(TDOC) Archives

A Rinse-Wash-Repeat Play for Opportunistic Investors

No matter the short-term consequences of events in the past months, what remains constant is the stock market’s ability to create wealth over the long term.

Each crash or correction that occurred in history was eventually offset by a strong bull market rally.

That’s why it pays to be prepared for when things start to turn around.

Today, I’d like to take a look at another name in the oncology sector that’s poised to skyrocket in the coming years: Exelixis (EXEL).

Here’s a quick overview of Exelixis.

Exelixis is a California-based biotech that’s focused on developing treatments for hard-to-treat types of cancer. To date, the company has three FDA-approved treatments in the market.

The stock has been trading within the $20 and $22 range and sports a market capitalization of roughly $7 billion.

For most of its existence, Exelixis’ growth story centers around its blockbuster therapy, called Cabometyx.

In the second quarter earnings report, Cabometyx’s sales went up 59% compared to its 2020 performance to contribute $275.6 million.

This comprised the bulk of Exelixis’ total revenue worth $385.2 million, which climbed an impressive 48.4% year over year.

Cabometyx is the leading treatment for first- and second-line treatment for advanced renal cell carcinoma (RCC) and advanced hepatocellular carcinoma.

Together, both indications could generate over $1 in annual sales for Cabometyx in 2021 and 2022.

To put things in perspective, the entire Cabometyx franchise was only worth about $742 million in 2020.

What makes Cabometyx an exciting revenue stream is its label-expansion capacity.

Apart from the two approved indications, Exelixis is also conducting six more clinical trials for this drug either as a monotherapy or a combination treatment.

So far, Cabometyx has proven to be effective as a combination therapy with Bristol-Myers Squibb’s (BMY) Opdivo. This additional approval has allowed Exelixis to seize an even bigger share of the RCC market today.

Considering the label-expansion opportunities for Cabometyx, this treatment is projected to become a multi-billion-dollar drug soon.

Given the solid performance of its products and successful collaborations, Exelixis has also become a cash cow.

The company estimates that it would conclude 2021 with roughly $1.6 billion to $1.7 billion in cash and investments—an amount that comprises over 20% of its market capitalization.

With this money, the company can comfortably pursue acquisitions and even strengthen its internal R&D engine.

However, not everything has been smooth sailing for Exelixis in the past months.

One of the major factors that pulled the stock down by a whopping 20% is the unimpressive results from its liver cancer clinical trial with Roche (RHHBY) last June.

However, I think the market overreacted to this piece of negative news.

If anything, Exelixis has already turned the situation around.

Unfazed by its unexpected flop with Roche, Exelixis is again pursuing a difficult-to-treat condition: prostate cancer.

The difference this time is that the company appears to have more confidence in the efficacy of its famed Cabometyx as a treatment for the condition—so much so that they intend to apply for FDA feedback in the high-risk group and possibly even an accelerated approval.

It also celebrated a recent win with the approval of Cabometyx’s label expansion to cover 12 years and older—an approval granted way ahead of their December 4 schedule.

Now, Cabometyx can also be prescribed to treat DTC, which is the most common kind of thyroid cancer in the United States.

More than that, Exelixis is the first to provide a standard treatment option to these patients, making the company a first mover in this segment.

Looking at the history of first movers, such as Vertex (VRTX) in the cystic fibrosis sector and Teladoc (TDOC) in the telehealth space, Exelixis could very well be on its way into becoming a functioning monopoly.

In terms of its pipeline, Exelixis has more than 100 studies going through different stages. These cover diverse indications including gastrointestinal cancers, neuroendocrine tumors, and lung cancer.

While Exelixis has a balance sheet akin to Fort Knox and a remarkable revenue growth, its shares remain range-bound in the past couple of years.

Nonetheless, it has continued to be an impressive “rinse-wash-repeat” covered call play during the same period and is considered a dividend stock with double-digit yields.

Moreover, Exelixis has been consistently ramping up revenue growth in the past years.

The biotech’s big cash balance along with its proven profitability indicate a minimal possibility of dilution.

Considering its price-to-earnings-growth ratio of almost 1, this company is the picture of an ideal balance of double-digit sales growth complemented with great value.

Simply put, it’s a great opportunity for long-term investors.

More importantly, its recent stock-price meltdown makes it an ideal addition to the portfolio of opportunistic investors.

September 22, 2021

Tech Letter

Mad Hedge Technology Letter
September 22, 2021
Fiat Lux

Featured Trade:

(SHOP UNTIL YOU DROP)
(SHOP), (ZM), (TDOC), (TIKTOK)

Shop Until You Drop

Tech Letter

E-commerce is now happening absolutely everywhere except the pipes in your house, and Shopify’s (SHOP) plan is to ensure that merchants using Shopify can sell pretty much everywhere.

