Money with a dash of Funny: Amgen

Showing posts with label Amgen. Show all posts

Thursday, 26 October 2017

Lock it in with Amgen

To market to market to buy a fat pig. Wow! Yesterdays MTBPS was ugly. While Minister Gigaba was talking the quote attributed to Margaret Thatcher came to mind.

"The problem with socialism is that eventually you run out of other people's money to spend."

We may not be a socialistic state, but the 'chickens' of state capture, corruption, nepotism, hobbling SoE's and billions in wasteful expenditure by municipalities are coming home to roost. The problem with running out of money is that the closer you get to rock bottom, you need to borrow more to keep your head above water. Increased borrowing means an increased interest bill, which in turn leads to even more borrowing. Then hit repeat. The graph below shows how troublesome things have become in the last 6-months; with our national debt getting out of control, a debt downgrade to junk from Moody's looks like a foregone conclusion now.

If we do get a debt downgrade, the image above and the image below are going to get worse.

Then lastly, how serious are we about cutting costs if we still spend R9.3 billion on travel? How much does a corporate Skype account cost?

Market Scorecard US markets seem to have run out of steam for now. The Dow was down 0.48%, the S&P 500 was down 0.47%, the Nasdaq was down 0.52% and the All-share up 0.38%. Thanks to the weaker Rand, Naspers and Richemont are at all-time highs!

Company corner

Byron's Beats

On Wednesday we had 3rd quarter results from Amgen. Remember these guys discover, develop and manufacture various human therapeutics. When looking at this company, all focus needs to be on their portfolio of therapies; what they cure, competition, FDA approval, medical aid adoption, doctor adoption, side effects, how the therapy is administered, regulation and many more factors. Fortunately, Amgen has a market cap of $130bn (30% bigger than Naspers) and boasts a portfolio of more than 13 mainstream products with annual sales ranging from $150m to $6bn.

My point here is that, yes the industry can be volatile with lots of moving parts, but Amgen is diversified enough to absorb these factors while growing within a very exciting and fast-moving sector.

Let's get into those numbers.

Currently, the portfolio is in a transition phase. Some of the blockbusters are slowing, while a few potential big sellers are showing progress. This meant that revenues declined by 1% for the period. However margins were much better, and there were fewer shares in issue. This resulted in earnings per share growing by 8% to $3.27 for the period. Expectations for the full year are for earnings per share of $12.60.

The share trades at $177 or 14 times earnings. For a company with operating margins of 55% and a cash position of $41.4bn (debt sits at $35.8bn) these are very solid fundamentals. Not to mention the 2.7% dividend yield.

In case you are interested (we do have a few Doctors as clients) here is their product mix. These therapies attempt to cure all sorts of diseases that range from arthritis, heart disease, cancer, osteoporosis, migraines and many other awful ailments you never want to have.

As you can see, Prolia which helps cure osteoporosis in women after menopause was responsible for some solid growth. They expect this drug to continue to power ahead and become a major revenue driver. Repatha which brings down cholesterol is another potential blockbuster. This drug saw sales increase 123% year on year albeit off a low base.

So far this year Amgen has spent $2.5bn on Research and Development. That should breach $3bn by the end of the year. You are buying this company for its size, diversity and ability to attract quality talent. These factors will result in a constant supply of quality therapies in a booming sector. Not all of them will be major successes but the ones that are will result in outperformance. We are conviction buy on Amgen at these attractive levels.

Linkfest, lap it up

One thing, from Paul

As you probably heard by now, Saudi Arabia has a bold new plan.

NEOM (spelled with four uppercase letters), is a planned 26,500 square km city in northwest Saudi Arabia, Jordan, and (via a proposed bridge over the Red Sea) Egypt. Presently, its just a arid, rocky piece of mountainous coast land.

It looks like a long shot to me, but given time and enough money, who knows? I'm in favour of investment over consumption!

Mind you, the copy writer who prepared the text for the website must have been on some strong drugs:

"Unrivalled in concept, unmatched in intelligence, unconstrained by history and built on humanity's greatest resource: imagination.

NEOM is a new kind of tomorrow in the making a place on earth like nothing on earth a new blueprint for sustainable life on a scale never seen before where inventiveness shapes a new, inspiring era for human civilization.

And NEOM will redefine what urban entertainment means, by turning up the dial and raising the scale. With futuristic, record-breaking theme parks. Endless natural parkland. The world's largest garden in the heart of the metropolis. A waterpark with a wave machine where Olympians will perfect their technique. It will attract tourists from thousands of miles around. And for residents, bring epic to the everyday."

Feel like moving there yet? Go and take a look for yourself - Welcome to NEOM

Michael's Musings

As millennials become the biggest spending group, their tastes will come to shape industries - Eight Travel Predictions for 2018, as Revealed by Booking.com. The use of technology to get the perfect trip, customised around your own tastes is where the future lies. We own Priceline in our offshore portfolios. They in turn own booking.com.

With the current low volatility bull market most investors get lulled into a false sense of safety. When the next bear market hits, many people won't be emotionally prepared for it, which will result in very poorly timed selling. One thing I have learnt is that the market can do things that you think will never happen - What the Charts Don't Tell You

Bright's Banter

We were promised flying cars but Tesla can't even give us a fully autonomous vehicle. Well…not fully autonomous, just a car that can keep the correct distance, change lanes, take off-ramps and on-ramps, park itself etc.

Customers who were interested in this self driving car had to pay an additional $8000 for the service on their Model X and Model S. Unfortunately the cars still do not have autopilot! Elon Musk in a tweet (see below) said it'll be available in 3 months maybe, 6 months definitely - Can Tesla Make Up For Autopilot's Lost Year

Home again, home again, jiggety-jog. After yesterday, banks and retail are under pressure this morning; dual listed stocks though are flying. On the cards today for international news: ECB rate decisions and their plan with their huge balance sheet and then initial jobless claims in the US.

Sent to you by Team Vestact.

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Wednesday, 26 July 2017

Cashing Cheques and Saving Necks

"Whilst it is easy to point to these businesses as society has painted them (it must have come from somewhere), not enough credit is given to their ability to come up with life saving therapies. "

To market to market to buy a fat pig Yesterday there was tons on the go, Kumba Iron Ore reported numbers that easily surprised the market, most especially with the re-instatement of the dividend, which sent the stock and that of the majority shareholder, Anglo American, much higher on the day. In fact, the resurgence of the commodities complex at one stage threatened to see the Jozi all share clock a new lifetime high. Of course, all of you who have been paying attention would have noticed that the All Share has been a stagnant beast for the better part of three years, part the handing of the baton to the industrials and the fall from grace of the mining stocks.

