"My experience in business helps me as an investor, and my investment experience makes me a better businessman," said Oracle of Omaha, Warren Buffett.
"My experience in business helps me as an investor, and my investment experience makes me a better businessman," said Oracle of Omaha, Warren Buffett.
Mad Hedge Biotech and Healthcare Letter
January 14, 2025
Fiat Lux
Featured Trade:
(THE HEAVIEST HITTERS)
(NVO), (LLY)
During my morning coffee run yesterday, I couldn't help but notice the transformation of my local café's menu. Where once stood a simple array of pastries, now sits a fortress of "keto-friendly" and "low-carb" options.
The barista told me they could barely keep them in stock. Times are changing, but not fast enough to stem the tide of what's become a global health crisis.
Here's a sobering statistic that explains why two pharmaceutical giants are about to have their best decades ever: In 1975, only 3 out of 100 men were obese. By 2022, that number exploded to 14. Women haven't fared much better, jumping from 6.6 to 18.5 out of 100.
But here's the real kicker – childhood obesity has multiplied TENFOLD since 1975.
Enter Novo Nordisk (NVO) and Eli Lilly (LLY), two companies that have discovered what might be the holy grail of modern medicine: drugs that can shrink waistlines almost as effectively as a year of dedicated dieting, but with considerably less willpower required.
I've been tracking both companies closely, and the numbers are staggering. Eli Lilly's tirzepatide (marketed as Mounjaro for diabetes and Zepbound for weight loss) has achieved what most thought impossible – a 20.80% average weight loss over 72 weeks. That's the kind of number that makes both bathroom scales and Wall Street analysts take notice.
Morgan Stanley certainly has. They're projecting the market for these weight-loss wonder drugs to explode from $6 billion in 2023 to an eye-popping $105 billion by 2030. And here's why I think even that might be conservative.
Last week, I caught up with an old friend who heads one of the largest healthcare investment funds in Boston. He shared an interesting insight: "The biggest problem these companies have isn't competition – it's keeping up with demand." Both Novo Nordisk and Eli Lilly are investing billions just to scale up production. It's like trying to drink from a firehose of opportunity.
Let's break down why these stocks are so compelling:
The market for diabetes medications is exploding. We're looking at 537 million adults with diabetes today, growing to 783 million by 2045. These aren't speculative numbers – they're based on current trends that show no signs of reversing.
Novo Nordisk currently dominates the GLP-1 market with a 66.80% share internationally, while Eli Lilly's tirzepatide holds 17.60%.
In the insulin market, Novo Nordisk's supremacy is even more pronounced, controlling 44.50% of the global market share compared to Eli Lilly's estimated 20-25%.
This is where it gets pretty interesting. Despite Novo Nordisk's market dominance, Wall Street has developed a crush on Eli Lilly.
Looking at the Price/CFO ratio, Novo Nordisk is trading BELOW its 10-year average, while Eli Lilly's valuation has soared to levels that would make a tech startup blush.
For 2025, Novo Nordisk's EPS is expected to hit $3.88. With a reasonable PE ratio of 25x, that suggests a fair value of $97.20 by the end of 2025 – an 11% upside potential.
Meanwhile, Eli Lilly, with an expected EPS of $21.57 and a justified PE ratio of 30x, points to a fair value of $647.10, suggesting it might be overvalued by about 17%.
The biggest risk? A global shift toward healthier lifestyles. But having just driven past my local McDonald's with a line wrapped around the building at 10 PM, I'm not losing sleep over that scenario.
My call? I'm long Novo Nordisk. While both companies are excellent, I prefer buying the market leader at a discount rather than the challenger at a premium. It's like buying beachfront property in Miami – the price might seem high today, but just wait until next year.
So, I'm maintaining a core position in Novo Nordisk with plans to add on any significant dips. The obesity epidemic isn't going away anytime soon, and neither is the demand for these medications.
For those looking to play both sides of this market transformation, a smaller position in Eli Lilly isn't crazy – just be prepared for some volatility given the current valuation.
And, yes, I'm aware there’s plenty of hand-wringing over these stocks' valuations. But the next time someone tells you the market's getting too heavy, just remember - in this case, that's exactly the point.
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
Global Market Comments
January 14, 2025
Fiat Lux
Featured Trades:
(THE KINDLE EDITION OF THE JOHN THOMAS BIO IS OUT)
"If you can get a dividend higher than the yield on ten year debt, it's an opportunity we haven't seen in our lifetime. On a five year horizon, investing in large multinationals with high dividends will have a large payday" said Lawrence Fink, CEO of Black Rock.
