Mad Hedge Biotech & Healthcare Letter
June 22, 2021
Fiat Lux
FEATURED TRADE:
(PRIMED FOR DOMINANCE)
(TDOC), (AMZN), (AMWL), (WMT), (CVS), (ARKK), (TSLA)
Mad Hedge Biotech & Healthcare Letter
June 22, 2021
Fiat Lux
FEATURED TRADE:
(PRIMED FOR DOMINANCE)
(TDOC), (AMZN), (AMWL), (WMT), (CVS), (ARKK), (TSLA)
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.
Mad Hedge Technology Letter
May 19, 2021
Fiat Lux
Featured Trade:
(THE CURRENT STATE OF U.S. ECOMMERCE)
(AMZN), (WMT), (KR), (COST)
Was 2020 a one-hit-wonder for U.S. ecommerce sales?
Hardly so.
US retail ecommerce sales grew 33.6% in 2020, reaching $799.18 billion.
As the public health situation fizzles out, in-store shopping will refresh itself, and a share of consumer spending will revert away from retail and toward services like travel and live entertainment.
Consensus has it that U.S. ecommerce will grow 13.7% this year, reaching $908.73 billion, and although that would be a great year under normal circumstances, annualized growth of 13% appears pitiful compared to the pandemic numbers.
It was only at the beginning of 2020 that ecommerce was expected to grow 13.2% from 2019, but the health crisis ignited ecommerce sales to $799.18 billion.
Ecommerce growth from a much higher base is a hard endeavor as all the low-hanging fruit has been harvested and it’s just harder to push the needle higher.
What does this all mean?
Ecommerce represents a larger piece of the pie than ever before and that comes with greater influence.
I now expect ecommerce sales will account for 15.5% of the $5.856 trillion in total retail sales this year.
Ecommerce sales will surpass $1 trillion next year.
It also means that digital commerce has never been so strong in terms of a percentage growth basis, net total basis, and clout.
However, growth rates will need to moderate first before they can reaccelerate.
Looking at the financial year, look for sales to rise by a low single for the big-box retailer Walmart (WMT) showing that numbers are getting ahead of themselves.
Walmart is an accurate bellwether stock that gives us deep insight into the state of ecommerce, and they said it sees earnings rising by a high single-digit percent.
Guidance aside, Walmart had a great quarter.
Every segment performed well, and I am encouraged by traffic and grocery market share trends.
But customers clearly want to get out and shop which is why growth rates will most likely drop around 13% for ecommerce instead of staying north of 30%.
Walmart’s ecommerce continues to grow and stimulus in the U.S. had an outsized impact, and the second half has more uncertainty than a typical year because the reopening is a once-in-a-lifetime phenomenon and it’s hard to pinpoint the shake out.
Remember, there most likely will not be any broad-based stimulus payments in the 2nd half of 2021 and 2022 that will be rolled into Walmart ecommerce sales.
Walmart is clearly chasing the leader of the pack Amazon.
Amazon is on track to become the largest retailer in the United States within the next four years, followed by the aforementioned Walmart and Kroger.
Kroger has been a fashionable pick amongst hedge fund managers in the beginning of 2021.
Amazon (AMZN) gross merchandise value sales (GMV) will top $631.6 billion by 2025, representing a compound annual growth rate of 14% between 2020 and 2025.
The same report showed us that Walmart’s ecommerce sales are set to grow at a five-year CAGR of 14.9% from $43.6 billion in 2020 to $87.5 billion in 2025, accounting for 16.7% of total retailer sales in 2025.
Ecommerce is the only channel that will grow in the next 5 years, everything else, such as offline retail will contract or go sideways at best.
It’s a death by a thousand cuts type of dilemma for anyone that isn’t in ecommerce.
Costco (COST), the fourth largest U.S. retailer, is expected to invest heavily in its digital business, with its online sales set to increase by 47% over the same period, reaching $15.3bn in 2025.
Over the next few years, Generation Z will age into adulthood and bring with them a digital wallet and firms will need to focus investment online and engage with the digital ecosystem in order to win market share.
Gen Z doesn’t use cash.
Online grocery is set to stay even in healthy times, but the pace of growth for online grocery will level off after the 2020 explosion.
Fresh grocery ecommerce is still expected to grow at 13.3% CAGR between now and 2025 which is why you see many retailers like Walmart investing in the fresh foods’ delivery business.
Habits are hard to break and it’s clear that digital add-ons are here to stay, and brands must cultivate digital platforms to win.
