Update-1 1/13/23 Bank stocks beat with BAC and JPM trading higher. Bearish sentiment eroding as ” risk-on ” mentality takes hold before earnings.
Continuing with #JPM Week Notes:
6. Continuing with the healthcare trend of more focused businesses and away from the conglomerate model GE Healthcare Technologies (GEHC) was spun out of parent GE . Back in the day you may remember that GE was among the strongest industrial companies with aircraft engines , industrial equipment, energy and high end medical imaging systems. Then more than 20 years ago the company pivoted into financial services which proved to be a long term disaster. The new GE Healthcare Company comes back into its core strength in digital imaging and PCS with Revenues for 2022 at $18.3B expected to grow at 5-7% with an EBIT margin of 15-15.5%. Installed base is 4M+ with ~50 % recurring revenues. New product growth is expected from ultrasound, PET and Pharmaceutical Diagnostics.
7.United Health (UNH) was among our top core holdings in 2022 and released an earnings and revenue beat today. Revenues grew 13% to $324B with an EPS of $5.03 and reaffirmed guidance but Wall Street had higher expectations as stock was flat. Optum segment grew 16.5% to $47.87B with earnings of $4B.
We will update our healthcare and biotech portfolio over the weekend. We are still focused on large cap biopharma but will update our SMID trades as well. But it is difficult to find new buys given the constraints of valuation. For example both ThermoFisher (TMO) and Danaher (DHR) are well managed growth companies in tools and diagnostics and do a lot of M&A.But in an environment of higher rates and sensitivity to product pricing how can they provide growth? They both have high PEs and cannot raise prices further. A better general play in the tools and diagnostics area is the T.RowePrice Health Sciences Fund (PRHSX) which holds Danaher (DHR) as well as ThermoFisher (TMO) and United Health (UNH).The average 5 year return is 13.6%. So we need to look for value plus dividends like in a Becton-Dickinson (BDX) or look for SMID caps. in the meantime stay with ETFs like IHI or XBI.
Biotech Stocks Show Gains during #JPM23 Week
- Small cap speculative biotech stocks regain interest with volatility.
- Market rally broadens as healthcare weakens with (XLV) flat over 5 days.
- MACRO issues fading but wait on earnings for financials Friday.
Despite the usual pushback on rates from the FED the markets are expecting the downward trend of 6.5% CPI to continue after six straight months. The bellwether 10 year yield was flat at 3.44% and stocks were up as of late day trading. Bond market are betting on lower rates .Gold continues upward trend at $1900 mark. Biotech stocks were mainly green with the XBI up over 2% at the $86 level. Here are some brief notes from my two days at #JPM23:
- You can expect strategy reports from market research firms on the impact of AI in drug discovery. BioNTech (BNTX) bought a UK start-up InstaDeep for up to 562M pounds to harness machine learning.to improve its R&D productivity especially to better understand variants of Sars CoV-2.BNTX is up 2.56% over the past 5 days to the $149 level.
- Moderna (MRNA) is up 8% over 5 days to $187 on the longer term pipeline for its mRNA platform The PE is a low 6.97 with a strong cash position. The Modena COVID vaccine will go more commercial in 2023 with price increases to $110-130 per dose. The Company has there late stage vaccine candidates for other infectious diseases: CMV, RSV and. influenza. Also Moderna is partnered with Merck for a personalized cancer vaccine.and Phase 3 for Melanoma. I have traded the stos and made money but missed the big move off 2023 lows at $120 now at $190 level.
- Both JNJ and ABT were on an informal “fireside chat ” mode at #JPM 23. JNJ will split into two companies this summer with a focus on MedTech and biopharma following the trend by ABT/ABBV and GSK/HLN . The healthcare conglomerate is fading enabling faster business development and higher growth.
- My SMID cap picks are having a good week after a rough 2022. The XBI is the tracking ETF . The Russell 2000(IWM) is lagging down 14% over one year but p 6.7% this past 5 days. Track bullish PACB ROIV SUPN. Evolent Health (EVOL) is up 8.94% to $31 today and has good potential with a good chart today. stock is stabilizing today at the $495 level after 10% hit in January.
- We are looking for more plays in tools and diagnostics as the big boys -DHR and TMO-are doing well but valuations are stretched,
To be continued……….