Mad Hedge Biotech and Healthcare Letter
April 24, 2025
Fiat Lux
Featured Trade:
(DIVIDEND HUNTING IN BEAR COUNTRY)
(BMY)
One stock in the pharmaceutical sector has been calling to me lately like a siren song amid market turbulence.
I'm talking about Bristol-Myers Squibb Co. (BMY), which has taken a beating in the March-April selloff but is dangling a forward estimated 5% dividend yield while generating a whopping 14% annual free cash flow — tops among the largest drug names.
I've been watching this one since January, when it first dipped below $52. Like a patient fisherman, I've been waiting for just the right moment to cast my line. That moment appears to be now, as BMY slides toward the $50 mark amid broader market jitters and sector rotation. It’s remarkable how often Wall Street throws the proverbial baby out with the bathwater during these periodic fits of selling.
The beauty of BMY is not just valuation. It’s historically proven itself as a financial bomb shelter — outperforming the S&P 500 in four major recessions since 1990.
During the 2020 pandemic, it returned 36% vs. the S&P’s 26%. In the Great Recession, it gained 13% while the broader market fell 16%.
During the 1990 Persian Gulf War recession, it delivered a jaw-dropping 76%.
And here’s one more kicker: BMY’s current 14% free cash flow yield is nearly 10% higher than equivalent cash investment yields — among the best “relative yields” it’s posted in 35 years.
On top of that, its 5%+ dividend towers over the S&P’s 1.3% and Big Pharma’s 3.65% median.
This is a rare setup where both the cash yield and the ability to sustain it align — a combination that’s very hard to beat in a defensive play.
Of course, no stock is bulletproof. BMY will need to navigate patent cliffs and increased regulatory scrutiny on drug pricing.
Wall Street is also pricing in little to no growth in the near term — and that’s probably fair. But the current setup suggests BMY could still outperform, especially if the S&P enters a decline in 2025.
This defensive mindset is why Warren Buffett and other veterans have been moving to abnormally extreme levels of cash since 2024. They're battening down the hatches while the financial seas are still relatively calm.
And speaking of smart investors, I had lunch last week at Tadich Grill with a hedge fund manager I’ve known for decades. When I mentioned I was looking for defensive plays, he immediately brought up BMY.
“What’s rare these days,” he said, “is a company with both a high dividend and the cash flow to actually back it up.” He then showed me his firm’s spreadsheets — stress-tested across recession scenarios back to Nixon — and BMY held firm.
Having run similar models myself (if not quite as colour-coded), I nodded in agreement.
At the current ~$50 share price, BMY’s free cash flow yield stands near 14%. That’s nearly 10% better than risk-free Treasury rates and more than double the Big Pharma peer group median of 6.15%.
So what could go wrong? A steeper summer selloff. Or an aggressive federal move to mandate drug pricing — a risk that’s always on the table, but rarely moves quickly. Supply chain issues, especially for ingredients sourced from China, are also worth watching.
That said, BMY has manufacturing facilities globally, and 71% of its revenue comes from the US. That gives it some insulation if trade tensions flare.
But here’s the thing: those risks hit all major pharma companies. BMY starts from a stronger base: better cash flow, better history, better defensive positioning.
My view? BMY is worth owning for its super-sized dividend and battle-tested resilience. I suggest you buy 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
April 24, 2025
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(MY FAVORITE PASSIVE/AGGRESSIVE PORTFOLIO)
(ROM), (UYG), (UCC), (DIG), (BIB)
Gosh darn it, you nailed it again!
Trump stopped firing Powell. Banks are on fire. Netflix hit a new high.
Score John Thomas 100, everyone else zero.
Well done, John AND let's keep it going.
You're the Savant of the time at the moment.
Talk to you soon, bye.
Bill
Florida
What if you want to be a little more aggressive with your investment strategy, say twice as aggressive? What if markets don’t deliver any year-on-year change from here?
Then you need a little more pizzazz in your portfolio, and some extra leverage to earn your crust of bread and secure your retirement.
It turns out that I have just the solution for you. This would be my “Passive/Aggressive Portfolio”.
I call it passive in that you just purchase these positions and leave them alone, and do not trade them. I call it aggressive as it involves a basket of 2x leveraged ETFs issued by ProShares, based in Bethesda, MD (click here for their link).
The volatility of this portfolio will be higher. But the returns will be double what you would get with an index fund, and possibly much more. It is a “Do not open until 2035” kind of investment strategy.
Here is the makeup of the portfolio:
(ROM) –- ProShares Ultra Technology Fund - The three largest single stock holdings are Apple (AAPL), Microsoft (MSFT), and Facebook (FB). It is up 13.7% so far this year. For more details on the fund, please click here.
