Global Market Comments
March 4, 2021
Fiat Lux
Featured Trade:
(THE BARBELL PLAY WITH BERKSHIRE HATHAWAY),
(BRKA), (BRKA), (BAC), (KO), (AXP), (VZ), (BK) (USB),
(TLT), (AAPL), (MRK), (ABBV), (CVX), (GM), (PCC), (BNSF)
Tag Archive for: (AAPL)
It’s time to give myself a dope slap.
I have been pounding the table all year about the merits of a barbell strategy, with equal weightings in technology and domestic recovery stocks. By owning both, you’ll always have something doing well as new cash flows bounce back and forth between the two sectors like a ping pong ball.
After all, nobody gets sector rotation right, unless they have been practicing for 50 years, like me.
Full disclosure: I have to admit that after 50 years of following him, I love Buffet. He was one of the first subscribers to my newsletter when it started up in 2008. Some of his best ideas have come from the Mad Hedge Fund Trader, like buying Bank of America for $5 in 2008.
Oh, and he hates Wall Street for constantly fleecing people. Ditto here.
In reading Warren Buffet’s annual letter (click here for the link), it occurred to me that his Berkshire Hathaway (BRKB) shares were in effect a one-stop barbell investment.
For a start, Warren owns a serious slug of Apple (AAPL), some $120 billion worth, or 2.5% of the total fund. That gives (BRKB) some technology weighting. It cost him only $20 billion. The dividends he received entirely paid for the initial cost. So he owns 4% of Apple for free.
I remember the battle over the initial “BUY” five years ago. Warren fought it, insisting he didn’t understand the smart phone business. In the end, he bought Apple for its global brand value alone.
That is Warren Buffet to a tee.
The next five largest publicly listed holdings are Bank of America (BAC), Coca-Cola (KO), American Express (AXP), and Verizon Communications (VZ). These are your classic domestic recovery sectors. And with a heavy weighting in other banks (BK) (USB), Buffet is effectively short the bond market (TLT), another position I hugely favor.
Also included in the package is a liberal salting of pharmaceuticals, Merck (MRK) and AbbVie (ABBV). He has a small energy weighting with Chevron (CVX). He even has a position in old heavy metal America with General Motors (GM).
Berkshire is also one of the world’s largest property & casualty insurance owners. Its current “float” is $138 billion. You all know his flagship holding, GEICO. And the gecko mascot isn’t going anywhere as long as Warren lives. It was Warren’s idea.
It all seems to work for Warren. In 2020, he earned a staggering $42.5 billion. All told, Berkshire’s businesses employ 360,000, second to only Amazon (AMZN), and is the largest taxpayer in the United States, accounting for 3% of government revenues. Berkshire is also the largest owner of capital goods & equipment in the US worth $156 billion, topping (AT&T).
Many of Warrens's early 1956 $1,000 investors are millionaires many times over….and over 100 years old, prompting him to muse if ownership of his shares extended life.
Warren’s annual letter, which he spends practically the entire year working on, is always one of the best reads in the financial markets. There isn’t a better 50,000-foot view out there. He also admits to his mistakes, such as his disastrous purchase of Precision Castparts (PCC) in 2016 for $37 billion, which later suffered from the crash in the aerospace industry. In 2020, Buffet wrote off $11 billion of that acquisition.
He can do worse. In 1993, he bought the Dexter Shoe Company for $433 million worth of Berkshire stock. The company went under, but the Berkshire stock today is worth $8.7 billion.
Buffet’s letters always refer back to some of his “greatest hits,” today legends in the business history of the United States: GEICO, Furniture Mart, Berkshire Hathaway Energy, and See’s Candies, one of the largest employers of women in the US using 150-year-old recipes. Its peanut brittle is to die for.
In 2009, Buffet snatched away from me BNSF for a song, now the most profitable railroad in the country, an amalgamation of 360 railroads over 170 years. I say “snatched away” because it was my favorite railroad trading vehicle for decades until he bought the entire company. I hear its trains run by my home every night as a grim reminder.
Another benefit to owning (BRKB) is that Buffet is far and away the largest buyer of his own shares, soaking up $25 billion worth in 2020. And he is buying the shares of other companies that are also aggressively buying their own shares, like Apple ($200 billion with last year). It all sounds like the perfect money creation machine to me.