The year is 2025. Forget Siri, Alexa, or Google Assistant. Imagine an AI that doesn't just answer questions or set alarms, but actually controls your computer, seamlessly navigating the digital world on your behalf. This is the promise of "Operator," OpenAI's ambitious new AI agent slated for release in January.
While still shrouded in some secrecy, leaks and internal reports paint a picture of Operator as a game-changer. This isn't just another chatbot; it's an autonomous entity capable of understanding complex instructions and executing tasks across various applications. Need to book a flight, write code, or conduct research? Operator will be your digital proxy, freeing you from the mundane and unlocking new levels of productivity.
More Than Just Automation:
Operator's potential impact extends far beyond simple convenience. By taking over tedious digital chores, it could fundamentally alter how we interact with technology. Imagine:
Effortless Workflow: Instead of juggling multiple apps and windows, you simply tell Operator what you need. It handles the rest, seamlessly switching between programs, finding information, and completing tasks.
Personalized Automation: Operator learns your preferences and adapts to your workflow, anticipating needs and proactively offering solutions.
Enhanced Accessibility: For those with disabilities, Operator could be a lifeline, enabling greater independence and access to technology.
Boosted Productivity: By offloading repetitive tasks, Operator frees up human brainpower for creativity, problem-solving, and strategic thinking.
The Technology Behind the Agent:
Operator's capabilities are rooted in cutting-edge AI research, leveraging advancements in natural language processing, machine learning, and reinforcement learning. It likely builds upon the foundation of GPT-4, OpenAI's powerful language model, but with crucial enhancements:
Contextual Understanding: Operator goes beyond simple keyword recognition. It understands the nuances of human language, including intent, context, and even implied meaning.
Cross-Application Integration: Unlike traditional AI assistants confined to their own ecosystems, Operator can interact with a wide range of software, from web browsers and email clients to specialized programs like code editors and design tools.
Autonomous Decision-Making: Operator isn't just following pre-programmed scripts. It can analyze situations, make decisions, and adapt its approach based on real-time feedback.
The Potential and the Perils:
While the potential benefits of Operator are immense, it also raises important questions and concerns:
Security and Privacy: Granting an AI agent access to your digital life requires robust security measures and careful consideration of privacy implications. How will OpenAI ensure Operator doesn't misuse personal data or become a target for malicious actors?
Job Displacement: As AI agents become more capable, could they eventually replace human workers in certain roles? How will society adapt to this potential shift in the workforce?
Ethical Considerations: Who is responsible if Operator makes a mistake or causes harm? How do we ensure these powerful tools are used ethically and responsibly?
Control and Transparency: How much control will users have over Operator's actions? Will its decision-making processes be transparent and understandable?
The Road Ahead:
OpenAI plans to initially release Operator as a research preview, likely through its API for developers. This will allow for controlled testing and feedback before a wider rollout. However, the company faces stiff competition from other tech giants like Microsoft and Salesforce, who are also developing their own AI agents.
The race is on to create the ultimate digital assistant, and Operator could be a major contender. If OpenAI can address the challenges and deliver on its promises, Operator could usher in a new era of human-computer interaction, where technology seamlessly integrates with our lives, empowering us to achieve more than ever before.
Beyond the Hype: A Deeper Dive into Operator's Potential Impact
While the initial excitement surrounding Operator focuses on its ability to automate tasks, its true potential lies in its capacity to augment human capabilities and transform various aspects of our lives. Let's explore some specific areas where Operator could have a profound impact:
Education:
Imagine a personalized AI tutor that adapts to each student's learning style and pace. Operator could revolutionize education by:
Providing customized learning materials and exercises.
Offering real-time feedback and guidance.
Identifying knowledge gaps and suggesting targeted resources.
Fostering deeper understanding through interactive simulations and visualizations.
Healthcare:
Operator could assist healthcare professionals by:
Analyzing patient data to identify potential health risks.
Streamlining administrative tasks and freeing up doctors' time for patient care.
Providing patients with personalized health information and support.
Assisting in medical research and drug discovery.
Creative Industries:
Operator could become a powerful tool for artists, writers, and musicians by:
Generating creative ideas and inspiration.
Assisting with research and information gathering.
Automating repetitive tasks like editing and formatting.
Providing feedback and suggestions to improve creative work.
