Bullseye Brief presents three thematic, actionable investment ideas every other week. My goal is to help identify only those opportunities most worthy of your time… by analyzing data, distilling complexity and sharing insights from a deep network of experts. I love what I do and invite you to join me.
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Adam Johnson

Adam Johnson anchored several business programs at Bloomberg Television over five years, interviewing CEOs, heads of state, and Nobel laureates. His daily video investment blog, Insight and Action was sponsored by a major U.S. lender. Previously he managed global risk assets for ING Furman Selz and Louis Dreyfus, trading oil futures, listed equities and equity options. Adam began his career at Merrill Lynch with a degree in economics at Princeton.


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Welcome Bluebird

Our Inherited Biotech

  • J&J’s $30B purchase of Actelion Pharmaceuticals closes on/around June 16, 2017
  • Actelion holders receive $280 in cash plus one share in a new R&D spinout called Idorsia Ltd
  • Idorsia will begin trading mid-June on the Swiss SIX Exchange under the ticker IDIA SW
  • Initial funding includes nearly $1B in cash and access to a $250M credit facility provided by J&J

Johnson & Johnson’s acquisition of Swiss-based biotech company Actelion has finally closed, and in coming days we will receive our $280 in cash as well as shares a little bluebird called Idorsia Ltd (IDIA SW). This new biotech R&D company was created as a spinout from the merger transaction at the request of Actelion founder Jean-Paul Clozel, who has absolutely no interest in retiring at age 61. In his own words, “I’m going to stay in my little corner within the laboratories” and that’s exactly where we want him. This is the scientist who pioneered a solution to pulmonary hypertension for which J&J paid $30B. Now he’ll have all the resources he had before the merger, but with even more capital behind him. Shares have been trading in Europe on a when issued basis at about CHF 4 (the SwissFranc/USD exchange rate is about 1 to 1) and I’m quite happy to receive this call option on Mr. Clozel’s continued efforts to pursue ground-breaking drug therapies. We’ll see where it opens once it begins trading, but in the mid-single digits I’d suggest buying more. At that price it’s a call option on 9 possible drug therapies in various stages of development… overseen by a visionary who’ll be working for years.


June 16, 2017

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Macy’s on Parade

This Turkey’s Too Cheap

  • Macy’s has fallen 70% from its all-time high and now trades at one of the cheapest valuations in retail
  • The company has reiterated its commitment to the current dividend payout which now yields 6.7%
  • New management recently outlined its value plan for winning younger mobile customers
  • 841 stores with 130M square feet offer significant redevelopment and partnership opportunities

I love Thanksgiving… football, food and getting up early to meet friends on the west side for the Macy’s Thanksgiving Day Parade. Some of the balloons stand five stories high, and filling them makes Macy’s Inc. the world’s second largest buyer of helium behind the U.S. government. If only some of that helium could find its way into the stock price. Shares have fallen 70% from the all-time high, even though one in every two Americans shops at the 159-year old retailer at least one a year. E-commerce has decimated brick and mortar retail, but if you take stock prices down far enough, invariably value buyers start paying attention. This is why the family members who own Nordstrom have recently discussed taking the company private, and why I’m doing what was previously unthinkable… recommending Macy’s as a BUY. Shares have simply gotten too cheap to ignore, and with a new CEO eager to hone mobile strategy and harvest real estate value, I see catalysts as well.


June 16, 2017

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Best in Breed

Permian E&P Play

  • Improved drilling technology and wellhead management have cut breakeven costs by 50% since 2013
  • Multiple hydrocarbon layers stacked within the Permian Basin provide exceptional drilling economics
  • Pioneer derives 81% of its BOE production in the Permian and operates as the basin’s largest producer
  • Pioneer is the most hedged and lowest leveraged U.S. onshore E&P as of Q1 filings

Bloomberg Television sent me to the largest live cattle auction in central Texas during the drought of 2011. It was quite an education. Grazing land had become so parched the market for calves imploded, whereas 14-month olds ready for slaughter traded at the highest price in years. The auctioneer taught me to look for flatness across the top of the back (no protruding bones) balanced by minimal fat hanging under the brisket. He described these as Best in Breed, saying they commanded a premium and when you bought Best in Breed you couldn’t go wrong. Stocks are oftentimes the same way, and when it comes to oil exploration, you want the best producer in the best location. Currently that mantle goes to Pioneer Natural Resources (PXD), the single largest operator in the highly coveted Permian Basin of west Texas. These fields are so stacked with layers of hydrocarbons they’ve been active since WWII, and Pioneer’s disciplined approach yields consistently profitable results. Best in Breed… easy to remember, the one to own.


June 16, 2017

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1

As in the Federal Reserve “dot plot” survey of FOMC members suggests only 1 more rate hike for 2017, which I think actually perpetuates the very disinflation the Committee fears most.
#Backwards

14

As in 14 Uber managers will divvy up the responsibilities formerly held by Travis Kalanick, the embattled CEO/Founder who’s taken a leave of absence after multiple scandals.
#InOverHisHead

60

As in Mattel cuts its dividend 60% on falling sales as kids dump Barbies and Hot Wheels for iPads.
#PassingOfAnEra 

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“They’re greedy bastards… these guys just want us to sell and they’re trying to destroy the reputation of Whole Foods so they can make 40-50% in a short period of time.”
–Whole Foods Founder and CEO John Mackey responding to activist fund Jana Partners as it calls for a restructuring and/or sale of the company.
#DownsideOfBeingPublic

“You should have the courage to walk away and be honest with yourself when you do something wrong… you shouldn’t be married to your position and your pride.”
–Apple CEO Tim Cook on lessons learned as The Boss

#We’veAllBeenThere

“I’m looking forward to seeing my daughter Amanda graduate and watching her make her speech.”
–Phil Mickelson explaining why he chose to withdraw from this year’s U.S. Open.

#FamilyFirst