It gets better. Berkshires “B” shares trade options, meaning you can buy LEAPS (Long Term Equity Anticipation Securities), which by now, you all know and love. I’ll run some numbers for you.
With (BRKB) now trading at $254, you can buy the January 2023 $300-$310 call spread for $2.50. If the shares close anywhere over $310 by the 2023 expiration, the position will be worth $10.00, giving you a gain of 300%. And you only need an appreciation of $56, or 22% in the shares to capture this blockbuster profit, giving you upside leverage of an eye-popping 13.63X in the best run company in America.
See, I told you you’d like it.
This is how poor people become rich. In fact, my target for (BRKB) is $300 for end of 2021 and $400 for 2022, right when the two-year LEAPS expire.
One question I often get about Berkshire is what happens when Warren Buffet goes to his greater reward, not an impossible concept given that he is 90 years old.
I imagine the shares will have a bad day or two, and then recover. Buffet has been hiring his replacements for a decade or more, and he handed off day-to-day operation years ago (I didn’t want to move to Omaha, no mountains).
When that happens, it will be the best buying opportunity of the year. And another chance to load up on those LEAPS.
Global Market Comments
March 1, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WAKE UP CALL),
(TLT), (JPM), (BAC), (C), (MS), (GS),
(JNJ), (AAPL), (FB), (AMZN), (GOOGL)
This was the week the stock traders learned there was such a thing as a bond market. They know this because it was bonds that completely demolished their stock trading books.
Suddenly, markets went from zero offered to zero bid. Many strategists labored under the erroneous assumption that ten-year US Treasury yields would never surpass 1.50% in 2021. Yet, here we are only in March and it’s already topped 1.61%. It’s become the one-way trade of the year.
The bond market seems to be discounting an imminent runaway inflation rate. But at a 1.4% annual figure, it's nowhere to be seen, not with 20 million unemployed and Main Streets everywhere looking like ghost towns.
I still believe that technology is evolving so fast, hyper-accelerated by the pandemic, that it will wipe out any return of inflation. I will not believe in inflation until I see the whites of its eyes, to paraphrase Colonel William Prescott at the Battle of Bunker Hill.
Of course, it is I who has been screaming from the rooftops about the coming crash of the bond markets, since March 20. Being short the bond market has been one of my most profitable trades of 2020 AND 2021. If I am annoyed by anything, it happened too fast, depriving me several more round trips a slower crash would have permitted.
When you have to own stocks, make them financials (JPM), (BAC), (C), which benefit from rising rates. Their loan rates are rocketing while their cost of money is fixed at the Fed overnight cost of funds at 0.25%. Trading volumes at the brokers (MS), (GS) are through the roof, especially for options traders.
It is all a perfect money-making machine. At least, the stock market thinks so.
I’ll tell you something that markets are not paying attention to at all, and it is the tremendous improvement in the pandemic. Since January 20, news cases have cratered from 250,000 a day to only 70,000, down 72%. The best-case scenario which markets discounted by near doubling in 11 months is happening.
With the addition of the Johnson & Johnson (JNJ) vaccine, some 700 million doses will be available by June. We could be back to normal by summer, at least in the parts of the country that don’t believe it is still a hoax.
This breathes life into the blockbuster 7.5% GDP growth scenarios now making the rounds. I think people have no idea how hot the economy is really going to get. Labor and materials shortages may be only three months off, but with no inflation.
So, what does all this mean for the markets? It all sets up the normal 5%-10% correction that I have been predicting. If you have two-year LEAPS on your favorite names, hang on to them. We are going much higher.
I went into the Monday selloff with a rare 100% cash position. The 20% I have now in commodities I picked up on puke out, throw up on your shoe capitulation days.
The barbell is still the winning strategy.
Domestic recovery stocks have been on fire for six months, with small banks up a ballistic 80%. Big tech has gone nowhere. But their earnings are still exploding, in effect, making them 20% cheaper over the same time period.
It’s just a matter of time before markets rotate back into tech and give domestic recovery a break. Think (AAPL), (FB), (AMZN), and (GOOGL). That is where the smart money is going right now.
