Novo Nordisk (NVO)

There's two major consequences about the global village in which we live:

Hopefully, religions will disappear. With an Internet access and some education, we all understand how little and insignificant we are. If you have any knowledge about the Big Bang or if you have read any Stephen Hawking's book, you'll be much more humble about your existence, nationality, religious group, etc.. So, as time goes by, more and more people will be existentialists and belief will be replaced by despair about our human condition. This is where modernity leads us! Let's march cheerfully in that direction, my friends.

Too, with the global village comes the fact that our western culture is spreading across the globe. Who says western culture says obesity. With China, India, Pakistan, Bangladesh, Indonesia and many other asian countries, we have a gigantic reservoir of potential fat people. They'll get richer, they'll have less time to cook and they'll fall in the pitfall of our western alimentation (salt + fat + sugar... just like a happy meal at McDonald's.)

Eventually, they'll get diabetes and other diseases. And that's where I'm going my friends: how could we get advantages about obesity, as investors?

By investing in Novo Nordisk.

I've been watching this company for a while. Novo Nordisk is a huge danish company (market cap: 100 billion dollars) they're a very big producer of insulin. That company has always been expensive due to the fact that it's not exactly a monopoly, but almost. And it's a very defensive industry. Plus, the numbers are amazing:

Actual ROE: 88
Average ROE for the last 5 years: 62
Debt: Very small (about the equivalent of one year's earnings)
Annual EPS growth over the last 5 years: 22%
Beta: 0,7
Dilution of the float: No dilution. They buy back their shares at a reasonable pace.
Dividend: About 2%
Payout ratio: 45%
Forward PE ratio: 20
Lowest PE ratio last 5 years: 21,5
Highest PE ratio last 5 years: 29,5

The price of the stock is a little high (about 20 times next year earnings), but for such a ROE and such a defensive industry, that high price seems entirely justified. It's a cash machine like very few companies appear to be.

I've bought some shares of NVO on last friday. The stock was down about 10% on weaker guidance. That drop seems unjustified to me because earnings are still good and they'll stay good. 

Now, I'm waiting for the results of Allergan (they'll be released tomorrow) to see if I liquidate my entire AGN position to swap for NVO. I have to admit that I'm a little confused about my position in AGN. That company has similar numbers to Valeant and Concordia. I don't understand why I invested in it in the first place.

I now have 3 stocks with a ROE around 100 (GILD and CZO are higher than 100) and NVO is approaching 100. 

Bonne journée les amis.