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The Japanese yen is the second largest component of the Dollar Index (DX). It occupies 13.6% of it.
The real interest rate differential is the main reason behind the current severe weakness of the yen. I have already visualized it for you in my earlier post in August.
The Bank of England (GBP, 3rd largest part of DX) and lately the European Central Bank (EUR, the largest component of DX) raised their interest rates significantly during the last meetings. The Bank of Japan (BOJ), the Japanese Central Bank has kept its negative rate of -0.1% since 2016. Moreover, it repeated that it would not hesitate to take extra easing measures if needed, falling out of a global wave of central banks tightening policy.
Why BOJ is so dovish? There are several reasons. One of them, the history of inflation as shown in the chart below.
Source: TradingView
Japan has had a chronic deflation since the 1990s after the asset bubble burst. We can see how short term spikes of inflation (orange line) into the positive territory were short-lived. The BOJ didn’t even touch the interest rate in spite of inflation that has soared to unseen levels of 3.7% in 2014. This time around, the inflation didn’t race to the same peak and as I wrote above, the BOJ thinks of an opposite – easing!

The BOJ governor Mr. Kuroda said in the summer “If we raise interest rates, the economy will move into a negative direction.” The Japanese Central Bank does not want to cause a recession as the economy is still fragile.
Maybe the next chart could clarify the logic of the BOJ.

The land of the rising sun has hoarded the giant government debt from circa 56% of nominal GDP in 1994 up to the current 231%. This indicator in the U.S. stands close to 140%. From this perspective, rising interest rates means growing expenses to serve the debt. This could demotivate the tightening.
Now, let us move to the comparison of the FX chart with the real interest rate differential.
Source: TradingView
The USDJPY (blue bars) accelerated higher with the rising real interest rate differential (red line) this year.
The Fed is not afraid to throw the U.S. economy into a recession, but the BOJ is, so the former makes unprecedented hikes of the interest rate. The next Fed move is expected this week and the only question is +0.75% or +1%.
I added an orange box on the chart to highlight the area where the negative gap will shrink from the current -3.1%. It could hit either -2.45% or -2.10%. This could charge another rally of the US dollar against the Japanese yen towards ¥150 per $1 and beyond.
I would like to complete the picture with the technical chart below.
Source: TradingView
The yen chart is just beautiful. The USDJPY is usually one of the clearest in terms of the structure among foreign exchange pairs.

Since 2011, we can highlight two large moves to the upside. The first move, marked as a blue AB segment, was completed in 2015. The following BC consolidation has emerged in the form of a Triangular Consolidation (purple trendlines). It took the market almost six years to shape this large structure, longer than the preceding AB move. This again confirms the tricky nature of corrections and its time consuming ability.
We are on the CD move now. It has a sharp angle, though it could last longer. This part will travel the same distance as the first move when it will reach ¥152.89. The yen should weaken 7% in this case. The next target is located at the 1.272x of AB segment at ¥166.56, which equals to 16.6% of dollar gain.
The nearest support is located in the valley of the preceding correction in ¥130. The 52-week simple moving average is located lower at ¥123.48. Both supports are too far, as the trend is sharp.

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Intelligent trades!
Aibek BurabayevINO.com Contributor
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Finding winners in the pharmaceutical sector is not an easy process. But it is potentially quite lucrative.
For the pharmaceutical companies themselves, the current environment for success is reminiscent of the Greek myth surrounding Sisyphus, whom the gods condemned to repeatedly roll a boulder up a hill—only to have it roll down again once he got it to the top—for all eternity.
Today’s pharmaceutical firms must use vast amounts of capital in search of a blockbuster drug, which can generate $1 billion or more in annual sales. But then, even when such a medicine is found, the benefits provided are fleeting: from the moment a drug makes it to market, the clock begins ticking on its patent exclusivity. Once this expires and generic copycats reach the market—typically within a decade or so—revenues for the original inevitably fall, and often quite rapidly.
Then, like Sisyphus, the companies climb the hill of developing blockbuster drugs again, investing anew in the whole risky and costly process of drug development.
If you are an investor in the sector, you want to focus on the companies that have drugs in their pipelines with blockbuster potential, as well as the funds necessary to propel them through several trial stages.

