The H.E.A.T. Formula is a radically different way to look at investing your portfolio.

‍H- Hedges, you should always have hedges and be agnostic as to being long or short. Bonds are not a hedge

‍E-Edges, you should always look for edges. Preferably these are edges with some sort of psychological underpinning, structural edges, or some sort of barrier to entry.

‍A-Asymmetric. Everything you do, be it trades or your overall portfolio, should be designed so that heads you win a lot, tails you lose a little.

‍T-Themes. You should always be invested in the top themes. Most everything else is just noise.

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The Watchlist 1/16/25

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In the News

Three call options to watch in the new administration-Yahoo Finance

Nvidia Zero-Day Options Are the Next Big Bet for One ETF Upstart-Advisor Perspectives (Bloomberg)

All The Alpha Is Gone Except For AI - Matthew Tuttle-Seeking Alpha

Another big rally, and another great day for most of the names and themes we have been talking about. Probably a good time to put in some hedges. There are some more sophisticated things I do, but some simple ideas could be VIX or UVXY calls, a put spread or some outright puts on SPY, or some puts on ARKK. I think when you have a good run it is better to avoid giving a bunch of it back than it is to worry about missing out on every lit bit of potential upside. A great quote goes something like this, take your profits or else someone will take them from you.

Keep an eye on rates, after a big drop they are bouncing again.

Cramer said this last night, as usual he’s wrong….

Jim Cramer predicts market action will reflect Trump instead of the Fed-CNBC

Trump will create winners and losers, but rates overshadow everything

AI Theme

True or not, not sure how much this changes. AI in healthcare is still a huge opportunity and we will see investment in AI infrastructure….

Musk Pours Cold Water on Trump-Backed Stargate AI Project-WSJ

Tesla Sits at the Center of a ‘Cambrian Explosion’ in New Tech. What It Means for the Stock.-WSJ

AAPL is a long term holding and I’ve been buying the dip, without much luck. So articles like this are distressing….

Apple Stock Is Sliding. It Might Just Be the Beginning.-Barron’s

So I had GPT analyze the article and handicap their chances…..

Overall Assessment

Apple’s Chance of Turning Things Around: ~7–8 out of 10.

1. Brand & Ecosystem: Apple’s user stickiness and ecosystem lock-in remain significant competitive advantages.

2. Balance Sheet & Services: Cash hoard, share buybacks, and service revenues help cushion short-term earnings shocks.

3. Innovation Track Record: While AI leadership concerns are legitimate, Apple has historically delivered new features and experiences that keep it relevant (and profitable).

Downside Risks:

• Prolonged macro slowdown hurting premium device demand.

• Continued market-share erosion in China.

• A misstep in AI or next-gen device strategy, leading to negative sentiment or extended multiple compression.

Despite these headwinds, Apple remains uniquely positioned in hardware-software integration and has a strong track record of pivoting and sustaining profitable growth. If you’re measuring the likelihood of Apple resolving these issues over time—rather than the short-term stock moves—it’s still relatively high (7–8), given its scale, brand power, and historical resilience.

Something to watch, don’t really see anything actionable here at the moment…

OpenAI’s Stargate Deal Heralds Shift Away From Microsoft-WSJ

This highlights why this theme is so hard to trade, and why you really just need to be in these stocks…

How Oracle Plays Cheaply in AI-WSJ

I got in somewhere along that December dip, was painful for a bit, but not anymore. News like this is impossible to time.

Trump Theme

Trump Order Seeks to Stop Virus Research That Critics Have Linked to Covid-WSJ

Trying to find a reason to short MRNA and PFE, this didn’t give it to me, but it did give me some ideas. With the market where it is, short ideas are a bit more interesting to me than longs…

Key Takeaways

1. Biggest Losers:

   1. Charles River (CRL) and Emergent (EBS) risk moderate to significant revenue disruptions (6–7 out of 10).

   2. Small-cap biotech reliant on NIH grants for GoF-specific research (like GeoVax) could see an outsized negative impact (8/10).

