Yes, you would have thought that with all the activity in the pharmaceutical sector over the last year that the global giants would be doing very nicely with their potions and pills but it is not really the case. Of course, there is more to it than that but investors have preferred to chase the speculative medcos, the ‘do or die’ ones – those which rocket if they happen to be the one in a hundred which actually brings a new process to market (conveniently forgetting all the others which fizzle away and run out of development capital).
Last month, GlaxoSmithKline shares dropped to a ten year low to levels first seen in 2005 in fact. The Company’s still committed to its dividend which is equivalent to 6.2%pa. You can imagine, we are buyers at these levels and not sellers. It’s a dull, boring, staple and well, it’s not going away even if all companies and sectors hit harder times than others. What many investors forget too is that sectors come and go in favour. This one (like oil) is out at the moment. Tech is ‘in’. One is cheap… the other is exorbitantly dear. Investing often is about knowing what to avoid too – or simply put, if you want to put money in Glaxo you have to find it from somewhere else and if it is in Glaxo, it’s not in that ‘something else’ either. With our fears for the over-exposed sectors, you can see why we secure comfort in such stocks and sectors as these, which will still do nicely upon our return to economic reality and possibly where the shares could enjoy a rerating to see them double and all from what could be considered as one of the lowest of risks going at the moment, especially compared to some dreamy tech company which has yet to make a real profit…
Remember what I have said before too – ‘value’ situations which are too cheap and where the market won’t reflect an appropriate value for their shares are also targets for takeover by others. We have had several such bids over the last year and all add extra value for ‘nothing’. The latest is Aggreko – thank you very much. Not every client has each one of course but a good cross-section is in there for ‘free’ so well done if you happen to score! What does surprise me is that there haven’t been more but so often, institutional money prefers to chase the expensive stuff on unjustifiable expectations as it is easier to raise new investor money for those… daft eh?
