Global Market Comments
September 16, 2022
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(LONG-TERM ECONOMIC EFFECTS OF THE CORONAVIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC), (IMAX),
(CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)
Posts
The world will never be the same again.
Not only is the old world rapidly disappearing before our eyes, the new one is kicking 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 has been minimized.
I’ll tick off some of the more obvious changes.
To say that we are merely fatigued from a nearly three-year quarantine would be a vast understatement. Climbing the walls is more like it.
As I write this, US Covid-19 deaths have topped one million and cases have surpassed 95 million. China peaked at over 5,000 deaths with four times our population. The difference was leadership issue. China welded the doors shut of early Covid carriers.
Here, it said it was a big nothing and would “magically” go away.
The magic didn’t work, nor did bleach injections.
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 for many of you, as your employer figured out 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, $5.40 a gallon gasoline, mass transit, lower costs, and yes, future pandemic viruses. GoToMeeting (LOGM) and Zoom (ZM) are now a permanent aspect of your life.
Commerce has changed 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 one million new distribution and delivery people in 2020 and 2021 to handle the surge in business, the most by any organization since WWII. I can’t believe the stock is only at $122. 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 have since taken off like a rocket, once it was clear that the virus was coming under control.
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 test positive for drugs, according to one Fed study. While in Scandinavia last summer, I learned that physical money has almost completely phased out.
Take paper money in change and you are not only getting contact from the sales clerk, 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 payment deals with this nicely and is now here to stay. Next to come is simply scanning people when they walk in the store, as with some Whole Foods shops owned by Amazon.
Conferences?
They are now a luxury. 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 $1,100 a month on Zoom (ZM) 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 on my Australia trips. I’m sure Qantas will miss those first-class ticket purchases and I’ll miss the free 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, coming out just two months before the pandemic.
They earned 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 years, 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 has changed overnight. All gyms and health clubs closed, and are only just now slowly reopening. Working out will become a solo exercise far away on a high mountain. I have already been doing this for 30 years, so 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 at once. 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 horrible deaths in Contagion. It has been applauded by scientists as the most accurate presentation of the kind of out-of-control pandemic we have been dealt with.
It is bone-chilling.
I hope you learned from the last pandemic because the next one may be just around the corner, thanks to globalization. In 1918, it took three months for an enhanced mutated flu virus to get from Europe to the US. This time, it took a day to get from China.
Stay healthy.
Mad Hedge Biotech and Healthcare Letter
September 8, 2022
Fiat Lux
Featured Trade:
(WON’T GO DOWN WITHOUT A FIGHT)
(CVS), (SGFY), (AMZN), (HUM), (UNH)
Bigger is better. At least, that’s what CVS Health (CVS) seems to believe.
Recently, the big news in healthcare is CVS’ move to acquire Signify Health (SGFY) for $8 billion, pushing it even nearer to its goal of becoming an integrated healthcare provider.
The deal, anticipated to close by the first quarter of 2023, is an all-cash deal with CVS paying $30.50 per share.
While this deal isn’t exactly something new, Signify has been known to be a great innovator in the fast-moving space.
The critical factor in how Signify is different from other companies lies in its strategy, which leans more on a technology- and data-focused model that caters to the gig economy. Under its scheme, clinicians are likened to Uber drivers in terms of independence.
Meanwhile, CVS’ move to swoop in and buy Signify actually threw a wrench in the plans of another company hoping to dominate in the healthcare space: Amazon (AMZN).
Just a few weeks before this announcement, Amazon’s entry into the healthcare industry felt unstoppable. The e-commerce giant started its journey with the $3.9 billion purchase of One Medical (ONEM), a doctor’s office chain, with the goal of continuing its expansion through a deal with Signify.
The encroachment of the retail giant seemed like a massive issue for existing players in the healthcare industry, particularly CVS, which was said to have lost out in the bidding war for ONEM.
Needless to say, this makes CVS’ success in buying Signify an even sweeter victory.
More importantly, this decisive move from CVS makes it apparent that it won’t go down without a fight. That is, Amazon’s march into the healthcare industry will not be completely unopposed.
Basically, Signify sends clinicians to patients’ homes to help them assess their conditions. However, the company does not offer home health services at all.
CVS’ decision to pursue this deal makes it clear that the company is veering toward primary care delivery. Signify’s services can integrate almost seamlessly with the CVS Health ecosystem, with clinicians being afforded the opportunity to simply direct patients to other CVS products and services.
However, not all plans are perfect.
One red flag in this deal involves the major clients of Signify: Humana (HUM) and UnitedHealth (UNH).
