Investors Alley

If there is one topic that scientists disagree strongly about in the field of medicine, it is the so-called amyloid hypothesis. This theory, believed by many scientists, holds that the protein amyloid-β accumulates into toxic deposits as Alzheimer’s disease progresses, ultimately causing dementia.

However, others think that amyloid is associated with the problem, but it isn’t the problem. The doubters point to a very detrimental second protein called tau. This protein also deposits in the brains of people who have Alzheimer’s, and it is actually the one that more strongly correlates with cognitive decline.

However, if the amyloid hypothesis does hold up, one company stands to benefit greatly…

Lecanemab and Alzheimer’s

That company is Biogen (BIIB), and it’s all thanks to recent clinical trial results.

Developed by Biogen and Japan’s Eisai (ESALY), lecanemab is a monoclonal antibody designed to clear clumps of amyloid protein from the brain.

The companies conducted a Phase III trial, Clarity AD, which ran for 18 months and covered 1800 patients in more than a dozen countries. According to data released on September 27, the drug candidate slowed the rate of cognitive decline by 27%; however, only a limited amount of data has been made available so far, and scientists are awaiting the full analysis results before proclaiming lecanemab a miracle drug.

Still—for a disease with virtually no effective treatment measures, that 27% is a significant figure.

At the moment, all doctors can offer Alzheimer’s patients are medications that alleviate some of the symptoms. Patients in the early stages of the disease might be given drugs to increase the levels of a brain chemical called acetylcholine, which helps nerve cells communicate. Also, psychiatric medications are sometimes prescribed to manage the behavioral and psychological symptoms that arise as Alzheimer’s advances.

The question remains whether the benefit lecanemab brings is worth the risks. During the trial, about 20% of participants who received lecanemab showed abnormalities on their brain scans that indicated swelling or bleeding, although fewer than 3% of those in the treatment group experienced symptoms of these side effects.

The FDA is reviewing lecanemab for ‘accelerated approval’ on the basis of Phase II results that showed a decrease in amyloid. The new Phase III results could tip the scales in favor of approval, although the trial is not formally part of the review. The agency expects to announce its decision on January 6, 2023.

Biogen Needs an Approval

Biogen needs the FDA approval on lecanemab badly.

Last year, its predecessor, aducanumab, was a flop. It was also designed to target amyloid plaque in the brain, but it wasn’t clear that the drug meaningfully slowed the rate of cognitive decline in clinical trial participants. In addition to the questions over aducanumab’s efficacy, there were concerns about its safety after roughly 40% of clinical trial participants developed brain swelling and bleeding.

Despite this, aducanumab received approval from the FDA, setting off an outcry. The Department of Health and Human Services, which oversees Medicare, decided to restrict the use of aducanumab to only patients enrolled in clinical trials. So, in effect, the drug’s rollout was over before it began.

Biogen’s share price suffered as a result, plunging from around $400 per share to a bit below $200. Shareholders have been hoping good trial results for lecanemab will turn the company’s fortunes around. For the company itself, lecanemab would be a game changer.

There’s no denying that many uncertainties remain around lecanemab. But Wall Street will be able to form a fuller opinion once the trial’s data is presented at the Clinical Trials on Alzheimer’s Disease (CTAD) conference in late November.

Then the drug will need to be approved for reimbursement by the Centers for Medicare and Medicaid Services (CMS), the same body that restricted the use of aducanumab to clinical trials. Both the conference and the CMS verdict have the potential to move Biogen’s share price in a big way.

But if all goes well, the reward could be huge.

Biogen’s Potential

With nearly six million Alzheimer’s patients in the U.S. today—and no effective method of slowing the disease’s progression—demand for lecanemab will likely be significant. Evaluate Pharma, a pharmaceutical industry intelligence provider, has estimated that the market for Alzheimer’s drugs will exceed $12 billion before the end of the decade.

Biogen’s portfolio of drugs is far less diversified across diseases than many rival biotechs and has fewer patented products as well. However, Biogen has the distinct advantage of a clearly defined specialty: neurological illnesses. Many of the diseases it seeks to treat, from multiple sclerosis to motor neuron disease, have few, if any, effective treatments available currently. This specialization serves as a kind of economic moat, or competitive advantage, for the company.

