Barron’s Weekend Summary: Four panelists on Barron’s 2023 healthcare roundtable see enticing opportunities
Cover:Four panelists on Barron’s 2023 healthcare roundtable, who see enticing opportunities not only in the highflying shares of weight-loss giants, discuss some
of their favorite healthcare stocks. The panelists, which include Ziad Bakri, a portfolio manager at T. Rowe Price; Asad Haider, head of U.S. healthcare research and sector strategist at Goldman Sachs; Jared Holz, healthcare equity strategist at Mizuho; and
Debra Netschert, a managing director at Jennison Associates admit that healthcare stocks have been underperforming in 2023 due to reasons ranging from rising interest rates and regulatory pressures to the launch of revolutionary weight-loss treatments whose
uptake could reduce demand for other drugs and medical procedures. Yet, they are optimistic even beyond the highflying shares of weight-loss giants
Eli Lilly and
Novo
Nordisk (NVO) discussing some of the factors that will benefit other pharma, biotech, hospital, and medical-device subsectors that Wall Street has beaten
down or ignored. Scientific breakthroughs, deal making, and a nimble response to regulation could brighten the industry’s financial prospects in the years ahead, these experts say, and reignite investor interest in one of the U.S. economy’s most important
business drivers.
Interview:-No interview this week
Tech Trader:-
Apple’s
next earnings report is just a few weeks away, and it’s likely to post a fourth consecutive quarter of year-over-year revenue declines. To resume meaningful sales growth—and to reinvigorate the stock—Apple needs a big win and it could take two potential paths
to get there: a clear strategy on generative artificial intelligence and building an internet search engine. Apple already makes use of machine learning and AI across multiple products, and it has been including a “neural engine” in its iPhone and Mac processors
since 2017 for things like FaceID. But, so far, Apple has been mum on AI chatbots and large language models, even as the rest of tech has gone all in. Apple hasn’t lost the AI market, at least not yet. But it needs to get moving.
The Trader:-It was a chaotic week for stocks, one that saw them verging on a meltdown as bond yields shot higher. Driving the volatility was the 10-year Treasury yield,
which surged as high as 4.89% this past week, up from a March low of 3.23%. Gone are the fears of recession, replaced with worries that the economy remains too hot and the Federal Reserve, which in September said it wants to keep interest rates higher for
longer, will have to do more to ensure that inflation gets back to its 2% target. Those worries hit a crescendo on Friday with the strong jobs report, and the stock market seems prepared to move on from bond yields as their primary driver.
-Consumer-staples stocks have gotten hit hard in recent weeks, and
PepsiCo has
been affected. The Consumer Staples Select Sector ETF has now dropped 13% from its May peak. Nor does it help that the 10-year Treasury yield has risen to its highest level in 16 years, making staples’ dividends far less attractive. Still Pepsi can still count
on earnings to help propel Pepsi’s stock higher. Analysts are looking for sales to grow 6% to $23.4 billion of sales in the third quarter, according to FactSet. Operating margins could rise by about a tenth of a percentage point to 16.4%, helping earnings
per share rise an expected 9%, to $2.15.
Features:-Consumer staple stocks stumbled again Friday, extending their losses in the wake of Walmart’s warning about a dip in food purchases from consumers taking
weight-loss drugs. The damage to the sector continued Friday.
Walmart fell 1.7%
to $156.41. The retailer didn’t immediately respond to a request for comment. Snack and beverage companies also saw their stocks fall. Shares of
Mondelez International—maker
of Oreos, Wheat Thins, and Chips Ahoy!—slid 2.6% to $63.36.
J.M. Smucker stock
was down 1.5% to $115.00.
-There’s good news for Type 2 diabetics. The introduction of powerful new weight-loss drugs could help millions escape the ravages of their disease. But
the new drugs are expensive and if you stop taking them, you are likely to regain the weight; some people won’t tolerate their side effects; and diet and exercise will still be helpful even to people taking the drugs, doctors say. The new drugs “absolutely
reduce insulin resistance and produce weight loss, exactly what you’re trying to do with lifestyle intervention,” Jordan Emily Perlman, an endocrinologist at Johns Hopkins.
Europe:-Central banks are predicting that growth will be more sluggish in Europe over the next year. Momentum in the latest data shows inflation cooling much faster
on the other side of the Atlantic, while the US economy has been surprisingly strong. As a result, and contrary to expectations just a few months ago, the European Central Bank and the Bank of England may actually be in a position to cut interest rates before
the Fed. In many ways, the Fed, the Bank of England, and the European Central Bank are roughly in the same place. They’re near the top of the rate-hiking cycle. All are promising to keep rates higher for longer to ensure that inflation is quelled. Although
the ECB’s only goal is inflation, that message has more resonance in the US.
Emerging Markets:-Two regional names have come roaring back from the ashes of the tech sector of 2021-22 while Asian peers continue to struggle. Shares in
Nu
Holdings, parent company of Brazil-based financial-technology firm
Nubank,
have nearly doubled this year while
MercadoLibre, the e-commerce titan that does
most of its business in Brazil, is up 40%. Nubank is headed for its first full-year profit in 2023, says Malcolm Dorson, head of emerging markets strategy at GlobalX exchange-traded funds. MercadoLibre, in the black since 2021, more than doubled second-quarter
profit year on year to $262 million. The Brazilian environment is helpful. The Latin American giant has added 50 million internet users since 2019. About 30% of the population never had a conventional bank account. The central bank has started to cut a crushing
13.75% interest rate, spurring expectations of more consumer spending.
Commodities:-Far from finished, coal demand is rising. And shares of coal miners have been bullish. Shares of
Alpha
Metallurgical Resources,
Warrior Met Coal,
and
Arch Resources, producers of metallurgical coal, which is primarily used for
steel production, soared 28%, 29%, and 31%, respectively, in September.
Consol Energy and
Peabody
Energy, producers of both met coal and thermal coal, used for electrical generation, saw shares gain 22% and 20% the same month. Most stocks didn’t
fare nearly as well. The S&P 500 index dropped 4.9% in September, while the Nasdaq Composite fell 5.8%.
Streetwise:-Rising rates have roughed up REITs. An MSCI index of US ones has fallen 7% this year, not counting dividends, versus an 11% rise for the S&P 500. Jack Hough
evaluates whether it’s time to call it a rally, or to sound the caution alarm. Or maybe both? Investment bank
Wedbush says
the group looks cheap and poised to shine next year and beyond, despite risks. That case, plus picks, in a moment. Real estate investment trusts, signed into existence by President Eisenhower 63 years ago, give Joe and Sally Saver a shot at investing in commercial
real estate. REITs buy property, collect rent, and pay out the bulk of income as dividends, while avoiding corporate taxes. The ones under consideration here trade like stocks. Their financial attributes depend on the category of property they deal in. Wedbush
divides the group into tortoises and hares. There are two main casino REIT operators:
VICI Properties and
Gaming
and Leisure Properties. Other favorite stocks include
UDR,
formerly United Dominion Realty, which specializes in luxury apartments on the East and West Coasts, plus Florida and Texas. The dividend yield is 4.8%, and payments have grown at a compounded 6.7% a year since 2010. Shares of
Alexandria
Real Estate Equities peaked in late 2021 and have since been cut in half by concerns over the increased supply of lab space for biopharma customers,
the company’s key money-maker.
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