Director of Bank and Equity Strategies Marty Mosby of Vining Sparks says State Street Corp (NYSE:STT) has a strong organic growth strategy as it leverages technology investments and invests in new products and services.
Another bank that we like, one of the trust banks, is State Street, which has invested in its technology and is going to leverage that into operational efficiencies in the second half of 2017. It has a strong pipeline of new business at what we think is better pricing than what State Street just lost in the recent BlackRock (NYSE:BLK) announcement, when there was a transition of $1 trillion dollars to one of its competitors in its core custody assets.
We think that their new growth and new business will more than offset that as they move forward, and they’ve invested in a new product and service that they’re rolling out that I think can be very valuable to their primary customer base, which is institutional investors, where they can help them understand flows in the market much better and in real time — much better information than anybody has up till this point.
Managing Director Evan Calio of Morgan Stanley says Chevron Corporation (NYSE:CVX) has a large number of projects coming into the market, which is one reason why it is his top pick among the oil & gas majors.
Within the majors, Chevron remains our top pick, where we expect the single largest free-cash-flow inflection relative to the major oil peers. Chevron has the largest number of projects that are coming into the market. These are projects that they have invested in over a long period of time, the last five-plus years, that are going to begin production.
So the free-cash-flow inflection is the capex rolling off, the production starting up, and with that large free-cash inflection amongst majors, we expect the recycle into their Permian Basin position, which is the most differentiated amongst the majors, to drive better dividend growth prospects and dividend coverage ratios relative to peers. So it’s a combination of projects working through the portfolio and the free cash flow being invested into a relatively differentiated higher-return/shorter-cycle growth asset in Texas.
Progressive is the fourth-largest auto insurer in the country, and they gain market share literally every single year. The internet has disrupted many industries. Now, it’s disrupting car insurance.
Online sales are growing faster than sales from your local agent, and that’s probably not a surprising statement, but what’s interesting is that several top players — names like State Farm, Countrywide and Nationwide — have invested significantly in their agent network and they don’t want to cannibalize it with an online presence.
So as customers start shopping online, Progressive just keeps gaining market share, and that’s not going to stop. Interestingly, State Farm, Countrywide and Nationwide are all structured as mutual companies instead of for-profit companies. So they are not even trying to make money. We think that Progressive has a bright future.
Portfolio Manager Gregg Abella of Investment Partners Asset Management says Kinder Morgan Inc (NYSE:KMI) is currently paying down debt and rightsizing its balance sheet, which should put the company in position to pay a better dividend going forward.
Kinder Morgan is previously a high flyer in the MLP space. They subsequently converted into a C-Corporation, but it is one of the larger, if not the largest midstream and downstream energy companies, meaning oil and gas pipelines and storage.
In January, the company held an analyst day to lay out its plans for the coming year, and while the energy sector has been a real downer for the last two and half years, the company is using this opportunity to use its own internal cash flow to pay down debt and rightsize its balance sheet. It is doing all the right things to maintain its dividend-paying capacity and remain an investment-grade credit.
And we think that over time, that strategy will pay off and that the ability for them to pay a better dividend going forward, in the years to come, will probably start to become evident in the later part of this year or early part of next year.
Portfolio Manager Donald Woodley of Woodley Farra Manion Portfolio Management says that while Novartis AG (ADR) (NYSE:NVS) has had challenges in its eye care and generics divisions, it is a solid company that should recover from its out-of-favor status.
Novartis (NYSE:NVS) has kind of hit some hard times, which makes us interested in that one. They’ve got a division called Alcon, their eye care division that they bought a few years back, that has been a big drag on them, and we look for them to sell that.
And then, additionally, they’ve got some drugs that have come off patent, and we see some new drugs that are coming out and are making their way up the ladder to become large drugs. And so we see them as a potential. They pay a dividend that’s in the 3.5% range these days.
…the government is investigating all of the generic drugmakers for collusion on pricing, and Novartis owns Sandoz, so that’s a generic drugmaker. And so that division as well as their Alcon division have been drags on the company, but the likelihood is that their market will eventually start ignoring that aspect after they punish them enough and see the value in the rest of the company, and that should come around.
