Mad Hedge Technology Letter
June 3, 2020
Fiat Lux
Featured Trade:
(ABOUT YOUR RIOT-PROOF PORTFOLIO),
(COMPQ), (WMT), (APPL), (AMZN), (TGT), (JWN), (EQIX), (GOOGL), (MSFT)
Social unrest will have NO material effect on tech shares moving forward.
Some investors expected the Nasdaq (COMPQ) index to roll over big time, throttled by a national insurrection. Anti-police-violence protests, some becoming riots, have broken out in more than 60 cities.
However, it appears to be another false negative for the Nasdaq as it motors upwards acting on the momentum of outperformance during the coronavirus.
One thing that the coronavirus pandemic, as well as protests, have taught investors is the unwavering faith in technology’s strength will continue powering the overall market rebound.
Any social unrest will not stop tech shares because they simply don’t subtract from their revenue models.
This will perpetuate into the rest of 2020 and beyond.
Much of the public reaction from big tech has been paying some form of lip service about the national situation being untenable followed up with a small donation.
Apple (AAPL) says it's making donations to various groups including the Equal Justice Initiative, a non-profit organization based in Montgomery, Alabama that provides legal representation to marginalized communities.
To read more about big tech’s donations, click here.
Aside from some PR formalities, it will be business as usual after things settle down.
Apple might suffer some slight inconveniences of having some stores looted, but that doesn’t mean consumers can’t buy products online.
Tech companies simply contort to fit the new paradigm and that is what they are best at doing.
Apple has charged hard into the digital service as a subscription world that has served Amazon, Apple, Google (GOOGL), and Microsoft (MSFT) so well.
To read more about the robust performance of software stocks, please click here.
Many of these tech companies don’t need a physical presence to drive forward earnings, revenue models, and widen their competitive advantages.
That’s the beauty of it and their brands are so entrenched that it doesn’t matter what happens in the outside world at this point.
It’s true that a few tech companies might have to scale back or modify operations until the storm subsides but not at a great scale that will worry investors.
Amazon is reducing deliveries and changing delivery routes in some areas affected by the protests.
Big tech dodged a bullet with the majority of the financial burden falling on the shoulders of big-box retailers like Walmart (WMT) and Target (TGT) and city center-located businesses.
Walmart closed hundreds of stores one hour early on Sunday, but most are slated to reopen. Nordstrom (JWN) temporarily closed all its stores on Sunday.
Amazon (AMZN)-owned Whole Foods are often located in neighborhoods that are perceived likely to escape the bulk of the turmoil.
The events of the last few days will have significant side effects on the normalcy of society or the new normal of it.
Combined with the pandemic, consumers will opt for more spacious housing options in less concentrated areas of the U.S.
The social unrest once again delivers the goodies into the hands of e-commerce as people will be less inclined to leave their house to consume.
A stock that really sticks out during all of this is the leader in interconnected data centers Equinix (EQIX) because of the explosion of data being consumed from the stay-at-home revolution.
Sadly, the price of tech share does not account for life quality which is part of the reason we see stocks lurching higher.
By the time all the different crises, including coronavirus and protests, are snuffed out, we could be in a world where the only strong companies left are technology, "big tech".
They have an insurmountable lead at this point with guns still blazing.
When you add the windfall of trillions in cash the Fed has pumped out and unwittingly diverted into tech shares recently, it is hard to envision ANY scenario in which the Nasdaq will be down a year from now.
I am bullish on the Nasdaq index and even more bullish on big tech.
Even the supposed “rotation” to value has only meant that tech shares haven’t gone down.
A dip now in tech shares means shares dip for two hours before resurging.
Why would anyone want to sell the best and highest growth industry in the public markets with unlimited revenue-generating potential?
“I've done a lot of things I'm not proud of, such as getting my girlfriend pregnant when I was 23 and the way I handled that.” – Said Co-Founder of Apple Steve Jobs
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. 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
June 3, 2020
Fiat Lux
Featured Trade:
(BEYOND RATIONAL), (BYND)
(PLEASE USE MY FREE DATABASE SEARCH)
(HOW TO AVOID PONZI SCHEMES)
A classic sign of a topping market is when it irrationally focuses on a small, insignificant stock, taking it up to incredible heights.
That is exactly what is going on with Beyond Meat (BYND), a manufacturer of vegetarian meat alternatives. The company’s claim to fame is that their hamburgers taste merely OK, instead of disgusting, as have all previous hamburger alternatives.
