Investing in Life Extending Pharma Stocks (2/2) Dear Reader, We are currently galloping full speed along an exponential curve that unlike the neural nets of the 1990's, that promised a lot but delivered very little, this time it really looks like we are on the verge of AI success, not only that but it heralds changes in every aspect of our lives most of which we cannot even imagine today, hence the term the singularity is often used, the AI event horizon beyond which we cannot see. My latest analysis in this series focuses on how to profit and capitalise on the unfolding machine intelligence driven mega-trend through investing in leveraged to AI Human Life Extension stocks. Part1 - Emailed on the 10th of July
The whole of this analysis was first made available to Patrons who support my work: Investing to Profit and Benefit from Human Life Extension AI Stocks and Technologies So for immediate First Access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month. https://www.patreon.com/Nadeem_Walayat. Investing in Life Extending Pharma Stocks The starting point are my primary AI stocks for the likes of Google also have a big foot print in the life extension sector. This cash rich ravenous corporation has been busy buying up small and medium cap longevity stocks as well as founding it's own such as Calico whose primary purpose is to SLOW down the ageing process. So again, we start with Google and work our way down the list of primary AI stocks. Where the pharma / biotech sector is concerned then my focus is once more on the big cap stocks. Of course whatever AI systems these Pharma stocks are developing won't be able to rival the Super intelligence that the top AI corps are working on so in reality what we are likely to see are the Top AI stocks working in collaboration with the top Pharma stocks due to the nature of AI advances being exponential which further skews me towards those Pharma stocks that are already working closely in collaboration with the big cap AI stocks. So whilst most of the innovations will come from small and medium cap biotech stocks, however small fry investors such as us don't stand much of a chance of hitting a winner that takes off onto the stratosphere, yes we could get lucky but the chances are likely less than 10% as we just can't compete against the likes of big Pharma and Big AI in determining what has value and what is over hyped junk. As it is very easy to get seduced by the sales pitches of the small and medium cap bio-tech stocks with the result that we will end up losing most of our investment if we went down this path of which there are many examples the most notable of which is Theranos. Never heard of it? It was a $1 billion dollar 2000's scam that promised a lot but not only delivered nothing, but actually had nothing to deliver! Which is a cautionary tale to all those out there who think they can get rich through small and medium cap biotech stocks.
So don't worry about missing out on the next big thing because rest assured that anything of value will long since have been bought up by big pharma and big AI corps long before you or I get wind of it, instead all we are left with are a few scraps here and there. Which means the only effective route to capitalise on this sector is via the big cap stocks. As these are sub-sector stocks I'll limit my selection to just 3 stocks and an ETF, and remember that whilst this analysis is on exposure to longevity, nevertheless these stocks have their fingers in many pies encompassing the biotech sector so will likely crop up again in future analysis. JOHNSON AND JOHNSON - JNJ (Primary) J&J founded in 1886 is the worlds largest Pharma company comprising of 3 divisions, Pharma 50% of sales, medical devices 33% and consumer products 17%. This drugs company basically profits from discovering new drugs that work, a task that is in large part trial in error of testing compounds either created or discovered to see if they actually do anything positive on human physiology and if so will the market pay a good premium for such a drug. The more compounds J&J can efficiently test then the greater potential for hitting another jackpot, which makes Pharma companies such as J&J well suited for AI applications. Presently the company has 30 Phase III trials in progress that typically could yield sales of $1 billion+ each. So AI freeing human discovery resources should see the number of drug trials in progress increase.
