“Whatever it is the strategy is the same. 1% Better every day. YES, I did the work but I had angels helping me."
- Chris Nikic, the first athlete with Down’s Syndrome to complete the Ironman Triathalon
The word "Wuhan" popped up in the United States Google Trends timeline on January 21, 2020, and it's been a long pandemic ever since. The mounting costs of COVID-19, in deaths and suffering and financial loss, has been balanced, although not fully by any means, by triumphs of human innovation.
The breadth of innovation has been at times as breathtaking as the suffering was stark. Of all the things that have changed in 2020, the Healthcare Sector has seen the most meaningful transformation. But these were not changes that happened in an instant, they came at the end of a slow persistent accumulation of small changes over many years. On January 21, 2020, the stage and the actors were in place; it just took a global pandemic to give it a nudge.
Innovation began with learning how to treat COVID patients. Healthcare workers deserve our gratitude and admiration not just because they rose to the highest ideals of their profession, but they stepped into the breach and were as fearless as we were powerless in the face of a deadly virus. There was no manual on how to treat COVID-19, so they leaned on their training, instincts, and global community to rise to the occasion. They innovated in small ways, took risks, shared information in new forums, and ultimately succeeded in rendering COVID-19 less deadly.
COVID-19 taught us to harness the body's own cellular machinery to make a vaccine from RNA, a molecule that literally only carries instructions and nothing else. Regulators and Federal Agencies tore up the manual and helped industry develop COVID-19 vaccines in a fraction of the time it has taken historically. The vaccine is not only safe and effective, there is now an entirely new and improved platform for vaccine development (this benefit will extend well into the future).
We believe COVID-19 has set the Healthcare Sector on a path of deflation. Unlike almost every other industry on the planet where things get better and cheaper at the same time, over many decades the U.S. has proven to be great at spending more money on medical care than everyone else in the world, with only worse outcomes to show for it. The pandemic pushed Doctors, patients, and policymakers to use a smartphone to deliver care, and that has unleashed the digital tools which place the Consumer at the center of their medical care (and data). For the first time, the Healthcare System is competing for patients.
This new “Post-COVID” U.S. Medical Economy will have winners and losers. While telemedicine is leading to new models to deliver medical care service such as One Medical and 98point6 who will take patients from traditional medical practices. With telemedicine, we need fewer exam rooms and less of the physical delivery system. The doctor's office is literally migrating into our homes with the adoption of remote patient monitoring equipment such as the blue tooth enabled scales, thermometers, and blood pressure cuffs manufactured by companies such as Masimo, Tytocare, Kinsa, and Livongo. Immertec enables a surgeon to train in immersive virtual reality environments. Babylon is paving the way for algorithms for AI-enhanced physicians. Will CVS shed its brick-and-mortar skin and deploy #digitalhealth fast enough to survive? We have our own suspicions, but at a minimum, it is a valuable question to answer.
The investing landscape for Healthcare is the most dynamic we’ve ever seen. Companies that transform will thrive, others will fade away, whole new industries are emerging, and fortunes will be made and lost along the way.
Hand waving and fantastic stories of the future doesn't get anywhere without understanding Macro, and who better to have than the Hedgeye Macro Team at your back. While Macro Quads get guide us to the sector and style factor level, an individual stock is dominated by its fundamentals. Our 2020 innovation has been to build a quantitative bridge between Macro and Fundamentals. We call it MicroQuads.
MicroQuads converts estimate trends, a key driver for many individual stock prices, into a continuous line, something that is easy to do with a pencil, but harder to do at scale, digitally, and in real-time. MicroQuads is a standardized measure which means we can compare estimate trends in terms of growth, either fast or slow, and acceleration, either positive or negative, across companies. The four possible combinations - or quadrants - of growth and acceleration give us a measure of fundamental momentum.
Our back tests show stock average performance and batting average neatly follows these MicroQuad curves. With a weekly review we are continuously refreshing our workflow funnel with high probability longs and shorts. We can put our narrative-driven fundamental view into a quantitative context. More important, all of the data-driven fundamental methods we've accumulated over the years, from primary research to alternative data and machine learning forecast methods, are incrementally more valuable. We can now front-run the machines by heading to where the fundamental puck is going.
We're excited to be launching Health Care Pro where you can follow along with us as we screen our companies for longs and shorts, host interactive calls with the experts leading the way, and navigate the most dynamic investing environments for Healthcare ever.
Back to the Global Macro Grind…
Here are the Top 3 Things that Hedgeye CEO Keith McCullough has highlighted for this morning:
- USD – textbook-two-day bounce from USD’s immediate-term TRADE #oversold signal (Monday) and now we can go back to A) shorting it again and B) buying the damn dips in our #InflationAccelerating exposures (Long Commodities since June) with USD Index signaling lower-lows in my Risk Range (vs. the AUG lows) for the first time this morning
- 10YR – textbook correction from the top-end of the @Hedgeye 0.76-0.99% Risk Range with UST 10yr Yield down to 0.94% this morning, reminding you that this Phase Transition from #Quad3 to #Quad2 in Q1 of 2021 doesn’t all happen on 1 PFE #VaccineDay
- EUROPE – the only major Equity market I’m short right now is Europe with a keen focus on shorting both Germany (EWG) and Spain (EWP) post their recent Counter @Hedgeye TREND bounces to lower-highs; European Bond Yields resume their TRENDING decline this AM makes European Financials (EUFN) a great short selling opportunity up here too
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.76-0.99% (neutral)
SPX 3 (bullish)
RUT 1 (bullish)
NASDAQ 10,765-12,056 (bullish)
Tech (XLK) 108.99-125.72 (bullish)
Utilities (XLU) 63.61-67.22 (bullish)
Financials (XLF) 24.21-27.86 (neutral)
Energy (XLE) 30.60-34.99 (bullish)
Shanghai Comp 3187-3405 (bullish)
Nikkei 24011-25660 (bullish)
DAX 116 (bearish)
VIX 22.68-39.49 (bearish)
USD 91.78-93.25(bearish)
Oil (WTI) 38.62-42.64 (bullish)
Nat Gas 2.71-3.39 (bullish)
Gold 1 (neutral)
Have a great day out there!
TT
Tom Tobin
Managing Director, Health Care