(UYG) – ProShares Ultra Financials Fund - The three largest single stock holdings are Wells Fargo (WFC), Berkshire Hathaway (BRK.B), and JP Morgan Chase (JPM). It is up 6.2% so far this year. For more details on the fund, please click here.
(UCC) – ProShares Ultra Consumer Services Fund - The three largest single stock holdings are Amazon (AMZN), (Walt Disney), (DIS), and Home Depot (HD). It is up 18.3% so far this year. For more details on the fund, please click here.
(DIG) -- ProShares Ultra Oil & Gas Fund - The three largest single stock holdings are ExxonMobile (XOM), Chevron (CVX), and Schlumberger (SLB). It is DOWN 38.2% so far this year. For more details on the fund, please click here.
(BIB) – ProShares Ultra NASDAQ Biotechnology Fund – The three largest single stock holdings are Amgen (AMGN), Regeneron (REGN), and Gilead Sciences (GILD). It is up 15% so far this year, but at one point (before the “Sell in May and Go away” I widely advertised) it was up a positively stratospheric 64%. For more details on the fund, please click here.
You can play around with the sector mix at your own discretion. Just focus on the fastest-growing sectors of the US economy, which the Mad Hedge Fund Trader does on a daily basis.
It is tempting to add more leveraged ETFs for sectors like gold (UGL) to act as an additional hedge.
There is also the 2X short Treasury bond fund (TBT), which I have been trading in and out of for years, a bet that long-term bonds will go down, and interest rates rise.
There are a couple of provisos to mention here.
This is absolutely NOT a portfolio you want to own going into a recession. So, you will need to exercise some kind of market timing, however occasional.
The good news is that I make more money in bear markets than I do in bull markets because the volatility is so high. However, to benefit from this skill set, you have to keep reading the Diary of a Mad Hedge Fund Trader.
There is also a problem with leveraged ETFs in that management and other fees can be high, dealing spreads wide, and tracking errors can be huge.
This is why I am limiting the portfolio to 2X ETFs and avoiding their much more costly and inefficient 3X cousins, which are really only good for intraday trading. The 3X ETFs are really just a broker enrichment vehicle.
There are also going to be certain days when you might want to just go out and watch a long movie, like Gone with the Wind, with an all-ETF portfolio, rather than monitor their performance, no matter how temporary it may be.
A good example was the May 6, 2010, flash crash, when the complete absence of liquidity drove all of these funds to huge discounts to their asset values.
Check out the long-term charts, and you can see the damage that was wrought by high-frequency traders on that cataclysmic day, down -53% in the case of the (ROM). Notice that all of these discounts disappeared within hours. It was really just a function of the pricing mechanism being broken.
I have found the portfolio above quite useful when close friends and family members ask me for stock tips for their retirement funds.
It was perfect for my daughter, who won’t be tapping her teacher’s pension accounts for another 30 years, when I will be long gone. She mentions her blockbuster returns every time I see her, and she has only been in them for 10 years.
Imagine what technology, financial services, consumer discretionaries, biotechnology, and oil and gas will be worth then? It boggles the mind. My guess is up 100-fold from today’s levels.
You won’t want to put all of your money into a single portfolio like this. But it might be worth carving out 10% of your capital and just leaving it there.
That will certainly be a recommendation for financial advisors besieged with clients complaining about paying high fees.
Adding some spice and a little leverage to their portfolios might be just the ticket for them.
The Istanbul Spice Market
It’s Time to Spice Up Your Portfolio
"The question is not whether Tesla will sell 80,000 or 90,000 cars this year, but whether they will sell 14 million or 15 million in 15 years. I believe they can do it," said Ron Baron of long-term value player, Baron Capital.
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
The relationship between global trade policies and the technology sector is becoming increasingly intertwined. With tariffs on essential materials like steel and aluminum recently being implemented or proposed, the ripple effects extend far beyond construction and manufacturing. One area significantly impacted is the data center industry, which forms the backbone of the AI revolution. This article explores how rising costs for data center construction and maintenance, driven by tariffs, could indirectly influence AI processing and infrastructure development.
The Role of Steel and Aluminum in Data Centers
Data centers, the physical facilities housing servers and computing equipment, depend heavily on materials like steel and aluminum for their construction and operation. Steel is essential for building the structural framework, server racks, and enclosures, while aluminum is used for components like cooling systems, wiring, and casings. These materials ensure the physical stability and functionality of the centers, enabling uninterrupted service.