The bond auction was a total disaster. The US Treasury offered $62 billion worth of seven-year US Treasury bonds, double the amount a year earlier. At a 1.95% yield and no one showed. Foreign participation was the worst in seven years. The bid-to-cover ratio was pitiful. Over issuance by the government crushing the market? Who knew? Imagine how high interest rates would be if the Fed wasn’t buying $120 billion a month of bonds?
The insanity is back, with GameStop (GME) doubling in the last 15 minutes of the month. Nobody knows why. It was why stocks tanked at the close on Thursday, scaring away real investors in real stocks. (GME) has become an indicator of all that’s wrong with the market.
Copper demand is rocketing, says Freeport McMoRan (FCX) CEO Richard Adkerson. That’s why he is opening three new US mines this year, adding 250 million pounds in annual output. Biden’s ambitious EV plans are the trigger. You can’t build an EV without a lot of the red metal. The world’s largest copper producer has become a major climate change and ESG play.
NVIDIA blows it away, with sales up a blockbuster 66%. Demand from gamers locked up at home was overwhelming. Purchases by bitcoin miners were through the roof. Even demand from the auto industry was up 16%, even though card sales aren’t. Too bad they picked the wrong day to announce, with the stock off 8.2%. (NVDA) is the one tech stock I would buy on dips.
Fed says business failures will continue at record pace, mostly occurring among small, unlisted local businesses. Biden’s $1.9 trillion rescue budget will come too late for many. Unemployment could stay chronically high for years, as the Weekly Jobless Claims are suggesting.
Housing starts fell in January, down 6.0% to 1.58 million units. A much smaller drop was expected. Rising land and lumber costs are cutting into the economics of new construction. Home prices are going to have to accelerate to suck in more supply. Housing Permits for new construction soared by 10.4% last month, so the future looks bright for builders.
Tesla (TSLA) crashed, down $180 in two days. We have just suffered a perfect storm of bad news about Tesla. Interest rates have been soaring, bad for all tech in the mind of the market. Competitor Lucid Motors announced a SPAC valued at $11 billion. And Elon Musk said Bitcoin looked “high” after investing $1.5 billion. Get ready to buy the dip, but not yet.
Quantitative easing to continue, says Fed governor Jay Powell, even if the economy improves. The $120 billion in bond-buying remains, even if the economy improves. He’s doing everything possible to create inflation.
Panic hits the crypto markets, dragging down technology equities with them. The two have been trading 1:1 for four months. Bitcoin suffered an eye-popping 25% plunge from $58,000 to 43,600. The tail is now wagging the dog. All risk-taking may have spiked with the Friday options expiration. Watch Bitcoin for a tech stock revival and vice versa. Stocks have earnings multiple support. Crypto doesn’t. I’ll buy Bitcoin when they post a customer support number.
Australian dollars soars as predicted, from $58 to $79 in 11 months. We could hit parity in 2022. The Aussie is basically a call option on a synchronized global economic recovery. End of the pandemic will also bring a resumption of massive Chinese investment in the Land Down Under. Keep buying the dips in (FXA).
Case-Shiller explodes to the upside, up 10.4% in December. It’s the hottest read in seven years for the National Home Price Index. Phoenix (14.4%), San Diego (13.0%), and Seattle (13.6%) were the strongest cities. The flight from the cities continues.
(TLT) breaks $138, surpassing my end 2021 target of a 1.50% ten-year US Treasury yield. So, I lied. My new yearend target is now $120, which would take ten-year yields to 2.00%. With a $1.9 trillion rescue budget about to kick in after the $900 billion that passed in December, the economy and demand for funds are about to rocket. Better hurry up and buy that house before mortgage rates rise out of reach.
Weekly Jobless Claims sink to 730,000. I can’t believe that 730,000 is now considered a good number, compared to 50,000 a year ago.
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!
My Mad Hedge Global Trading Dispatch closed out with a 13.28% profit in February after a blockbuster 10.21% in January. The Dow Average is up a miniscule 1.1% so far in 2021.
This is my fourth double-digit month in a row. My 2021 year-to-date performance soared to 23.49%. After the February 19 option expiration, I am now 80% in cash, with longs in (XME) and (FCX).
