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This week our focus is on: Alzheimer drugs that could be worth billions a year, the American dream in a bottle, new commodity plays and the SITFA
The entire investment world is on the edge of their seats waiting for the outcome of two Phase III Alzheimer drug trials underway now. If all these drugs do is slow the progress of Alzheimer’s (they don’t have to promise a cure, just slow the disease), this could be almost as big as Apple.
Barron’s reported both Lilly and Pfizer potentially have huge revenue-producing drugs on the way as early as this year. How big? $10 to $20 billion a year from one drug!
The minority players on the Lilly drug are Elan and JNJ. The Lilly/Elan/JNJ drug play according to analysts has a 10% downside if the trials don’t pan out and a 50% upside if they do. Those are pretty good odds.
The best news is if the Lilly drug is a winner, JNJ, according to Barron’s, is expected to buy out Elan to acquire their 10% stake in it. That would give JNJ a 20% stake and give investors in Elan a very nice payday.
Analysts expect shares of Lilly to start running up later this year in anticipation of the trial results, and Barron’s reported that Lilly and Elan stock should offer the best returns if their drug is approved.
But the drug with the best chance of approval is Pfizer’s. Catherine Arnold of Credit Suisse thinks Pfizer’s stock price is currently reflecting little hope of approval, but Pfizer’s drug had the best results in Phase II trials. That means we should really pay attention to this one!
Investors are cautious about both companies’ stocks, but Pfizer, according to Credit Suisse, has a pitiful PE of about 9, and has other good drugs in their pipeline and could be the better bet of the two big players.
Pfizer’s drug actually showed slowing of Alzheimer’s symptoms in Phase II trials if the patients didn’t have a genetic marker for the disease. It isn’t the cure all we would like, but it’s a lot better than what’s available now.
Drug companies are estimating an annual cost of between $5,000 and $20,000 per year for treatment and there are millions of customers already waiting for some type of relief, and the numbers will only explode as the boomers age.
This is one heck of a story; keep your ear to the ground on this one.
Beer, the New American Dream
An advertising campaign launched in 2010 presents Budweiser beer as the American dream in a bottle. I’m not kidding.
The really amazing news is how well this advertising approach has worked in the developing world and, believe it or not, Canada, too.
Overall sales for AB InBev grew 4.6% in 2011, but the U.S. sales were the anchor of this sprawling beer machine, inching up only 0.3%. Maybe we here at home have had all of the liquid dreams we can stomach for a while.
But Bud’s numbers in the rest of the world have been huge! Bud has a 70% market share in Brazil in less than one year of sales, it had double-digit sales growth in China last year, and is the number one beer in Canada with a 13% market share. And believe me, having spent quite a bit of time in the great white north, Canadians know their beer.
Am InBev is rolling right along, too. Their revenue grew to 39.05 billion in 2011 and their profit grew to 5.86 billion from 4.03 billion. That’s a nice increase. InBev also has about a 50% market share in the U.S., which has been known to crack open a few brews, as well.
It’s hard to remember a time when beer wasn’t doing well. Now that it’s the American dream in a bottle, who knows how big this could be. Am InBev, take a look at this one.
New Commodity Plays
A recent Journal article said that a lot of untested commodity plays have hit the market recently, mostly in the forms of ETFs, all aiming to beat the indices and most are totally unproven.
Some of these are even supposed to pay off if the commodity rises and falls in price, huh?
There are even commodity plays that invest in materials not even on the exchanges. The amazing part, investors are pumping hundreds of millions of dollars into these new-fangled products even as commodity prices have been falling.
Kathryn Young, a Morningstar analyst, said that investors are running to these new products despite the fact that we have very little information about them and no track record to know if they even work.
Some funds are doing nothing more than tracking commodities that have fallen or gained the most in a month and betting that the top 10 gainers or losers will continue to fall or run up even further.
Matt Hougan, President of ETF Analytics at IndexUniverse, was quoted in the Journal article as saying that indexing commodities may not even be the best way to play them, never mind the more exotic plays out there.
That to me says there is a lot of room for error in these unproven products.
Commodities are definitely on a long-term uptrend as the world’s middle class continues to grow, but playing them may require sticking with the tried and true, at least until there are better numbers to support the more extreme options.
The SITFA
This week it goes to those sheep shears out there who want to make sheep shearing a competitive Olympic sport. The new Zealand Farm Lobby believes it’s time to elevate sheep shearing to the world stage.
A recent Journal article stated that some people find sheep shearing thrilling. “Thrilling,” their word not mine!
A top clipper can finish a whole sheep in 45 seconds, wow! I’m sure the NFL is trembling at the thought of this kind of competition for their viewer’s dollars.
And these world-class shearers travel thousands of miles to compete in competitions; New Zealand is one of the top destinations.
This is so big in New Zealand that their national betting agency had to create more and different types of bets to serve all who wanted to get in on the action. “Action,” again, their word not mine.
I am not making this up!
In fact, the U.S. shearing competition was recently held just a few blocks form my house here in Baltimore, and I didn’t know it was there. I have to get out more.
Alex Mosler of Lester, Iowa said, if bowling is a sport, shearing can be, too. He thinks if more people saw it in the Olympics and on TV, more people would see it as a sport.
I can see it now, ESSN, Entirely Sheep Shearing Network.
See you next week.
Article by Investment U
