Mad Hedge Technology Letter
August 1, 2022
Fiat Lux
Featured Trade:
(The iCar)
(APPL)
Tag Archive for: (AAPL)
CEO Tim Cook and the company he runs, Apple (AAPL), are widely known as the iPhone company, but he wants to change that.
Cook wants to take over your car because the iPhone business is saturating at an alarming speed.
So what’s his plan for the iCar?
Apparently, he doesn’t want Apple to produce the physical car, but he wants access to the system that controls the car.
By doing this, Cook saves time by avoiding the physical design process of the metal, suspension, engine, and curves during inflationary times.
Cook feels that it’s more cost-effective to play God from a remote office in California.
Why not?
The manufacturing part is a serious risk these days with bottlenecked supply chains and rising input prices.
This leads me to say, there will likely be no Apple-branded car, even though all the Apple fanatics have been waiting for years for this.
Apple wants the car to be made by the car companies.
If Apple and Cook can pull this off, this would most likely become Cook’s legacy at Apple after he steps down in the future.
Like it or not, he’s been living in the shadow of Steve Jobs’ contributions to Apple since he took the CEO job.
He finally is looking to put his tailor-made stamp on the company before he leaves.
Cook has always been overshadowed by Jobs because he’s never been able to bring uniqueness like Jobs did.
At its WWDC developer conference recently, Apple presented a new version of its car operating system Carplay, which is due to be launched at the end of 2023.
So far, Carplay can do relatively little. Users can use the navigation, plus some apps like music and voice control and this is the first step to building a killer system that will later be installed as the car's nervous system.
Apple wants to completely take over the interior of the car in terms of software and the iPhone will simply be used as hardware.
The fact that the new Carplay version will not be available until the end of 2023 indicates that a stronger CPU will also be used in the iPhone. This will be the in-house M1 or M2 chip in the mobile version, which is expected in the iPhone by 2023 at the latest.
Just 4% of users say they prefer the built-in infotainment system to Apple's. In addition, owners of expensive vehicles are more likely to own a new iPhone model. So premium brands would run the risk of losing customers if they didn't offer Apple’s Carplay.
The batteries come from China, the electric motors from a supplier, as do large quantities of the other components.
Shockingly enough, there hasn’t been much pushback from elite German automakers like Mercedes and Audi.
This is a sign that they know they can’t compete in software against an army full of top-grade dorky software developers at Apple.
But then why would Apple need to work with a German automaker to install an expensive design that would spike costs?
Surely, Apple can outsource iCar manufacturing to China like they already do with the iPhone.
In the case that German automakers gleefully integrate Apple’s software into their own car design, it would mean death to corporate Germany.
It would decrease the value of German auto manufacturers by 75% overnight.
Technology is a winner-takes-all sweepstake and this business situation epitomizes that.
This would most likely get Apple to a $4 trillion market cap while crushing its European competition.
Global Market Comments
July 27, 2022
Fiat Lux
Featured Trade:
(HOW TO GAIN AN ADVANTAGE WITH PARALLEL TRADING),
(GM), (F), (TM), (NSANY), (DDAIF), BMW (BMWYY), (VWAPY),
(PALL), (GS), (EZA), (CAT), (CMI), (KMTUY),
(KODK), (SLV), (AAPL)
Mad Hedge Biotech and Healthcare Letter
July 26, 2022
Fiat Lux
Featured Trade:
(ANOTHER TECH AND HEALTHCARE CROSSOVER)
(ONEM), (AMZN), (TDOC), (AMWL), (GOOGL), (AAPL), (MSFT), (CVS), (WBA), (UNH)
The battle for telemedicine dominance might have just ended before it even began.
Amazon (AMZN) just announced its all-cash plan to acquire One Medical (ONEM) for $3.9 billion, paying $18 per share.
To date, this will be Amazon’s biggest step toward the healthcare world.
With the entry of Amazon into this telehealth segment, companies like Teladoc (TDOC) and Amwell (AMWL) would need to work overtime to match the resources of the e-commerce giant.
However, Amazon’s move isn’t exactly novel considering that other FAANG companies like Google (GOOGL), Apple (AAPL), and Microsoft (MSFT) have already acquired healthcare companies.
What this move simply indicates is that Amazon has finally turned serious in its bid for a bigger piece of the healthcare market.
This isn’t even the first time Amazon decided to go beyond its retail business. It has a pretty diverse portfolio including Amazon Web Services, a cloud infrastructure service, and even Whole Foods.
However, the decision to aggressively pursue the $800 billion healthcare industry might just be what Amazon needs to really move the needle.
In 2018, Amazon shelled out roughly $1 billion to buy an online pharmacy called PillPack which led to the launch of virtual Amazon Care clinics.