Global Market Comments
April 2, 2021
Fiat Lux
Featured Trade:
(WHY CONSUMER STAPLES ARE PEAKING),
(XLP), (PG), (PEP), (PM), (WMT), (AMZN),
(WHY YOUR OTHER INVESTMENT NEWSLETTER IS SO DANGEROUS)
Everyone always needs toilet paper, right?
Wrong. At least stock investors don’t.
Once considered one the safest stock market sectors in which to hide out during bear markets and more recently pandemics, Consumer Staples no longer offer the hideout they once did.
Who needs a hideout anyway now that the Roaring Twenties are on and may make another decade to run.
Take a look at the Consumer Staples Select Sector SPDR ETF (XLP). It’s top five holdings include Proctor & Gamble (PG) (11.13%), Coca-Cola (KO) (10.07%), PepsiCo, Inc. (PEP) (8.7%), Philip Morris (7.80%) (PM), and Walmart (WMT).
Its only remaining attraction is that it has a 30-day SEC yield of 2.67%.
The (XLP) has recently been one of the best performing ETFs. However, costs are rising dramatically, and the bloom is coming off the rose.
In short, the industry is caught in a vice.
In the meantime, ferocious online competition from the likes of Amazon (AMZN) makes it impossible for consumer staples to pass costs on to consumers as they did in past economic cycles.
In fact, the prices for many consumer staples are falling thanks to the world’s most efficient distribution network. And if you are an Amazon Prime member, they will deliver it to your door for free. I just bought a pair of Head Kore 93 skis in Vermont, and they were delivered in two days.
It gets worse. The largest sector of the consumer staples market, the poor and working middle class are seeing the smallest wage gains, the worst layoffs, and the slowest pandemic recovery. Almost all pay increases are now taking place at the top of the wage ladder.
AI specialists and online marketing experts, yes, Safeway checkout clerks and fast food workers, no.
This also will get a lot worse as some 50% of all jobs will disappear over the next 20 years, mostly at the low end.
Blame technology. There is even a robot now that can assemble Ikea furniture. And there goes my side gig!
So, if your friend at the country club locker room tells you it’s time to load up on Consumer Staples because they are cheap, safe, and high-yielding, ignore him, delete his phone number from your contact list, and unfriend him on Facebook.
If anything, the sector is a great “sell short on rallies” candidate.
As I never tire of telling followers, never confuse “gone down a lot” with “cheap.”
Eventually, the sector will fall enough to where it offers value. But that point is not now. There has to be a bottom somewhere.
After all, everyone needs toilet paper, right? Or will a robot soon take over that function as well? They already have in Japan.
Global Market Comments
February 24, 2021
Fiat Lux
Featured Trade:
(LONG TERM ECONOMIC EFFECTS OF THE CORONA VIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC), (IMAX), (CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)
The world will never be the same again.
Not only is the old world rapidly disappearing before our eyes, the new one is breaking down the front door with alarming speed. In short: the future is happening fast, very fast.
To a large extent, long-term economic trends already in place have been given a turbocharger. Quite simply, you just take out the people. Human contact of any kind will be minimized. I’ll tick off some of the more obvious changes.
All San Francisco Bay Area counties are still living under a “shelter in place” order. All schools have now been closed for a year. In March 2020 the local high school managed to get the first weekend of their annual musical “Titanic” done, but not the second.
All travel is banned except to gain essential necessities. Most bars and restaurants have been closed indefinitely, except for takeout. Some cities are issuing $1,000 fines for failure to wear a mask. The kids have turned into white, pasty zombies after staring at laptops for 12 months.
To say that we are merely fatigued from a yearlong quarantine would be a vast understatement. Climbing the walls is more like it.
As I write this, US Covid-19 deaths have topped a half million and cases have surpassed 28 million. China peaked at 4,000 deaths with four times our population. The difference was leadership issue. China welded the doors of Covid carriers shut. Here said it was a big nothing and would “magically” go away.
The magic didn’t work.
In the meantime, you better get used to your new life. You know that home office of yours you’ve been living in? It is now a permanent affair, as your employer figured out that they can make more money and earn a high stock multiple with you at home.
Besides, they didn’t like you anyway.
Many employees are never coming back, preferring to avoid horrendous commutes, lower costs, and yes, future pandemic viruses. GoToMeeting (LOGM) and Zoom (ZM) are now a permanent aspect of your life.
Commerce will change beyond all recognition. Did you do a lot of shopping on Amazon (AMZN) like I do? Now, you’re really going to pour it on.
Amazon hired a staggering 500,000 new distribution and delivery people in 2020 to handle the surge in business, the most by any organization since WWII. I can’t believe the stock is only at $3,200. It is worth double that, especially if they break up the company.
