"Many ideas grow better when transplanted into another mind than the one where they sprang up."
- Oliver Wendell Holmes
The US Medical Economy is undergoing a once in a generation transformation. As Keith likes to say, change happens slowly, and then all at once and COVID-19 was the catalyst that accelerated the change. This new version of health care is awash in a soup of buzzwords, fresh capital, gurus, and new technology.
The key differences between Legacy Providers and Health Care 2.0 is the emergence of the hybrid model, or one that blends the traditional in-person doctor visit with an array of digital tools. This is where we find our buzzwords like remote monitoring, telemedicine, digital health, value based care, longitudinal care, and integration, and where we find our investment opportunities.
There will be a great deal of disruption, winners and losers, and longs and shorts along the way.
Back to the Health Care Macro Grind…
MicroQuads were born out of frustration. We've all had the experience being 100% confident on a name, being right, and still being wrong on the stock. Near perfect fundamental research, whether it is the outcome of a quarter, anticipated changes in guidance, the complete understanding of how the company narrative would play out, is no guarantee of success.
After mopping up the mess, we can look for explanations and narratives to explain away the mistake, like "the market," dumb money, shady management teams, and the like, but that doesn't get you very far. It’s certainly not a repeatable process.
Instead of narratives, MicroQuads provide a lens for data. If you follow Hedgeye, you know we look at data in terms rate of change, slope, and acceleration. A forward estimate trend is a line that frequently correlates with a stock price. If we know where estimates are going we generally have an good chance of getting the stock right.
What we've found is the slope and acceleration of the estimate trend matters more than anything else at the individual stock level, but the probability of a successful outcome is driven by Macro Quads. So each week we calculate the slope, acceleration, correlation, and MicroQuad for each of our tickers. Then we spend our time on fundamental research that tells us where trends look like they'll change in the future.
When we know both the MicroQuad and the Macro Quad our outcomes improve dramatically whether we are measuring average price changes, batting average, or slugging percentage.
Regardless of the Macro Quad we want to be long stocks with an estimate trend that has a positive slope that's accelerating and we want to be short a negative slope that's decelerating. All of our fundamental work is organized to figure out which stocks are in which MicroQuad and to forecast when those trends might change.
As with all things Hedgeye though, we're constantly iterating and improving, not just the underlying data and analysis, but the way we tell the story. In this case, similar to the hybrid model emerging in Health Care, MicroQuads are a hybrid of fundamental and macro research.
If you would like to learn more about my research team's in-depth investing research please reach out to .
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.58-1.77% (bullish)
UST 2yr Yield 0.12-0.17% (bullish)
SPX 3 (bullish)
RUT 2113-2403 (bullish)
NASDAQ 12,848-13,670 (bullish)
Tech (XLK) 127.54-134.55 (bullish)
Energy (XLE) 46.76-53.51 (bullish)
Financials (XLF) 33.05-35.05 (bullish)
Utilities (XLU) 61.04-63.57 (bearish)
Shanghai Comp 3 (bearish)
Nikkei 286 (bullish)
VIX 17.90-22.19 (bearish)
USD 91.21-92.96 (bearish)
USD/YEN 108.43-109.69 (bullish)
Oil (WTI) 56.63-66.98 (bullish)
Nat Gas 2.41-2.71 (bearish)
Gold 1 (bearish)
Copper 3.97-4.21 (bullish)
Silver 24.24-26.11 (bearish)
Have a great weekend,
Tom Tobin
Healthcare Sector Head