On the strength of this, the shares have risen a spectacular 660% since the initial public offering last year. It was far and away the top performing exchange-listed stock of 2019.
Certainly, the company founders have to feel like they were mugged by lead managers JP Morgan (JPM) and Credit Suisse. Pricing at $25 a share, there was a ton of money left on the table. On the other hand, the shares they still own, thanks to the lock-up period, have gone up 6.6-fold in a month. It is a nice problem to have.
Never mind that the stuff is made up of Water, Pea Protein Isolate, Expeller-Pressed Canola Oil, Refined Coconut Oil, and Contains 2% or less of the following: Cellulose from Bamboo, Methylcellulose, Potato Starch, Natural Flavor, Maltodextrin, Yeast Extract, Salt, Sunflower Oil, Vegetable Glycerin, Dried Yeast, Gum Arabic, and Citrus Extract.
If you broke conventional beef down into its constituent chemical components, they would include a lot of toxic long chain unsaturated fats and synthetic hormones, not exactly great for your long term health.
And laugh as you might at fake meat, the fact is there is a huge future for the alternative meat industry. The average American eats 200 pounds of meat a year, an all-time high, and consumption is rising. So far, alternatives account for less than 0.1% of that.
It takes six weeks to grow a conventional chicken. You can ferment the same exact protein cells in large scale bioreactors in only six days with no need for antibiotics. This makes possible enormous reductions in costs. Your next steak may not be grown on a ranch, it may be brewed.
The antibiotics fed cattle to maximize yields and profits is rendering conventional antibiotics useless. Modern pathogens are rapidly evolving to become resistant, if not immune. Within a decade, they may not be useful for treating human diseases as all.
There will also be enormous support from environmentalists for a move from the farm to the industrial lab. You know that quarter pounder with cheese you had for lunch? It required 500 gallons of freshwater to produce. No kidding.
Cattle are thought to be the source of 25% of the world’s carbon dioxide emissions. Conventional ranching also creates immense mountains of manure. I know, I used to shovel it.
Beyond meat founder Ethan Brown says he commissioned the University of Michigan to study his inputs. They concluded that his alternative burgers produced 90% fewer greenhouse gases and use 93% less land than conventional ones.
Given the eye-popping performance of (BYND), there is certain to be a deluge of copycats and camp followers floating stock. Wall Street will feed the geese when they are quacking. (BYND) will not be the last artificial meat company you are invited to buy.
I think synthetic meat will find its main market in low-end fast food restaurants, like MacDonald’s (MCD), Carl’s Jr., and Wendy’s (WEN), and in the poorer emerging markets, where taste is not an option. Burger King started selling Beyond Meat burgers last year but hasn’t given any hint on sales figures.
However, creating a high-end steak of the type found on Morton’s and Ruth Chris Steak House would be a stretch. There will always be demand for these, albeit at much higher prices.
Make mine medium rare.
What are Brown’s favorite alternative meat recipes? He loves a hamburger-based spaghetti based bolognese, and his breakfast sausages are to die for.
Mad Hedge Biotech & Healthcare Letter
June 2, 2020
Fiat Lux
Featured Trade:
(TEN MORE REASONS TO BUY AMGEN)
(AMGN), (CELG), (ADPT), (BGNE)
In this current coronavirus market, discovering a stock that can survive the pandemic without suffering a major hit is akin to finding the Holy Grail.
This is why I’m on the lookout for undervalued names that offer strong dividends and a stable balance sheet.
In my search, I once again came across the biotechnology pioneer Amgen (AMGN), a 40-year-old company that has continuously proven its critics wrong.
After four decades in the business, this healthcare heavyweight has yet to show any signs of slowing down. If anything, Amgen has been consistent in its efforts to show off its promising pipeline.
In 2020 alone, the company reported at least 39 drug candidates in its pipeline, with practically half already in Phase 3 trials.
As one of the founding fathers of the biotechnology sector, Amgen, which was founded by my UCLA college biochemistry professor, would be remiss to skip on the coronavirus race. If I’d only stuck with him a little longer, I would be filthy rich by now.
In April, the company announced its collaboration with Adaptive Biotechnologies (ADPT) to develop antibodies to be used for COVID-19 treatment.