And Biogen remains much cheaper than its peers. FactSet places the company’s price-to-earnings multiple at 15.6 times for the full financial year—significantly below the 37.6 times average of its biotech peers.

Obviously, much will depend on government regulators and the release of full trial data for lecanemab. Nevertheless, there is plenty to be optimistic about with Biogen, making it a speculative buy.

You can buy shares anywhere in the $240 to $275 range.
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With the bond market in focus this year, there’s been plenty of options action in iShares 20+ Year Treasury Bond ETF (TLT). The long-term bond fund is the most active of the treasury bond ETFs, trading around 180,000 options per day on average. A large trader or fund placed a very interesting spread trade last

This year is on pace to be the worst in history for the standard 401k investment strategy. A balanced portfolio of stock and bond index funds has performed terribly in 2022. Workers who get their third-quarter 401k statements will be shocked.

Today, let’s discuss why this happened and how to do better…

The traditional 60/40 portfolio has 60% in stock index funds and 40% in bond index funds. The bond funds are supposed to be less volatile and make up for some of the stock market losses during bear markets. But that strategy hasn’t worked out this year: so far in 2022, stocks are down 23%, the iShares 7-10 Treasury Bond ETF (IEF) is down 17%, and investment-grade corporate bonds have fallen by 22%.

Put these negative returns together, and never in history has a traditional stock and bond balanced portfolio lost so much money. Most of us understand that stocks go through bull markets and bear markets. What’s harder to grasp is how investment grade and Treasury bonds can lose 20% of their value.

Bonds are interest-paying instruments that pay off a face value when they mature. The expected return should be the yield to maturity in effect when a bond is purchased. The problem comes from how bonds were viewed through 30 years of falling interest rates.

Bond prices move inversely to interest rates. This relationship means when rates are falling, bond prices are supposed to go up. The long period of falling interest rates trained money managers to count on capital gains from bond funds in addition to interest income. As interest rates moved close to zero, financial advisors continued to depend on bond price appreciation from the recommended bond funds.

A return to rising, and quickly rising, interest rates blew up bond fund investing. It’s a direct, mathematical correlation between bond fund prices and interest rates. Since bond funds don’t hold bonds to maturity, bond fund share prices go down and stay down when interest rates go up.

Bond fund prices are different from stock prices. Share prices can and do recover from a market decline. Bond fund share prices will only go up if interest rates fall, and the nature of bond funds (vs. owning bonds directly) makes recovery much less than the magnitude of the decline. And that’s assuming interest rates go down.

I hope you get the idea that index-tracking bond funds are not good for your wealth or your 401k account value. That said, now that interest rates have gone up, investing in fixed income securities makes sense in a balanced portfolio. You want to invest in securities with a fixed maturity that will pay a face value when they mature. Here are a few ideas…

Buy individual bonds. You can easily buy Treasury Bills and Notes through your brokerage account. Six-month T-bills yield above 4.3%, and these bonds are very liquid. Talk to your broker about municipal bonds if you are in a high tax bracket.

Certificates of Deposit (CDs) pay similar yields. You will likely find better CD rates through your stockbroker than from your local bank.

Series I Savings Bonds pay based on the rate of inflation and currently yield close to 10%. I Bonds have some limits and restrictions, but if you have some cash to sock away, the yield is fantastic.

The Invesco BulletShares series of bond ETFs solves the bond fund problem. Each of these ETFs own bonds that mature in a specific year. These funds allow investors to set up an old-fashioned bond ladder, an excellent tactic to maximize investment income and liquidity.

In my Dividend Hunter service, I have provided in-depth information on the BulletShares features and how to use them in a portfolio. See below for how to join.
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Ignore the premature celebration on Wall Street that inflation has been beaten and all is well with the world.

In reality, inflation is not close to being “beaten.”

For example, take a look at food prices in the U.S., which increased 11.2% in the 12 months that ended September 30, after jumping 11.4% previously (the most since May 1979). This is according to the latest inflation data published October 13, 2022, by the U.S. Labor Department’s Bureau of Labor Statistics.