That brings my 11-year total return to 446.04%, some 2.12 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 39.64%.
My trailing one-year return exploded to 93.48%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 103.31% since the March 20, 2020 low.
We need to keep an eye on the number of US Coronavirus cases at 28 million and deaths topping 510,000, which you can find here.
The coming week will be a boring one on the data front.
On Monday, March 1, at 10:00 AM EST, the ISM Manufacturing Index is out. Zoom (ZM) reports.
On Tuesday, March 2, at 9:00 AM, Total US Vehicle Sales for February are announced. Target (TGT) and Hewlett Packard (HPQ) report.
On Wednesday, March 3 at 8:15 AM, the ADP Private Employment Report is released. Snowflake (SNOW) reports.
On Thursday, March 4 at 9:30 AM, Weekly Jobless Claims are printed. Broadcom (AVG) and Costco (CSCO) report.
On Friday, March 5 at 8:30 AM, The February Nonfarm Payroll Report is announced. Big Lots (BIG) reports. At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, the deed is done, I got my first Covid-19 shot, pure Pfizer.
The Marine Corps failed to deliver, as only active duty are getting shots. Washoe County ran out. Incline Village said I couldn’t get a shot until July. My own doctor had no clue.
Then I got an automated call from the doctor who did my stem cell treatment on my knees five years ago. They belonged to a large group that had my birthday in their system and my number came up on the first day the under ’70s opened up.
Going there was a celebration. Everyone was thrilled to death to get their shot. It was like winning the lottery. Our little local hospital operated with machine-like efficiency, inoculating 1,300 a day. It was a straight drive in, dive out. It was an “all hands-on deck” effort, with everyone from the board directors to the billing clerks manning the needles. It took longer to buy a Big Mac than to get my shot.
To make sure I didn’t pass out, I was sent to a holding area, where a person was assigned to each car. I got the CEO and grilled him relentlessly on his business model for 30 minutes.
I haven’t felt this good since I got my polio vaccine sugar cube in 1955.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
January 20 Infection Rate
March 3 Infection Rate
Global Market Comments
February 22, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TIME FOR A BREAK)
(GME), (TLT), (FB), (AMZN), (AAPL), (XME), (FCX), (MS), (GS), (BLX), (KO), (AMD)
I know you’re not going to want to hear this. I might as well be trying to pull your teeth, lead you down a garden path, or sell you a high-priced annuity.
But there is nothing to do in the market right now. Nada, diddly squat, bupkis, and for all you Limey’s out there, bugger all.
For during the first six weeks of 2021, we have pretty much squeezed all there is out of the market.
Not only did we nail the timing and the direction, we also got the lead sectors, financials, brokers, chips, and short bonds (MS), (GS), (BLK), (AMD). We also chased the Volatility Index (VIX) down from $38 to a lowly $20, baying and protesting all the way.
That enabled us to extract a 28.29% profit so far in 2021, the best return in the 13-year history of the Mad Hedge Fund Trader. The only other time you see numbers this high is when Ponzi schemes get busted. And not a dollar of this was earned from the really marginal plays like Bitcoin, SPAC’s, GameStop (GME), or pot stocks.
If I feel like I did a year’s worth of work during the first seven weeks of 2021, it’s because I have, issuing 60 trade alerts since January 1.
However, bonds (TLT) are reaching the end of their current leg down. The 1.34% yield we saw on Friday is suspiciously close to the 1.36% yields we saw during the 2012 and 2017 market double bottom.
So, there may be some wood to chop around these, levels, possibly for weeks or months.
This is important because a collapsing bond market has been the principal driver of the winning trades of 2021, such as in banks, brokers, money managers, and other domestic recovery plays.
And when one side of the barbell goes dead, what do you do? You buy the other side. FANGs are just completing a six-month “time” correction where they have gone absolutely nowhere. So, Facebook (FB), Amazon (AMZN), and Apple (AAPL) may be getting ready for a roll.
One other sector that might keep running is the SPDR Mining & Metals ETF (XME), and Freeport McMoRan (FCX). That’s because it's not just us buying metals to front-run a recovery, it’s the entire world. What do you think a $2 trillion infrastructure budget will do to this area?