That’s just how it is these days.

The internet town squares of modern day are social media and that corresponds to everywhere as people take social media to the streets in droves.

And so, it's important that wherever consumers could be potentially looking to purchase that Shopify merchants continue to show up there.

And from a merchant perspective, that it all neatly feeds back into a centralized back office where they can run their business.

So whether it's Google Search or it's on Instagram or it's on all the other channel integrations Spotify has, that is essential.

Now, again, over time, you are going to see more of these surfaces show up where commerce is happening, and Shopify is also integrating there to make sure that merchants can access those customers.

It’s SHOP’s job to stay one step ahead and that’s what they are exactly doing.

And of course, as more of those services come to life, that increases the complexity of commerce and running a business, a modern-day business, and that also increased the value Shopify provides to their customers.

Shopify and its platform do internet selling at a world-class level.

And yes, there are sometimes where it's faster, better, and more effective for them to partner with another technology company. They’ve developed a solid reputation for being a company that builds incredible software and particularly are renowned for having trustful partners.

But there are other times where SPOT needs to build it themselves because it's just mission-critical, and I have full confidence in them that they can actually deliver the best product on the planet.

This story and numbers are backed up by the latest short-term performance showing that SHOP is turning into an e-commerce juggernaut.

The latest earnings showed that year-over-year GMV growth in the rest of the world actually outpaced North America in Q2 2021.

We are seeing more international merchants that are joining and are succeeding on Shopify.

And fortunately, SHOP is stepping up its growth marketing, sales, and support efforts in places like Brazil and all over the world.

It isn't necessarily any particular focus on Brazil per se, but there are merchants around the world who are looking for a retail operating system and Shopify certainly is the priority.

Revenue in the second quarter was up 57% year over year to $1.1 billion, marking the first time Shopify exceeded $1 billion in a single quarter.

This was driven by strong performance from subscription solutions and merchant solutions segments.

The combined strength in revenue, improved margin profile, and lower overall opex spend as a percent of revenue contributed to strong adjusted operating earnings in Q2 compared to the same period last year.

Adjusted operating income was $236.8 million in the second quarter compared with adjusted operating income of $113.7 million in the second quarter of 2020, as revenue growth outpaced growth in spend.

Echoing the bit I said about social media being the townhall of ecommerce — this is something management takes personally, which is why they announced a partnership with TikTok to launch new in-app shopping features.

The deal will allow a select group of Shopify merchants to add a shopping tab to TikTok profiles and link directly to their online stores for checkout.

The understanding of buying things is now transforming shopping into an experience that's rooted in discovery, connection, and entertainment, creating unparalleled opportunities for brands to capture consumers' attention.

TikTok is uniquely placed at the center of content and commerce, and these new solutions make it even easier for businesses of all sizes to create engaging content that drives consumers directly to the digital point of purchase.

Social commerce is a rapidly booming market.

Sales on social media apps will surge 34.8% to more than $36 billion in 2021, according to eMarketer.

Partnering with the wildly popular short form video platform TikTok is a brilliant move for Shopify — one that’s likely to pay off quite quickly.

Back to the stock market — the stock today sits at $1,450 and has gone through a time correction shifting sideways for the past 3 months.

These levels still mean that SHOP is trading at PE levels around 75, but they are a growth stock so who cares about PE levels!

The past quarter’s sensational performance translated into expanding revenue by 57%.

No doubt that beating the comparable data from a covid year is turning out to be arduous with almost the effect of turning 2021 into a consolidation year.

That has certainly been the case for Zoom Video (ZM) and Teledoc (TDOC).

Management indicated that revenue won’t be growing at the same pace as last year, but readers shouldn’t stress because this lack of pace doesn’t suggest anything is wrong with the business model.

As long as Shopify sustains a growth rate of over 40% for the next few years which is easily attainable for a company accruing only $3 billion of revenue per year, the stock will go up.

That will surely happen, and I am guessing they can maintain a 50% growth rate.

Once the lower growth rates are digested, I envision this stock turning the corner and will rise to $1,800 by the middle of 2022.

September 1, 2021

Tech Letter

Mad Hedge Technology Letter
September 1, 2021
Fiat Lux

Featured Trade:

(DOOM AND GLOOM FOR THE PANDEMIC TECH DARLINGS)
(ZM), (TDOC), (DOCU), (FSLY)

Doom and Gloom for the Pandemic Tech Darlings

Tech Letter

Zoom (ZM) shares are getting crushed today — down around 17%.

