The One Tech Stock to Own in 2016
In troubled markets, it’s rare to find a company that offers the right mix between safety and potential growth. For 2016, the one stock to own is Novo Nordisk, which became an active EBIS portfolio component on 12/21/15. We didn’t make this choice lightly, especially at a time of rising uncertainty and at the start of a new year when the stock market has had its worst start in history.
So here is our thought process. It is quite plausible that we are in the early stages of a violent bear market. It is, however, equally plausible that stocks may recover, especially if the Federal Reserve and other world central banks reignite the money printing presses. When you add the fact that 2016 is an election year and that the Republican congress finally repealed Obamacare, it’s not difficult to visualize the possibility that the health care sector is within reach of another golden period such as we saw in the 1980s and 1990s, where advances in blood pressure, cholesterol management, and heart disease medications fueled billions of dollars worth of earnings for the pharmaceuticals sector.
Guess what? Heart disease, high cholesterol, and high blood pressure are still around. And they all share one binding factor, Diabetes, a terrible disease that is linked to obesity, inactivity, and the Western diet, three major factors that are not going away, and may increase as the world population ages and as more nations adapt to American eating and work habits. What it means is that a company whose focus is Diabetes and related conditions is likely well placed for long term growth given the estimates for 24 million diabetes sufferers in the U.S. alone. And Novo Nordisk, a world class pharmaceutical Company based in Denmark, has one sole focus: Diabetes treatment and other endocrine (glandular system) products such as growth hormone replacement.
Novo has a 50 percent share of the global insulin market and sells its products in 180 countries via its affiliate operations in 75 countries divided into five regions: Europe, North America, International Operations, Region China and Japan & Korea. The company employs the same business model all over the world based on three steps, education of physicians and interaction with payers with a focus on product specificity and use for the former, and on cost and efficiencies for the latter.
And most important, Novo has finally made its footprint in the U.S., a fact which has delivered the company’s best sales growth in the last few years, with plenty of room for further gains, given the potential for its insulin pen delivery system which still accounts for only 35% of the insulin delivery in the U.S., compared to Europe where insulin is almost exclusively delivered by pen. Further in the future, Novo is likely to benefit from growth in China where estimates suggest that 150 million diabetics may be present by 2040 as it’s population of middle class consumers, and the above mentioned lifestyle habits that accompanies it, is projected to expand by more than ten times over the next fifteen years.
Novo is still likely to have its largest sales growth through Victoza (liraglutide) a human hormone analog (GLP-1) that improves insulin production in the pancreas when blood glucose levels rise above normal. It is indicated for patients with therapy resistant Type 2 diabetes (adult onset) along with diet and exercise. The attractive feature is that it is a once-per-day medication, delivered by Novo’s pen system instead of having to be taken with every meal as with its competitor drug Byetta.
NVO is a large cap stock ($144 billion), but it’s not a household word. Yet, diabetics know it because it makes both medications as well as equipment for delivering medication for diabetics. It’s also a mainstream pharmaceuticals company with footprints in hormone replacement therapy, growth hormone treatments and treatments for hemophilia. The company’s Semaglutide drug recently delivered improvement in long term glucose control in a Phase 3 trial and is likely to advance to FDA approval. Semaglutide also leads to appetite suppression and weight loss, a key component of the treatment in Type 2 Diabetes.
NVO gets a top shelf + 9 EBIS rating because it’s a well run company with a single focus and a top entry in all areas of its niche, Diabetes. It is not a small stock, but it is an EBIS stock because of its focus and its ability to deliver. And in a difficult market it could provide a bit of a safety net compared to other more speculative buys.
Here are the EBIS details:
The EBIS Score for Novo Nordisk A/S ADR (NVO) is + 9 (BUY) based on September, 2015 data.
- Cash on hand: (+1) NVO had $18 billion in cash compared to $13 billion in September 2014.
- Cash on Hand growth (year over year) (+1): The year over year cash was 32%.
- Revenues (present or not): (+1): Cerus reported $8.45 million in revenues in its September quarter compared to $9.587 million a year earlier. The decrease is largely attributed to currency translation and slowing business in Europe. The company is expanding its market share in the U.S.
- Revenue growth (10% or greater)(+1): Revenues grew by 20% on a year over year basis for the September 2015 quarter.
- Trailing Total Liabilities/Current Assets (<1=+1 , >1=0): (+1) NVO has a 0.78% ratio, which means that it cover all its expenses in the case of a catastrophic hit to the company and still have money to regroup.
- Earnings (Present or Not Present): (+1): NVO has very reliable earnings.
- Net Income Growth (Year over Year): (+1): NVO grew its earnings by 20% year over year in September.
- Products on the market: (+1): CERS has products on the market and is making strides in expanding its market share.
- Pipeline Strength: (+1): CERS has one key product in late development stages in its pipeline.
- Late Stage Clinical Trials and Product Launches: (+1): CBM has several important products in critical stages
To be sure it’s difficult to buy stocks in an uncertain market. But if nothing else, discerning investors should consider Novo Nordisk as a long term addition to any portfolio.
Buy Novo Nordisk up to $58.