Kumba Iron Ore stock soared, like Icarus with the wax, up over 17 and one-third of a percent on the day. Stunning and very rare at the same time for a business of this size, this single day move propels Kumba back into the top 40 stocks by market capitalisation, the market value is now 65 billion Rand. The volatility of the share price over the last ten years is just as breathtaking, being an incredible success story as the price of iron ore itself experienced gyrations that would make any seventies dancer with bell bottoms and big hair to boot a disco sensation. Ten years, the Kumba Iron Ore price is up 2.6 percent. Five years? Down 66 percent. 1 year, up 51 percent.

It depends how well you timed the proverbial cycle, it just became and becomes too hard to time the exit and entry prices, plus the capital gains implications in-between. Overt ten years the share price has been as high as 611 odd Rand in Feb 2013 (you could have bought in the depths of despair of October 2008 at 112 Rand), and as low as 26 odd Rand in the great commodities washout at the beginning of 2016. It is now 203 Rand. If you can find a single person/entity who bought at 112 in 2008, sold above 600 in 2013, bought back at 26 in 2016 and holds them now, then good for you. Timing and cyclical commodities markets are too wild for ordinary investors, that is our experience.

Anglo American added seven and a half percent to close at nearly 200 Rand, the story for Anglo's South African Rand share price is not so pretty. Ten years, you are down 55 percent. There has been talks of revivals, in an uncertain environment that I wrote in an email recently, describing both the mood and the lay of the land: " ... the rules are unknown. It is like trying to play tennis on a court with shifting lines, you don't know where to serve, the net keeps going up and down and the ball keeps changing shape." It is what it is.

Session end, stocks rose around one-quarter of a percent, resource stocks up three and two-thirds of a percent by the end. Stocks in the down column included Remgro and Sanlam, Mediclinic was up smartly (1.7 percent) following an announcement that their chief would be retiring in the middle of next year, enough time has been given for the company to find a replacement. What I find amazing is that at the same time that outgoing CEO Danie Meintjes started out at Sandton Mediclinic as General Manager at the same time that Clifford Ross of City Lodge (now CEO) was starting at the first location over the road, in the mid eighties as City Lodge hotel manager number 1. It was a taxing time in Msanzi, Meintjes running a private healthcare facility trying to churn as many patients as profitably possible, and Ross over the road trying to do something similar, without worrying about their "health" too much.

Across the seas and oceans, stocks were propelled by earnings, the way it is supposed to be when investing. Not politics or the Fed, the market is made up of separate companies that incrementally improve in share prices over time, sending the market as a collective higher. The S&P 500 is not a beast or a mythical creature, it is the sum of the constituents, some have a very high market capitalisation such as Apple inc. at 806 billion Dollars, the smallest on the list (from my limited research) is JBG Smith Properties, with a market cap of 4.15 billion Dollars, or 54 billion Rand.

In other words, only ALSI 40 constituents really. Exclude the secondary listed stocks and the list may well be smaller, which is just another reminder that we do have some big businesses that punch above their proverbial market cap weight and that the ALSI is not a proxy for the economy. They are two different things. Session end the Dow Jones Industrial Average added nearly half a percent, the broader market S&P 500 traded up nearly three-tenths of a percent to a record high of 2477, whilst the nerds of NASDAQ squeaked out a marginal gain, Alphabet (Google) slid around three percent after the results, we covered those yesterday. McDonald's produced favourable numbers, that stock soared, the market super-sizing the share price by four and three-quarters of a percent.

Earnings propelling markets, the way that it should always be.

Company Corner

Amgen Reported their Q2 2017 results aftermarket yesterday, with both a top-line and a bottom line beat. Earnings per share clocked 3.27 US Dollars (up 15 percent) on revenues of 5.81 billion Dollars (up 2 percent). Whilst there was momentum on their new products, there was a definite slowdown on their older products which obviously face increasing competition over time. It is the nature of the beast. Which is why, when owning a business in this very important space, healthcare, you need to find a business like Amgen, which has multiple lines in the water, so to speak. To illustrate this point, you need to look no further than to the breakdown per therapy:

Through some very low level editing, I have managed to point out that there are two crosses and several more ticks, when it comes to the more competition (red cross) and new therapies (turquoise tick). The company spends, like most of their peer grouping, a large number on research and development, they have spent roughly 15 percent of their product sales for the first six months of the year.

Yes, around 1.64 billion Dollars of their 10.773 billion Dollars worth off sales goes into developing and finding cures for the likes of the prevention of the crippling migraine (Aimovig) and newer oncology drugs like Avastin (for the treatment of metastatic colorectal cancer) and Herceptin (Breast cancer targeted therapy). Along with several other therapies, these above are in the final stages of of their clinical programs.

Whilst it is easy to point to these businesses as society has painted them (it must have come from somewhere), not enough credit is given to their ability to come up with life saving therapies. I feel. We have often made the point that it is far better to part with your money and give it to the likes of Amgen, becoming a shareholder along the way in searching for a cure for certain cancers and other life threatening and debilitating diseases, than it is to parting ways with your hard earned money in supporting a product that ultimately is responsible for many dread diseases.

Without getting too close to the moral high ground (which is very dangerous territory), if one can profit by investing in a business that cures, rather than the opposite, it adds a certain feeling. There is of course the moral argument about the company recouping their investment by charging thousands and thousands of Dollars for their therapies, and whether insurance and government medical schemes can afford to pay. Which is why ethics and health are tough arguing ground.

There is also increased arguments to be made for governments who tax the products that cause dread disease that help pay for the therapies that cure the people later. i.e. prevention is better than cure, which always motivates the argument for an investment in Discovery. You are never going to change human behaviour to the point that everyone is a yoga praising, meditating, calm and collected vegan that has complete life/work balance. Besides, not everyone wants to be all those things, that is what makes us individuals, we like the choices.

The company updated their full year guidance, tweaking it ever so slightly. The Earnings per share range is expected to be between 12.15 to 12.65 Dollars a share on revenues for the full year of 22.5 to 23 billion Dollars. Whilst the earnings range moves higher at both the bottom and top end, the revenues range is pulled back a little at both ends, perhaps that is what the market is worried about. The stock is off two and one-third of a percent in pre-market trade, the stock is of course up 23 percent year to date (before this move).

At 176.6 Dollars, the indicated price, Amgen trades on a FY multiple of just less than 14 times. Which is hardly expensive. In this transitionary period in-between the decline of the old therapies and the rise of the new, the market is likely to be more cautious, and in that, I think there is an opportunity. A great business for the long run, and our preferred biotech stock. Continue to accumulate.

Linkfest, lap it up!

Amazing to see how small technology is becoming - Tiny robots swim the front crawl through your veins. My hope it that by the time I reach an age of high medical bills, nano bots are common medical practice. Nano bots making changes to me instead of a doctor cutting me open sounds good, to go along with DNA specific medications.