This tanking might even signal the event that as a society, we are done with this public health crisis, at least the shelter-at-home darling tech stocks are and will be down in the dumps for the short-term.

I have to give it to the company that Eric Yuan built.

He simply had better video technology than others at the time and was ready to roll it out when everything closed down — a perfect intersection of opportunity and preparation.

The first-mover advantage meant something, but that didn’t mean it was going to be the x-factor, and this massive sell-off has a little bit of the feeling that Yuan has given that advantage all back in one go.

This first-mover effect gives management time to figure out how to stay ahead of the game whether that means moving in a different direction or doubling down on the thing that got them there in the first place.

Zoom failed.

The tepid forecasts are also bad news for the other tech darlings of 2020 like DocuSign (DOCU), Teladoc (TDOC) and I would even lump Fastly, Inc. (FSLY) in there too.

It’s highly likely that these companies have peaked and will never see a conflation of bullish tailwinds that supercharges their business models ever again like in 2020.

They will just need to ride the solo secular tailwind of the pivot to digital migration which is ok, but not a supercharger.

I mean come on! Zoom is a video conferencing software company and that’s all they had going for them; they are still a video conferencing software company.

There is only so much that can do for them.

They would have had to move mountains to reboot its growth rates.

History will likely agree with me that Zoom was just a one-hit wonder and there’s no second hit coming from any album in the future.

That’s not a bad thing if you own the company, that one great year made the founder Yuan massively rich. Well done to him.

However, buying Zoom at the peak of the pandemonium at $560 will prove to be an expensive mistake.

If it ever does rise above $560 again from the $290 today, it will take 3-5 years and that opportunity cost incurred will be painful when there are so many other alternative tech stocks besides Zoom shares.

Revenue increased by 54% year over year in the quarter and in the previous quarter revenue had grown 191%.

Next quarter, Zoom is guiding to 31% growth.

The company has stuck with what it does best — video conferencing software while many other companies have raced to deploy their own Zoom copies.

The earnings weren’t all that bad with gross margin widened to 74.4% from 72.3% in the previous quarter.

Also in the quarter Zoom announced the availability of Zoom Events, which gives organizations the ability to hold premium online meetings. And Zoom said it invested in event software maker Cvent as Cvent sought to go public through a merger with a special purpose acquisition company.

Zoom now has 2 million seats for the Zoom Phone cloud-based phone service, up from 1.5 million three months earlier.

The company increased its forecast for the year as coronavirus case counts have increased, including from the Covid delta variant, and some companies delayed plans to reopen offices.

“What we’re seeing ... is headwinds in our mass markets, so these are individual consumers and small businesses. And, as you say, they are now moving around the world. People are taking vacations again, they’re going to happy hours in person,” Said Zoom CFO Kelly Steckelberg.

This roughly translates into an admission that Zoom will never do as well as it did during the pandemic.

And if you want to create a tier of “premium” meetings, they are still meetings with a glossier title — it doesn’t move the needle one millimeter.

Acquiring an events software maker is incredibly underwhelming — sounds like a niche company becoming even more niche and what investor wants to hear that?

Why not go for a cocktail party events software platform next?

We are just in the early innings of people taking vacations around the world and that will accelerate as overseas gets its handle over the delta variant which is looking like this winter to next spring.

I am also planning my Vietnam on a motorbike vacation when they finally open back up like many others.

I would also like to point out that tough comparable numbers are an issue faced by almost every tech company, not just Zoom, but tech companies like all the FANGs.

The key here is that FANGs have more than just a shelter-in-place business and have hit the ball out of the park on earnings plus more.

In fact, the re-opening of the US economy has shown that other tech companies can’t compete with the behemoths, they might as well get acquired by them.

Even with a massive first-mover advantage, the speed at which the likes of Microsoft and Apple move to smother anything like a DocuSign is lightning quick.

The fact that the likes of Zoom are one-trick ponies is really the death knell to them and why I advocate selling themselves to a tech company that can do more with them.

The little time they had to move in a different direction was wasted in just buying a few more data centers, a marginal events software company, adding “premium” meetings, and by and large, accepting the status quo which is just not good enough when there are a bunch of 800-pound gorillas in the room.

Ultimately, Zoom forecasting 31% of revenue growth next year is pitiful and a massive let down, it honestly might as well have been -31% growth.

This stock is going to have to solve itself out in the short-term and is it worth getting into Zoom long term when others can figure out video conferencing so easily?

The moat around the castle has been removed and the enemy is at the gate.

