY's patent cliff like deer in headlights.
Meanwhile, I'm seeing a company with a 4.45% dividend yield, a growth portfolio expanding at 20% annually, and a valuation that's practically begging to double.
As I wrap this up from somewhere off the Mexican coast (where I'm supposedly on vacation but can't help analyzing stocks between rounds of Monopoly), I'm reminded of something I learned in my decades of trading: The crowd is usually looking through the wrong end of the telescope.
While they're zoomed in on 2026's patent expirations, they're missing the transformation happening right now in front of their eyes.
Maybe that's why I've averaged +50% returns for over a decade - I tend to look where others don't. BMY just might be one of those opportunities that makes next year's Christmas gift to my subscribers an even bigger winner than this year's +75.25% return.
Now, if you'll excuse me, my banjo needs tuning, and I have a Monopoly empire to build. But remember - in both board games and markets, the best players are always thinking three moves ahead. BMY's management certainly is.
Global Market Comments
December 31, 2024
Fiat Lux
Featured Trade:
(SO WHAT IS YOUR “INFLUENCER” SCORE)
(REPORT FROM THE ORIENT EXPRESS)
First, there was your grade point average, then your SAT score, followed by GMAT and LSAT scores, and finally your FICO.
Now there is a new metric with which you will be judged, your “Influencer” score.
A new breed of marketing research firms are using data from social media sites, like Facebook, Linkedin, and Twitter, to rank members according to their ability to spur their friends to action.
Companies like Klout, Peer Index, and Twitter Grader are using complex algorithms to mine their data and rank members. This is far more than just a simple listing of “friends.”
Scores range from 1-100, with a major league socializer achieving a 40 ranking, and someone like Bono or Martha Steward coming in at a godlike 100.
These scores will be made public and could have a major impact on your career prospects, your credit rating, and even your sex life. I can hear this conversation coming already: “Thanks for the invitation to the opera, honey, but I have a better offer from an 80 score to go to the Giants game.”
Do you like your new BMW, American Express card, or Rolex watch and are you talking about it with your friends? Advertisers are willing to pay big bucks to get to know you.
Last year, Virgin America airline offered free tickets to Los Angeles and San Francisco to highly ranked influencers, while Audi made available special discounts for a new car. Las Vegas casinos are giving away weekends with complimentary show tickets and generous room service tabs.
I have to tell you that I am looking forward to the new system. I just passed 1,700 likes on Facebook and have a massive Twitter following.
My website gets 30,000 hits a day and is read in 125 countries, so I should score pretty highly.
I understand that Maria Shriver has recently become available. Hey, Maria! Want to check out my 90? I’ll even fire my cleaning lady!
Will a 90 Score Tickle Your Fancy?
I was awoken from a dead sleep in the middle of the night in my suite on the Orient Express by a juddering halt and the smell of burning breaks in the air.
We were somewhere high in the Swiss Alps, and every single passenger on the first-class train had to be thinking that a murder had just been discovered.
It turned out that it had, just not what you think. In the darkness, we had hit a 400-pound wild boar astride the tracks. We spent four hours on a remote siding waiting for Swiss National Rail to deliver us a new engine.
I elicited chuckles when I ordered boar for lunch the next day. The matre’d assured me it wasn’t ready yet, as the meat had to soak in vinegar for 48 hours before cooking. That’s the kind of thing you only hear in Europe.
I boarded the train that morning at London’s Victoria Station in anticipation of the trip of a lifetime. Venice Simplon Orient Express didn’t disappoint, although I would not be surprised if the IRS questioned the $8,500 cost for the 34-hour trip as a business expense on my tax return this year.
The legendary train has featured in a dozen films (James Bond and Agatha Christie) two dozen television shows, and played a major part in countless novels. You can even buy a video game.
The modern Orient Express is, in fact, three different trains.
From Victoria Station in London to Folkestone on the coast, I traveled on a vintage British train from the 1920’s that was definitely showing its age.
Then I boarded a bus, which drove on to a flatbed rail car that whisked us through the tunnel under the English Channel. There, we claustrophobes closed our eyes and held our breath for 20 minutes, which, at the nadir, my altimeter watch showed us at 1,500 feet below sea level.
The real luxury started when I boarded a 1924 Pullman first-class sleeping car in Calais, France, lovingly restored to the day it was built.
I set my watch ahead one hour and back 100 years. Suddenly, the trees resembled those in impressionist paintings, the land was dotted with Norman fortresses, and gasoline was $8 a gallon.
The original Orient Express, from Paris to Istanbul, made its inaugural journey in 1882 and quickly became famous for its unheard-of luxury and speed. Modern bullet trains and cut-rate airlines put it out of business 90 years later.
The current incarnation started in 1977 when James Sherwood, who had built up a fortune through Sea-Land Containers, bought three dilapidated Pullman rail cars at an auction in Monte Carlo. Like all of us with insanely expensive hobbies, he sought a way for outsiders to fund his passion.