Given that CVS is a competitor, they may be put off by the new arrangement and decide to pull out of their existing contracts. This is an understandable concern since one of the main attractions in availing of Signify’s services is its status as an independent entity. This ensures that it operates without any bias and allows equal participation among all payers.
While Signify execs claim that all stakeholders are “very supportive” of this deal, the effects of the plan remain to be seen.
Either way, home-based healthcare is emerging as a new and lucrative trend in the industry. Hence, more and more companies are expected to make similar decisions.
Earlier this month, Walgreens Boots Alliance (WBA) executed a similar move when it acquired a majority share of CareCentrix. Even UNH shelled out a premium when it bought LHC Group, a home-health provider, for $5.4 billion this spring.
Whether it’s caused by an aging population battling mobility issues or healthier patients who realized the price of convenience during the pandemic, it’s undeniable that the demand for home-based healthcare is growing.
Obviously, companies like CVS are capitalizing on that trend.
So far, CVS’ strategy to develop a one-stop-shop for healthcare looks to be on track. The fact that it’s managing to build out a full-scale integrated model while practically doubling its stock price in the last three years makes it an excellent stock to own for the long haul.
If the company continues this trajectory and expansion into primary care, then CVS could quickly become one of the biggest healthcare stocks globally.
Mad Hedge Biotech and Healthcare Letter
July 26, 2022
Fiat Lux
Featured Trade:
(ANOTHER TECH AND HEALTHCARE CROSSOVER)
(ONEM), (AMZN), (TDOC), (AMWL), (GOOGL), (AAPL), (MSFT), (CVS), (WBA), (UNH)
The battle for telemedicine dominance might have just ended before it even began.
Amazon (AMZN) just announced its all-cash plan to acquire One Medical (ONEM) for $3.9 billion, paying $18 per share.
To date, this will be Amazon’s biggest step toward the healthcare world.
With the entry of Amazon into this telehealth segment, companies like Teladoc (TDOC) and Amwell (AMWL) would need to work overtime to match the resources of the e-commerce giant.
However, Amazon’s move isn’t exactly novel considering that other FAANG companies like Google (GOOGL), Apple (AAPL), and Microsoft (MSFT) have already acquired healthcare companies.
What this move simply indicates is that Amazon has finally turned serious in its bid for a bigger piece of the healthcare market.
This isn’t even the first time Amazon decided to go beyond its retail business. It has a pretty diverse portfolio including Amazon Web Services, a cloud infrastructure service, and even Whole Foods.
However, the decision to aggressively pursue the $800 billion healthcare industry might just be what Amazon needs to really move the needle.
In 2018, Amazon shelled out roughly $1 billion to buy an online pharmacy called PillPack which led to the launch of virtual Amazon Care clinics.
On that same year, the e-commerce company also pursued a joint venture, dubbed Haven, with Berkshire Hathaway and JPMorgan Chase. Unfortunately, that plan didn’t pan out and was eventually shut down.
Buying One Medical at a premium of 77%, Amazon beat other interested bidders including CVS (CVS), Walgreens (WBA), and UnitedHealth (UNH).
It’s still unclear what Amazon plans with One Medical. The e-commerce giant might add it to its Amazon Care brand or let it operate independently.
One Medical is a membership-based platform, which is backed by the Carlyle Group (CG) and managed under 1Life Healthcare.
Like most telehealth companies, it offers virtual healthcare services like virtual visits. What makes it different is that it also provides in-person checkups in accredited medical offices within the US.
One Medical’s app enables clients to schedule appointments, talk with their healthcare provider, and ask for prescriptions.
A key selling point is that the company guarantees that all the appointments start on time. Another notable feature is that users can gift a yearlong subscription to someone for $199.
Like Teladoc and Amwell, the company isn’t profitable yet. This case isn’t shocking for a relatively new field.
However, One Medical’s strategy has led to impressive revenue and membership growth.
The company’s revenue has consistently increased since its 2020 IPO. In 2021, its membership count climbed by 34% to reach 736,000.
In the first quarter of 2022, One Medical’s membership grew again by 28% and revenue jumped 109% to record over $254 million. So far, more than 8,000 companies provide One Medical services to their staff.
For 2022, One Medical projects its revenue to be between $831 million and $853 million.
Admittedly, these figures seem inconsequential when you compare them to the other sectors of Amazon’s business. For example, Amazon Web Services raked in $18.4 billion in sales in the first quarter of 2022.
Actually, One Medical’s revenue and membership growth might even look small and unimpressive compared to Teladoc, which recorded $565 million in the first quarter and has more than 54 million members in the US alone.