Since 2010, the global pharmaceutical sector has invested the equivalent of around one quarter of its revenues in drug development each year. The U.S. industry alone spent some $83 billion on R&D in 2019—when adjusted for inflation, that’s about 10 times what it spent in the 1980s!
So, which segments of the pharmaceutical industry (and which drug companies) are poised to come up with the next blockbuster drugs?
Precision Therapies
Recent advances in science are ushering in a new era of highly effective personalized medicines. So-called precision therapies are based on greater understanding of how diseases work on a molecular level. This translates to doctors being able to identify what treatments fit which patients, and why.
Precision therapies are tailored to fit specific groups of people. This means they will likely be highly effective. But can cutting-edge personalized medicines reach blockbuster drug status? The naysayers say the market size is too small…but they seem to forget that innovative drugs can command very high price tags.
Consider recent data from the drug price tracking service division of GoodRX (GDRX). It shows that, after 15 years on the market, the average drug with accelerated approval by the FDA underwent 15.4 price increases. Drugs subject to conventional approval saw 12.7 price increases in the same span of time.
Keeping an eye on the list of development-stage therapies expedited through the FDA’s approval processes can provide insight into which companies have potential blockbusters in the pipeline.
AstraZeneca (AZN)
One company that fits that profile is AstraZeneca (AZN), and here’s why it is so interesting…
The company specializes in one of the areas where personalized medicine is making great strides: oncology. It already has three blockbuster cancer drugs. Per Morningstar:
Overall, the company looks well positioned for growth with the recently launched cancer drugs carrying strong pricing power that should have an amplified impact on the bottom line. We expect the first-line lung cancer indication for Tagrisso combined with the likely gains in adjuvant lung cancer will drive peak sales above $9 billion annually. Also, cancer drug Imfinzi should gain share in Stage III lung cancer where treatment options are limited and the drug holds growing potential in other cancers. Additionally, BRCA-focused cancer drug Lynparza is well positioned to gain further market share in new indications.
And now, one of the company’s other treatments, Enhertu, is viewed by some as the next big thing. It has been granted five separate breakthrough therapy designations by the FDA: three for hard-to-treat types of breast cancer, and one designation each for lung and gastric cancers.
Enhertu is an antibody drug conjugate (ADC), a type of therapy that is designed to do minimal damage to healthy, non-cancerous cells. It works by attacking tumors that test positive for a protein called HER2, which is associated with worse disease outcomes.

Known as “biological missiles.” ADCs are part of the new generation of personalized cancer treatments that target tumors with specific features, or biomarkers. Some 12 ADCs have received regulatory approval to date, while more than 100 others are in various stages of development.
Wall Street analysts believe that Enhertu has the potential to become a key growth driver for AstraZeneca. Consensus estimates are that sales could reach $4.5 billion by 2026, up from a negligible level now.
AstraZeneca’s Bright Future
The company had a relatively late start on emerging from the industry patent cliff that largely started in 2012. But today, AstraZeneca’s strong lineup of next-generation drugs should easily offset sales lost to new generic competition.
Morningstar says: “…we project the majority of new drug sales will be supported in therapeutic areas with strong pricing power with a heavy focus on differentiated oncology drugs Tagrisso and Imfinzi, Lynparza and Calquence.”
Annual sales growth over the next five years should in the 8% to 10% range as new products offset patent losses. Profit margins will expand too as high margin personalized drugs, particularly in oncology, will represent a larger proportion of overall sales over the next five years.
The stock is a buy anywhere in the $60 to $65 range.
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About the Author
Tony Daltorio is a seasoned veteran of nearly all aspects of investing. From running his own advisory services to developing education materials to working with investors directly to help them achieve their long-term financial goals. Tony styles his investment strategy after on of the all-time best investors, Sir John Templeton, in that he always looks for growth, but at a reasonable price. Tony is a regular contributor for InvestorsAlley.com.

It’s been a challenging year thus far for the restaurant industry, with dollars typically allocated to entertainment and a Friday night out wrestling to steal priority from rising gas bills, elevated energy costs, and higher mortgage rates.
Some restaurants have resorted to discounting to drive traffic, while others have relied on menu innovation and limited-time offers vs. promotional activities to protect their already softening margins.
(Source: Twitter, ND Wealth Management, Steve Deppe)
Those brands that are the most out of touch have continued to raise prices at a double-digit pace to ensure they maintain margins, with Chipotle (CMG) being one such offender. While this is likely to protect margins in the interim and allow the company to meet earnings estimates, it could backfire over the medium-term, with loyal customers feeling taken advantage of after being hit with consistent menu price increases in a recessionary environment.
Although this has made it difficult to invest in the sector, a few names are doing a great job navigating the current environment, and following recent share price weakness, they’ve slipped into undervalued territory.

