dimanche 7 août 2016

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.

4 commentaires:

  1. In case you have not seen this, here is the link to an August 8, 2016 article on Novo Nordisk from a seeking alpha contributor entitled: Nove Nordisk: Buy On The Drop?


  2. I've seen it. I'm a frequent reader of Seeking Alpha.

    Thank you.

  3. There is another company that is positioned to profit from the diabetes epidemic ahead. They are called Davita Healthcare. What do they do?

    DaVita HealthCare Partners Inc. provides kidney dialysis services for patients suffering from chronic kidney failure or end stage renal disease.

    Warren Buffett's company is a shareholder. DVA (Davita) is a dominant force in dialysis services in America. Here's a service that you either pay for or resign yourself to dying without it.

    As of December 31, 2015, DaVita provided dialysis and administrative services in the United States through a network of 2,251 outpatient dialysis centers serving approximately 180,000 patients; operated 118 outpatient dialysis centers located in 10 countries outside of the United States. Further, the company provides acute inpatient dialysis services in approximately 900 hospitals and related laboratory services in the United States. The company was formerly known as DaVita Inc. and changed its name to DaVita HealthCare Partners Inc. in November 2012. DaVita HealthCare Partners Inc. was founded in 1994 and is headquartered in Denver, Colorado.

    Forward p/e = 16.6
    ROE = 11%

    Not impressive numbers...yet. They will grow and they can charge whatever they want for their services when the alternative is dying. They do not have much competition for their services in America. MAYBE there is one other big player.

    1. Never been impressed by DaVita either. I've known the name for a couple of years now and I've seen Buffett buying the stock numerous times via Dataroma. I prefer Novo Nordisk by far.