Zoom had a chance to run with the momentum but their stagnant ideas are coming back to haunt them where it hurts — the stock price.

I would put this one on the backburner even if there is a good chance for a dead cat bounce or 2 in this stock short-term and that goes for the rest of the shelter-in-place tech stocks.

July 20, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
July 20, 2021
Fiat Lux

FEATURED TRADE:

(A SNAPSHOT ON HOW TO LIVE A BETTER LIFE)
(DXCM), (CVS), (WBA), (RAD), (MDT), (ABBT), (SENS),
(TDOC), (AMWL), (AMZN), (AAPL), (GOOGL), (GRMN)

A Snapshot of How to Live a Better Life

Biotech Letter

The routine medical check-ups we have today are primarily based on physical exams that were developed way back in the 1820s, utilizing tools that haven’t been upgraded for over a century.

More alarmingly, all we go through is a “comprehensive” health check once every year, offering us just a snapshot of what’s truly going on in our bodies.

If anything, we monitor the releases of new software for our phones and laptops more than we pay attention to our own bodies.

As we’ve proven with the COVID-19 pandemic, so much can happen in a year

Truth be told, our bodies can deteriorate at lightning speed and without any warning. That’s why it’s terrifying to think that we’re not doing as much to monitor our health.

So, what can we do to change this? How can we be more proactive when it comes to our health?

The COVID-19 pandemic has brought many changes into our lives, and this is one of the biggest transformations it has done: an exponential spike in demand for telehealth services.

One of the major issues between patients and doctors at the height of the pandemic was how to go through the physical exams without actual physical contact.

Clearly, it’s not possible to hear a heart murmur or irregular breathing over a video call.

This is where a lot of innovative companies come in.

For a more specialized exam, HD Medical released a credit card-sized device called HealthyU.

Patients simply touch it with their finger, and the device can instantaneously measure their heart rate and sounds, temperature, and even oxygen saturation.

All these data would then be sent to their doctors or health providers in real-time.

HealthyU also has a remote EKG, which effectively allows it to serve as a portable roadmap to a patient’s heart health and helps doctors monitor for signs of heart attacks and arrhythmias.

For example, there’s this handheld exam kit called Tyto that patients can use to perform their own guided medical exams.

This palm-sized gadget is linked to an app, so your doctor can monitor you remotely.

Patients suffering from a sore throat can use Tyto’s camera to let the doctors see the back of their throats, while those struggling from chest pains can easily use the stethoscope to help their physicians listen to their lungs and hearts.

And these are just for physical exams. There are more advancements in health monitoring, and this is where wearable technology comes in.

Wearable technology is considered one of the most promising growth drivers, largely due to the health sector.

The market size for this segment is estimated to rise from $116.2 billion in 2021 to $265.4 billion by 2026, showing off an 18% CAGR growth within a 5-year period.

Applications for wearables have expanded to areas including medical surgery as well as internables and implantables or sensors, which can be fitted into our bodies to help doctors observe various health parameters.

It’s no wonder brands like Apple (AAPL) with Apple Watch, Google (GOOGL) with Fitbit, and Garmin (GRMN) have been working overtime to try to cover as much of the wearable health market as possible.

So far, these products provide extensive data ranging from calories burned to our heart rates.

Aside from them, there are other wearables in the market today that could change the landscape of the health industry.

One of them is the Oura Ring, which was first introduced in 2013.

Designed to be worn 24 hours a day, this device measures the bodily functions of the user. It gathers data through infrared light sensors that touch the finger arteries.

One of the most impressive things it can do is monitor your sleep movements to help determine early onset of some neurodegenerative diseases like Parkinson’s.

The information is all sent to the app, which users can access via their smartphones. The Oura Ring is somewhere between $299 and $999, depending on your preferences in style and color.

Although it’s yet to be a mainstream product, the Oura Ring was provided to NBA players when they resumed their season amid the COVID-19 pandemic.

The device was used to help the basketball stars monitor their health.

In fact, a joint study with the University of California San Francisco showed that the Oura Ring was able to help detect the common symptoms of COVID-19 three days earlier and with as high as 90% accuracy.

Another impressive health monitoring advancement covers the glucose monitoring product line of Dexcom (DXCM).

The primary goal of Dexcom is to take away the guesswork that comes with finger pricking.

By offering a wearable sensor, people with diabetes can easily and accurately monitor their glucose levels.

What’s even more convenient is that Dexcom’s wearable is available in practically all large pharmacies like CVS (CVS), Walgreens (WBA), and Rite Aid (RAD).