Home again, home again, jiggety-jog. Stocks are marginally lower on balance. Across Asia stocks are up, US stock futures are mixed. The repeal of Obamacare failed, I can't see how that is going to be overcome! The Fed meeting wraps up today, they are expected to "skip" this meeting. Inflation? Maybe.

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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Monday, 8 May 2017

The Caffeine Bean

"Now that the numbers are out of the way, there are two key areas that management spoke about. An area of concern, which was the opening point from the new CEO Kevin Johnson is the state of US malls. Foot traffic to malls is slowing and a number of malls are closing."

To market to market to buy a fat pig OK, first things first, Macron won and the new French president will be the youngest ever in the history of their democracy. Even though, as we stand now, this is the French Fifth Republic, that dates back to 1958. A time when Charles de Gaulle was large and in charge. In fact, this version is the second longest of all their republics since the abolishment of the monarchy, back in 1789. France has a semi-presidential system, which means that the president and the prime minister and cabinet work together. At least that is the way that I understand it.

Whatever the system of government, the important thing here was the French have a pro business and a pro European president, and I think in light of the anti-establishment votes from last year, this is a good thing for integration, free trade and it also tells you that people rebuffed the idea of isolation and what is plain racism, masked as "nationalism". Another fact, before we shelve this as "good news", the first French president was Louis-Napoleon Bonaparte, or just the nephew of THE Napoleon, to you and I. And he (nephew of Napoleon) then staged a coup in 1851, probably not enjoying the idea of democracy so much. From 1871 onwards however, France has had a president, with regular elections, interrupted by the Second World War. As you can quickly tell, it is difficult to have economic continuity with all these political disruptions. Many people will not invest when governments flip and flop.

That is why I borrow that line from Warren Buffett, when he says something along the lines that the US has had 250 years of uninterrupted economic growth and prosperity. Sure, there have been wars (a big civil one too), the program has been to keep it on the straight and narrow. That is why it works, and will continue to work over the next few decades that we have to look forward to as an investor. France, as you can see, has had too many interruptions. Hopefully this is the start of a long and bright future for Europe, notwithstanding many naysayers. If one thinks about it, the UK used their own currency and had border controls, had their own central banks, the rest of Europe did not. Which is why, in my mind, the longer the European "experiment" proceeds, the more likely it is going to be more and more difficult to unpick in the modern era.

To market quick sticks. Here in Jozi, Jozi on Friday, stocks rose around one-third of a percent. Resources rose over a percent and a half, Anglo, South32 at the top of the leaderboards, with Bidcorp also gaining major traction, up two and a half percent on the day. I suspect that the stronger Pound has something to do with it. At the other end of the spectrum and suffering from a very weak oil price, was MTN. I suspect that their trading update in which they suggested that more capex in all of their territories was less of a "concern", it is rather trading as a proxy for the oil price (Nigeria and Iran) is the reason the price has been weak.

Over the seas and across the oceans, in New York, New York, stocks ended the day in the green. It was jobs Friday - The Employment Situation Summary. The numbers were all generally "good" and moving in the right direction. I just get the sense that it may not get much better than where we are right now, it may be a steady 150 to 200 thousand jobs addition, and the unemployment rate flat. The Dow added one-quarter of a percent to top 21 thousand (again), whilst the S&P 500 touched an all time high, crossing 2400 points for the first time. The nerds of NASDAQ "got close". Apple inc. touched an all time high, I guess the biggest stock in the biggest market both reaching all time highs is not a coincidence.

It was Buffett time again over the weekend, the annual general meeting of Berkshire took place Saturday and the masses that come in their droves to Omaha must both please and irritate the locals. Pleasing, as it creates employment and awareness and irritating, as it must feel like the wildebeest migration for the locals, and they are simple river birds minding their own business. There were more than a few nuggets, including Buffett underestimating the brilliance of Jeff Bezos of Amazon and Munger being sorry about not investing in Google. And saying that he got IBM wrong and was glad that they (Berkshire) had bought Apple recently. Apple being more a consumer company (with wonderful products).

What is so very refreshing is that Buffett and Munger speak about learning all of the time, the fact that they continue to make mistakes, rectify those and then look at themselves long and hard in the mirror. I love that about these two, I love that the company can continue to evolve as they enter their last few years of investing. In the next ten years I suspect that both of them will be gone, at least from an investment point of view.

Even if Charlie makes it beyond 100 and has all the experience in the world, he may not be able to attend these types of meetings. We will continue through the week to bring you some Charlie and Warren time! See the Bloomberg piece - Buffett Confronts Search for Next Big Thing After Missed Chances.

Company corner

At the end of April we had Q2 numbers from Starbucks which missed what the market was hoping for. The result was a 1% drop in the share price, so not a huge miss. Having a look YTD, Starbucks is up 10% when the broader market is up a little over 7% so the company is still doing better than the average. Onto the numbers!

Revenues were up 6%, with Global and US comparable sales up 3% and Chinese comparable sales up 7%. For the US based stores the average ticket price was up 4% but transactions were down 2%, which seems to be inline with the change in the rewards program where value is now rewarded instead of transaction numbers. The number that matters to me is what do margins look like? They managed to grow their operating margin by 40 bps to 17.7%. Thanks to the margin increase they increased operating profit by 8.2%, when this fell to the bottom line, net Income came in higher by 13.5% at $653 million.

Now that the numbers are out of the way, there are two key areas that management spoke about. An area of concern, which was the opening point from the new CEO Kevin Johnson is the state of US malls. Foot traffic to malls is slowing and a number of malls are closing. If people are shopping more online, they are not stopping at Starbucks to get a caffein dose to keep their shopping spree going. On this point Kevin noted that they aren't seeing any significant impact on Starbucks branded stores because the stores are designed to be "destination stores/ experiences". Interesting to note that Teavana (Tea company), which they bought in 2012 is really feeling the heat of the mall slow down. With store upgrades the stores should come right.

To increase the destination offering they are opening up ultra premium stores called their reserve stores, where a coffee sells for around $12. There are only 5 stores currently with another being built in Chicago. Paul did some investigating when he was in Seattle at the end of last year, he said the experience was amazing and that the store is becoming a tourist attraction itself.

The next big theme is their growth in China, where management say you need to actually see what is happening to believe how popular the brand is. Currently they are opening up a new store every 15 hours. China is important because this is where most of the growth is going to come from over the next decade. On a margin basis, China increased margins by 380bps in comparison to the Americas where margins dropped by 130 bps.

Another company that we own, Tencent, has partnered with Starbucks in China. Currently 29% of all transactions are paid with WeChat pay. The easier that you make it for people to pay and for people to gift Starbucks to others, the more orders come through. In the US, including gift cards, 44% of all transactions are prepaid.

Given the huge growth potential in China and the moat created by their premium brand status, Starbucks trades on a premium to other food chains. In our opinion a deserved pricing. Don't expect fireworks from the share price but expect this company to be worth more in 10 years time with a whole lot less shares in issue.