Hence, the Venice-Simplon Orient Express started luring big spenders and the romantically inclined in 1982 (click here).
I became one of the original passengers in England when my broker chartered it for a day of client entertainment, an ancient steam engine laboring all the way.
Over the next 30 years, Sherwood built Orient Express into one of the world’s preeminent luxury brands, on par with Cartier, Tiffany, and Channel.
He developed a massive global network of cross-marketing deals that tied in package tours, hotels, cruises, and other vintage trains.
Today, the parent company, Belmond, carries a market cap of $1.3 billion (click here for that site).
Ironically, the company today still only owns one of its dozens of rail cars. The rest have been sold to Middle Eastern investors with long-term leaseback contracts.
The dinner onboard is the highlight of the trip, a fabulous six-course, three-hour affair. There, you meet the other passengers, all dressed to the nines.
Most were wealthy elderly couples knocking off a bucket list item, along with a few young hedge fund managers, bitcoin investors, and a passel of mistresses.
I was one of the few Americans. I ate with a casino operator in Ireland and the owner of a manufacturing company in the UK. All I can say is thank goodness for the elastic waist on my tux trousers.
Having spent a lifetime analyzing corporate managements, I was fascinated by the operation of the train. While the onboard staff is limited to 79, they are supported by a management, marketing, and engineering team of no less than 4,500.
You don’t just show up with a 17-car train in Europe’s incredibly congested rail network. You must first file a route plan and get a clearance slot, much like any airline.
Engines and crews must be changed at every border. Mechanics are onboard with an ample stockpile of 1920’s rail car parts. Oblivious passengers are frequently left stranded behind at stations along the way and must be retrieved by taxis, which catch the train down the line.
To make up for the time we lost due to the unlucky boar, the rail authorities routed us through the 12-mile long transalpine tunnel under Splügen Pass, then along the sublime shores of Lake Como, where the train rarely travels.
We roared past George Clooney’s house, who, I am told, is a frequent passenger on the train. Amazed Italians were waving and taking pictures of us with their cell phones at every stop. Suddenly, the buildings were all shaded in pastels, the churches changed from Protestant to Catholic, and the trees resembled those in Renaissance religious paintings.
We raced over the causeway to Venice’s Marco Polo station that evening, dumping our considerable luggage into a private speedboat that whisked us away down a Grand Canal crowded with gondolas en route to the fabled Cipriani Hotel.
To be continued.
(AAPL), (NVDA), (ADBE), (AI), (APP), (SOUN)
I spent thirty minutes last night trying to get an AI app to turn my cat into a Renaissance painting. The result looked more Picasso than Rembrandt, but it got me thinking about Apple's latest App Store strategy. They're pushing AI apps hard, and not just because someone in Cupertino has a thing for digital pet portraits.
Back in my hedge fund days, we had a saying: "Watch what they do, not what they say." Apple's (AAPL) quiet curation of AI-powered apps tells us more about where the market's heading than any flashy keynote ever could.
The numbers behind this shift are the kind that used to make my traders spill their morning coffee. We're looking at a 35% compound annual growth rate in the AI app market through 2030.
For perspective, that's the kind of growth rate I used to see in emerging market funds during the early 2000s boom - except this time, it's backed by actual revenue and not just optimistic projections.
Speaking of projections, the global AI market could hit $1,339 billion by 2030. I remember when reaching a billion in assets under management was considered a milestone. Now we're throwing around numbers that make billion seem quaint.
NVIDIA's (NVDA) been riding this wave like... well, like NVIDIA. Their GPU technology has become so fundamental to AI development that trying to run modern AI without it would be like trying to run my old hedge fund with an abacus. Trust me, I checked their order books - everyone from basement developers to major corporations is lining up for their chips.
Adobe's (ADBE) Firefly suite is particularly interesting. They've managed to thread the needle between AI innovation and artist compensation - something my legal team would have appreciated during our copyright disputes in the '90s. Their stock performance reflects this elegant solution to a complex problem.
Here's what's really catching my attention: the AI in mobile apps market is set to grow from $16.7 billion to $249.8 billion by 2033.
I've seen enough market cycles to know when numbers are just hype, but these align with what I'm seeing on the ground. Companies are integrating AI faster than my daughter downloads TikTok videos - by 2024, 72% of organizations will have AI in their operations.
Let's talk about C3.ai (AI) for a moment. Their stock chart looks like my heart rate monitor during the 2008 financial crisis, but there's substance beneath the volatility.
AppLovin (APP), meanwhile, is doing something fascinating with AI-driven advertising that reminds me of the early days of programmatic trading, just infinitely more sophisticated.