And now, food prices are once again facing upward pressure. The latest blow to consumers is due to the record cost for shipping grain in the U.S.: it now costs $90.45 to transport one ton of freight by barge along the Mississippi River from St. Louis, Missouri, to New Orleans, Louisiana. This data comes from an October 6 report by the U.S. Department of Agriculture.

The price of barge transport has tripled over the past 12 months, hitting the highest figure ever recorded since 2003, when comparable data was first recorded!

This is not good news for consumers. But as an investor, you can offset rising food inflation by choosing a company that can do well in the current economic environment…

The jump in cost for barge transportation is due to the fact that this year, drought conditions have caused water levels in the Mississippi River to drop a lot. This triggered barge draft restrictions that have limited the amount of cargo each vessel can carry. In other words, it takes more barges to transport the same volume of freight.

A mere 170,000 tons of soybeans, wheat, and corn traveled down one segment of the Mississippi River during the final week of September, according to Department of Agriculture data. That’s a 50% decline from the average volume over the past three years.

As one grain trading analyst told Nikkei Asia, “We thought food inflation had subsided, but now it is gaining steam again.”

Archer Daniels Midland at a Glance

One company that will do well from this food inflation is Archer Daniels Midland (commonly referred to by its ticker symbol, ADM), whose stock has easily outperformed the broad market in 2022, up more than 28% year to date.

Founded in 1902 and based in Chicago, Archer Daniels Midland purchases, transports, stores, processes, and merchandises agricultural commodities and products worldwide. One of the world’s leading producers of ingredients for both human and animal nutrition, ADM transforms natural products into staple foods, sustainable and renewable industrial products, renewable fuels, and a vast pantry of food and beverage ingredients, supplements, nutrition for pets and livestock, and more.

ADM’s operations are organized into three business segments: Ag Services and Oilseeds (58% of 2021 operating profit); Carbohydrate Solutions (27% of 2021 operating profit); and Nutrition (15% of 2021 operating profit).

The Ag Services and Oilseeds segment includes activities worldwide related to the origination, merchandising, transportation, and storage of agricultural raw materials, as well as the crushing and processing of oilseeds like soybeans and soft seeds (cottonseed, sunflower seed, canola, rapeseed, and flaxseed) into vegetable oils and protein meals.

The Carbohydrate Solutions segment is engaged in the wet and dry milling of corn and wheat, as well as other activities. ADM converts corn and wheat into products and ingredients used in the food and beverage industry, including sweeteners, corn and wheat starches, syrup, glucose, wheat flour, and dextrose.

The Nutrition segment serves various end markets including food, beverages, nutritional supplements, and feed, along with premix for livestock, aquaculture, and household pets. It engages in the manufacturing, sale, and distribution of a wide array of ingredients and solutions including plant-based proteins, natural flavors, natural colors, emulsifiers, soluble fiber, probiotics, prebiotics, enzymes, botanical extracts, and other specialty food and feed ingredients. This segment is ADM’s least volatile business and one of its more profitable, with EBITDA margins in the low-to-mid-20% range.

A Look Ahead at ADM

ADM has reported five consecutive quarters of results that have beaten Wall Street forecasts. I expect a sixth such quarter when it reports results in late October 2022.

The bullish outlook reflects my outlook for further growth in the Oilseeds business (thanks to increased exports), expanded European capacity in Carbohydrates Solutions, and continued strong growth in the Nutrition segment, which is benefiting from strong global demand for soybean meal.

Longer-term, I expect the nutrition business to grow from 15% of profits in 2021 to 27% by 2026. This will make ADM less exposed to the ups-and-downs of the grain market.

On the dividend side, ADM’s balance sheet is clean, with few near-term debt maturities over the next few years. And management has signaled confidence in raising the dividend again this year.

Archer Daniels Midland is a Dividend Aristocrat, having now paid a dividend for 90 straight years!

Dividends have averaged just above 40% of net income for the past decade—a steady and sustainable pace. In January 2022, ADM raised its quarterly payout by 8.1% (the biggest jump in seven years) to $0.40 per share, or $1.60 annually, for a current yield of about 1.9%.