The epidemic really hammered the mall, where a fatal disease is only a sneeze away. Mall REITs are only just starting to crawl off the floor and may never again reach their old highs, no matter how much they promise to pay you in yield.
And how are you going to pay for that transaction? Guess what one of the most efficient transmitters of disease is? That would be US dollar bills. Something like 50% of all US paper money already tests positive for drugs, according to one Fed study.
Take paper money in change and you are not only getting contact from the salesclerk, but the last dozen people who handled the money. You are crazy now to take change and then not go swimming in Purell afterwards. Personally, I leave it all as a tip.
Contactless payments deal with this nicely (PYPL), (SQ), two of the top-performing stocks since April. People pay by swiping their iPhone wallet, or are simply scanned when they walk in the store, as with some Whole Foods shops owned by Amazon.
Conferences? A thing of the past. All of my public speaking events around the world have been cancelled. Webinars now rule. They offer lower conversion rates but include vastly cheaper costs as well. I can reach more viewers for $1,000 on Zoom than the Money Show could ever attract to the Las Vegas Mandalay Bay for $1 million.
At least I won’t have 18 hours of jet lag to deal with anymore. I’m sure Qantas will miss those first-class ticket purchases and I’ll miss the Champaign.
Entertainment is also morphing beyond all recognition. Streaming is now the order of the day. Disney+ (DIS) was probably the best-timed launch in business history, earning enough to cancel out most of the losses from the closure of the theme parks. Again, this has been a long time coming and the other major movie producers will soon follow suit.
Movie theaters, which have been closed for a year, may also never see their peak business again (CNK), (AMC), (IMAX). The theaters that survive will do so by only accumulating so much debt that they won’t be attractive investments for a decade.
The same is true for cruise lines (CCL), (RCL), (NCLH). But that won’t forestall dead cat bounces that are worth a double in the meantime, as they are coming off of such low levels. No vaccination, no cruise.
Exercise is changing overnight. All gyms and health clubs are now closed, so working out will become a solo exercise far away on a high mountain. I have already been doing this for 30 years, so a piece of cake here.
Friends with yoga classes are now doing them in the living room, streaming their instructors online. The economics of online yoga classes are so compelling, with hundreds attending online classes, that the old model may never come back.
If you are having trouble getting your kids to comply with social distancing requirements, have a family movie night and watch Gwyneth Paltrow and Cate Winslet die in Contagion. It has been applauded by scientists as the most accurate presentation of the kind of out-of-control pandemic which we may now be facing.
It is bone-chilling.
As for me, I have my stockpile of food and will be self-quarantining for the foreseeable future. I am at the top of five lists to get vaccinations, but so far all I have received is a ton of special offers from CVS (CVS), Rite Aid (RAD), and Walmart (WMT)
Stay healthy.
Mad Hedge Technology Letter
December 28, 2020
Fiat Lux
Featured Trade:
(ECOMMERCE AND THE UNIVERSITY SYSTEM)
(AMZN), (APPL), (WMT), (TGT), (SHOP), (APPL), (MSFT), (GOOGL)
The genie is out of the bottle and life will never go back to pre-Covid ways.
Excuse me for dashing your hopes if you assumed the economy, society, and travel rules would do a 180 on a dime.
They certainly will not.
The messiness of distributing the vaccine is already rearing its ugly head with Germany botching the BioNTech-Pfizer vaccine delivery, deploying refrigerators that weren’t cold enough.
Moving on to tomorrow’s tech and the decisive trends that will power your tech portfolio, you can’t help but think about what will happen to the American university system.
A bachelor’s degree has already been devalued as traditional academics trumped by the digital economy invading its turf.
Another unstoppable trend that shows no signs of abating is the “winner take all” mentality of the tech industry.
Tech giants will apply their huge relative gains to gut different industries and have set academics and the buildings they operate from as one of their next prey.
Recently, we got clarity on big-box malls becoming the new tech fulfillment centers with the largest mall operator in the United States, Simon Property Group (SPG), signaling they are willing to convert space leftover in malls from Sears and J.C. Penny.
The next bombshell would hit sooner rather than later.
College campuses will become the newest of the new Amazon (AMZN), Walmart (WMT), or Target (TGT) eCommerce fulfillment centers, and let me explain to you why.
When the California state college system shut down its campuses and moved classes online due to the coronavirus in March, rising sophomore Jose Antonio returned home to Vallejo, California where he expected to finish his classes and “chill” with friends and family.
Then Amazon announced plans to fill 100,000 positions across the U.S at fulfillment and distribution centers to handle the surge of online orders. A month later, the company said it needed another 75,000 positions just to keep up with demand. More than 1,000 of those jobs were added at the five local fulfillment centers. Amazon also announced it would raise the minimum wage from $15 to $17 per hour through the end of April.