Undoubtedly, the healthcare market offers a mouthwatering opportunity for the likes of Amazon. It’s a lucrative industry, one of the handful that can truly make a difference in an already thriving business. Moreover, it has been highly profitable over the years.
Nonetheless, the acquisition of One Medical isn’t a foolproof plan for Amazon’s dominance in healthcare. So far, the e-commerce giant’s track record has been mixed. That doesn’t mean that the deal is a bad move. In fact, it indicates Amazon’s seriousness in making a play for the healthcare market.
Either way, the clear winner would be One Medical. Since the announcement, the stock has risen 70%.
Moreover, even if Amazon falls victim to politicization or anti-trust issues involving the deal, One Medical still has a number of suitors lined up.
Basically, it’s a win-win for this emerging telehealth company.
Mad Hedge Biotech and Healthcare Letter
July 19, 2022
Fiat Lux
Featured Trade:
(A RECESSION-PROOF STOCK)
(UNH), (CVS), (LHCG)
The economy isn’t built to be recession-proof. Generally, it follows a relatively predictable albeit irregular pattern called the economic cycle.
Some periods of growth can typically last for several years before reaching its peak. What comes after is a period of contraction—aka a recession—before the economy once again moves towards another expansion.
Needless to say, periods of recession can be really brutal for investors. During this time, cyclical stocks or businesses that are highly sensitive to the economic cycle tend to be hit the hardest.
Meanwhile, certain stock market segments are relatively immune to these cycles. These companies provide investors with stocks that are nearly recession-proof, allowing them to buy and hold while awaiting the end of economic turmoil.
Among these companies, healthcare stocks are some of the most recession-proof options for investors.
After all, people can’t exactly suspend most healthcare needs. When you are sick, you have no choice but to visit the doctor and purchase medication.
Within the healthcare sector, health insurers appear to be beating the market recently.
When the pandemic began, health insurers had to adjust some aspects of their operations.
Reduced spending on non-essential medical care is an obvious change. However, this was counterbalanced by the increased costs of other procedures. These changes brought about by the pandemic greatly benefited the health insurance industry.
The emergence of more technological innovations and inflation are the primary reasons behind the increase in healthcare spending.
As these costs continue to accumulate and rise, an increasing number of clients will rely on health insurance companies as a hedge.
This is one of the key factors why the health insurance market worldwide is projected to grow by 4.6% annually from $2.8 trillion in 2020 to an impressive $3.9 trillion by 2027.
With a market capitalization of roughly $483 billion, UnitedHealth Group (UNH) is considered the largest health insurer across the globe.
For comparison, the second biggest health insurer is CVS Health (CVS) with a market capitalization of $123 billion, or about one-fourth the size of UNH.
Thanks to UNH’s sheer size and the positive industry outlook, the health insurance company is estimated to deliver 14.6% earnings growth annually over the next five years.
In its second-quarter earnings report, the company topped estimates of $5.21 per share and delivered $5.57 instead.
Its revenue of $80.3 billion was also above the earlier forecast of $79.7 billion.
This promising growth potential could be the main reason UNH announced a 13.8% per share rise in its quarterly dividend during its last earnings report.
Riding this momentum, UNH is expected to move forward with the $5.4 billion acquisition of LHC Group (LHCG) within the year.
As the first company within its segment to post earnings this quarter, UNH will be the “bellwether for the group.”
Although there’s a possibility that this health insurer’s report could be the best news in the sector, the overall outlook for its peers still remains positive.
It can be stressful and unnerving to even consider investing in the stock market at the moment. Considering that the S&P 500 is down 18% this year, it feels like a terrible time to buy stocks. But, that couldn’t be further from the truth.
Despite the fact that there are unquestionably some weak businesses in existence, there are also a great number of strong businesses with the capacity for long-term expansion and growth.
Accumulating shares of quality companies during a recession can position you for substantial long-term returns.
UNH’s performance is aligned with recent observations: the healthcare sector has been largely outperforming the market in 2022.
Amid the turbulent macroeconomic climate, this industry has managed to survive and even thrive.
While health insurers are not exactly risk-free, UNH's diversified business model enables it to withstand any economic downturn. Therefore, it would be prudent to buy the dip.
Mad Hedge Biotech and Healthcare Letter
February 3, 2022
Fiat Lux
Featured Trade:
(A ‘BORING’ BUSINESS RESISTING THE ‘AMAZON EFFECT’)
(CVS), (UNH), (ANTM), (TDOC), (AMZN), (BRK.A), (BRK.B), (JPM)
The healthcare market is under attack.