The Amgen share price has been under pressure since Friday the 13th of March this year. Well, let me rephrase that. The Amgen share price took a knock on that day as a result of a fairly innocuous release: Repatha (Evolocumab) Demonstrates Reduced Need For Apheresis In Patients With High LDL Cholesterol In Phase 3 Study. Let us just say that the outcome was not what people expected.

This has seen investors dial back their future revenue calculations (in light of expectations falling on Repatha sales), hence the price coming back to 160 odd Dollars from 180. Mind you, in the lead up to the US presidential election conclusion, Clinton being the likely candidate was going to come down heavy on these businesses. Trump himself has had a bit to say about the pricing of their therapies. The truth is that the company spends double digit amounts in revenues to come up with life saving therapies. I know first hand how emotive the decisions around these therapies can be, they deplete savings at a pace. I can understand that there is a certain responsibility of these businesses to deliver cheap life saving therapies, they cannot do that in perpetuity unless they have the early adopters.

And what that means is that having made their therapies available (which have to get through miles of tests and scrutiny before fit for consumption) to the masses, at least those covered by medical insurance or rich enough to take the therapies. It may be as simple as supply and demand, remembering that competitors and those waiting for the therapies to come off patent will benefit from the cheaper therapies. This company has nearly 4 decades of experience in biotech medicine, their current blockbusters are as per below, growing fast are Kyprolis, Repatha and Prolia.

The guidance for the full year was tweaked, the noticeable difference was upgrading their guidance in non-gaap earnings per share to the range 12.00 to 12.60, 12.30 Dollars at the mid point. The previous mid point was 12.20, a marginal update. There is a good dividend underpin approaching three percent (before tax), pharma stocks are always pretty generous. We continue to accumulate at what we think is a very attractive opportunity, it is cheap and there is a good pipeline to add to existing therapies.

Home again, home again, jiggety-jog. Stocks across Asia are mixed to higher, Hong Kong is up, Japanese markets are up two and one-third of a percent. Cheer the mid road in France. What I find most interesting is that the party that Emmanuel Macron formed is all of 13 months old. The next election in France is in the next few months, this is for the National Assembly. This could be another big moment in French politics.

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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Monday, 20 March 2017

Fund my Supercar!

"Well we are at year 9 and the current score reads, S&P 500 is up 85% and the hedge fund industry is only up 22%. As the market adage goes about hedge funds, "a compensation scheme masquerading as an asset class". The push back on underperformance and high fees is starting to be felt in the US"

To market to market to buy a fat pig The All Share spent the whole day in the red on Friday finishing down by 0.38%, this is after having the best day of the year on Thursday. Thanks to the green year so far for the market, the list of companies reaching 12 months high is growing. The most noticeable is Capitec, which is a whisker away from R800 a share. In August 2014 when ABIL was going full throttle towards the wall you could have bought Capitec for around R215 a share! That means you could have almost tripled your money in a little over 2 years. I remember thinking I had missed the Capitec boat when the share reached the R120 - R150 levels, 7 years ago you could have bought the stock for under R100 a share.

On Friday I was on TV talking about the emerging Hedge Fund industry in South Africa, where a peer in the industry was saying that you should own hedge funds for diversification in your portfolio. The logic is that hedge fund returns are not correlated to the overall market and that they generally do better than the market in down years. Owning "insurance" assets to cover yourself in the down years means that you don't have a long enough time horizon. The stock market is not like a car, when you are in a car accident you do need insurance because there is permanent damage to your car. In the stock market, if there is a down year you can either keep your head down (not sell) until it passes or you can go out and buy more assets. So why then do you need "insurance"? Why spend the money on expensive products, which to add insult to injury normally underperform, for insurance that you don't need?!

I must say that I fall into the Buffett camp when it comes to hedge funds. Remember the bet that Buffett has where he bet $500 000 that the S&P 500 would perform better than hedge funds over a 10 year period? Well we are at year 9 and the current score reads, S&P 500 is up 85% and the hedge fund industry is only up 22%. As the market adage goes about hedge funds, "a compensation scheme masquerading as an asset class". The push back on underperformance and high fees is starting to be felt in the US, More Hedge Funds Shut Last Year Than Any Time Since the 2008 Crisis. It is interesting to note that the industry manages more money today than last year but it is being channelled to the funds with better track records and who are cheaper (I assume).

All in all, it is human nature to think that the buy and hold strategy is too simple to get good long term returns. It is at that point when the terms 'derivatives', 'Long/Short' and 'exclusive' get your attention. You then think the higher risk, higher fees and higher complexity will get you better returns. Don't listen to your ego when that happens, in this case simple is better.

Across the seas but not far away, US markets closed marginally down for the day. The Dow was down 0.1%, S&P 500 was down 0.13% and the Nasdaq was up less than a point or 0.0% change. The news for the day came on the data front with Consumer confidence jumps more than expected. The general theory is, the higher consumer confidence the more people spend which is good for growth and company bottom lines.

The next big piece of data is US oil rig count rises for 9th straight week. Thanks to the relatively higher oil price, more and more rigs are being added to the US production system. As you will see below, we are still very far away from the high rig numbers of 2014. It is important to note though, that thanks to technology the current rigs produce more than historical rigs. In 2016 when the rig count was dropping, the number of barrels being produced was climbing.

With the oil price being under pressure, the temptation for OPEC nations to cheat on their quotas increases. That coupled with the speed at which the Frackers can respond should see a cap on the oil price. A low oil price is good for the consumer, less money spent on transport and more money spent in other parts of the economy.

Company corner

On Friday before the US market opened we had the results from a large scale study on the effectiveness of Amgen's Repatha drug which lowers cholesterol. The results from the drug were positive but not positive enough for traders, the stock fell 6.4% on Friday (Amgen is getting whacked after disappointing study results for its $14,000 cholesterol drug). The big thing to note about this drug is that it costs between $8 000 - $15 000, depending on the dosage required. As you can imagine, insurance companies are not keen to shell out that kind of money without proof that the drug has benefits. The main benefit needed is a reduction in the number of people having heart attacks and needing to be hospitalized, which could cost insurers more than the cost of Repatha.

Analysts are expecting the drug to have a huge take up, currently one of the smaller drugs that Amgen creates but expected to be their second biggest with 15% of revenues by 2020. That sort of growth only happens with insurance company approval. One of the biggest positives about the drug is that it seems to become more effective as time goes on, which means that next year this time when the next wave of study numbers is released we should see an even greater impact and effectiveness from the drug. Another factor is that the regulators may list Repatha as a drug option of high risk cholesterol patients, which would basically force the insurers to start using the drug or face being sued by patients for negligence.

Amgen creates many life changing drugs, the reason that we own them. This will be a damper on the share price because it creates a bit more uncertainty about the future but given the vast drug portfolio that Amgen has, this is not a make or break moment. We are still holders here.

