“Most of the ETF’s today are your dad’s Oldsmobile,” said Lee Kranefuss of Source Advisors, about the outdated irrelevance for most equity indexes.
Mad Hedge Biotech and Healthcare Letter
May 7, 2024
Fiat Lux
Featured Trade:
(PACKING A HEAVIER PUNCH)
(AMGN), (NVO), (LLY), (REGN)
Amgen (AMGN) is having a moment. Early results for their injectable drug MariTide sound pretty darn promising.
But it’s not all roses and sunshine at Amgen. The company also dropped the curtain on AMG786, an experimental oral weight-loss pill that just wasn't cutting it.
It’s tough in the pharmaceutical arena, especially since this whole weight-loss drug market is a gold rush right now. Eli Lilly (LLY) and Novo Nordisk (NVO) are cleaning up, and even Pfizer (PFE), despite their hiccup, isn't going to roll over that quickly.
Now, back to MariTide. Calling it a "multi-blockbuster" sounds flashy, but investors want to see if it can crack the hold those big two already have. Amgen's got a decent track record though, so I wouldn't write them off just yet.
The early scoop on MariTide is pretty tantalizing. The last round of Phase 2 trials showed that three monthly shots could significantly trim the waistline, with the heftier doses keeping the pounds off for up to four months post-treatment.
Actually, MariTide’s core strength is that it’s just once-a-month jab — an easier regimen compared to the weekly routine required by current front-runners like semaglutide and tirzepatide.
Speaking of the competition, Novo Nordisk’s semaglutide and Eli Lilly’s tirzepatide have been seeing users pack the pounds back on pretty quickly after stopping treatment.
That’s not ideal, and it’s exactly the kind of opening Amgen is looking to capitalize on with MariTide.
Now, let’s broaden our scope. It's a bit of a misnomer to just call it an “obesity pipeline” because, let me tell you, this technology is dipping its toes into much more than just shedding pounds.
Those GLP-1 agonists like semaglutide and the double-duty “double G” agonists like tirzepatide? They’re not just one-trick ponies.
Aside from battling the bulge, they’re making waves in treating diabetes, slicing through cardiovascular risks, and even exploring new frontiers like osteoarthritis and sleep apnea.
Heck, they’re even peeking into Alzheimer’s prevention — Novo Nordisk is already revving up for a phase 3 trial.
Despite these lucrative offshoots though, obesity remains the arena’s juggernaut.
Novo Nordisk’s latest data, as bleak as it might seem for global health, paints a picture of a market vast enough to entice anyone. Think about it—out of 813 million people wrestling with obesity, only one million are currently on these incretin drugs.
And with projections pointing to numbers ballooning to 1.2 billion by 2030, well, the potential market is jaw-dropping.
If Amgen’s MariTide hits the mark, we could be talking about a whopping $20 billion in annual sales from just this one contender in about 7-8 years, spanning obesity and a few neighboring conditions.
That’s even if they face a dogfight over pricing and if the average price per patient hangs below what the big guns like Novo Nordisk and Eli Lilly are currently pulling.
Now, think about this — current estimates peg Amgen’s growth from $33 billion this year to a modest $35.1 billion by 2033. My take? That’s wildly conservative.
If you ask me, Amgen's obesity pipeline alone, even with just modest success, could blast those numbers out of the water.
But let's not kid ourselves – MariTide alone won't make Amgen king of the obesity market. To truly capitalize on the segment’s potential, Amgen might need to consider teaming up with those emerging stars working on preserving lean body mass, or even big players like Regeneron (REGN).
They could take a couple of routes here. One slick move could be scooping up some smaller biotech firms or cozying up to bigger fish through partnerships or in-licensing deals to beef up their treatment options.
Alternatively, Amgen could play it cool and simply pair MariTide with their own upcoming products once they hit the market. Sure, this might keep things simple, but it kind of feels like leaving money on the table, isn’t it?
Admittedly, it’s still early days when it comes to these weight loss treatments. One thing's for sure: the next few years will be a wild ride for obesity drugs. After all, it’s clear that the GLP-1 craze is doing for pharma what AI hype is doing for tech stocks. It’s like a rising tide lifting all boats.