New lows for bonds, as the ten-year US Treasury yield hits 1.26%, up 38 basis points since January 1 and a one-year high. 1.50% here we come! Ever hear the expression “Don’t fight the Fed”? All financials are off to the races, where we were 60% long. Biden’s $1.9 trillion rescue package will be 100% borrowed and take total US borrowing to a back-breaking 55% of GDP. I hate to sound like a broken record but keep selling rallies in the (TLT), buy (JPM), (BAC), (GS), (MS), and (BRK/B) on dips.
Volatility index hit a one-year Low, which is what you’d expect at the dawn of a decade-long bull market in stocks. The (VIX) may flat line here for a while before the next out-of-the-blue spike.
The Nikkei Stock Average topped 30,000, for the first time in 31 years, Yes, it’s been a long haul. I was heavily short in the initial 1990 meltdown from 39,000 to 20,000 and many fortunes were made. The top marked the end of the Japanese company’s ability to copy their way into leadership. After that, rapidly advancing technology made copying too slow to compete in a global economy.
A midwest storm upended energy markets, with oil popping $8 to $67 and gas deliveries spiking from $4 to $999. It would have gone higher, but the software only provided for three digits. Electricity prices are all over the map. Some 4 million Texas customers are without power. Fracking has ground to a halt. Windfarms are frozen solid. If you are a net producer (as I am), you are in heaven. The turmoil is expected to be gone by the weekend. It’s another high price paid for ignoring global warming.
Weekly Jobless Claims soared, to 861,000, casting a dark cloud over the economic recovery. The news took a 300-point bite out of the Dow. Illinois and California saw the biggest gains. We are not out of the woods yet.
SpaceX was valued at $74 Billion, according to an $850 billion venture capital fundraising round this week. However, Elon Musk’s rocket company won’t go public until men are landed on Mars. The company is also the launching pad for its Starlink global WIFI project, which will cost at least $10 billion to build out. Blowing up rockets is not a good backdrop for an IPO.
Cash is still pouring off the sidelines, with equity mutual funds attracting some $7.8 billion last week. As long as this is the case, which could be for years, any market corrections will be limited. Strangely, bond funds are still pulling in money too, some $5.7 billion. It’s called a liquidity-driven market, silly!
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!
My Mad Hedge Global Trading Dispatch earned an amazing 17.27% so far in February after a blockbuster 10.21% in January. The Dow Average is up a trifling 2.92% so far in 2021.
This is my fourth double-digit month in a row. My 2021 year-to-date performance soared to 27.28%. After the February 19 option expiration, I am now 80% in cash, with a single long in Tesla (TSLA) left.
That brings my 11-year total return to 450.03%, some 2.05 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an Everest-like new high of 40.30%.
My trailing one-year return exploded to 94.09%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 109.00% since the March 20, 2020 low.
We need to keep an eye on the number of US Coronavirus cases at 28 million and deaths approaching 500,000, which you can find here. We are now running at a heart breaking 3,000 deaths a day. But that is down 35% from the recent high.
The coming week will be a boring one on the data front.
On Monday, February 22, at 8:30 AM EST, the Chicago Fed National Activity Index is out. Zoon (ZM) reports.
On Tuesday, February 23 at 9:00 AM, the S&P Case-Shiller National Home Price Index for December is announced. Square (SQ) and Intuit (INTU) report.
On Wednesday, February 24 at 8:30 AM, New Home Sales for January are printed. NVIDIA (NVDA) reports.
On Thursday, February 25 at 9:30 AM, Weekly Jobless Claims are printed. US Durable Goods for January and Q4 GDP are out. Salesforce (CRM), (Moderna (MRNA), and Airbnb (ABNB) report.
On Friday, February 26 at 8:30 AM, US Personal Income and Spending are published. DraftKings (DKNG) reports. At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, if you want to see what it is like to work at Amazon, watch the movie Nomadland. It’s an artsy Francis McDormand film made with a $4 million budget about the end of life, which I caught over the weekend on Hulu.
It covers a contemporary trend in US society where retirees with no savings move into RVs and live off the grid, working occasionally to earn gas money. They raved about it in Europe.