Linkfest, lap it up

Why is Facebook worth over $400 billion? The below graph shows you why, they own 5 of the top 6 downloaded apps. App usage means, "eye balls" and that means the ability to sell advertising - The Global Top 10 Android Apps

You will find more statistics at Statista

Sticking with online advertising, as the number of people on the internet grow it becomes harder to know who is real and who is fake, which is a problem for advertisers - The ad fraud issue could be more than twice as big as first thought - advertisers stand to lose $16.4 billion to it this year

Home again, home again, jiggety-jog. Our market is in the green this morning and our currency keeps gaining ground, currently the Dollar/ Rand is around the 12.65 mark! No major data releases today, enjoy the day off tomorrow.

Sent to you by Sasha, Michael and Byron on behalf of team Vestact.

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Monday, 6 February 2017

Curing Cancer

"One thing that often shocks me, and you have heard us say this before, is the enormous pushback that companies such as these get from the broader community. They are shocked and outraged at the cost of the therapies, yet give little time and effort into trying to understand not only how much money is spent in developing the therapies, but the enormous positive impact that companies like Amgen have on broader society."

To market to market to buy a fat pig NFP (non-farm payrolls) Friday is always fun. As time has passed it has become less important, the actual number. Second guessing what market participants will think/do and how they are likely to act to the same information is about as predictable as being an Arsenal/Liverpool supporter (sorry - ). The report itself is known as the Employment Situation. It is watched closely around the world as a barometer of the biggest economy in the world. The more the economy of consumers adds jobs, the higher the labour participation rate, the lower the unemployment, the better the state of the economy. And by extension, the market. I am sure however, as it was when farms mechanised heavily and factories popped up everywhere during the industrial revolution, that the correlation between jobs and the age of the robotics will throw up some anomalies.

There is a famous interaction/story between Walter Reuther, a union leader in the automobile space and a Ford executive (sometimes wrongly attributed to Henry Ford II), in which the Ford exec. proudly says "How are you going to collect union dues from all these machines?" Meaning of course, with the heavy automation and the lack of labour, the process of manufacturing would eliminate the union member dues. The correct and speedy answer from Reuther (from a speech given later) was "You know, that is not what's bothering me. I'm troubled by the problem of how to sell automobiles to these machines." And you must remember that this interaction took place in the mid 1950s. Automation and the replacement of humans with cheaper and more reliable machines is not a new thing, nor has it eliminated that many jobs. People skill up and stay relevant or ~~vote for populists~~ fall behind.

The market liked the jobs numbers, all except the materials/resources stocks, which sank in New York trade nearly a percent, more on that below. As for the rest, they all caught a bid and in particular financials (up nearly a percent and a half) as Trump policies set to ease the regulatory burden on that sector. Democrats called it a gift to Wall Street. Look at the smiling people in the picture - Trump Moves to Roll Back Obama-Era Financial Regulations. Indra Nooyi and Ginni Rometty on the left there, not that financial regulation has too much to do with their business.

The upshot of it all was that the majors rallied sharply, JP Morgan up three and a bit percent, Goldman Sachs added over four and a half percent, Morgan Stanley nearly five and a half percent, Wells Fargo two and three quarters of a percent, you get the picture! By the time the market closed Friday, Dow 20K was firmly back on an even keel, that index up nearly a percent on the session, the broader market S&P 500 added nearly three-quarters of a percent and the nerds of NASDAQ tacked on just over half a percent. Dragging those chaps lower was a worse performance (than anticipated) from Amazon, that stock sank three and a half percent. Not too worry, Visa added over four and a half percent to trade at an all time high.

On the local front there was a little concern over the Chinese raising interest rates (China Tightens Monetary Policy by Raising Money Market Rates), that certainly surprised all and sundry. What it meant was that with less liquidity, there would be a little less building activity. And that means a little less on the resources front, in terms of demand, forget the supply side. Of course, with an economy that relies on raw materials for export revenues, our local miners were bound to feel a little heat, the stocks have had such a good run recently. I have no idea what the long term outlook of the People's Bank of China is likely to reveal (from a policy point of view), I suspect that they will act when they see fit. It is not going to be easy, the Chinese Economic Miracle is still work in progress.

The stronger Rand did not help the resource stocks either, in the end, resource stocks as a collective were down 2.85 percent by the close, dragging the broader market, the Jozi all share index with them. We ended the day down 0.86 percent. Kumba felt the heat, both from the Chinese interest rate event, as well as announcing that they had settled with SARS, down nearly 8 percent by the close. Glencore had slipped five and a half, Anglo American just over four and a half. At the opposite end of the spectrum was PSG, Discovery and Nedbank, the prospect of lower inflation (with a stronger exchange rate) being a real win for local retailers and banks. Rate cut by the end of the year? Perhaps, we will have to wait and see, I would not think that it is completely out of the question though.

Company Corner

Amgen reported numbers on Thursday evening, after the market closed. I think for the purposes of this 4th quarter update, it is worth publishing a sales table of all of their therapies to explain where the business is right now.

As you can tell, their biggest selling drugs are Neulasta and Enbrel. Their fastest growing therapies are Prolia and Kyprolis. Of course, if you are looking for a breakdown of their therapies (everyone knows what a GoPro is, Neulasta outsells that on their own, not everyone knows what that is), visit the Amgen website - Amgen Products. Neulasta is a prescription drug given to you 24 hours after you have chemotherapy, in order to boost your white blood cell count. This builds greater protection against the chance of infection, i.e. the more white blood cells you have, the greater chance you have of fighting infection risks, should they arise. Enbrel is one of those therapies that treats multiple ailments, from Rheumatoid Arthritis to Psoriasis to Ankylosing Spondylitis (AS - spinal arthritis).

Prolia treats postmenopausal osteoporosis, by strengthening bones most especially in woman who would be prone to heightened risk of fractures. At two shots a year, it is an effective and affordable (in a developed world sense) at 1650 Dollars a year. More or less affordable and a whole lot better than the cost of the ongoing treatment associated with fractures as a result of weaker bone structures. Kyprolis, as per the website "is a prescription medicine for people with relapsed or refractory multiple myeloma who have received at least 1 previous treatment." Amgen bought the therapy when they acquired Onyx Pharma back in 2013.

It is a little complicated as an investor trying to understand all the multiple therapies that they have invested an enormous amount of time and money in, the research and development cost last year was 3.84 billion Dollars, relative to the total annual revenues of 22.991 billion. That is 16.7 percent of total revenues dedicated to the search for the next big blockbuster and ongoing trials and testing of existing therapies. 18.6 percent in R&D relative to product sales for the quarter (they have "other revenues"). Basic earnings per share for the year clocked 10.32 Dollars. The company pays 1.15 Dollars a quarter (pre-tax) in dividends.