Yigal Nochomovitz, Ph.D. is a Director and Smid-Cap biotech analyst at Citigroup (NYSE:C) Investment Research & Analysis. In a recent interview with the Wall Street Transcript, Dr. Nochomovitz states that “Loxo has a drug for a rare type of cancer, and so it is going to need to engage with companies that are developing next-generation sequencing tests to do more genetic profiling of tumors.” Specifically, according to Loxo Oncology (NASDAQ:LOXO):
“Growing research suggests that the NTRK genes, which encode for TRKs, can become abnormally fused to other genes, resulting in growth signals that can lead to cancer in many sites of the body. Larotrectinib (LOXO-101) was purpose-built to directly target TRK, and nothing else, turning off the signaling pathway that allows TRK fusion cancers to grow.”
In order to find patients with this specific genetic pattern in their cancer, the company must engage “clinical, laboratory and molecular pathology partners who integrate multiplex genetic testing into their routine clinical practice.” Fortunately, this formerly labor intensive process has now become much more efficient. The development of liquid biopsy testing in place of invasive surgical biopsies, with data automatically entered into a national or even international database, has provided a quicker path for patients to find cutting edge treatment.
The President and CEO of Cancer Genetics, Panna Sharma, puts it this way in an interview with the Wall Street Transcript: “Imagine if you are a lung-cancer patient or a kidney-cancer patient and you are being treated and have to be monitored for whether or not and how that cancer might be changing or recurring, or whether the therapeutic regimen is effective or not. These questions are all being answered today by invasive biopsies and can be replaced by a simple blood draw, which is less costly and less painful…In three years, the vast majority of lung cancer is going to be monitored, not at initial diagnosis but in regard to therapeutic effectiveness, from liquid biopsy.”
Indeed, both Debjit Chattopadhyay, Ph.D. a Managing Director, Biotechnology, at Janney Montgomery Scott, and Edward Nash, a Managing Director in SunTrust (NYSE:STI) Robinson Humphrey’s Equity Research department, both warn that cures for widespread diseases may result in worse economics for the biotech sector. Dr. Chattopadhyay puts it this way in his interview with the Wall Street Transcript: “for example, look at Gilead (NASDAQ:GILD). Curing hepatitis C is great, but they realize now curing hepatitis C means your patient pool is decreasing every year. So curing a disease may not be the best for business, because suddenly your revenue keeps falling after a certain time as the patients get cured, and there are not enough patients left.”
Mr. Nash puts it this way in his interview: “There are drugs commercially available now that cost hundreds of thousands of dollars annually, but only treat the disease. How do you price a cure? Expensive drugs that treat diseases are already raising the ire of payers and legislators…The industry is being tasked to deal with this question sooner rather than later as the first gene therapy to be potentially approved will have a BLA submission into the FDA in 2H17, and I am referring to “buy”-rated Spark Therapeutics’ (NASDAQ:ONCE) lead therapy for inherited retinal dystrophies. These are nice problems the industry has to be dealing with, but any decisions made be done so understanding that it will affect future R&D efforts for potentially curative therapies.”
Mr. Nash does not think this potential cure for a range of blindness causing genetic diseases should detract from the company that has developed this treatment: “I mentioned the company earlier. Spark has done a very good job in clinical trial design, and the methodical approach that they have gone through in trying to understand what the optimal approaches are to best maximize results for the patient are remarkable. The scientific caliber of their team is top notch and clearly has had a significant impact on their success…The company from a business standpoint has partnered certain indications which have resulted in bolstering the balance sheet with nondilutive cash, but has also allowed them to understand the optimal approach to address certain diseases on someone else’s dime while they retain the larger and potentially more lucrative indications for themselves. I think this is a must-own name for investors looking at the gene therapy space. It is a $1.6B market cap name, so is quite liquid, and with a current trading price around $50 and our 12-month price target set at $72, there is plenty of upside to go at these levels.”
For more stock recommendations from these top research analysts and in depth interviews with CEOs of cutting edge biotech firms, go to the Wall Street Transcript for our latest report.
Rachel K. King is Co-Founder and Chief Executive Officer of GlycoMimetics Inc (NASDAQ:GLYC). In a recent interview with the Wall Street Transcript, Mrs. King outlined the prospects for a drug therapy her company has created and is currently in Stage III testing.
From the interview:
TWST: How many people have sickle cell disease in the United States?
Mrs. King: About 100,000, which makes it actually the most common genetic disease in the United States. If you think about diseases like hemophilia, cystic fibrosis or muscular dystrophy, you add them all together and there are still more people with sickle-cell disease. In the U.S., it mostly affects people of African descent, but it also affects people who have come from other parts of the world where malaria is prevalent. The disease grew up along with malaria because people with one copy of the gene are actually protected from malaria while people with two copies have sickle cell.