On that same year, the e-commerce company also pursued a joint venture, dubbed Haven, with Berkshire Hathaway and JPMorgan Chase. Unfortunately, that plan didn’t pan out and was eventually shut down.
Buying One Medical at a premium of 77%, Amazon beat other interested bidders including CVS (CVS), Walgreens (WBA), and UnitedHealth (UNH).
It’s still unclear what Amazon plans with One Medical. The e-commerce giant might add it to its Amazon Care brand or let it operate independently.
One Medical is a membership-based platform, which is backed by the Carlyle Group (CG) and managed under 1Life Healthcare.
Like most telehealth companies, it offers virtual healthcare services like virtual visits. What makes it different is that it also provides in-person checkups in accredited medical offices within the US.
One Medical’s app enables clients to schedule appointments, talk with their healthcare provider, and ask for prescriptions.
A key selling point is that the company guarantees that all the appointments start on time. Another notable feature is that users can gift a yearlong subscription to someone for $199.
Like Teladoc and Amwell, the company isn’t profitable yet. This case isn’t shocking for a relatively new field.
However, One Medical’s strategy has led to impressive revenue and membership growth.
The company’s revenue has consistently increased since its 2020 IPO. In 2021, its membership count climbed by 34% to reach 736,000.
In the first quarter of 2022, One Medical’s membership grew again by 28% and revenue jumped 109% to record over $254 million. So far, more than 8,000 companies provide One Medical services to their staff.
For 2022, One Medical projects its revenue to be between $831 million and $853 million.
Admittedly, these figures seem inconsequential when you compare them to the other sectors of Amazon’s business. For example, Amazon Web Services raked in $18.4 billion in sales in the first quarter of 2022.
Actually, One Medical’s revenue and membership growth might even look small and unimpressive compared to Teladoc, which recorded $565 million in the first quarter and has more than 54 million members in the US alone.
Undoubtedly, the healthcare market offers a mouthwatering opportunity for the likes of Amazon. It’s a lucrative industry, one of the handful that can truly make a difference in an already thriving business. Moreover, it has been highly profitable over the years.
Nonetheless, the acquisition of One Medical isn’t a foolproof plan for Amazon’s dominance in healthcare. So far, the e-commerce giant’s track record has been mixed. That doesn’t mean that the deal is a bad move. In fact, it indicates Amazon’s seriousness in making a play for the healthcare market.
Either way, the clear winner would be One Medical. Since the announcement, the stock has risen 70%.
Moreover, even if Amazon falls victim to politicization or anti-trust issues involving the deal, One Medical still has a number of suitors lined up.
Basically, it’s a win-win for this emerging telehealth company.
Mad Hedge Technology Letter
July 8, 2022
Fiat Lux
Featured Trade:
(THE END OF SAMSUNG)
(SAMSUNG), (QCOM), (MU), (AAPL)
Samsung, Korea’s stalwart chaebol, is toast.
Remember the past two years when lockdowns were in vogue?
Digital products were the hottest item in the world as everybody was stuck in their homes.
Growth brought forward is never a bad thing for a company, especially tech companies.
However, it sets the stage for hard comps to topple and a reversion back to the mean which can look messy.
The world needed chips and phones back then, the world is now traveling, getting on planes, and taking cruise ships to the Caribbean.
This is why video game growth is quite subdued this year.
Samsung internally has also been taking a machete to its forward-looking estimates multiple times in order to front-run collapsing demand.
The boom bust nature of chips and devices is an inherent beast in the industry that is hard to tame.
Samsung was able to hit watered-down targets in the second quarter, but that was mainly due to a 7% currency tailwind of the Korean won sliding fast just like many Asian currencies.
Take a look at the Japanese yen, it’s gone off a cliff all the way to 136 per $1.
I remember when I took a vacation to Tokyo in 2011, Japan felt awfully expensive at 77 yen to $1.
The currency tailwinds are a transitory elixir yet under the hood, these economies are weakening fast.
The aging population and cost of living crisis are also crushing sales.
Internal data reveals deeper damage than initially thought.
Operating profit missed by a wider margin than revenue beat and prices for its premium products isn’t fetching the prices they once did.
For example, Samsung markets its Exynos 2200 chips as on-par rivals to the Snapdragon 8 Gen 1 and Apple’s (AAPL) A15 Bionic chip found in smartphones.
However, the Exynos fails to compete with its supposed flagship chip comps, performing at levels lagging almost a generation behind in speed and functionality.
It’s clear that devices made with Exynos chips simply won’t be able to sell for as much as flagship Android phones with Snapdragon 8 Gen 1 or Apple iPhones with A15 Bionic chips.
I fully expect the operation profit to go from 6% to 3% for Samsung.
US rival Micron (MU) has already rung the alarm. While the world’s third-largest maker of DRAM posted revenue and operating profit for the quarter in line with estimates, its forecast for the coming three months was 20% lower than expectations.