The quarterly share buybacks were as much as the dividend check the company paid, very aggressive at these lower prices. That is nearly double (the dividend payment) from this time in 2014. The company has certainly been very generous with their dividends. On a simple historic basis, the stock trades on 16.3x earnings and has a yield of 2.74 percent. This after the results were well received and the stock managed to rally just under five percent Friday, to close at 167.53 Dollars.

One thing that often shocks me, and you have heard us say this before, is the enormous pushback that companies such as these get from the broader community. They are shocked and outraged at the cost of the therapies, yet give little time and effort into trying to understand not only how much money is spent in developing the therapies, but the enormous positive impact that companies like Amgen have on broader society. Getting back your health (admittedly at a cost), is essentially priceless.

The truth is, not everyone can afford these expensive and life saving therapies. I for one would much rather own a company (repeat always) that is dedicated to improving health and contributing positively to longevity, than one that does the opposite. The same said people that have pushback against big pharma, seem to have no problem with booze businesses. You get my drift? Paul sent the WhatsApp group a great Bloomberg story, it ties into the affordability of therapies, an Amgen drug - Repatha Will Test the New Drug Pricing Reality.

The company gave guidance for revenues of between 22.3 to 23.1 billion Dollars, earnings per share in the range of 11.8 to 12.6 Dollars (quite wide), which puts the stock on a 14.2 to 13.3 times earnings multiple forward. We think that there is plenty of room to move for this business, both in terms of existing therapies coupled with a strong pipeline. The company is awaiting further approvals on existing therapies (For Repatha and Kyprolis, as well as Xgeva and Blincyto) and new migraine (Erenumab, remember that name, like Carlos Brathwaite) and cancer drugs. Not expensive, a great history of returning cash to shareholders via dividends and buybacks and the ability to continue to bolt on acquisitions (the market capitalisation is an astonishing 130 billion Dollars) exists. We continue to add and hold this as a core in the healthcare segment of our portfolios.

Home again, home again, jiggety-jog. Whoa, the Super Bowl was a sight to behold, and that was a pretty amazing comeback from Tom Brady and his mates. Brady is 39 years old. Serena is 35, so is the Fed. Age my friends, it seems, is just a number in the modern era of the sports world. Someone hear Usain Bolt coming back? Maybe? 4 X 100m? Stocks across Asia are marginally better after a strong show into the close Friday, Hong Kong up over two-thirds and Japanese stocks up just under one-third of a percent. Expect a better start.

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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Friday, 6 January 2017

Garage gains

"Bill Gates of Microsoft started a business out of his garage, Phil Knight of Nike sold another business's shoes out of the back of his car, more recently Mark Zuckerberg founded Facebook in the more comfortable surrounds of his university dorm room. Really? Probably more comfort for the Zuck, better aircon and of course he had the internet already. Amazon, Apple, Disney and Google were all apparently hatched out of their founder(s) garages too."

To market to market to buy a fat pig Financials and retailers on the local front took some heat, I suspect that at this time of year jostling takes place amongst money managers and perhaps we are in the crosshairs of an EM and South Africa specific selling. Time Magazine, for what it is worth, cites South Africa in amongst their top ten risks for the year of 2017. Moody's (via a Reuters article) had South Africa (and the UK for that matter) on the list of potential downgrades to another credit rung this year, in our case the word junk will mean non-investment grade. There was also a story about poor December sales for the retailers, the local ones, those results will hit the streets and screens over the coming weeks. Colloquially it was too difficult to tell, the shops always look busy to me.

By the close of business in Jozi, where the streets are still relatively quiet (for Joburg), stocks as a collective reported a little more than a half a percent slide. That move included resource stocks that rallied nearly three-quarters of a percent, general retailers were smoked over two percent whilst banks slipped two and one-quarter of a percent. Industrials, which form a large part of the overall mix slipped one and one-quarter of a percent. Steinhoff, RMB Holdings, Barclays Africa and FirstRand led the charts in amongst the losers, winners included Amplats and AngloGold Ashanti, as well as Glencore and BHP Billiton.

Despite the relative carnage, there were some impressive new 12 month highs for Nedbank (before they sold off heavily), Imperial (ditto) and Astral which managed to cling to their gains. Banks, trucks and chicken, yip, everything is in some way or another connected. No trucks to transport the chickens means consumers never eat bird, no finance for the trucks, the chickens may as well fly to the consumers plates. Brait slipped to another 12 month low, the sales update from UK retailer Next, two days ago is dragging the whole sector lower across in Europe. We are going to have to continue to be very watchful and patient here.

Across the seas and over the oceans vast (only ten percent of the entire planet is arable land, whilst 1.15 percent is permanent crops), stocks in New York, New York were mixed by the close. A good day in some parts, in particular with tech stocks, the nerds of NASDAQ closed up one-fifth of a percent by the close. The broader market S&P 500 ended the session a smidgen lower, whilst the Dow Industrials slipped just over one-fifth of a percent.

I know it is too soon to say, there seems to be a shift away from the so called Trump trade, less financials and more technology. What is happening is that it is becoming increasingly apparent that Amazon is eating the lunch of traditional, old brick and mortar businesses. Macy's and Sears are cutting store frontage and jobs, Amazon is growing fulfillment centers on the other hand. You do not need to be a genius to figure out that the consumer is shifting shopping patterns in a hurry. Yet .... Amazon is opening a bookstore in Columbus shopping centre, in the Time Warner Center. Right on the bottom left corner of central park in Manhattan.

We are now two weeks away from the Trump inauguration. There is a Wikipedia page for that already with a smiling fellow, the 45th president of the US. What happens with policy and action in the coming months will be closely watched, remember the saying, it is not what I say, it is what I do that counts.

Often when we make investments in a specific company we tend to get lost in the size and scale of the business. When looking at the current size and scale of a business and we sometimes fail to fathom how something so big as a Giant sequoia was once a seed. Wiki tells me that the Hyperion is the tallest tree, the cypress and baobabs have greater diameters and the oldest is the Great Basin bristlecone pine, you get the drift and the reference to trees and seeds though!

Bill Gates of Microsoft started a business out of his garage, Phil Knight of Nike sold another business's shoes out of the back of his car, more recently Mark Zuckerberg founded Facebook in the more comfortable surrounds of his university dorm room. Really? Probably more comfort for the Zuck, better aircon and of course he had the internet already. Amazon, Apple, Disney and Google were all apparently hatched out of their founder(s) garages too.

The story goes that Larry Page and Sergey Brin actually rented a garage from a mate. Don't feel bad for her, Susan Wojcicki is now the CEO of YouTube. If your friend has an idea and you back them ..... you never know. Sergey Brin ended up marrying Susan's sister (Anne), that ended recently, in 2015. Anne in her own right is an amazing person, once a Wall Street analyst (healthcare sector), she unsurprisingly runs a biotech company called 23andMe. Anne, the next big thing? Maybe.