One is a new breakfast chain that’s bucking the negative traffic trends in the casual dining space and enjoying industry-leading retention due to a key competitive advantage. The other is a pizza chain that’s enjoying strong unit growth, and while it’s having a tough year, annual EPS is forecasted to hit new all-time highs in FY2023 and FY2024.
Let’s take a look below:
First Watch Restaurant Group (FWRG)
First Watch Restaurant Group (FWRG) is a brand with over 450 restaurants serving breakfast in the United States, with a unique model being open from just 7 AM to 2:30 PM.
This has allowed the company to evade the industry-wide staffing issues, with its team members able to maintain a work-life balance, which isn’t possible for most restaurant brands.
In addition to solid staffing metrics that led the industry average, the company released blowout results in Q2, reporting traffic growth of 8.1% vs. an industry that saw negative 4% traffic in the quarter.
This translated to 20% system-wide sales growth ($231.2MM) and 13.4% same-restaurant sales growth, which trounced analyst estimates. The only negative in the report was that commodity costs came in higher than expected, stealing the sales leverage and leading to a 400 basis point decline in restaurant operating profit.
That said, this is still a very respectable figure, and the contraction in margins was largely due to being so conservative with pricing since the pandemic began. With the benefit of an overdue 3.9% price increase in July, I expect much of this margin pressure to abate.
(Source: FASTGraphs.com)
Despite this incredible sales performance in a quarter where traffic has been anemic, First Watch trades at a very reasonable valuation, sitting at just 10x FY2023 cash flow estimates. This might appear steep at first glance, but this business is growing units at a double-digit pace, making it one of the fastest-growing brands sector-wide.
Importantly, this growth is supported by growing average unit volumes, solid margins, and supportive staff, de-risking the growth profile vs. other brands. So, if this weakness in the stock persists, I would view any pullbacks below $14.40 (9.3x FY2023 cash flow) as a buying opportunity.
Papa John’s International (PZZA)
Papa John’s International (PZZA) is a mid-cap pizza chain in the restaurant space, and the company just came off a huge year, reporting record annual earnings per share of $3.43, a 145% increase from the year-ago period.
This was driven by impressive same-store sales growth, opportunistic share buybacks, and double-digit unit growth, an impressive feat for a company with over 5,000 restaurants globally (5,650 restaurants in 50 countries as of year-end 2021).
However, the company’s phenomenal year pinned it up against tough year-over-year comps, having to lap 145% earnings growth in a macro environment that’s much trickier to navigate. While the softened Q2 results were largely out of the company’s control, they came in below what the market was looking for, with revenue of just $522.7, a 5% increase over the year-ago period.
Meanwhile, although comparable sales in North America remained positive at 0.90%, International comparable sales dipped deeply into negative territory at (-) 8.0%.
While this is undoubtedly an ugly headline number, it’s important to contextualize the two figures. Although comp sales were down on a consolidated basis and fell sharply internationally, Papa John’s two-year stacked same-restaurant sales are sitting at 6.1% and 13.2%, respectively, with International (13.2%) having to lap a 21.2% growth rate in Q2 2022.
These are solid figures, but the deceleration combined with inflationary pressures that hit earnings (quarterly EPS: $0.74 vs. $0.93) has put a severe dent in the stock.
(Source: FASTGraphs.com)
The good news is that this 42% correction has left PZZA trading well below its 10-year average earnings multiple of 35, and even if annual EPS sinks year-over-year, it will still be up over 120% vs. FY2020 levels. More importantly, it’s expected to hit new highs in FY2023 and FY2024 based on current estimates of $3.71 and $4.08, respectively.

Hence, I see this aberration in this strong earnings trend as a buying opportunity. That said, the ideal buy point for PZZA comes in at $77.00 or lower, where it would trade at ~21x FY2023 earnings estimates vs. what I believe to be a fair value of $110.00 per share, translating to a 30% discount to fair value.
While FWRG and PZZA may not be in low-risk buy zones, these are two names with strong growth that have loyal customer bases, boast strong unit growth, and are temporary victims of their success. This is because their strong FY2021 resulted in them being up against nearly insurmountable comps this year.
Still, I see the future as bright for both brands and meaningful earnings growth on the horizon post-2022, so I would view pullbacks below $14.50 on FWRG and $77.00 on PZZA as buying opportunities.
Taylor DartINO.com Contributor
Disclaimer: This article is the opinion of the contributor themselves. Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information in this writing.