Novo-Nordisk (NVO)

(A Top Pick Jan 27/17. Up 17%.) The number 1 diabetes drug globally. A good pipeline. More cash than debt. It is also buying back stock. Just reported very good numbers this week.

This is a Hold, because we have to wait until the company turns around at some quarter from now. Their big problem is between future volume growth, offset by the lower pricing of drugs in the US. Future volume growth would be as more Type 2 diabetics are expected to increase 50% over the next 20 years. The pricing came off a lot faster than their growth in revenues, so the stock price has been pummelled. At this level, valuation is okay. Outside of the 3 blockbuster drugs they have, they are starting to move toward some R&D for renal and kidney disease.

The market leader in insulin for Type1 and Type2 diabetes. It has had a huge correction like a lot of the drug stocks, on the back of the Trump regime. The stock is down about 30%. Thinks the rate of growth is going to be less than it was in the past, but longer-term this is a good story. It also has a hemophilia drug. Dividend yield of 2.53%. (Analysts’ price target is $35.10.)

Has a very small position, and it ranks high on his list. It has done very well in diabetes insulin. However, that is a part of the market where there is starting to be some downward price pressure as more competition has come in. There hasn’t been enough R&D to find out where the next leg of growth is going to be. You would think emerging markets would be a dominant area for them, but they don’t seem to be moving in that direction. The stock is not cheap and gives you about a 2.5% yield. He would like to see an activist investor get involved.

A Danish company involved with diabetic drugs for the most part. Demographically demand for their product should increase. They’ve had a tremendous run over the past 10 years. The stock recently sold off hard, and he is starting to look at it again. If you have a long-term time horizon, this would be a good entry point.

A very interesting Danish company. They have about 50% of the volume market share in insulin. The diabetes market is about $45 billion, and they basically have 28% market share. On top of that, they have done a very good job of making it easier to use their products. Trading at 16X earnings, and used to trade at 30X. The stock has fallen a lot, and diabetes is a growing problem, particularly in North America. Dividend yield of about 2.5%.

This has come up about 15% off its lows. There was news today that they are getting involved with stem cell research for Type 1 diabetes. It is still another 5-10 years away, but it caught people’s attention. They are getting hurt on the downside on pricing in the US, because insulin is very expensive. They said in the last quarter that operating margins plus profit growth will be half of what it used to be. However, as people are aging and the number of diabetics for Type 2 is expected to rise by 50% over the next 20 years that is going to give volume growth. They have no debt and have 3 new products coming out, which could be blockbusters. It could also help lead to weight loss for Type 2 diabetics. The only problem this has is that it is a “one trick pony” with insulin. He is still buying more of this.

Has never owned this, because of its valuation. He has never been able to understand how they were able to continuously execute and doesn’t understand why there is so little competition in an insulin.

The share price has come down roughly 45% in the last year, mostly on lack of pricing power in the US. Now that Trump is in power, healthcare stocks have started to turn back to some degree. This company has seen a decline in sales in the US, but they are primarily insulin makers, and have got 51% market share. Where they fall in price, they are going to pick up on volume, because there is still expected to be another 50% increase in type I and type II diabetes over the next 25 years. Because they are no longer the high growth story, the stock has come down and is now trading at a value that is based on 6%-7% revenue growth, which he thinks is fairly valued right now. They have no debt and are going to start to diversify away from the step-by-step insulin, into kidney and liver disease. The dividend has plenty of room to grow.

This has been a tough year for them, and it’s down 39% year to date. Part of the reason is the uncertainty around pricing pressures in the US with drugs. Also, more recently, they slashed their guidance for 2017. He still likes the story. They are a leader in the diabetes space. Their profit margins run around 19%-20%, where their competition is more at 10%-11%. This is important because the fastest growing global area of diabetes is the emerging market countries. This company, because they have a fat profit margin, can step into those markets, cut their prices and still make lots of money.

On valuation, it is really not that exciting. Not cheap nor expensive. The key moving part that creates concern is long-acting insulin pricing in the US. Up until 18-24 months ago, they and Santa Fe (?) were in kind of a cooperative duopoly and inflating prices and did about a 20% gain in one year. The insurers finally had enough, and instead of covering both drugs, they would throw it off to whoever gave the lowest bid. It is not clear where this is going to really end. Until this is decided, there is just no reason to catch a falling knife.

Leader in diabetes in the space. They have fat margins. There is a growth potential in emerging markets where diabetes is growing faster.

(A Top Pick June 7/16. Down 16 point to 3%.) Got hurt recently, because their sales dropped by .05% and analysts are only looking at the short end. The company has 3 potential blockbuster drugs coming out on the diabetes sector, which should give them long-term growth over a ten-year period.

As far as a pharmaceutical company goes, this is pretty expensive, trading at about 24X earnings. Has about a 50% share in the insulin market, and diabetes is a disease that is growing quite rapidly. Thinks they will continue to do well. Has a very low yield of 1.7%. You would want to buy this on a pullback.

They do drugs for human growth hormone and hemophiliac medicine, but insulin is still their big baby. Over the next 20 years, the number of type II diabetes is expected to grow by 50%, mostly in India and China. The company has new drugs coming out which is helping diabetics to lose weight. Have done a joint venture with a company that will allow them to do oral instead of injections. Dividend yield of 1.67%.