2. Potential Winners:

   1. Schrödinger, Recursion, Twist – providers of AI-driven, in silico, or synthetic approaches that may pick up new, safer R&D work. The near-term boost is likely moderate (4–5 out of 10).

3. Other U.S. Large Pharma/Biotech:

   1. Names like Pfizer, Moderna, Merck, etc. aren’t heavily dependent on gain-of-function funding for their core revenues, so any direct impact would likely be minimal (1–2 out of 10).

Bit late on a CRL short, but still could have some downside….

EBS looks pretty strong, but will see if this has any impact….

GOVX is already pretty much a penny stock…

RFK Jr. Theme

RFK Jr. confirmation hearing set for Jan. 29-Axios

Prior to Trump being elected I was a big fan of the GLP-1 stocks from an investment standpoint. As someone who completely turned my health around 20+ years ago with diet and exercise I am not a fan personally of these drugs, but as a thematic investor I believe that given the choice, most people will take a shot vs. changing their lifestyle. I know RFK Jr. hates these drugs as well and him being in a position to do something about it has kept me out, long or short. Now that his hearing is scheduled I asked GPT for it’s opinion on his ability to meaningfully hurt LLY and NVO…..

Below is a succinct analysis of how Robert F. Kennedy Jr. (RFK Jr.)—known for his vocal criticisms of the pharmaceutical industry—might impact the revenues of Eli Lilly (LLY) and Novo Nordisk (NVO), especially their lucrative GLP-1 franchises (Mounjaro, Wegovy, Ozempic, etc.). At the end, I assign a 1–10 likelihood that his efforts could meaningfully cut into the companies’ top-line revenues.

1. RFK Jr.’s Potential Policy Levers

1. Drug Pricing Reform:

   1. If he actively pushes for legislation or expanded government negotiation on drug prices, GLP-1 meds (particularly for weight management) could be targeted, given their high price tags and surging demand.

   2. However, major federal pricing overhauls typically need broader support in Congress or the Executive Branch; it’s rarely a single official’s unilateral move.

2. Regulatory Pressure / Investigations:

   1. Public statements or high-profile investigations could create negative headlines, but the FDA/FTC typically drive official regulatory actions.

   2. Since these GLP-1 products have strong efficacy and are meeting a massive public-health need (obesity, Type 2 diabetes), it’s challenging to ban or severely limit them without robust safety concerns.

3. Insurance Coverage Pressure:

   1. Payers (commercial insurance, Medicare) determine much of drug affordability and access. RFK Jr. could attempt to influence coverage decisions or fuel public backlash over cost.

   2. Still, large payers often weigh clinical benefit against costs. GLP-1 therapies show strong outcomes for diabetes control and weight reduction, making them more likely to remain covered even if prices come under scrutiny.

2. Market & Demand Dynamics

1. Extraordinary Consumer Demand:

   1. The obesity epidemic and Type 2 diabetes crisis create nearly insatiable demand for effective treatments. Even if regulatory or pricing pressures rise, total prescription volume may remain high.

   2. Novo Nordisk and Eli Lilly are investing in next-generation formulations, improving efficacy, which fosters patient and physician loyalty.

2. Competitive Moat for GLP-1s:

   1. LLY’s Mounjaro and NVO’s Wegovy/Ozempic have minimal competition with similar efficacy at the moment. Even if they’re forced to modestly reduce prices, the volume of prescriptions could still expand.

   2. Demand elasticity is such that, unless heavily restricted or unsubsidized, usage might remain robust.

3. Global Revenue Streams:

   1. Novo Nordisk derives significant revenue outside the U.S., and Lilly does as well. Even if a U.S. official sparks stateside pricing or coverage changes, global uptake (EU, Asia, etc.) could buffer revenue shortfalls.

3. Political Realities & Historical Precedent

1. Drug Pricing Overhauls Are Tough:

   1. Calls to reduce drug prices have existed for decades. Even the Inflation Reduction Act’s negotiated pricing provisions in the U.S. are limited and roll out gradually.

   2. High-profile critics (including past administrations) often struggle to impose swift, sweeping changes on specific drug classes unless there’s a major safety scandal.

