When you develop your opinions on the basis of weak evidence, you will have difficulty interpreting subsequent information that contradicts these opinions, even if this new information is obviously more accurate,” said Nassim Nicholas Taleb, author of Antifragile: Things That Gain from Disorder.”
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
Mad Hedge Biotech and Healthcare Letter
February 27, 2025
Fiat Lux
Featured Trade:
(THE KENNEDY-ERA STOCK THAT'S STILL PAYING MY DINNER BILLS)
(JNJ), (ITCI)
The other day, while sorting through my oldest trading records (yes, I keep everything), I found my first Johnson & Johnson (JNJ) dividend check from decades ago. It wasn't much—just enough for a nice dinner back then.
But here's the kicker: that dividend has grown every single year since, weathering oil shocks, dot-com bubbles, financial crises, and even pandemics. It got me thinking about what truly makes a fortress stock in today's market.
While everyone's chasing the latest biotech and healthcare moonshot, JNJ has been quietly building an empire.
With a market cap of $375 billion and revenue growing at an impressive 7.55% annual clip since the 1980s, this company has accomplished something few others have—long-term, consistent growth while raising dividends for over six decades. And then there's the balance sheet.
JNJ is sitting on $25 billion in cash against $38 billion in total debt, resulting in a covered ratio of 29.4. That means they could pay their debt service with spare change found in their corporate couch cushions.
Some investors dismiss JNJ as just another mature healthcare stock, but that perspective overlooks the quiet revolution happening within the company.
In the first two months of 2025 alone, JNJ secured multiple FDA approvals. The most notable? SPRAVATO, the first and only monotherapy for treatment-resistant depression. And they're not stopping there.
JNJ recently announced a $14.6 billion acquisition of Intra-Cellular (ITCI), securing CAPLYTA, a blockbuster drug for bipolar disorder and schizophrenia.
With the global Central Nervous System therapeutics market projected to grow at a 10.5% CAGR through 2034, JNJ is strategically positioning itself for future expansion.
What's particularly impressive is how JNJ has transformed its research and development approach. They're not just throwing money at problems—they're getting smarter about their investments.
Their R&D success rate has been climbing, with a higher percentage of late-stage trials making it to market compared to industry averages. This isn't by accident.
JNJ has been leveraging artificial intelligence and machine learning to better predict which compounds are most likely to succeed, potentially saving billions in development costs. It's like having a crystal ball in the lab, and it's giving them a significant edge over competitors who are still using traditional development methods.
Despite its fortress balance sheet and track record of reliability, JNJ is currently trading at a discount to historical averages.
Its forward P/E ratio sits at 15.8, compared to a five-year average of 17.9. The dividend yield is at 3.18%, higher than its 10-year average of 2.7%. Its price-to-sales (P/S) ratio stands at 4.4, below its five-year average of 4.8.
These numbers suggest the market is underpricing JNJ's resilience and growth potential.
Of course, no investment is risk-free. JNJ is facing looming patent expirations on key drugs, including Stelara, which generated $10.3 billion in 2024 sales, and Xarelto, which brought in $2.3 billion.
However, history suggests that patent cliffs aren't a new challenge for JNJ—they've successfully navigated them for decades. Their strong drug pipeline, along with strategic acquisitions, should help offset any revenue declines.
Beyond pharmaceuticals, JNJ's business diversification is a major advantage.
With roughly two-thirds of revenue coming from Innovative Medicine and the remainder from MedTech, and with 43% of total revenue sourced outside the U.S., this diversified revenue mix helps mitigate risks tied to any single product or market.
What many investors miss is how JNJ's MedTech division is quietly becoming a powerhouse in its own right.
The division has been making strategic moves in robotics and AI-enabled surgical tools, positioning itself at the intersection of healthcare and technology.
This isn't just about selling more medical devices—it's about creating entirely new categories of treatment options. In an aging global population, this kind of innovation could be worth billions in future revenue streams.
With a 16.7% return on invested capital (ROIC) over the last decade and a modest 49% payout ratio, JNJ's dividend isn't just stable—it's poised for growth. The market's current pessimism has created a 24% discount on a company that has delivered for generations.
That's the kind of opportunity that made me start buying JNJ decades ago—and why I'm still adding to my position today.
In a world where even tech giants stumble, owning a company that's been raising its dividend since the Kennedy administration isn't just smart—it's common sense.
The question isn't whether JNJ is a buy. The real question is whether you'll regret not buying the dip.
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 27, 2025
Fiat Lux
Featured Trade:
(RIGHT SIZING YOUR TRADING)
I can’t tell you how many times I have been woken up in the middle of the night by an investor who was sleepless over a position that was going the wrong way.