I fully expect another nice jump in the dividend in early 2023 and believe ADM stock will continue to outperform the broader stock market. The stock, currently around $87 a share, is a buy anywhere up to $95 a share.
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There’s one massive stock that is very telling of the economy.  They encompass housing, finance, consumer goods, real estate,  you name it.  The stock is in a sector that typically is the first to lead into a new bull market. Meaning, if this stock turns up (i.e. bullish), we’ve likely hit the bottom.  I share

Apple (AAPL) has been a haven in this turbulent market, but recent reports say it may not increase production of its new iPhone range because weaker-than-expected demand has caused a minor drop in its stock price.

Apple’s share price has fallen about 4% since those reports. The dip is an indication of the smartphone’s continued importance to the company, despite its efforts to diversify.

Speaking of diversification, are there products or services in Apple’s pipeline that could one day become as important to the company as the iPhone?

Here are two possibilities to consider…

Apple Going into Space?

Satellite/smartphone deals are all the rage in the telecoms industry, with deals aiming to connect satellites directly to either phones or cell towers.

Amazon has partnered with Verizon, OneWeb with AT&T, and Nokia with AST SpaceMobile. T-Mobile has signed a deal to connect smartphones to SpaceX satellites. SpaceX boss Elon Musk also says he has had conversations with Apple.

A move to satellites for Apple would align nicely with its current strategy. The company has started to use more of its own designed chips to increase autonomy over hardware manufacturing. And now, Apple may hope that satellites will give it more control over connectivity to its phones…which would put it in direct competition with wireless carriers like AT&T and Verizon.

Lending credence to the satellite prediction, Apple has already sealed a deal for satellite messaging services with the satellite communications company Globalstar (GSAT).

Apple has said its new iPhone 14 series will include an “Emergency SOS” feature that will allow users to send emergency messages via satellite when out of terrestrial network coverage. This feature will come online in November and initially will be available only in the U. S. and Canada; it will be free for at least its first two years.

The tie-up has pushed Globalstar’s share price up about 55% this year. It was a life-saving deal for the loss-making company, whose stock is only around $1.73 a share, and had revenues of only $124 million in 2021. Apple has warrants to acquire up to 2.64% of Globalstar’s stock at $1.01; in return for its investment, Apple will control 85% of Globalstar’s network capacity.

A buyout of Globalstar seems almost inevitable. The potential gains for Apple could be noteworthy. Keep in mind that Globalstar comes with an existing satellite network plus approval for satellite-based mobile services. That would be another big advantage against iPhone competition.

If Apple’s satellite services also include internet connections in the future, Apple could add another large source of recurring revenue. Internet access in many isolated locations in the world is very valuable.

And even if we focus on just the U.S., an Apple satellite network would be big for the company. If 1% of iPhone users paid $100 a month for internet access via satellite, this service would add close to $1.5 billion to the Apple’s annual revenue, adding to Apple’s bundle of profitable services.

The Next iPhone?

On the hardware side, Apple’s next breakthrough product could be a virtual reality (VR) headset, which could be unveiled as early as this autumn. The company has been moving toward producing this product for a while now, making about a dozen purchases in the fields of virtual and augmented reality over the past six years.

Little is known about this new Apple product, but a “pass-through” video system from Vrana, a start-up company Apple bought in 2017 for $30 million, might be a key feature. Vrana seemingly solved the problem of not being able to see real-world objects while being inside a virtual world. The company repurposed the cameras in its Totem prototype, which had been designed to sense a user’s position, to allow users to also view their surroundings. The whole idea here is that users would be able to see the physical world around them overlaid with digital images.

The VR market remains tiny in comparison to the smartphone market at the moment, and it is currently dominated by Meta Platforms (META). Sales of Meta’s Quest 2 headset reached an estimated 10 million units last year, giving Meta 78% of the VR market, according to research firm IDC.

But based on Apple’s history, it would not surprise me if Apple’s headset quickly does to the Quest headsets what the iPhone did to Blackberry and Nokia.

