Healthcare could be a real challenge for tech this year, one that can actually grow faster than most tech companies and has the potential to bounce back from the Covid restrictions that many of these companies have been embroiled in. The pandemic has obscured a lot. For example, Abbott Labs has poured money into BinaxNOW tests, and Regeneron has developed a rapid-response drug. Pfizer sought vaccines and rapid responses, and drugstores turned their resources to Covid immunity shots. Now, with Covid behind them, we’re seeing the real earnings power of many great companies. For our latest bullpen additions, we focused on Abbott Labs, Novartis, Amgen, and Walgreens Boots Alliance. We’ll get to them, but first, let me talk about what I learned at my JP Morgan Healthcare conference last week in San Francisco, and what it means for your portfolio. We did not spend a lot of our resources on this sector because it was not the right thing to do. Being infected with Covid takes up time and resources not only to develop sources of immunity and treatment but also because you don’t have patients coming in and seeking treatment for more elective surgeries, especially the elderly. This is what led to UnitedHealth dropping the name of our now disappointing club Humana. So, we focused on the top performer, Eli Lilly, with its best-in-class GLP-1 drug and its Alzheimer’s formulation, donanemab. CEO Dave Rex confirmed at the conference that Lilly expects donanemab to receive FDA approval in the first quarter of 2024. This strategy has been correct. While Novo Nordisk now has leadership in GLP-1 therapies for both diabetes and weight loss, Wegovy and Lilly’s recently approved Zepbound have a distinct profile in weight loss, and the company is rapidly expanding production. The diabetes drug Monjaro has been on the market since receiving FDA approval in 2022. All four medications are injectable once a week. These drugs are difficult to make, and must be made in a clean room similar to those found in semiconductor manufacturing facilities. They use an autoinjection needle from Becton, or Dickinson Co., or BD as it’s also known, which is another great company that makes everything in the hospital including catheters and blood drawing equipment. Lilly has two plants in North Carolina dedicated to pharmaceuticals and one in Europe. Regeneron is admired because it is developing a vaccine that helps you reduce weight loss, but it attacks fat, not muscle and adipose. The GLP-1s from Novo Nordisk and Lilly reduce body mass, so if you lose, say, 20 pounds, eight of those pounds could be muscle, which has serious consequences if you don’t stay in shape. One of the reasons we, for example, like Abbott so much is because of its protein supplements for seniors. It’s not talked about a lot, but older people can become very weak from these medications and not get enough protein. We like Amgen because it focuses on both pill forms — 60% of participants don’t like injections — and on a longer dosing regimen, once a month instead of once a week. Roche spent $2.7 billion to buy Carmut last month, which works on all of these things. I’m not sweating the competition because Lilly works on all of these things too. We know that healthcare has many aspects as well. There are a lot of companies that are in, for example, oncology, everyone is looking at the Keytruda franchise, which is Merck’s cancer franchise which is thought to be the strongest by far with Bristol-Myers Squibb a distant second with Opdivo. We’ve focused less on cancer drugs because we fear the power of Keytruda, even as we admire Seagen’s cancer work, which Pfizer has spent more than $40 billion on to play a huge role in cancer treatment. ABT 1Y Mountain Abbott Labs 1 year We also don’t want to be held hostage by any company that could be hurt by GLP-1s even as we’ve discovered that some of them really aren’t. We were concerned about exposure to Abbott Pharmaceuticals because of its diabetes product. After we spoke with CEO Robert Ford, we decided that Abbott would benefit from the drugs. We also liked Abbott because you couldn’t see anything the company was doing whether it was diagnostics or diabetes or infant formula — back to No. 1 after being in DOJ purgatory. You’ve got four double-digit growing franchises that can’t be replaced. WBA 1Y Mountain Walgreen 1 year What first struck us and made us turn to Walgreens for the bullpen is the extraordinary company turnaround I expect from Tim Wentworth. It is an unusual pharmacy that benefits an executive who teaches at the school. His talents are sorely needed if Walgreens is going to pivot and pivot toward health. Former CEO Rose Brewer was from Starbucks and struggled with the role Walgreens