I suspect the point that I am trying to make, having read many books about founders of businesses and their trials and travails over the years and decades from the formation of the business to the present size is that there are many times that they could have thrown in the towel. Perhaps fame and fortune came a lot easier for the Zuck, which is why he is able to enjoy the annual goals more than say, Walt Disney. Not only did Walt invent Mickey Mouse, he was also his voice in the early days. He won 22 Oscars and was nominated 59 times.

He (Disney) has been departed a long time now, in fact Disney died when our own Paul Theron was a mere two days old. That is right. Yet .... the enduring nature of the brand and the content that still continues to flow boggles the mind. I was chatting to Michael the other day about the Disney movies he saw when he was growing up, he hardly missed one on the list that I read out. The company has the legacy and ability for the business to continue to adapt and evolve with the rest of us.

Mattel originally sold picture frames, the left overs were turned into doll houses which sold better than the frames. A toy company was born. Jeff Bezos sold and delivered books from his garage, changing the name of what is now know as Amazon from Cadabra (it sounded too much like cadaver he said). The rest as they say, for all these businesses, is history.

I think that very often we get lost in the mists of pricing, blaring TVs, large swathes of paper and online content that is produced about the potential or past returns of the businesses that we hold, and we often forget that we hold a part of a company. A company that employs hundreds (if not millions) of people across the globe. A company that has loyal customers consuming their products and services day in and day out. That company operates day in and day out, working essentially for you. Your holding in that company is a slice of future profits and the growing of the business through the reinvesting of another slice of profits. The value of those future profits is reflected in the daily share price movements, be they swayed by actual real news on the business (less of an occurrence) or more likely some piece of economic news.

Heck, I bet if company management listened half the time to the talking heads telling us how gloomy it is out there, they would shut their factories, store frontages and immediately cease business. That bearish news sounds so clever, we are drawn somehow to bad news thanks to survival instincts. Lucky for us stock holders, the people that make the money decisions and have business ideas are optimists. They take chances. They make calculated decisions. And we can continue to prosper off their ideas and inventions, long after they are gone and long after they leave their respective businesses in the hands of the next generation. Ignore the same people who continue to make wild predictions, they may be "right" for a while, in the end they will drive themselves crazy, chasing their tail like a mindless, seething mad Jack Russell terrier.

Oh, and by the way, it happens to be non-farm payrolls today. A massive number in the lives of headline chasers and traders. This will be the most important number ........ since the last one.

Company corner

It is not often that one has to watch legal judgments with your stocks, you would hope that the companies you own stay out of the courts. That is nigh impossible in the modern era though, there is always much open to interpretation. See the story that concerns one of our stocks - Amgen Wins Ban on Sanofi's Praluent Cholesterol Drug Sales. As you can see from the story, Regeneron and Sanofi will appeal this ruling.

As the Bloomberg article points out, this is a big deal for everyone. A big deal for consumers and all the companies concerned. Of course consumers would like alternatives and more choices and definitely cheaper drugs to treat their aliments, over one in four Americans over the age of 40 suffer from high cholesterol and take medication. As such, these are very necessary drugs to reduce the risks of hear disease in later years. See the associated graphic (the usage is rising) from Prescription Cholesterol-lowering Medication Use in Adults Aged 40 and Over: United States, 2003-2012

These drugs in question however are for people who do not respond to the normal treatments, these are for much higher (bad) cholesterol readings. The fewer preventable diseases out there, the better for humanity. The cost is always the issue though. It is a weigh off against the ethics of charging high prices in order to recover the costs of research and development, to fund future development, to cover the costs of failed developments and then of course to make a profit too. The one thing that this business has taught me is that those with free reign are always dictated to by the consumer. If the costs are too high (you may think that an iPhone is too expensive or a Starbucks cappuccino is too excessively priced, the consumer decides that), the product won't be appealing and the company won't pursue that avenue. It will not be long before we hear more on this case.

Linkfest, lap it up

A fun article from the BusinessInsider, you may be looking at or for a new job, these are useful tips from the Oracle of Omaha for his character traits - Warren Buffett looks for these 3 traits in people when he hires them. I think that the three are pretty simple and speak for themselves - Intelligence, Energy and Integrity.

This is pretty interesting, from the FT (subscription), where Barclays considers Elon Musk delivering timeously on the Model 3 and the power walls (the storage devices) as a black swan event for oil prices. See - Barclays considers Elon Musk a potential commodity 'black swan' of 2017

We talk a lot about these points all the time, it is sometimes gratifying to see someone else make these points - Profitable New Year's Resolutions for Investors. Charts are for the birds, they tell you nothing about the future and are only good for historical context.

Whether or not you saw this, or not, here goes - It's official: A brand-new human organ has been classified. It is always fun to wake up (humanity as a collective) with an extra part each. How does that make you feel?

This amazed me. It was a graphic on the number of forced sellers back in the day when subprime mortgages imploded, that was in the US. What then arose was distressed sellers and more importantly for the financial system, there is a person on the other end of the transaction who is willing to take on the risk and be patient for years, or a decade plus. You will still be pretty surprised that in the land of the free (and the American dream of owning your own home) that Distressed Sales Make Up 7.3 Percent of All Home U.S. Sales.

Home again, home again, jiggety-jog. Stocks are trading mixed to begin with, some up and some definitely down. I suppose that much of the day will be dominated later in the session with the non-farm payrolls, stand by around three thirty local time for the number.

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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Tuesday, 1 November 2016

Amgen, it's Curable

"Humans are great inventors, they are also great inhibitors, humans that is. If you do not make these therapies, or incentivise people to search for these therapies, then you are unlikely to ever get them made. There are those motivated by science and invention, there are those who are motivated by profits, there are those who are motivated by believing that societies best needs to be taken into consideration"

To market to market to buy a fat pig The Rand caught a serious bid yesterday, mostly as a result of political meddling coming undone at the edges. It all looks rather amateur, even to the untrained eye. Surely in a country where graft impacts on poor people, you have better things to do than read reams about pension law and early retirement? We (and by we, I mean South Africa) also recorded a trade surplus in September, economists had expected a deficit, that may have seen the Rand catch a bid too. Perhaps these are the green shoots that the minister of finance is talking about, greater exports. He will put on a brave face, and perhaps the ratings agencies will be at bay for another 6 or so months. Meddling. The less politicians do, the better. Oh, and does Shaun Abrahams look more like Gru from Despicable Me or Chester Messing, the puppet fellow?

Democracy trumps central planning, each and every time. Letting individuals carry on and doing what they do in an orderly fashion, keeping to a set of guidelines is something humans do. Even in North Korea there is a flourishing informal market (I call it real market, where real people set real prices for real goods, some people call it a black market) that sells all sorts of electronics. This segment of the market accounts for nearly 30 percent of their entire economy according to some estimates. The more freedoms people have, the more they want, it is a natural thing.