As AI technologies continue to advance, the demand for high-performance computing (HPC) systems, extensive storage solutions, and energy-efficient cooling mechanisms grows. This reliance on steel and aluminum makes data centers particularly vulnerable to price fluctuations in these materials.
Tariffs and Rising Material Costs
Tariffs, which are taxes imposed on imported goods, can significantly increase the cost of steel and aluminum. For example:
- If the U.S. imposes a 25% tariff on steel and a 10% tariff on aluminum, these additional costs are typically passed down to consumers and businesses, including data center operators.
- Countries responding with retaliatory tariffs can further disrupt the global supply chain, limiting the availability of these materials.
The result is a surge in prices for raw materials needed to construct and upgrade data centers, thereby increasing the capital expenditure for companies in the tech industry.
Escalating Construction Costs
Building a data center is already a capital-intensive process, often costing hundreds of millions of dollars. Tariffs on steel and aluminum can inflate these costs in several ways:
- Structural Framework: Steel used for constructing the data center's skeleton becomes more expensive, pushing up the overall budget.
- Server Racks: Custom steel racks designed to hold servers may see price hikes, particularly for high-density data centers.
- Cooling Systems: Aluminum-based cooling systems, essential for maintaining optimal operating temperatures, also become costlier.
These increased expenses can lead to delays in new data center projects, as companies may require additional time to secure funding or reevaluate the feasibility of their investments.
Operational Impacts and Maintenance Costs
The impact of tariffs is not limited to initial construction. Data centers require regular maintenance and upgrades, often involving steel and aluminum components:
- Replacement of Structural Elements: Periodic reinforcement or repairs to steel frameworks are standard practices.
- Cooling System Upgrades: AI workloads generate significant heat, necessitating frequent enhancements to aluminum cooling systems.
- Expansion Projects: Growing demand for AI processing often requires scaling data centers, which becomes more expensive under tariff-induced price hikes.
These operational challenges can hinder a company's ability to maintain its infrastructure, reducing its capacity to support AI workloads.
Indirect Effects on AI Processing
AI systems, from natural language processing to autonomous vehicles, rely on the computational power provided by data centers. When tariffs drive up data center costs, the following indirect effects on AI processing can be observed:
- Higher Service Costs: Cloud service providers like AWS, Microsoft Azure, and Google Cloud may pass on the increased costs to customers, raising the price of AI-related services.
- Slower AI Development: Companies may reduce their investment in AI research and development to offset higher infrastructure expenses.
- Geographical Shifts: Firms might relocate data centers to countries with lower material costs or fewer tariffs, potentially disrupting AI processing continuity and access.
Innovation and Energy Efficiency Challenges
Data centers are continually evolving to become more energy-efficient and environmentally friendly. However, tariffs can create roadblocks in this journey:
- Delay in Upgrades: Higher costs for materials may postpone the adoption of advanced cooling systems and energy-saving technologies.
- Limited Resources for Innovation: Companies may prioritize cost-cutting over research into sustainable data center solutions, hindering progress in green computing.
These challenges are particularly concerning given the growing energy demands of AI technologies, which already contribute to the carbon footprint of the tech industry.
Global Trade and Supply Chain Dynamics
Tariffs also affect the global supply chain for steel and aluminum, introducing additional complexities for data center operators:
- Supply Shortages: Retaliatory tariffs between countries can reduce the availability of materials, leading to project delays and cost overruns.
- Increased Import Costs: Companies relying on imported steel and aluminum may face logistical challenges and higher transportation expenses.
These dynamics further underscore the interconnectedness of global trade policies and the AI ecosystem.
Mitigation Strategies
Despite these challenges, companies can adopt strategies to mitigate the impact of tariffs on data centers and AI infrastructure:
- Diversifying Supply Chains: Sourcing materials from multiple countries can reduce reliance on tariff-affected imports.
- Investing in Recycling: Using recycled steel and aluminum can lower costs and promote sustainability.
- Leveraging Government Incentives: Applying for tax credits or subsidies for green initiatives can offset some expenses.
These proactive measures can help companies navigate the complexities of tariffs while continuing to invest in AI development.
Conclusion
The imposition of tariffs on materials like steel and aluminum presents significant challenges for the data center industry, indirectly affecting AI processing and infrastructure. By driving up construction and maintenance costs, tariffs could slow the growth of AI technologies, limit innovation, and disrupt global supply chains.
However, with strategic planning and collaboration, companies can mitigate these impacts and ensure the continued advancement of AI. As the relationship between trade policies and technology evolves, the industry must remain adaptable and forward-thinking to overcome these obstacles.
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