Looking ahead, the big winners in the next 18 months are looking to be Novo Nordisk and Eli Lilly. These guys are leading the pack, while others might just not make it to the finish line, ending up as flops in the stock market drama.
Yet, through all this, Amgen stands out as a dark horse.
Even if the obesity pipeline doesn't turn out to be their golden ticket, Amgen's strategic positioning could still deliver solid long-term value.
But, and here’s the kicker, if MariTide and its potential combo treatments hit their stride as hoped, Amgen could sprint ahead in this fast-paced market race — not just in obesity but in those juicy, adjacent niches too. This could spark some serious value creation that current forecasts haven't even begun to factor in.
So, while the market’s getting its gears grinding, Amgen might just surprise us all. I say keep this stock on your watchlist.
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
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
Global Market Comments
May 7, 2024
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(GLD), (SLV), (NVDA), (AAPL), (MSFT)
Occasionally, I get a call from Concierge members asking what to do when their short positions 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 FOUR spreads that are deep in the money going into the May 17 option expiration in 8 days. They include:
Risk On
(GLD) 5/$200-$205 call spread 10.00%
(SLV) 5/$21-$23 call spread 10.00%
Risk Off
(NVDA) 5/$980-$990 put spread -10.00%
(MSFT) 5/$430-$440 put spread -10.00%
Total Net Position 0.00%
Total Aggregate Position 40.00%
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 debit 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 in-the-money SPDR Gold Shares SPDR (GLD) May $200-$205 vertical BULL CALL debit spread, which you bought at $4.55 or best.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 8 trading days before the May 17 expiration date. In other words, what you bought for $4.55 on April 30 is now $5.00!
All have to do is call your broker and instruct them to exercise your long position in your (GLD) May 200 calls to close out your short position in the (GLD) May $205 calls.
This is a perfectly hedged position, with both options having the same expiration date, and the same number 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 net 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 (GLD) at $200 and sold it at $205, paid $4.55 for the right to do so for 13 days, so your profit is $0.45 cents, or ($0.45 X 100 shares X 25 contracts) = $1,125. Not bad for a 13-day defined limited-risk play.
Sounds like a good trade to me.
Callaways most often happen in the run-up to a dividend payout. If you can collect a full monthly or quarterly dividend the day before the stock registration dates by calling away someone’s short option position, why not? If fact, a whole industry of this kind of strategies has arisen in recent years in response to the enormous growth of the options market.
(GLD) and most tech stocks don’t pay dividends so callaways are rare.
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 (GLD) position after the close, and exercising his long May 205 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 post an additional margin to cover the risk.
Or they will tell you to sell your remaining long option position at whatever price you can get, wiping out most, if not all of your great profit. This generates the maximum commission for your broker.
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 a 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 and 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!
(AAPL), (AMZN), (MSFT), (AVGO), (NXPI), (QCOM), (IBM), (GOOGL)
Let's be honest, the Oracle of Omaha isn't exactly known for chasing the latest tech trends.
But when artificial intelligence (AI) came up in an interview in 2023, Buffett called it "extraordinary" – then immediately followed up with a classic dose of skepticism about its overall benefits.
Love it or hate it, Buffett's wallet has already felt the impact of AI. He holds a massive $159 billion position spread across eight AI-related stocks.
And the funny thing is, most of those have been absolute winners this past year.
Let's start with the big fish: Apple (AAPL). We all know Buffett and his sweet tooth for Apple.
That $156.9 billion position makes it Berkshire Hathaway's crown jewel. But with slowing iPhone sales lately, is this really about AI or just an old man's love affair with a familiar brand?
Keep in mind though that the company ain't just about slick gadgets anymore. Rumors are swirling about huge AI upgrades at the June developer conference.
Could Siri start sounding a lot less robotic? Could Apple finally make a splash in the smart home race? We'll find out soon enough.
Then there's Amazon (AMZN), with Berkshire holding a modest $1.8 billion stake. Okay, $1.8 billion isn't exactly pocket change, but it pales compared to Buffett's usual bets.