To date, Dexcom’s biggest competitors include Medtronic’s (MDT) Guardian Connect, Abbott’s (ABBT) Freestyle Libre, and Senseonics’ (SENS) Eversense.

These are only some of the emerging technologies that could help us improve the quality of our lives today, with thousands more expected to follow suit in the years to come.

For an endlessly advancing world with smartphones, supercomputers, smart homes, and even self-driving cars receiving software updates virtually every week, it’s absurd to think that we only allot a single check-in on our health annually.

But with the advent of these technologies and the increasing popularity of telehealth services spearheaded by the likes of Teladoc (TDOC), Amwell (AMWL), and even Amazon (AMZN), it looks like we’re starting to finally pay more attention to our health.

health

June 22, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
June 22, 2021
Fiat Lux

FEATURED TRADE:

(PRIMED FOR DOMINANCE)
(TDOC), (AMZN), (AMWL), (WMT), (CVS), (ARKK), (TSLA)

Primed for Dominance

Biotech Letter

While growth stocks have already begun clawing their way back following the losses they suffered earlier this year, there are still former market favorites struggling to bounce back.

One of them is Teladoc Health (TDOC).

To date, Teladoc is still trading at roughly 40% below its previous highs.

While this can be frustrating for its investors, the current situation might just be an opportune time to add this stock to your portfolio.

Teladoc emerged as the leader in virtual care in 2020 by being at the right place at the right time when the pandemic struck. That year, the company’s revenue rose by a whopping 145% compared to its 2019 performance.

These days though, the stock has lost half of its value. Although that’s definitely a head-scratcher, Teladoc’s 51.5 million paid memberships in the United States alone still make it the most dominant force in this industry.

For a long-term investor, the situation presents a compelling opportunity.

Teladoc is a growing business that’s expanding both in the US and globally. While penetrating more markets would happen over time, the basic footprint has been established. This offers Teladoc much-needed exposure to a massive addressable market.

The global market for telemedicine is estimated to expand from $49.9 billion in 2019 to a jaw-dropping $459.8 billion by 2030.

In North America, which holds roughly 34.4% of the market share in 2020, the telemedicine market generated $19.23 billion during the pandemic.

Taking into consideration Teladoc’s revenue of $967.4 million for its US segments in 2020, it becomes clear that the company is only getting started, as this comprised only 5% of the market size.

If the company maintains its momentum, then the next 10 years would be an incredible journey for Teladoc investors.

Despite the disappointing share price performance of Teladoc in the past months, the company’s actual business has sustained its growth.

Revenue continues to rapidly rise, showing off a 151% growth in the first quarter of 2021.

This impressive growth has prompted Teladoc to boost its full-year revenue guidance to $2 billion, which indicates an 80% year-over-year gain.

Impressive growth has been observed all around, with access fee revenue going up 183% while visit fees climbed 24%.

Considering the size of the market, it no longer comes as a surprise that Teladoc is facing competitive threats.

Amazon (AMZN) and Amwell (AMWL) have recently entered the virtual care market. Even Walmart (WMT) and CVS (CVS) have been working on toppling Teladoc as well.

Despite the competition, Teladoc remains ahead of the pact thanks to its continuous efforts to innovate.

For example, the latest innovation from Teladoc is Primary360.

This product is designed to take virtual healthcare to the next level. It offers personalized service at the patient level. Here’s a preview of how it works.

Traditionally, patients go to their doctors when they discover a health problem. This is a reactive way of dealing with health. In contrast, Primary360 is proactive.

That is, the product monitors the patients individually from annual checkups to ongoing treatments to manage chronic conditions. Through closely monitoring the patients, Teladoc is able to perform earlier diagnoses of potential diseases and help doctors reach better outcomes for treatments.

To better picture the long-term rewards of this company, it’s good to keep in mind that Teladoc is actually the second biggest holding of Cathie Wood’s ARK Innovation ETF (ARKK), next only to Tesla (TSLA).

Teladoc Health emerged as one of the most popular pandemic plays in 2020.

While the stock tumbled when vaccines hit the market, its projected growth trajectory remains promising. In fact, Teladoc’s revenue growth is anticipated to skyrocket over the remainder of this decade, with telemedicine estimated to reach roughly half a trillion dollars by 2030.

For investors on the lookout for long-term plays, Teladoc Health's tumble has presented a good opportunity to add it to your portfolio.

May 27, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
May 27, 2021
Fiat Lux

FEATURED TRADE:

(A SAFE STOCK FOR YOUR PEACE OF MIND)
(JNJ), (ABBV), (TDOC), (MSFT)

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