Business and Industry:
Operator could optimize business processes and increase efficiency by:
Automating customer service and support.
Analyzing market trends and identifying new opportunities.
Managing complex projects and coordinating teams.
Streamlining supply chain management and logistics.
Scientific Research:
Operator could accelerate scientific discovery by:
Analyzing large datasets and identifying patterns.
Generating hypotheses and designing experiments.
Automating data collection and analysis.
Facilitating collaboration among researchers.
The Future of Work:
The rise of AI agents like Operator raises questions about the future of work. While some fear job displacement, others see an opportunity for humans and AI to collaborate, creating new roles and industries. Operator could free humans from mundane tasks, allowing them to focus on higher-level thinking, creativity, and problem-solving.
It's crucial to proactively address the potential challenges of AI-driven automation, such as:
Developing education and training programs to prepare workers for the changing job market.
Ensuring equitable access to AI technology and its benefits.
Creating social safety nets to support those affected by job displacement.
The Ethical Imperative:
As AI agents become more sophisticated and integrated into our lives, it's essential to prioritize ethical considerations. OpenAI and other developers must ensure that these technologies are used responsibly and for the benefit of humanity. This includes:
Transparency and Explainability: Users should understand how AI agents make decisions and have the ability to challenge or override those decisions.
Fairness and Bias Mitigation: AI agents should be designed to avoid perpetuating existing biases and discrimination.
Privacy and Data Security: Strong safeguards must be in place to protect user data and prevent misuse.
Accountability and Responsibility: Clear mechanisms must be established to address any harm caused by AI agents.
Conclusion:
OpenAI's Operator represents a significant step forward in the development of AI agents. Its potential to transform our digital lives is immense, but it also comes with challenges and responsibilities. By embracing a thoughtful and ethical approach, we can harness the power of AI to create a more productive, equitable, and fulfilling future for all.
Mad Hedge Technology Letter
January 13, 2025
Fiat Lux
Featured Trade:
(APPLE DROPS THE BALL)
(AAPL), (SAMSUNG), (CHINA)
Not only is Apple losing its edge, but they are failing miserably against the Chinese.
China, with its state-supported behemoths, is the bully on the playground and Apple can’t too diddlysquat.
Apple has been selling the same product for the past 13 years and the last iterations have been underwhelming, to say the least.
People don’t want to upgrade forcing them to elongate the refresh cycle.
It’s now so bad that Apple even ceded a 5% market share in the final quarter last year to Chinese competition.
Apple is also very late in integrating AI features signaling that Apple’s software game is behind the times and mediocre at best.
Apple risks falling behind quickly and the Chinese have really nailed the consumer tech and muscled into this industry.
They are poised to dominate EVs and smartphones and other value-added tech in the upcoming years.
They plan to seize the moment and squeeze American companies out of the way for good.
Samsung also has been going through a disastrous downcycle after their Android flagship phone peaked a few years ago.
This new trajectory is a slippery slope and if Apple goes on the cost-cutting path, there will be little talent left to innovate out of this problem.
The iPhone slipped a point to 18% worldwide market share in 2024.
Apple marked a 2% sales decline for the full year, at a time when the wider market grew 4% globally.
China’s smartphone makers are all developing their own in-house AI tools and agents, including services that can perform tasks on a user’s behalf.
Samsung also gave up its share to faster-growing Android device makers from China, led by Xiaomi and Vivo. Apple marked a 2% sales decline for the full year.
The situation paints a picture of the non-Chinese smartphone markets in a world of hurt.
I believe that Apple and Samsung have nobody to blame, but themselves as those years of forced technological know-how transfer are coming back to bite them where it hurts.
My friends’ kids have these new Chinese smartphones and I can tell you that I was surprised about how good they perform.
They are run on Android, which is very different from IoS, but they are premium.
German car companies are also feeling this bitter pill as Chinese companies have taken their own technology and implemented it in a more affordable way.
In aggregate, this latest news is a bad omen for Apple’s earnings season.
They are barely jumping over a lower bar and that will keep happening until something major is revamped in the product lineup.
I believe any steep sell-off would be a nice opportunity to execute a short-term trade, but those years of buying and holding Apple until eternity are gone.
Readers must really nitpick what this company is doing because management presides over a dull model and their China business is falling apart as we speak all while they helped the local Chinese competition over many years take market share with forced technological transfers.
Not a good look and things could get worse as we move deeper into the year.
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