Sunday morning
November 20, 2022
Hello everyone,
Welcome to a new week. We are quickly closing out Spring or Fall, depending on where you are in the world.
The holiday season will soon be upon us in earnest. But I wonder will consumers be feeling jolly enough to part with a lot of their hard-earned money? In parts of Australia, people are being pounded by floods back-to-back and another wave of covid. Unfortunately, I think climate crisis and covid will be a constant in our lives in the future. Covid may become weaker in its virulence, but the climate disasters will only escalate and become more intense – a lesson not to mess with nature.
Survival gear helps us out when the going gets tough in the wilderness, but what sector do investors turn to when there are macro-economic headwinds? The pharmaceutical industry could be the answer. It has a history of doing well in tough economic times. Large-cap biopharma could be a key sector to own for defensive exposure at a reasonable price, according to Credit Suisse.
They go on to say that U.S. pharma as a group is trading at a price-earnings ratio of 16 times to 17 times while defensive sectors utilities and consumer staples have 18-20 P-E ratios, on average.
There is a history showing U.S. pharma beats the S&P500 during major recessions. The Van Eck Pharmaceutical ETF is down just 4.7% on the year, compared to a 17% loss for the S&P 500 so far in 2022. Merck is up 33% this year and AbbVie is up 12% in 2022 with more room to run. Credit Suisse indicates Eli Lilly and Pfizer will outperform. John’s bio-pharmaceutical newsletter has been stellar in picking stocks that have been bullish this year. We could be well into 2023 before the macroeconomic trends start to settle. Consequently, Credit Suisse and John believe large-cap biopharma should remain a solid outperformer in the coming months. And they go on to say that if there is more clarity in the markets going forward and a solid rally is seen, higher-growth names, such as Eli Lilly, will be insulated from the rotation away from defensives and back into growth names. In short, you can’t go wrong owning a big pharma stock or ETF in your portfolio if you want to diversify and be defensively positioned.
Finally, let’s consider the ramifications of the Fed’s target of 2% inflation. When you are focused on one target, sometimes we miss other things or dismiss them as unimportant. How far can you push something until cracks appear? Parallel to that push for 2%, a flock of black swans could be circling, and then what? In other words, even though the sun may be coming out from behind the clouds and the economy appears to be in better health, don’t let your guard down. Be prepared for any shocks that may eventuate.
It’s all about being defensive.
As always, follow John’s trades and you will be well looked after financially.
Wishing you all a wonderful week.
Cheers,
Jacque
"It is during our darkest moments that we must focus to see the light. " - Aristotle