Session end, stocks locally had slipped 0.41 percent overall, some sharp moves in specific sectors though masked what looked like a mild day at face value. Local ZA inc. stocks, banks, financials and retailers caught a serious bid, FirstRand rallied 4.82 percent, RMBH was up 4.42 percent, whilst Shoprite (up 4.19 percent) moved northwards on news related to the retirement of their chief and a trading update. Perhaps this clears the way for the younger fellows at Steinhoff and Shoprite to commit to the master plan, a tie up of epic proportions. Emerging markets, established markets, good quality, good price. A truly global force to be reckoned with.

On the other side of the table, deep in the red, were the likes of AB InBev (secondary listing in Jozi, Mexico, and an ADR in New York) and Richemont, big Rand hedge businesses that reflect an offshore price (Listed in Brussels and Zurich respectively) in local units. i.e. part of the reason why some Rand share prices have performed poorly since the Brexit vote is as a direct result of the Pound having been rubbished. It has been just over four months since the Brexit vote. And in that time, the Pound has weakened by nearly 24 percent to the Rand.

So, for ease of math, a 10 Pound share price would now equal 164.84 Rand, whereas the day before Brexit (23 June this year), the same 10 Pound share price would have been 212.04 Rand. And added to that, the same ten Pound share price now attracts a market discount, as a result of the economic uncertainties that face the United Kingdom who would now face more trade barriers. Potentially. These are unknowns. So that 10 Pound share price would now be 8 Pounds, on the same earnings, a lower valuation. What we have learnt overnight is that the Bank of England chief, the dashing Mark Carney, will stay on until 2019. That is a bit of a relief and he will now stay on and bring some stability. Or so it seems.

So, back to that comparison of the 10 Pound share price pre-Brexit to a 8 Pound post Brexit and heightened uncertainty scenario. 8 Pounds at the current level equals 131.84 Rand. What we are dealing with, in terms of our UK exposure is a drop in value in Pound terms, exacerbated by the weakening Pound to all other currencies. What I think is likely to happen is that recent good news (i.e. not so bad news) is likely to be replaced by inflationary concerns and growth doldrums.

For the time being the Brexit doomsayers look wrong. Except for the Marmite thing. I suspect that whilst the outlook is patchy, I have asked the question several times, if you lived in an economy that was patchy (for example China or Russia), would you rather own a flat in Moscow, Shanghai or London? Which country do you think has the best property ownership laws protecting buyers? Just saying. We have no idea what the outcome of the Brexit referendum is likely to be, and for the time being, anything with a British flavour is being treated like boiled potatoes and Bubble and Squeak. Leftovers and not the main course.

Over the seas and far away (from us) in New York, New York and in a time zone that we still know well, there was some deal related activity that needed fleshing out. Whilst politicians have been nearly swallowing giant feet, markets and confidence have been patchy. Some stocks have continually caught a bid and have stayed at elevated levels, others have fallen flat on their backside. I guess that is why one tries to have as balanced a portfolio as possible. No two businesses are the same, inside of the collective that makes up the market the evolution is slow (like growing trees) and suddenly you turn around and the market composition isn't what you remember. That aside, and we have covered that multiple times in this never ending series of "newsletters", everyone refers to the market as one homogenous beast. Asking how the market is, is the same question as do you think it will rain today, or how do you expect the Proteas to do come Thursday in Perth?

Stocks on Wall Street lost a little ground, the Dow Jones Industrial Average sank 0.1 percent, whilst the S&P 500 fell a fraction, down one quarter of a point (0.01 percent). The nerds of NASDAQ fell double that, down 0.02 percent. So hardly a day to speak much about, other than an oil and gas services deal between the GE division and Baker Hughes (the folks that release the weekly rig count). Amongst the winners on the day was Amazon, recovering lost ground post their (what I thought were good) results from last week. The opposite end of that spectrum was Alphabet, that stock lost ground. I think that both these businesses have great prospects.

Company corner

Amgen reported their numbers post the market close last Thursday evening. The stock was completely smoked. By Friday close of trade the stock had lost nearly ten percent, the worst single day loss for 14 years. Why? Was there anything fundamentally wrong with the numbers? At face value the results and guidance looked decent enough. There have been several concerns about their best sellers coming under volume and price threats. Let us be clear when we are talking about these pharma businesses that one is able to invest in, there is a very fine line between the company dedicating in the teens of revenues for research and development (looking for new life changing therapies), billions of Dollars and then the cost to broader society, who essentially pays after the therapy has passed all the regulatory requirements.

Humans are great inventors, they are also great inhibitors, humans that is. If you do not make these therapies, or incentivise people to search for these therapies, then you are unlikely to ever get them made. There are those motivated by science and invention, there are those who are motivated by profits, there are those who are motivated by believing that societies best needs to be taken into consideration. What history has shown us is that the market is normally the best leveler. If the therapies are too expensive, they won't sell. That said, what is a life worth? Much more than you will ever know, having lost my mother to a dreaded disease, I can see that there is no money in the world that could have saved her, eventually. Yet that didn't stop the family from trying whatever they could. See, a fine balance, and it is impossible to be objective.

OK, so let us have a look at the spread of therapies that Amgen have, Byron did a great job for all of us, he stuck it in a spreadsheet. It is a little too big to stick in here, follow the link to get the "larger image" - Sales update

Amgen has attracted a lot of heat after this reporting period, we view this as a huge opportunity to be able to acquire what is a well placed business, with a solid pipeline at a much cheaper price. The stock is trading near a year-to-date low. With a yield rapidly approaching three percent at current levels, a 14 historic multiple, we still feel major conviction on this business and by extension the share price. Buy.

Linkfest, lap it up

Elon Musk, revealed Tesla's latest product in their alternate energy product line - No One Saw Tesla's Solar Roof Coming. The roof tiles are designed to look exactly the same (or better) as current roof tiles. Part of the launch was the release of their Powerwall 2, which is a lot more powerful and more cost effective. What is the point of driving an electric car if the power used to power it is made from coal? The solution is to have a complete solar system at home.

Here is the video of the launch - Elon Musk unveils Solar Roof

To be the best online retail store, Amazon invests huge amounts of money in their distribution centres. Costs of shipping is a big sucker of cash - Enjoying that Prime membership comes at a big cost to Amazon. That is a huge short fall, would you call the expense an investment in future customers?

Another great blog from A Wealth of Common sense. As investors, too much focus on price action leads us to make irrational investment decisions - The Frog-in-a-Pot Theory of Investing.

"High prices attract buyers, low prices attract sellers."

Home again, home again, jiggety-jog. Stocks are higher here, a better Asia as a result of better Chinese PMI. Sigh. It is what it is. Facebook numbers tomorrow evening, that is fun and exciting!

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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