2. Legal & Lobbying Counterweights:

   1. Pharma companies—especially industry leaders like Lilly and Novo—have significant lobbying resources and legal defenses.

   2. Even if RFK Jr. prioritizes an anti-pharma stance, implementing policies that truly slash revenues would require broad legislative or regulatory alignment.

3. Consumer & Physician Backlash:

   1. GLP-1 users (and doctors) have been vocal about the life-changing nature of these treatments. Any attempt to restrict access drastically could spark patient advocacy groups and medical societies to push back.

4. Bottom Line Likelihood: Impact on Revenues

• RFK Jr. can certainly generate headlines and attempt to influence public opinion, but forcing significant nationwide changes to coverage, pricing, or supply typically demands a strong coalition in Congress, cooperation from multiple agencies, or new legislation.

• GLP-1 therapies address critical, large-scale health issues, making them politically difficult targets to restrict outright.

Given these factors, the chance that RFK Jr. alone could impose meaningful (i.e., material, long-term) damage to LLY/NVO top-line revenues is fairly low—though not zero.

Overall Likelihood Score: 3/10

• 1–2/10 would mean effectively no risk.

• 3/10 suggests there’s a small but non-negligible possibility of moderate pricing or public-relations pressure that could slow growth or prompt mild price concessions.

• Anything above 5–6/10 would imply a high chance of sweeping regulatory actions or massive coverage cuts, which doesn’t seem likely in the near term.

Final View

While an RFK Jr. focus on Big Pharma could generate negative press for GLP-1 makers, the structural demand for these treatments, robust lobbying efforts, and the complex legislative environment make it unlikely he’ll meaningfully dent revenues for Eli Lilly or Novo Nordisk.

In short, I’d rate the likelihood of a major revenue impact around 3 out of 10.

Interesting take to say the least. With both of these names beaten down and just about everything else I own way extended, these look a bit more interesting to me.

AI Power Theme

How the Rusty Remains of a Failed Nuclear Project Could Signal a Renaissance-Barron’s

I think I linked to this article when it was in the WSJ yesterday, but didn’t ask GPT about it….

Bottom Line

• Highest-Impact Beneficiary: Cameco (CCJ), given its direct stake in Westinghouse and the possibility of large multi-year contracts.

• Moderate Tailwind: Brookfield (BN), Fluor (FLR), and potentially BWX Technologies (BWXT) if they get pieces of the reactor-construction or component pie.

• Mostly Neutral: Utilities like Dominion (D) may see limited direct upside; big tech sees only marginal revenue impact.

Overall Outlook: A V.C. Summer restart would be one of the first large-scale U.S. nuclear build-outs in years. For the specialized nuclear supply chain (particularly Westinghouse’s owners), it could bring meaningfully higher revenues over a multi-year timeline.

European Defense Theme

This is a week old, but just came across it

NATO's defence needs more than 3% GDP target, says Rutte-Euro News

I had GPT analyze this article for potential winners…

Bottom Line

• Likely Beneficiaries: The major “pure play” European defense primes—BAE Systems, Rheinmetall, Leonardo, Thales, Saab, and smaller specialized sensor/radar names like Hensoldt—are all well-positioned if NATO commits to spending above 3% of GDP.

• Watch Joint Programs: Joint procurement initiatives (Eurodrone, FCAS, missile-defense consortia, next-gen radar networks) can disproportionately reward the lead system integrators: Airbus, BAE, Leonardo, Thales, and Dassault (though Dassault is partially family- and state-owned, with limited free float, so it can be trickier to trade).

• Volatility & Timing: Markets often start pricing in future defense spending well before official announcements. If a more formal shift to 3%–3.7% is confirmed by mid-2025 (e.g., the June summit in The Hague), defense stocks could move higher well in advance of new contract signings.

In other words, this news (if followed through politically) is generally bullish for Europe’s listed defense contractors. Those that combine strong land-systems offerings (Rheinmetall) or advanced radar/electronics expertise (Thales, Leonardo, Saab, Hensoldt) may see the biggest incremental gains. BAE Systems—being Europe’s largest pure-play—remains a core holding for broad-based exposure.

EUAD

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