Amazon (AMZN) is invading the healthcare sector, wielding its far-reaching online presence and countless distribution warehouses to dominate the market.
Leveraging its ability to offer quick shipping to practically all locations, Amazon has transformed into a grab-anything-and-everything-possible business.
Now, it has set its sights on the healthcare and prescription sector. In fact, it has been attempting to infiltrate this segment since 2018 when it acquired PillPack.
The only limitation of that deal was that customers still had to get prescriptions from their doctors to avail of the PillPack service.
However, Amazon’s not the only one seeing the potential of this sector.
Following the difficulties it encountered in cornering the market, the e-commerce giant collaborated with fellow Wall Street titans Berkshire Hathaway (BRK.A) (BRK.B) and JPMorgan (JPM). Together, the three companies launched a service they called “Haven.”
Unfortunately, the venture eventually fell apart, and they canceled the deal altogether.
Despite that unfortunate end, Amazon refuses to back down on its vision. Recently, it decided to take another stab at the venture with a rebranding, giving birth to AmazonCare.
The goal is to offer assistance to customers in booking doctor appointments and receiving prescriptions online.
Undeniably, any business endeavor with Amazon’s backing will make waves in any industry. Nonetheless, this new venture could still be a tough sell.
For now, the company's strength is hoping to use the “Amazon effect” to sway members into signing up and using AmazonCare as well.
Surprisingly, Amazon finds itself facing an unlikely challenger in this pursuit: CVS (CVS).
Like Amazon, Berkshire, and JPMorgan, CVS has also recognized the potential of this market.
Unlike Amazon’s partners, CVS has decided to invest to become a frontrunner in terms of dominating the same sector and eventually taking advantage of this rapidly expanding total addressable market.
Instead of following the track of its fellow healthcare providers, such as UnitedHealth (UNH) and Anthem (ANTM), CVS has opted to change its angle of attack in the hopes of gaining more market share and reaping higher profits.
CVS is putting to good use its over 9,900 stores and distributions as means to establish better connections and rapport with customers.
After all, statistics indicate that approximately 80% of American citizens live less than 10 miles from a CVS branch.
This offers CVS a competitive advantage in terms of proximity to its customers. That is, it offers a unique convenience as it serves as the ever-present “corner stores” in practically every city.
Leveraging the locations, CVS has set up about 1,500 branches into “HealthHubs” by the end of 2021.
Basically, HealthHubs serve as emergency care clinics found inside CVS stores, providing customers with easy access to convenient and even cheaper after-hours health checkups.
Aside from this feature, a growing number of CVS stores are starting to get set up to be able to ship medicines or any other products ordered online, while other branches are being eyed as potential UPS drop-off points.
This setup will transform several branches into convenient “mini” distribution centers.
CVS has broken out of its “boring corner drugstore” image following its decision to target a more lucrative and massive healthcare sector.
It started the ball rolling when it acquired Aetna for $69 billion—a decision that so many investors disapproved of at that time.
Until recently, the market has largely ignored CVS because of the debt it incurred from the Aetna deal.
However, the tides had turned when investors finally realized that the drugstore giant had been efficiently and effectively executing a brilliant strategy all this time.
With Aetna under its wing, CVS has been granted access to a multitude of healthcare and managed care benefits availed by more than 23 million members. The sheer number of subscribers transformed the company into the third-biggest health insurer in the United States—next only to decades-long established providers Anthem and UnitedHealth.
Riding this momentum, CVS has been aggressive in revamping its image and expanding its services.
On top of its HealthHubs and Aetna advantages, CVS has recently paired up with Teladoc (TDOC) to leverage its virtual healthcare services to offer even more convenience to its customers.
This is another massive market since CVS already has roughly 35 million digital customers subscribed to its CVS app.
These users are all ordering products and other prescriptions from CVS. Integrating Teladoc’s services to the mix would be a surefire way of boosting its membership and adding a lucrative revenue stream.
Keep in mind that the global market for telehealth services is projected to expand somewhere between $300 billion to $700 billion by 2028—and that’s a conservative estimate.
CVS’ move to use Teladoc software is a positive indication of early technology adoption, positioning the drugstore chain at the forefront of a healthcare revolution.
Overall, CVS can only be described as a company striving to become a unique business that offers a range of products that no one else in the industry provides.
Although it’s improbable that it’ll sustain a monopoly in these services, CVS has been gradually transforming and growing into an almost unbeatable force in the industry by leveraging its strengths in an effective and logical method.
Moreover, it has evolved from a stodgy drugstore into an early tech adopter and a revolutionary business that can stand to challenge the likes of Amazon.