If I don’t keep those trade alerts coming, that could be me in a couple of years.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Biotech & Healthcare Letter
February 18, 2021
Fiat Lux
FEATURED TRADE:
(WARREN BUFFETT’S BIOPHARMACEUTICAL BETS)
(MRK), (ABBV), (BMY), (PFE), (NKTR), (VZ), (CVX), (AAPL), (BRK.B)
Aside from the recent big moves involving Verizon Communications (VZ), Chevron (CVX), and Apple (AAPL), Warren Buffett has also been busy with biopharmaceutical stocks.
Just before 2020 ended, Berkshire Hathaway (BRK.B) made notable changes in its positions particularly in Merck (MRK), AbbVie (ABBV), Bristol-Myers Squibb (BMY), and Pfizer (PFE).
Berkshire boosted its investment in Merck by 28.1% to reach 28.7 million shares.
Meanwhile, its AbbVie holdings were increased by 20% to hit 25.5 million shares.
It also added 11.2% in its investments in Bristol, totaling to 33.3 million shares.
In contrast, the company cut 3.7 million shares from its Pfizer holdings.
In terms of growth potential, these biopharmaceutical companies hold the most promising prospects in the next decade.
Merck, hailed as a vaccine stalwart, is behind the blockbuster cancer treatment Keytruda.
For context, Keytruda generated $14.4 billion in sales in 2020 alone.
Despite fears over the expiring patent exclusivity of this drug, the company still trades at roughly 11.5 times earnings and is actually projected to achieve 11% long-term EPS growth rate.
Merck also continues to leverage Keytruda in the development of the next generation of treatments in its pipeline.
In fact, the company recently sealed a clinical collaboration with Nektar Therapeutics (NKTR) to assess the effectiveness of Keytruda when combined with Nektar’s own bempegaldesleukin in the treatment of squamous cell carcinoma.
Other than expanding its oncology sector, Merck has been developing its animal health business as well. So far, this particular segment has grown by 7% year over year, reaching $4.7 billion in 2020.
If things work out, then Merck could emerge as a huge competitor against Pfizer’s own animal healthcare spinoff, Zoetis (ZTS), in the future.
To date, Merck has at least 31 candidates in Phase 2 trials and 25 more undergoing Phase 3 studies.
Needless to say, these will be valuable in enriching the company’s lineup especially with the challenges that Keytruda will face in the next years.
As for AbbVie, this company trades at approximately 8.3 times the earnings estimated in the next 12 months. This is well below its five-year average of 10.4 times earnings.
However, the company is projected to show at least 13% EPS growth rate in the long term.
Despite the challenges of 2020, with the company going down 2.6%, the long-term prospects for AbbVie remain positive.
Although AbbVie broke through the dermatology market following its acquisition of Botox-maker Allergan in the past year, it still has to contend with a major problem: arthritis medication Humira.
Humira is not only AbbVie’s top-selling treatment but also the best selling drug in the world today.
In 2020 alone, this anti-inflammatory treatment raked in $19.8 billion in sales. However, AbbVie might soon lose this edge since its exclusive rights to Humira in the US will expire in 2023.
Amidst the anxiety over this issue though, AbbVie continues to defy expectations.
Last year, the company reported a 65.9% growth in its net revenue despite the overall slowdown caused by the pandemic.
As for 2021, AbbVie is anticipating an even better year thanks to its portfolio diversification efforts.
To date, the company’s lineup now spans neuroscience, immunology, eye care, women’s health, and of course, aesthetics.
Meanwhile, Bristol Myers has been pegged to achieve roughly 8% growth rate in the long term. Right now, the stock trade at 7.9 times earnings estimated over the next 12 months.
Like AbbVie and Merck, Bristol has been dealing with patent expiration issues—a problem that pushed its stock down by 4.1% so far this year.
One of the major updates involving Bristol is its massive $74 billion acquisition of Celgene in 2019.
While the deal raised a lot of eyebrows at the time, it brought cancer blockbuster Revlimid into the company’s fold.
Revlimid, which still enjoys protection from a flood of generics for a few more years, has been pumping up sales for Celgene nonstop for over a decade. The drug is expected to generate the same, if not higher, profits for Bristol.
Two more blockbuster drugs in Bristol’s lineup are facing impending patent exclusivity issues, Opdivo, which would expire in 2028, and Eliquis in 2026.
