Two of the best investment possibilities for 2019
23rd January 2019 11:29
by Rodney Hobson from interactive investor
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Our leading industry commentator, author and columnist names his favourite drug stocks to buy right now.
Rodney Hobson is an experienced financial writer and commentator who has held senior editorial positions on publications and websites in the UK and Asia, including Business News Editor on The Times and Editor of Shares magazine. He speaks at investment shows, including the London Investor Show, and on cruise ships. His investment books include Shares Made Simple, the best-selling beginner's guide to the stockmarket. He is qualified as a representative under the Financial Services Act.
In uncertain times there is much to be said for searching out solid stocks in sectors whose products or services are always going to be in demand. With an aging population in rich, Western countries there is inevitably going to be a growing market for pharmaceuticals.
On the negative side, research is extremely expensive with no guarantee of success, even when potential drugs pass early tests. New treatments must work on human beings, be readily tolerated and work better than any existing ones. Even the most successful new drugs do not work for everyone: on average they will work for only about 40% of patients.
The successes have to pay for the much greater number of failures, often within a comparatively short time span before cheap generic versions are allowed to compete. So, there must be a constantly renewed pipeline of new drugs on the way.
Health providers across the world are seeking to hold down costs so they are reluctant to pay for expensive innovations, while the public is often ready to condemn pharmaceutical companies for profiting from the suffering of others.
Biggest isn't always best but Pfizer (NYSE:PFE), the world's largest pharmaceutical company, is certainly among the best investment possibilities for 2019.
Pfizer gained approval from the Federal Drugs Administration (FDA) in the US for four new cancer drugs in 2018, and it has a strong pipeline including several potential breakthrough medicines that could come good over the next five years.
Its consumer healthcare and essential health divisions saw revenue fall last year as two products lost patent protection, one in the US and one in Europe, but this should be less of a problem in the coming years.
Source: interactive investor
Overall, group revenue was up 1% year-on-year in the third quarter of 2018 with earnings per share (EPS) up 16.4%. Eagerly awaited revenue figures for the fourth quarter due next week should be slightly better, with another double digit rise in EPS.
Shares in the American corporation, headquartered in New York City, with research headquarters in Connecticut, have performed quite well over the past 12 months, gaining around 15%, but they have taken a bit of a dip since they peaked at $46.23 at the end of November, opening up a buying opportunity with a yield of around 3.4%.
Swiss-based Roche (XETRA:RHO) combines operations in pharmaceuticals and diagnostics – two-thirds of its R&D pharmaceutical programmes have accompanying diagnostic projects. It has a policy of trying to develop treatments targeted at individual patients. This is a more expensive healthcare policy but undoubtedly a more effective one.
Roche is also at the forefront of cancer research with medicines for breast, skin, colon, ovarian, lung and other cancers. This is an area that will grow with the aging population. It has this month reached an ambitious $2.3 billion licensing agreement with Adaptive Biothechnologies, based in Seattle in the US, that will aim to provide custom-designed cancer medicine developed from an individual patient’s immune cells.
Source: interactive investor
In layman's terms, the treatment will prompt immune cells to hunt for and attack tumours.
It's high risk but Roche has deep pockets and if it works then the partners have a massive and potentially lucrative lead in cancer treatment. Cancer cells differ from patient to patient and, while there are some drugs designed to target specific cancer cells, these are still too blunt in the way they work and many patients still have few options.
Roche shares rose from €185 at the beginning of June to stand around €225, where they seem to be hitting resistance. In between, they have found solid support at €205.
Hobson's choice: Buy Pfizer at up to $45. Buy Roche if it drops below €220, though it would not be wrong to take a punt at €225.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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