The subscription models these companies are using remind me of the early days of software-as-a-service, except now we're dealing with AI-as-a-service. The key difference? These apps actually deliver value beyond just moving desktop software to the cloud.
Capital expenditure in AI is expected to cross $1 trillion in 2025. Remember when hitting a billion dollars in tech investment felt monumental? Now, in a world where trillion-dollar valuations are becoming the norm, that barely qualifies as a headline.
What's particularly intriguing is the job creation potential - 133 million new roles by 2030. Having witnessed multiple technological transitions in finance, I can tell you this feels different. We're not just automating tasks – we're creating entirely new categories of work.
The AI app sector brought in $1.8 billion in 2023, with projections suggesting $30 billion by 2030.
These aren't just numbers pulled from an analyst's wishful thinking - they're based on current adoption rates and revenue patterns that remind me of the early internet boom, minus the pets.com-style absurdity.
For those looking to play this trend, I'm seeing opportunities across the spectrum.
Hardware leaders like NVIDIA continue to dominate their niche. Adobe has positioned itself perfectly at the intersection of creativity and AI.
Even companies like SoundHound (SOUN), while still finding their footing, show promise in voice AI that goes beyond asking your phone for weather updates.
Apple's AI app focus isn't just another tech trend - it's a clear signal of where consumer technology is headed. And after decades in the market, I've learned to pay attention when signals this strong appear.
Now if you'll excuse me, I need to go try that AI art app again. My cat's demanding a Baroque period portrait this time. And unlike my creative direction, they’re delivering results worth framing.
Mad Hedge Technology Letter
December 30, 2024
Fiat Lux
Featured Trade:
(THE UNBEATABLE PARTNERSHIP)
(EMR), (GRMN), (AMBA), (NVDA), (DXCM), (CSCO), (INTC), (QCOM)
Let me introduce to you one of the hottest trends in tech.
It has been on the tip of everyone's tongue for years, and that might be an understatement, but the interaction of the Internet of Things (IoT) and artificial intelligence (AI) offers companies a wide range of advantages.
In order to get the most out of IoT systems and to be able to interpret data, the symbiosis with AI is almost a must.
If the Internet of Things is merged with data analysis based on artificial intelligence, this is referred to as AIoT.
Moving forward, expect this to be the hot new phrase in an industry backdrop where investors love these hot catchphrases and monikers.
What is this used for?
Lower operating costs, shorter response times through automated processes, and helpful insights for business development are just a few of the notable advantages of the Internet of Things.
AI also offers a variety of business benefits: it reduces errors, automates tasks, and supports relevant business decisions. Machine learning as a sub-area of AI also ensures that models – such as neural networks – are adapted to data. Based on the models, predictions and decisions can be made. For example, if sensors deliver new data, they can be integrated into the existing modules.
The Statista Research Institute assumes that there will be 200 billion networked devices by 2026.
This is exactly where AI comes into play, which generates predictions based on the sensor values received.
However, many companies are still unable to properly benefit from the potential of connecting IoT and AI, or AIoT for short.
They are often skeptical about outsourcing their data - especially in terms of security and communication.
In part because the increased number of networked devices, which requires the connection of IoT and AI, increases the security requirements for infrastructure and communication structure enormously.
It is not surprising that companies are unsettled: Industrial infrastructures have grown historically due to constantly increasing requirements and present companies with completely new challenges, which manifest themselves, for example, in an increasing number of networked devices. With the combination of IoT and AI, many companies are venturing into relatively new territory.
By connecting IoT and AI, a continuous cycle of data collection and analysis is developing.
But, companies can no longer deny the advantages of AIoT because this technical combination makes networked devices and objects even more useful.
Based on the insights generated by the models, those responsible can make decisions more easily and reliably predict future events. In this way, a continuous cycle of data collection and analysis develops. With predictive maintenance, for example, production companies can forecast device failures and thus prevent them.
The combination of the two technologies also makes sense from the safety point of view: continuous monitoring and pattern recognition help to identify failure probabilities and possible malfunctions at an early stage – potential gateways can thus be better identified and closed in good time.
The result: companies optimize their processes, avoid costly machine failures, and at the same time reduce maintenance costs and thus increase their operational efficiency.
In this way, IoT and AI represent a profitable fusion: While AI increases the benefit of existing IoT solutions, AI needs IoT data in order to be able to draw any conclusions at all.
AIoT is, therefore, a real gain for companies of all sizes. They thus optimize processes, are less prone to errors, improve their products, and thus ensure their competitiveness in the long term.
Some hardware, software, and semiconductor stocks that will offer exposure into AIoT are Emerson Electric Co. (EMR), Garmin (GRMN), Ambarella (AMBA), Nvidia (NVDA), DexCom (DXCM), Cisco (CSCO), Intel (INTC), and Qualcomm (QCOM).
“Success is a lousy teacher.” – Said Co-Founder of Microsoft Bill Gates
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