It now sees the PC and smartphone markets much weaker than previously thought.
Tech has experienced a massive downgrade in terms of sentiment and sales while massive pressure on the supply side costs.
Cloud computing and streaming services which all need chips have been the poster boys of underperformance.
Growth stocks have also gotten killed.
I do believe this is more a signal of deeper individual malaise at Samsung and an indication they are getting trounced by Chinese firms who just do it better for cheaper.
Margins won’t ever come back up for Samsung as they lack the nimbleness of the Chinese and brute power of the American tech.
They are essentially stuck between a rock and a hard place where products will become less competitive, face rapidly shrinking margins, and participate in a Korean economy that lacks vibrancy.
Once chip stocks bottom, avoid Samsung, and get into Qualcomm (QCOM) and Micron (MU).
Mad Hedge Biotech and Healthcare Letter
July 5, 2022
Fiat Lux
Featured Trade:
(AN AAA-RATED STOCK POISED TO DELIVER MARKET-BEATING RETURNS)
(JNJ), (AAPL), (GOOGL), (AMZN), (MSFT), (TSLA), (META), (BRK.A)
More than six months after what appeared to be a never-ending assault on the biotechnology and healthcare industries, the sector seems to be slowly reviving.
While it is still too early to declare the pullback over, there are a few companies that provide a ray of hope for investors.
In the US, only four stocks have recorded a market capitalization of $1 trillion or higher: Apple (APPL), Alphabet (GOOGL), Amazon (AMZN), and Microsoft (MSFT). This year's market crash saw Tesla (TSLA) and Meta Platforms (META) departure from this elite group.
The market-wide selloff also made it more difficult for stocks to reach the $1 trillion mark. However, this does not necessarily preclude them from achieving this goal in the future.
Companies are rapidly expanding and equipped with the right tools and strategies to capitalize on growth opportunities, making them prime candidates to make the $1 trillion cut in a couple of years.
One of them is Johnson & Johnson (JNJ).
Almost everyone is familiar with JNJ's century-old brands, such as Band-Aids and Listerine. What many people probably do not realize is that the company's med-tech and pharmaceutical segments account for the vast majority of its total revenue.
In 2021, its pharmaceuticals segment alone comprised 55% of JNJ sales, while its medical devices unit contributed 29% to the company’s top line.
So far, the most promising drug in JNJ’s pharmaceutical segment is Tremfya. First-quarter sales for this psoriasis treatment jumped to a whopping 41% year over year to record an annualized $2.4 billion.
Meanwhile, JNJ's med-tech segment is poised for massive growth as a result of the strong demand for its electrophysiology products. These devices, used to keep hearts beating normally, have been identified as lucrative revenue streams and growth drivers in the long run.
The company has been working on spinning off its consumer segment into a separate publicly traded entity in the following months. This means that investors with JNJ stock will eventually end up owning shares of two different companies by 2023.
The decision to spin off its consumer health segment is part of the company's effort to shed a cyclical segment and become a health pure play focused on pharmaceuticals and medical devices.
Hence, now is an excellent time to buy JNJ shares.
While JNJ isn’t known as a high-growth stock, the company’s strategies have the potential to spur exponential growth and send shares soaring.
The next decade will be crucial for the company's success as it transforms. If the company executes its plans successfully, its current market capitalization of $467 billion could slowly but steadily increase to approximately $1 trillion.
J&J will be able to invest and concentrate its resources on segments with high sales and margins, which should increase the company's income and cash flows at a faster rate than at present.
Furthermore, JNJ's plan is expected to increase shareholder returns through higher dividends and share repurchases because of its growing cash flow. With these factors combined, JNJ's stock price will undoubtedly rise, as will its market cap.
On top of these, JNJ offers a 2.6% dividend yield. Admittedly, this isn’t remarkably high. However, investors can rely on its steady rise. Moreover, JNJ is a Dividend King. In fact, it recently raised its payout for the 60th year in a row.
If these aren’t enough to cement the company’s reputation as a solid investment, consider the fact that JNJ is one of the largest holdings in Warren Buffett’s (BRK.A) portfolio.
It’s also one of the only two publicly traded companies with the coveted AAA credit rating from S&P. For context, the US government only has an AA rating. Needless to say, this makes JNJ one of the safest—if not the safest—income stock to date.
Overall, JNJ has been diligent in getting all of its ducks in a row and is poised to provide market-beating returns to patient investors.
Global Market Comments
June 29, 2022
Fiat Lux
Featured Trade:
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD),
(AAPL)
Note to Readers: Over the next ten trading days, you will be receiving my options trading boot camp. That's because this week, I’ll be knocking off from my daily routine to dive into some deep research pieces.