February 22, 2019

Global Market Comments
February 22, 2019
Fiat Lux

Featured Trade:

(NVDA), (MU), (AMD), (LRCX), (GLD), (FXE), (FXB), (AMZN),

Play it Safe with Anthem

One of the notable lessons in value investing is this: boring is oftentimes a good thing. Tangible proof of this principle is to be found in Anthem Inc (ANTM) which is a virtually inconspicuous stock but is performing satisfactorily for its investors.

Here’s a brief background on this relatively obscure stock.

Anthem is offering various healthcare plans to corporations and individuals. The holding company also provides its services to Medicare and Medicaid markets which are comprised of approximately 40 million Americans.

Aimed at becoming a one-stop shop for its clients’ insurance needs, the company’s offerings include dental and vision services and life insurance. To date, Anthem is ranked among the top five healthcare and insurance providers in the United States while it placed No. 29 among Fortune 500 companies. Clearly, this “unknown” stock is one of the industry leaders today.

Where does Anthem currently stand?

While the healthcare industry seems to be struggling with countless changes courtesy of the Trump administration, Anthem appears to be well prepared to handle whatever comes its way.

Here’s a case in point.

Anthem had to retrench on their Obamacare services last year. Despite that, the company still impressed its investors with a 3.8% improvement in its operating revenue year over year. That’s not bad for an insurance company.

How did the company manage to recoup its losses? The lost revenues from Obamacare were counterbalanced by a boost in new insurance premiums along with an increase in the number of Medicare enrollments.

Since its fourth-quarter results in 2018 pleasantly surprised investors and analysts alike, it’s anticipated that Anthem will perform just as well or even better this year. So far, predictions for Anthem’s performance in 2019 remain bullish.

The stock market noticed. So far in 2019, the stock has gone ballistic, rocketing an impressive 25.5% to a new all-time high.

Another optimistic factor involving this stock is its 2018 yearly fiscal EPS which was recorded at $15.91 per share. Meanwhile, the intrinsic value of every Anthem share is pegged at $447.42 and its margin of safety is projected at 30.36%. This indicates that the shares are undervalued. Not much of that around these days.

However, no company is perfect. One major red flag for Anthem is its ongoing lawsuit against another healthcare provider, Cigna (CI), over their botched merger plans. If the legal battle continues, then Anthem is poised to incur substantial long-term expenses.

Bottom Line

All in all, Anthem is a solid stock that offers an attractive combination of stability and continuous long-term growth in anyone’s portfolio. Thus far, the company has performed well and managed to provide acceptable financial results to its investors. Although its business has not grown by leaps and bounds, its modest growth in the past years and the projected consistency in its stock performance in the years to come that make Anthem a reasonable investment.

Buy Anthem on the next decent dip.


February 20 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader February 20 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: If there is a China trade deal, should I buy China stocks, specifically Alibaba?

A: To a large extent, both Chinese and US stocks have already fully discounted a China trade deal, so buying up here could be very risky. The administration has been letting out a leak a day to support the stock market, so I don’t think there will be much juice left when the announcement is actually made. The current high levels of US stocks make everything risky.

Q: Is it time to buy NVIDIA (NVDA)?

A: The word I’m hearing from the industry is that you don’t want to buy the semiconductor stocks until the summer when they start discounting the recovery after the next recession (which is probably a year off from this coming summer). The same is true for Micron Technology (MU), Advanced Micro Devices (AMD), and Lam Research (LRCX).

However, if you’re willing to take some heat in order to own a stock that’s going to triple over the next three years, then you should buy it now. If you’re a long-term investor, these are the entry points you die for. Looking at the charts it looks like it is ready to take off.

Q: Should I be shorting the euro (FXE), with the German economy going into recession?

A: No. We’re at a low for the euro so it’s a bad time to start a short. It’s interest rates that drive the euro more than economies. With the U.S. not raising interest rates for six months, maybe a year, and maybe forever, you probably want to be buying the currencies more than selling them down here.

Q: Would you buy the British pound (FXB) on Brexit fears?

A: I would; my theory all along has been that Brexit will fail and the pound will return to pre-Brexit levels—30% higher than where we are at now. I have always thought that the current government doesn’t believe in Brexit one iota and are therefore executing it as incompetently as possible.

They have done a wonderful job, missing one deadline after the next. In the end, Britain will hold another election and vote to stay in Europe. This will be hugely positive for Europe and would end the recession there.

Q: What do we need to do for the market to retest the highs?

A: China trade deal would do it in a heartbeat. If this happens, we will get the 5% move to the upside initially. Then we’re looking at a double top risk for the entire 10-year bull market. That’s when the short players will start to come in big time. You’d be insane to new positions in stocks here. There is an easy 4,500 Dow points to the downside, and maybe more.

Q: Do you think earnings growth will come in at 5%, or are they looking to be zero or negative?

A: Zero is looking pretty good. We know companies like to guide conservative then surprise to the upside; however, with Europe and China slowing down dramatically, that could very well drag the U.S. into recession and our earnings growth into negative numbers. The capital investment figures have been falling for three months now. US Durable Goods fell by 1.2% in January.

This explains why companies have no faith in the American economy for the rest of this year. This was a big reason why Amazon (AMZN) abandoned their New York headquarters plans. They see the economic data before we do and don’t want to expand going into a recession.

Q: When will rising government debt start to hurt the economy?

A: It already is. Foreign investors have been pulling their bids for fear of a falling US dollar. They have also become big buyers of gold (GLD) in order to avoid anything American, so we have a new bull market there. In the end, the biggest hit is with business confidence.

Nothing good ever comes from exploding US deficits and companies are not inclined to invest going into that. That is a major factor behind the sudden deterioration in virtually all data points over the past month.

Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

June 21, 2018

Global Market Comments
June 21, 2018
Fiat Lux


Featured Trade:
(CVS), (AET), (BRK.A), (AMZN), (JPM), (CI),