Still, the fact that he's in on Amazon at all says something. The man hates stuff he doesn't understand, and he's famously admitted missing the boat on this one early.
Why the change of heart? Amazon Web Services (AWS) is where the real AI action is. This cloud computing behemoth powers a vast chunk of the internet and stands to rake in cash as AI tech needs more and more processing muscle.
Buffett might be old school, but he clearly sees the writing on the wall here.
The next is Microsoft (MSFT). I know what you’re going to say. This company isn't technically on Berkshire's books, right? Well, that depends.
His little secret is New England Asset Management (NEAM), a subsidiary that's got a cool $11.6 million tucked away in Microsoft. Sly move, Warren.
Why the hush-hush? It's simple. Microsoft is crushing it with AI. They've woven OpenAI's language models into everything they do, and their Azure cloud is exploding because of it. Companies are scrambling to use that platform to build the next big AI thing.
Another under-the-radar Buffett play is Broadcom (AVGO), again thanks to NEAM. They're holding onto $9.5 million+ worth of this chipmaker.
Now, Broadcom isn't a household name, but it's supplying the nuts and bolts for the AI revolution. They specialize in custom accelerators and the kind of networking infrastructure that makes AI apps actually function at scale.
Heard of their new XPU accelerator? Yeah, it could be the biggest chip ever built for AI.
Another chipmaker that pops up in the NEAM wallet is NXP Semiconductors (NXPI), which has a solid $8.9 million stake. So, is this really a Buffett AI play or just a bet on tech in general?
The answer lies in where NXP gets its bread and butter. Forget smartphones – they're focused on cars, IoT gadgets, and even the infrastructure that connects it all.
Think about it: self-driving cars, smart homes, 5G networks bursting with AI-powered data... that's where NXP could be raking it in.
There’s also Qualcomm (QCOM), often a footnote in discussions of phone tech, is on Buffett's radar as well.
This company might not have seen the same explosive gains as other Buffett-backed AI stocks, but a $8.3 million investment isn't chump change. And that 35% growth? Not bad either.
Besides, we all know Qualcomm as the king of smartphone chips. But they're not sitting on their laurels. They're deep in the AI game and even partnering with tech giants to develop tools that help AI apps run anywhere.
Smart move, considering how fragmented the chip market is. Could be a long-term play by Buffett – definitely one to keep an eye on.
Meanwhile, do you still remember when IBM (IBM) was the king of the AI hype machine? Well, Buffett dumped that stock a while back, but NEAM still holds onto a cool $5 million.
So, is this a "past its prime" play, or does Big Blue still have some AI magic up its sleeve?
Watson, their big AI platform, isn't the headline-grabber it used to be. But don't underestimate the power of established connections – plenty of companies still rely on Watson to get their feet wet with AI. It's not cutting-edge, but it's a reliable workhorse in the AI world.
Finally, Alphabet (GOOGL). Buffett has been kicking himself for missing out on Google – we've heard that story before. At least NEAM has a modest $2.5 million stake, so it's not a complete loss.
Admittedly, Alphabet's had some embarrassing AI misfires lately. But don't write them off just yet. They're still one of the top dogs in AI development.
And those rumors about Apple cozying up to their Gemini AI models? If true, that could be a game-changer.
Now that we've covered the big guys, the underdogs, and a few of Buffett's sneaky side bets in the AI space, here’s the most important question: are they worth your hard-earned cash right now?
Honestly, every single one of these stocks has the potential for solid long-term gains. But if, like me, you think AI is all about that cloud power, there are clear standouts.
The first is Amazon. Its AWS isn't just a side business, it's the engine driving their AI innovations.
Then, there’s Microsoft Azure locked in a fierce battle with AWS, plus they're weaving AI into everything they touch.
And, of course, Alphabet. They may stumble sometimes, but their deep pockets and cutting-edge research mean they'll always be in the game.
Bottom line: There's no magic formula to picking AI winners, even with Buffett's billions backing them. I suggest you buy the dip in the ones I mentioned and keep the rest on your watchlist.