Is J&J developing AI and seeking to profit from the next pharma boom sector, human life extension? Johnson and Johnson has been working in collaboration with IBM's Watson Health since 2015 where initial focus was on developing virtual assistants for improved support and rehabilitation of patients following surgeries and in management of their conditions given the state of AI. However as Watson reaches and surpasses human level intelligence then the focus will be the aforementioned objective of speeding up drug discovery exponentially through the use of IBM's emerging super intelligence. Though of course IBM is partnering with multiple life sciences companies as it seeks to leverage it's AI systems so likely J&J will be developing their own AI systems in large part based on what they learn from their partnership with IBM. However, this is the mere tip of the ice-berg where J&J is concerned and it's potential innovations. For instance J&J had a dozen Innovation labs busy developing tech across the healthcare spectrum, that go far beyond the smart app patient monitors news stories that the press focus on. Furthermore J&J through it's labs infrastructure has created several hubs for bioscience entrepreneurs to turn their ideas into practical startup applications that J&J will have a stake in. And given J&J's £20 billion cash mountain has ample resources to fund speculative partnerships with new startups encompassing ideas such as wearable medical tech, 3d printed body parts with several products already coming on stream such as IntuiTap, a J&J supported startup that invented a device that improves the way spinal taps are administered during surgery. And more JLAB centres are due to open around the world with the objective of turning ideas into reality and this is on top of acquiring small and medium cap stocks such as J&J's recent purchase of Auris Health, a surgical robotics firm for $3.4 billion. Johnson and Johnson Financials
Johnson and Johnson is typical of a blue chip stock i.e. pays a healthy stable dividend of 2.6% but experiences a slow sales growth rate of just 6.6%. However, presently J&J's PE of 25 is high given its slow growth rate, so suggests not to accumulate right now, but is on a forward PE of 15.2, though I doubt it's reliable, instead probably nearer to 20. So basically J&J a sleeping giant that currently delivers about 10% return per annum whilst it waits for the likes of AI to deliver it's next series of block buster drugs and devices. Another thing to mention is the risks of law suits which pharma stocks such as J&J tend to be prone to getting hit by from time to time, i.e. for asbestos found in talcum powder! And being blamed for america's opioid crisis.
Trend - J&J's trend is a lot more volatile than that of the S&P over the past 3 years, probably following bad news announcements of court cases for past drugs and products such as the recent stories of talcum powder of the 1970's causing cancer. However, overall the trend has been on a similar trend trajectory as the general stock market indices which suggests investors should take bad news events as an opportunity to accumulate at discounts that tend to eventually revert to trend. Long-term Investing - Good news on the long-term front is that J&J does tend to closely match the S&P trend even though it does tend to under perform. For instance 10 years ago the stock was trading at about 40, compared to the last close of 139, so that is 250% gain over 10 years PLUS dividends. Which is a pretty good return for a long-term relatively low risk investment which J&J should continue to replicate. Conclusion - J&J is a safe blue chip long-term stock that provides a healthy dividend with exposure to the unfolding AI mega-trend that will increasingly become critical to its business model of drugs discovery, patient monitoring devices, robotic body parts and surgical instruments. And even if it only replicates past performance, that still implies a a healthily return of 250% over 10 years. The stock pays a healthy stable dividend of 2.6%, and as J&J attempts to capitalise on the AI driven human life extension megatrend it should be kept in mind for portfolio exposure. It's current valuation of PE 25 is expensive given it's history of snails pace revenue growth and I don't consider it's forward PE of 15 as reliable. Nevertheless it is a good stock to ride on future developments which given AI will be exponential. So J&J is one stock that's definitely remains in my portfolio and on my accumulate list. ROCHE - RHHBY (Tertiary) Roche ranks as the worlds No 3 Pharma company though significantly smaller than J&J. However it's stock price has basically gone nowhere for the past 5 years which is why I class it as a tertiary risk play for this Swiss drugs giant that fundamentally is on a similar path to JNJ, as a competitor AI drugs company with its own diverse portfolio of products. Where AI is concerned Roche is fast developing its own machine learning infrastructure for instance to convert cancer patient data into computer models to identify individual cancer therapies. And similar to J&J has been busy acquiring biotech companies aimed towards developing their machine learning capabilities.
Roche Financials
The consequences of the likes of Roche's high PEG, low sales growth is reflected in its abysmal stock price performance of just 8% over the past 3 years. On the plus side Roche pays a decent dividend of 3%. And it's PE is lower than that of J&J's 25 though again it's forward PE of 14 can be discounted as unreliable, perhaps 18 or 19 is more likely. Also on the plus side Roche generates a healthy profit of $10.7 billion per annum and has a large cash mountain of $13.5bn towards investments and acquisitions, so is a safe stock with the potential to grow given the input of AI.