While the biotechnology giant isn’t the first to jump into the fray, it has an undeniable ace up its sleeve: Amgen is known as one of the leaders in the development of antibody-based treatments. This alone makes it a strong contender.
Outside its coronavirus work, Amgen has an extensive list of prospects in its pipeline along with a number of workhorse drugs.
However, not everything is as smooth sailing as investors would hope.
Previous blockbusters, rheumatoid arthritis drug Enbrel and chemotherapy medication Neulasta, which comprised 40% of Amgen’s product sales in the first quarter of 2019, failed to move the needle during the same period in 2020. Actually, Neulasta suffered a devastating 40% drop in sales.
Other top performers like multiple myeloma treatment Xgeva and anemia drug Aranesp are having trouble as well, eking out a measly 2% in sales gains in the said period.
As for anemia injection Epogen, the bestselling drug dropped by 29%. Even the sales of hyperparathyroidism medication Cinacalcet slid by 42%.
Overall, this doesn’t sound like an auspicious beginning for Amgen this 2020.
Nonetheless, the company’s robust growth in other areas made up for the laggards.
In fact, Amgen’s total product sales increased by 12%, jumping from $5.3 billion in the first quarter of 2019 to almost $5.9 billion in the same period in 2020.
For instance, sales of osteoporosis treatment Prolia jumped by 10%, pushing the drug in the second spot among the top 10 products in Amgen’s portfolio.
Meanwhile, cholesterol drug Repatha continues to impress, showing off a 62% increase in revenue from $141 million to $229 million.
Even the newer multiple myeloma treatment Kryprolis went up by 19%, while metastatic colorectal cancer injection Vectibix registered a 19% sales gain. Sales for cancer medication Blincyto also went up by 36% year over year to hit $94 million.
Another drug surging forward is kidney treatment Parsabiv, which reported a 39% increase in sales. Newcomer postmenopausal osteoporosis drug Evenity, which was launched in the US market just last year, recorded a respectable $100 million in sales.
In terms of developments that actually pushed the needle for Amgen, the first thing that comes to mind is definitely the acquisition of psoriasis and psoriatic arthritis medication Otezla.
This blockbuster drug, which the company bought for $13.4 billion in cash from the recently acquired Celgene Corporation (CELGN), raked in $479 million in revenues for the first quarter of 2020 alone.
Amgen executives estimate a low double-digit year-over-year sales increase for Otezla up until 2024.
Another exciting development for Amgen is its deal with BeiGene (BGNE), in which the biotechnology pioneer acquired a 20.5% stake in the Chinese company.
Part of this deal is BeiGene’s efforts to commercialize select drugs from Amgen’s oncology lineup to target the expansive Chinese market.
On top of this, the two companies are slated to develop 20 new cancer drugs as well. So far, AMG 510 and tezepelumab are eyed to be launched by 2021.
Amgen is also gearing up to ride the wave of biosimilars, which has a market estimated to surpass $69 billion in the next five years. Due to its lower costs, biosimilars are projected to save consumers roughly $160 billion during the same period.
Perhaps this lucrative opportunity is what made Amgen realize that if they can’t beat them, they might as well join them. That is, the company has already worked towards becoming a major player in the biosimilar space.
In fact, Amgen has started with this plan in 2017 courtesy of the company’s first-ever approved cancer-fighting biosimilar: Mvasi.
So far, Amgen has 10 biosimilars in its current pipeline. Four of which already received FDA approval.
Looking at Amgen’s financial records, it’s safe to say that the company has a strong financial position.
It offers a yield of approximately 2.8% and a payout ratio of over 47%. The dividend coverage ratio is roughly 212%, ensuring a safe dividend and a 5-year growth rate of almost 19%.
Amgen’s profit margin is recorded to be at least 23% in 9 of the recent 10 fiscal years, with growth expected since 1 in 5 cancer patients in the United States uses Amgen medication.
The company’s free cash flow in the first quarter of 2020 rose to $2 billion from the $1.7 billion reported during the same period in 2019.
These quarterly results along with its multitude of growth prospects are proof to Amgen’s capacity to navigate through the decline in other product offerings. The biotechnology company’s numbers in the first quarter of this year demonstrate there’s a good chance it will break through resistance because of its solid sales momentum.
This makes Amgen attractive to long-term biotechnology and healthcare investors. With its strong record, promising pipeline, and decent dividend, the company will be able to sustain its status as a good buy.