While few analysts expect AR or VR to go mainstream overnight, researchers at Citi expect that 1 billion people—roughly the number of iPhone users today—will be wearing headsets by 2030. The researchers believe this will translate to a market worth up to $2 trillion in revenue by the end of the decade.

Many things have to be fixed before this happens, however—including improvements in battery power, user interface, and physical comfort for VR and AR headsets. But Apple has done it before—recall that when Apple created the iPhone, its biggest breakthrough was to replace a physical keyboard with a multitouch screen.

Perhaps someday, Apple’s headset will rival and maybe even replace its iconic iPhone.

With these two potential blockbuster products/services coming in the relatively near future, Apple’s stock remains a buy. Just keep slowly accumulating Apple stock during the current bear market. You will be rewarded when Apple’s next big thing comes to fruition.
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A big deal in the grocery store space was announced last week with the potential acquisition of Albertsons (ACI) by Kroger (KR). The merger would create a grocery chain with roughly 12% control of the US market. It’s difficult to say if the deal will make it through antitrust scrutiny. Interestingly, short-term block options trades

With the stock market tumbling, investors are on the hunt for safer investments that pay attractive returns. The fact that you can earn 9.62% from a U.S. Savings Bond is getting a lot of buzz.

Today, let’s review the features, pros, and cons of investing in these Series I Savings Bonds.

The U.S. government sells two types of saving bonds. We may remember the Series EE Bonds from our youth when we received them as gifts. EE Bonds pay a fixed rate, currently set at 0.10%.

Series I Bonds pay a fixed rate plus the inflation rate. The fixed-rate sits at 0.0%; however, the inflation rate portion is currently set at 9.62%.

Series I Bond rates are set twice a year on May 1 and November 1. The rate you initially earn will be in effect for the six-month window when you purchase your I Bonds. To lock in the current 9.62% rate, you must buy I Bonds no later than October 28.

Series I Bonds compound semi-annually. This means if you buy an I Bond now, it will earn 9.62% for six months, and then the rate will reset to the rate in effect on the semi-annual anniversary date. Simply put, the Series I Savings Bond rate resets every six months.

Here are the features of Series I Savings:

You can buy up to $10,000 of electronic I Bonds per year per person. You buy bonds through the Treasury Direct website.You can buy electronic bonds for any amount of $25.00 or greater.You can invest up to $5,000 of your federal tax return into paper I Bonds.Paper bonds come in denominations of $50, $100, $200, $500, and $1,000.I Bonds earn interest for up to 30 years.You can redeem a bond after one year, but if you redeem during the first five years, you will be charged a three-month interest penalty.I Bond interest is exempt from state income tax.For federal income taxes, you can declare the interest each year and pay taxes or let the interest grow tax-deferred until you redeem the bonds.

Overall, in this era of high inflation, Series I Bonds are a pretty good place to sock away some money.

But, there are some potential pitfalls to consider:

The $10,000 annual investment cap limits how much money you can put into I Bonds. You can’t sock away your entire nest egg and earn a government guaranteed 9.62%.Interest compounds to the value of the bond. You cannot elect to have the interest paid out. Your earnings will be tied up until you redeem the bonds.The semi-annual rate reset means you may earn a much lower interest rate in the future. The next reset on November 1 should be very attractive, but the rate could be much lower a few years later.

If you can live with the restrictions, Series I Savings Bonds offer an attractive, U.S. government-guaranteed return with the current 9.62% yield (if purchased before October 28), and can provide some stability to your investment portfolio. You can buy savings bonds through an account on the TreasuryDirect.gov website.
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Some of the dividend stocks below are the best dividendstocks while others require more research. Ticker Ex-Div Date Pay Date Amount Yield ARR 10/14/22 10/28/22 $0.10 22.68% MVO 10/14/22 10/25/22 $0.69 15.10% GNL 10/12/22 10/17/22 $0.40 14.71% SBR 10/14/22 10/31/22 $1.02 14.34% RTL 10/12/22 10/17/22 $0.21 14.20% OXLC 10/14/22 10/31/22 $0.08 13.90% PMT 10/13/22 10/28/22