Antonio, a marketing and communications major, jumped at the chance and was hired right away to work in the fulfillment center near Vacaville that mostly services the greater Bay Area. He was thrilled to earn extra spending money while he was home and doing his schoolwork online.
This was just the first wave of hiring for these fulfillment center jobs, and there will be a second, third, and fourth wave as eCommerce volumes spike.
Even college students desperate for the cash might quit academics to focus on starting from the bottom at Amazon.
Even though many of these jobs at Amazon fulfillment centers aren’t those corner office job that Ivy League graduates covet, in an economy that has had the bottom fall out from underneath, any job will do.
Chronic unemployment will be around for a while and jobs will be in short supply.
Not only is surging unemployment a problem now, but a snapshot assessment led by the U.S. Census Bureau and designed to offer less comprehensive but more immediate information on the social and economic impacts of Covid showed that as recently as the period between November 25 and December 7 (including Thanksgiving), some 27 million adults—13 percent of all adults in the country—reported their household sometimes or often didn’t have enough to eat.
Yes, it’s that bad out there right now.
When you marry that up with the boom in ecommerce, then there is an obvious need for more ecommerce fulfillment centers and college campuses would serve as the perfect launching spot for this endeavor.
The rise of ecommerce has happened at a time when the cost of a college education has risen by 250% and more often than not, doesn’t live up to the hype it sells.
Many fresh graduates are mired in $100,000 plus debt burdens that prevent them from getting a foothold on the property ladder and delay household formation.
Then consider that many of the 1000s of colleges that dot America have borrowed capital to the hills building glitzy business schools, $100 million football locker rooms, and rewarding the entrenched bureaucrats at the school management level outrageous compensation packages.
The cost of tuition has risen by 250% in a generation, but has the quality of education risen 250% during the same time as well?
The answer is a resounding no, and there is a huge reckoning about to happen in the world of college finances.
America will be saddled with scores of colleges and universities shuttering because they can’t meet their debt obligations.
The financial profiles of the prospective students have dipped by 50% or more in the short-term with their parents unable to find the money to send their kids back to college, not to mention the health risks.
Then there is the international element here with the lucrative Chinese student that added up to 500,000 total students attending American universities in the past.
They won’t come back after observing how America basically ignored the pandemic and the U.S. public health system couldn’t get out of the way of themselves after the virus was heavily politicized on a national level.
The college campuses will be carcasses with lots of meat on the bones that will let Jeff Bezos choose the prime cuts.
This will happen as Covid’s resurgence spills over into a second academic calendar and schools realize they have no pathway forward and look to liquidate their assets.
There will be a meaningful level of these college campuses that are repurposed as eCommerce delivery centers with the best candidates being near big metropolitan cities that have protected white-collar jobs the best.
The coronavirus has exposed the American college system, as university administrators assumed that tuition would never go down.
The best case is that many administrators will need to drop tuition by 50% to attract future students who will be more price-sensitive and acknowledge the diminishing returns of the diploma.
Not every college has a $40 billion endowment fund like Harvard to withstand today’s financial apocalypse.
It’s common for colleges to have too many administrators and many on multimillion-dollar packages.
These school administrators made a bet that American families would forever burden themselves with the rise in tuition prices just as the importance of a college degree has never been at a lower ebb.
Like many precarious industries such as nursing homes, commercial real estate, hospitality, and suburban malls, college campuses are now next on the chopping block.
Big tech not only will make these campuses optimized for delivery centers but also gradually dive deep into the realm of digital educational revenue, hellbent on hijacking it from the schools themselves as curriculum has essentially been digitized.
Just how Apple has announced their foray into cars, these same companies will go after education.
Colleges will now have to compete with the likes of Google (GOOGL), Facebook (FB), Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT) directly in terms of quality of digital content since they have lost their physical presence advantage now that students are away from campus.
Tech companies already have an army of programmers that in an instance could be rapidly deployed against the snail-like monolith that is the U.S. university system.
The only two industries now big enough to quench big tech’s insatiable appetite for devouring revenue are health care and education.
We are seeing this play out quickly, and once tech gets a foothold literally and physically on campus, the rest of the colleges will be thrust into an existential crisis of epic proportions with the only survivors being the ones with large endowment funds and a global brand name.
It’s scary, isn’t it?
This is how tech has evolved in 2020, and the tech iteration of 2021 could be scarier and even more powerful than this year’s. Imagine that!
AMAZON PACKAGES COULD BE DELIVERED FROM HERE SOON!
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