Where To Invest In 2024
“The only problem with market timing is getting the timing right,” certainly applied to the equity universe in 2023. No doubt, economic causes for concern cropped up, while events on the geopolitical stage added consternation, but we did not experience a recession or sustained market plunge.
There were two 10% corrections along the way, and we again saw that the secret to investment success in stocks is not to get scared out of them as the average stock was mired in the red for much of the year before rallying post-Halloween and going on to post solid gains for the full year.
Of course, the massive contributions from just a handful of mega-cap names to the returns of the capitalization-weighted market indexes (e.g. S&P 500) mean that there is plenty of Value still to be found for those willing to look past the so-called Magnificent Seven.
STOCK MARKET OUTLOOK 2024
In my latest Special Report, I discussed seven investment themes and wrote that I prefer to leave the economic fretting to others as I seek capital appreciation and income from my Value-oriented portfolios.
In a webinar on Tuesday, January 9 at 1:00 Pacific Time, I’ll be discussing The Prudent Speculator’s 2024 Stock Market Outlook, where I’ll offer specific stocks those who share our long-term view should be considering as 2024 unfolds.
Participants will also receive a copy of the full report.
2024 INVESTMENT THEMES
One of the themes is called Health Care (Temporarily) In the Sick Bay. A shift in investor attention away from safer stocks, worries about government price controls or question marks about medical cost ratios kept a lid on many Health Care stocks in 2023.
I think this will be a temporary condition, owing to long-term demographic trends that broadly support continued growth and solid earnings for companies like Bristol Myers Squibb (BMY).
Pharmaceutical titan Bristol Myers recently announced that it was acquiring Karuna Therapeutics for a total equity value of $14 billion, or $12.7 billion net of the estimated cash also acquired. Karuna is a biopharma company focused on treatments in the psychiatric and neurological arena, and it seems to be a good hole filler for BMY’s pipeline of medicines.
Karuna is developing a schizophrenia treatment called KarXT that’s up for approval in the U.S. and would expand Bristol’s portfolio in neuroscience, a growing area of interest for many drugmakers. Analysts believe that the therapy could bring in as much as $4 billion by 2030 if approved.
Of course, in the near term, the transaction is expected to be dilutive to BMY’s earnings per share by approximately $0.30 in 2024 from the financing cost of the transaction, but the company expects to offset the operational expenses through continued resource allocation, cost efficiencies and portfolio prioritization. BMY expects to finance the acquisition with primarily new debt issuance.
Bristol’s management team believes that cash flows and the company’s solid financial profile will enable a continued strong investment-grade credit rating and investment for growth through business development opportunities and distributions to shareholders through ongoing dividends and share repurchases.
“There are tremendous opportunities in neuroscience, and Karuna strengthens our position and accelerates the expansion and diversification of our portfolio in the space. We expect KarXT to enhance our growth through the late 2020s and into the next decade,” said BMY CEO Christopher Boerner, Ph.D. “This transaction fits squarely within our business development priorities of pursuing assets that are strategically aligned, scientifically sound, financially attractive, and have the potential to address areas of significant unmet medical need.”
“Schizophrenia and Alzheimer’s disease psychosis affect millions of people worldwide, with limited to no treatment options. KarXT’s novel mechanism has resulted in a transformational profile in schizophrenia, with compelling efficacy and a differentiated safety profile,” said Chief Medical Officer Samit Hirawat, M.D. “KarXT also has the potential to deliver meaningful benefits to patients as an adjunctive treatment for patients with schizophrenia and as a first treatment for Alzheimer’s disease psychosis.”
While only time will tell, I am constructive on the acquisition, though the more-than-50% premium paid to the then-market price seems steep at the moment. That considered, the pipeline enhancement is just what the doctor ordered. BMY shares fell more than 25% last year as generic pressures have eroded revenue for blockbuster drug Revlimid. But gains for leading oncology product Opdivo and several recently launched drugs such as Camzyos (cardiomyopathy), Opdualag (melanoma), Zeposia (MS and UC) and Sotyktu (plaque psoriasis) have kept the top line afloat, with growth potential across multiple indications.
As just seen, business development remains a priority for BMY. Shares trades for just 7 times NTM adjusted EPS guidance, which I think is far too low a multiple for a company of Bristol’s quality, especially as the shares also yield a robust 4.6%.
Disclosure: Please note that shares of the stocks mentioned are owned by asset management clients of Kovitz Investment Group Partners, LLC, a SEC registered investment adviser. For a list of stock recommendations like these made in The Prudent Speculator, visit theprudentspeculator.com.