Trend - Roche's trend is all over the place, and not much comparable to that of the S&P by virtue of it being a Swiss company. The stock basically appears to be stuck in a trading range pending a breakout higher. Which is good if one can time purchases towards the lower end of its range of say $29 which is set against its current price of $35 towards the upper end. Long-term Investing - Roche after spectacular bull run during he first pat of the decade rising from $14 to a peak of 38.54 early 2015 has since remained stuck in what is now is a 5 year trading range that typically ranges between $37 and $29. So if you had invested in Roche 5 years ago you would have made nothing in terms of capital gains. Which in my opinion is GOOD! Given this sector and stocks fundamentals then this stock should eventually breakout higher, and if the last breakout is anything to go by 2011 to 2015 than the stock price could easily double and probably more than triple. Of course we could just wait for the breakout than accumulate whilst it trades in the range. Conclusion - This stock has gone nowhere for the past 5 years. Despite that the stock has good fundamentals and pays a healthy 3% dividend. Whilst no one knows when the stock will breakout of its trading range of $37 to $29. However the eventual breakout is likely to be higher that could see the stock near triple in price before likely entering another trading range. So the strategy here is to accumulate whilst the stock trades in a range, and especially seeking to capitalise on dips towards and below $30. So Roche is a safe dividend paying stock where the risk is you have to wait several years before you start to see significant capital gains. GlaxoSmithKline - GSK (Tertiary) And lastly a brief look at GlaxoSmithKline that is also engaged in AI driven life extension technologies. Currently ranks as the worlds 10th largest Pharma, trades on a P/E of 19.7, generating net income of $3.7bn on sales of $30bn and paying a very health dividend of 5.1%.
The GSK stock price like Roche has been stuck in a trading range for the past 5 years pending a breakout higher. Definitely worth including for a breakout especially given it's 5% yield that makes up for the lack of capital gains for long-term investors for the past 5 years. Though of course when the stock does breakout that dividend yield will fall for future purchases at prices above today's $40. iShares Nasdaq Biotechnology ETF - IBB (Secondary) As requested by Patrons, I now also included ETF's in my stocks analysis for exposure to a basket of AI and sub sector stocks even though my preference is for individual stocks. For this sub sector I have selected the iShares Nasdaq Biotechnology ETF - IBB, I picked this ETF not only for its big cap holdings but that it's been kicking around for over 10 years so has a track record to look back on. The fund has total assets of $7.5 billion so should be fairly liquid for an ETF with its last closing price of $109 and the portfolios average P/E is 21 and pays a small dividend of 0.3%. IBB Top 10 holdings
Trend - IBB usually tracks the S&P quite closely in terms of trend, though for the past 3 months it has greatly under performed which may be a sign of Nasdaq small cap sector distress. Similarly it is under performing against all of the above 3 mentioned Pharma stocks during the past 3 months. Long-term Investing - Following the stocks bear market bottom in 2009, IBB embarked on a bumper bull run, going from $20 to a high of $132.6 by Mid 2015. However since which like much of the biotech and pharma sector has been in a trading range marking time. Having been as low as $79, though usually dips to bottoming out at around $90. With the last swing down bottoming at $89 that brings is to where we stand today at $109. About midway in it's trading range. Conclusion - IBB seems like a decent enough of a Biotech ETF with many of its portfolio of stocks focused on increasing human longevity. And like other stocks in the Pharma sector is stuck in a 5 year trading range pending a breakout higher. However it's difficult to say if it will under perform or outperform the above individual stocks following a breakout, which depends on how leveraged it is to those small and medium stocks that actually succeed. Still it is worth including in a portfolio and should be lower risk than the likes of GSK in the long-run.
1. Stocks listed as of when first suggested to Patrons. 2. Disclaimer - I am currently personally invested in stocks shown in bold. Where stock investing is concerned then if you are not already invested in my Primary AI stocks such as Google then what are you waiting for? The time to act is before AI goes super nova and literally rules the planet for the fundamental fact that what we are dealing with here is NOT Artificial Intelligence as in terms of trend trajectory human level AI will only exist for a few months before it becomes SI - SUPER INTELLIGENCE! When human intelligence will no longer be able to understand how it arrives at x,y,z solutions to the myriad of problems we will hope it will solve before it stops paying attention to our instructions. And so the tech giants will be headed by competing Super Intelligence's of which we aim to ride the backs of through our share holdings. The bottom line is the fact that humans continue to age little better than they were 50 years ago which illustrates that despite where we think we stand in terms of advances in medicine, in reality we haven't even begun to scratch the surface compared to what is to come over the next 50 years, courtesy of Artificial Intelligence and then soon after Super AI. Right up until the point AI considers having 10 billions humans kicking around as a waste of resources, perhaps by 2075. Your analyst watching and waiting for the life extension tech to deliver what it has been promising for decades. Again the whole of this this was first made available to Patrons who support my work: Investing to Profit and Benefit from Human Life Extension AI Stocks and Technologies So for immediate First Access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month. https://www.patreon.com/Nadeem_Walayat. Scheduled Analysis Scheduled Analysis
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Your mega-trends investing analyst Nadeem Walayat Copyright © 2005-2019 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved. Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
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Sunday, 18 August 2019
Investing in Life Extending Pharma Stocks (2/2)