The Dow Average cratered by 1,200 points, Gold was down $50, the Euro was spiking two cents, and oil was making one of its periodic $5 moves.
Of course, my answer is always the same.
Cut your position in half. If your position is so large that it won’t let you sleep at night on the bad days, then you have bitten off more than you can chew.
If you still can’t sleep, then cut it in half again.
Which brings me to an endlessly recurring question I get when making my rounds calling readers.
What is the right size for a single position? How much money should they be pouring into my Trade Alerts?
Spoiler alert! The answer is different for everyone.
For example, I will not hesitate to pour my entire net worth into a single option position. The only thing that holds me back is the exchange contract limits. But then I spend 12 hours a day in front of screens making sure it goes the right way.
That’s just me.
If you have a day job, would rather spend your time on a golf course, or are only interested in a five-year view, this may not be for you.
I have been trading this market for over half a century. I have probably done more research than you ever will (I basically do nothing but research all day, even when I’m backpacking, by audio book).
And I have been taking risks for my entire life, the financial and the other kind, quite successfully so, I might add. So my taking a risk is not the same as your taking a risk.
Taking risks is like drinking a fine Kentucky sipping Bourbon. The more frequently you drink, the more you have to imbibe to get a good buzz.
Eventually, you have to quit and start the cycle all over again. Otherwise, you become an alcoholic.
So, you can understand why it is best to start out small when taking on your first positions. Imagine if the first time you went out to drink with your college dorm roommates, you finished off an entire bottle of Ripple or Thunderbird. The results would be disastrous and nauseous, as they were for me.
So, I’ll take you through the drill that I always used to break in beginning traders at Morgan Stanley’s institutional equity trading desk.
You may be new to investing, new to trading, and find all of this money stuff scary. Or you may be wary, entrusting your hard-earned money to advice from a newsletter you found on the Internet!
What if my wife finds out I’m doing this with our money?
YIKES!
That is totally understandable, given that 99% of the newsletters out there are fake, written by fresh-faced kids just out of college with degrees in Creative Writing but without a scintilla of experience in the financial markets. And I know most of the 1% who are real.
I constantly hear of new subscribers who are now on their tenth $5,000 a year subscription, and Mad Hedge Fund Trader is the first one they have actually made money with.
So, it is totally understandable that you proceed with caution.
I always tell new readers to start out paper trading. Virtually all online brokers now have these wonderful paper trading facilities where you can practice the art with pretend money.
Don’t know how to use it?
They also offer endless hours of free tutorials on how to use their platform. These are great. After all, they want to get you into the market, trading, and paying commission as soon as possible.
You can put up any conceivable strategy, and they will elegantly chart out the potential profit and loss. Whenever you hit the wrong button and your money all goes “poof” and disappears, you just hit the reset button and start all over again.
No harm, no foul.
After you have run up a string of two or three consecutive winners, it’s now time to try the real thing. But start with only one single options contract, or a few shares of stock or an ETF. If you completely blow up, you will only be out a few hundred dollars.
Again, it’s not the end of the world.
Let’s say you hit a few singles with the onesies. It’s now time to ramp up. Trade 2, 3, 4, 5,1 0, 50, or 100 contracts. Pretty soon, you’ll be one of the BSDs of the marketplace.
Then, you’ll notice that your broker starts following your trades since you always seem to be right. That is the story of my life.
This doesn’t mean that you will enjoy trading nirvana for the rest of your life. You could hit a bad patch, get stopped out of several positions in a row, and lose money. Or you could get bitten by a black swan (it hurts!).
Those of you who have been following me for 17 years have seen this happen to me several times and now know what to expect. I shrink the size, reduce the frequency, and stay small until my mojo comes back.
And my mojo always comes back.
You can shrink back to trading one contract or quit trading altogether. Use the free time to analyze your mistakes, rethink your assumptions, and figure out where you went wrong.
Was I complacent? Was I greedy? Did hubris strike again? My favorite: I was in a meeting when I should have been selling. Having a 100% cash position can suddenly lift the fog of war and be a refreshingly clarifying experience. By the way, perennially losing traders always have lots of excuses.
We all get complacent and greedy. To err is human.
Then, reenter the fray once you feel comfortable again. Start out with a soft pitch.
Over time, this will become second nature. You will automatically know when to increase and decrease your size.
And you won’t have to wake me in the middle of the night.
Here is one last tip. Beginners try to hit home runs while pros aim for hundreds of singles. Home runs only happen in the movies (Trading Places, Wall Street, Margin Call).
Good luck and good trading.
Watch Out! They Bite!
“Interest rates are gravity. When they are zero, shares prices can go to infinity. When they are high, as they were during the early 1980’s, the gravitational pull can be very strong,” said Oracle of Omaha, Warren Buffet.
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