Mrs. King: People with sickle cell disease have, as one of the most problematic manifestations of the disease, these events called sickle cell crisis or vaso-occlusive crisis. They are intensely painful events whereby the blood flow becomes occluded in the micro vessels throughout the body. Right now, the only thing that the patients can be given when they are having a vaso-occlusive crisis to get through the crisis is pain relief and supportive care like hydration. Because the events are so intensely painful, they have to get intravenous narcotics and to be hospitalized while they are getting those powerful drugs.
On average, people in the U.S. are hospitalized for about six days, and there are 90,000 to 100,000 of these hospitalizations every year in the United States for people who have vaso-occlusive crisis. Virtually every patient with sickle cell disease will have a crisis. But there is quite a lot of variability in terms of how often an individual person might have a crisis, and that might change over their lifetime.
So a patient might have one in a certain year, and then have none in the next and in another year have three. Or some people might regularly have five crises a year. There is heterogeneity in the population in terms of how many crises a person will have, but these crises are the most visible, common and serious manifestations of sickle-cell disease. Over the lifetime of a patient, the added effects of the crises and of the consequences of impeded blood flow all add up to people dying young. Most sickle-cell patients in the U.S. die in their 40s.
A description of the joint testing with Pfizer Inc. (NYSE:PFE):
“…We signed that deal in 2011 to basically give Pfizer Inc. the right, once we completed Phase II, to then take it forward if they chose to do so into a Phase III and commercialize it. In fact, the Phase II data was very positive. So Pfizer decided to take the drug into Phase III, which is currently what they are doing in treatment of sickle-cell crisis.”
For more drug therapies currently being developed by GlycoMimetics, and many other interviews regarding Medical Research and Genomic Diagnostic companies, read the full report at the Wall Street Transcript.
From a momentum standpoint, many investors have a hard time buying a company that had a positive return over the last 12 or 36 months. Within our investment process, that’s actually something that we are looking for. We aren’t afraid that we might have missed the boat, if you will.
On the flip side, when it’s trading at a discounted multiple, as JPMorgan is, many investors might shun that company. But what we know from our investment process is that cheap companies do tend to outperform over time. And that’s actually what we’ve seen. A significant amount of JPMorgan’s performance occurred during the fourth quarter of last year, the catalyst being the conclusion of the U.S. presidential election.
…some of what you saw was an initial euphoric period in the fourth quarter. It has waned in the first quarter and year to date as people realized that it is not going to be instantaneous. The regulatory environment will not change overnight. That being said, again, why we continue to own and like JPMorgan is purely based on the underlying value characteristics as well as momentum characteristics.
If you really don’t want to expose yourself to any kind of swings in capital spending cycles, Thermo Fisher is probably one of the better companies out there and has a very predictable catalog business. If you are running a lab and performing routine operations day to day, you are going to need Thermo Fisher supplies.
Thermo Fisher’s catalog is by far the largest catalog in the life science space. It really is a go-to supplier for everything. It is like a one-stop shop for lab supplies. Given the current nature of its consumables revenue, it is also much more immune to any kind of swings in cap spending. Thermo Fisher is probably a better defensive play if you think the demand will decelerate as we do.
Chief Investment Officer Timothy Call of The Capital Management Corporation says there are a number of catalysts in place for Las Vegas Sands Corp. (NYSE:LVS), and he foresees double-digit earnings growth for the company over the next five years.
Las Vegas Sands is a leading mass-gaming company, with the number-one market share in China. Its two properties in Macau are the top tourist destinations for that part of China, and that is the Parisian, which is the end of the nation…
So not only has Las Vegas Sands opened the number-one tourist site in the region recently, the Parisian, but there are also bridges being built, the train line is being expanded and, most recently, Ferry Terminal being added to the Cotai Strip. Importantly, over the next two years, we might have completion of a bridge connecting Hong Kong to Macau.
So all of this will add to the profitability of Las Vegas Sands properties in Macau, which represent over half of its earnings. There are other catalysts for the stock, which include potential expansion into other areas of Asia. Japan just approved casinos, and Las Vegas Sands will compete to be one of those first allowed into Japan.
So we still see upside. So not only does the stock have a 5.1% dividend yield, which is very attractive, but when we look at its double-digit or our forecast of double-digit earnings growth over the next five years, even with evaluation multiple compression, we come up with an expectation of annualized double-digit total return for the stock over the next five years.