Nonetheless, the positives outweigh the negatives for Bristol. After all, this company invested so much in diversification.
Sales of Opdivo, Revlimid, and Eliquis continued to trend upwards last year.
Opdivo alone managed to generate $7 billion in annual revenue, prompting Bristol to expand the indications for this product.
However, the more promising news lies in the updates that the recently launched products, like multiple sclerosis drug Zeposia and anemia treatment Reblozyl, are gaining traction in the market.
Thanks to the development of its pipeline, the company expects that its new product lineup would account for roughly 27% of its total revenues by 2025.
Overall, Berkshire’s choice of biopharmaceutical companies are offering promising growths in the next several years despite the setbacks they are facing today.
While some investors get alarmed over negative updates, it looks like the Oracle of Omaha is following his own advice: “Whether we're talking about socks or stocks, I like buying quality merchandise, when it is marked down.”
Global Market Comments
February 17, 2021
Fiat Lux
Featured Trade:
(HOW TO HANDLE THE FRIDAY, FEBRUARY 19 OPTIONS EXPIRATION),
(TSLA), (MS), (BA), (BLK), (GS), (AMD), (KO), (BAC), (NFLX), (AMZN), (AAPL), (INTU), (QCOM), (CRWD), (AZN), (GILD)
Followers of the Mad Hedge Fund Trader Alert Services have the good fortune to own no less than 16 deep in-the-money options positions, all of which are profitable. All but one of these expire in two trading days on Friday, February 19, and I just want to explain to the newbies how to best maximize their profits.
It was time to be aggressive. I was aggressive beyond the pale.
These involve the:
Global Trading Dispatch
- (TSLA) 2/$650-$700 call spread 20.00%
- (TSLA) 3/$600-$650 call spread
- (MS) 2/$55-$60 call spread 10.00%
- (BA) 2/$150-$160 call spread 10.00%
- (BLK) 2/$640-$660 call spread 10.00%
- (GS) 2/$240-$260 call spread 10.00%
- (AMD) 2/$75-$80 call spread 10.00%
- (BAC) 2/$28-$30 call spread 10.00%
- (KO) 2/$44-$47 call spread 10.00%
Mad Hedge Technology Letter
- NFLX 2/ $510- $515 call spread 10.00%
- AMZN 2/ $3,095- $3,100 call spread 10.00%
- AAPL 2/ $126-$129 call spread 10.00%
- INTU 2/ $340-$345 call spread 10.00%
- QCOM 2/ $135-$140 call spread 10.00%
Mad Hedge Biotech & Healthcare Letter
- (AZN) 2/$46.50-$49.50 call spread 10.00%
- GILD 2/ $57-$60 call spread 10.00%
Provided that we don’t have a huge selloff in the markets or monster rallies in bonds, all 15 of these positions will expire at their maximum profit point.
So far, so good.
I’ll do the math for you on our oldest and least liquid position, the Tesla February 19 $650-$700 vertical bull call spread, which I initiated on January 25, 2021 and will definitely run into expiration. At the Friday high, Tesla shares were at a lowly $816, some $53 lower than the $869.70 that prevailed when I strapped on this trade.
Provided that Tesla doesn’t trade below $700 in two days, we will capture the maximum potential profit in the trade. That’s why I love call spreads. They pay you even when you are wrong on the direction of the stock. All of the money we made was due to time decay and the decline in volatility in Tesla stock.
Your profit can be calculated as follows:
Profit: $50.00 expiration value - $44.00 cost = $6.00 net profit
(4 contracts X 100 contracts per option X $6.00 profit per options)
= $2,400 or 20% in 18 trading days.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning February 22 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.
Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.
Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when security has only hours, or minutes until expiration on Friday, February 19. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
If for some reason, your short position in your spread gets “called away,” don’t worry. Just call your broker and instruct them to exercise your long option position to cover your short option position. That gets you out of your position a few days early at your maximum profit point.
If your broker tells you to sell your remaining long and cover your short separately in the market, don’t. That makes money for your broker, but not you. Do what I say, and then fire your broker and close your account because they are giving you terrible advice. I’ve seen this happen many times among my followers.
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next month-end.
Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade.