played in health care. Wentworth knows the potential for Walgreens is to reshape the store to provide greater health care and reduce the debris and waste that can be stolen from its stores or bought on Amazon just as easily. I see Walgreens as a “destination” company, and there will never be anything like it. The company is struggling to find pharmacists but can pick them up through Rite-Aid, which is challenging bankruptcy. If Rite-Aid is forced to liquidate, it could be a big win for Walgreens. I think Wentworth might be willing to sell its stake in Cencora, the old Amerisource and divest its medical clinics to get capital to remodel the stores, stay nimble, and get the lowest drug prices. Wentworth is popular among pharmaceutical companies, and that helps. It’s a tough group of CEOs to face. Wentworth is up to the task as Brewer was not. Wentworth will move quickly. Could this be a Foot Locker, something we got too early? It’s an idea but with a dividend cut two weeks ago and disposals ahead, now is the time for Walgreens. AMGN 1Y Mountain Amgen 1 year We came to Amgen because it has about 18 drugs that could be billion-dollar combinations, which is great considering how many drug companies are very focused on one drug like Merck does with Keytruda. Amgen CEO Bob Bradway is not a promotional CEO. It’s straight as an arrow. But he’s excited about what he’s seen for AI, and he’s just as thrilled about Amgen’s new anti-cholesterol drug, Repatha, which defeats all cholesterol by reducing it to almost zero. There is no such thing as good cholesterol and bad cholesterol. We have studies that show that Repatha, an injectable medication, is unparalleled and can be an alternative treatment even for those with moderately high cholesterol. This can be a very big drug. Amgen recently purchased specialty drug development company Horizon Therapeutics and already has a drug for those with a thyroid problem that leads to puffy eye disease. This takeover, which was originally fought by the FTC, was implemented when the agency dropped its concerns and showed pragmatism that there was no overlap. My disdain for the FTC waned when I saw that they could listen to reason, and this change of heart about Amgen-Horizon has opened the floodgates to a host of deals. NVS 1Y Mountain Novartis 1 year Finally, the oddity of our picks was Novartis. This is a company that has changed radically over the past five years, since the arrival of new CEO Vas Narasimhan. He immediately sold the inherited stake in the company’s generics, then got rid of Sandoz, which had low-growth drugs, and now Novartis is absolutely number one in its class, high-growth drugs, generating huge cash flow, which is being returned in healthy profits and returns. Giant purchase. It is very difficult to find a pure pharmaceutical game with almost all modern medicines. When I was interviewing these CEOs, I found myself very excited to see what they were up to. There was none of the ostentation I’m used to outside the West, none of those “just informal” gatherings. Just plain pride. Now here’s the tough thing about the group. Usually at this point in the cycle, when we are approaching an economic soft landing, this is the last group you want. But there is always a vocal group, almost rightly, that says it can’t be done. That’s why pharmaceutical companies can and should play such a greater role in our portfolio. There are other companies on my radar screen. You should be watching the turnaround of Bristol-Myers, which is opening its portfolio to buy a range of pharmaceutical companies, including the anti-psychotic company Caruna. Bristol-Myers is a very exciting company if you can turn it into a cancer. But Karuna is a big gamble. There has not been an effective antipsychotic drug invented in the last 70 years that has not had horrific side effects, especially weight gain. If successful, KarXT could also be used to treat schizophrenia and bipolar disorder: huge markets. You get paid to wait with Bristol-Myers’ big profits. When I spent some time with BD, I was struck by how much the company had low-end hardware. Medtronic has begun its comeback and could be withdrawn provided its new anti-hypertension measures are used by the profession. It took more than ten years to be approved. Medtronic also says that despite the presence of GLP-1s, bariatric surgery will remain the standard of care for obesity. Medtronic has a robot-assisted surgery system, Hugo, that aims to rival Intuitive Surgical, which reported a stellar quarter last week. Medtronic could be one to watch. I wanted to be excited about CVS Health, but I don’t really understand its expansion plans in health where it has a pharmacy benefit manager (PBM) and a health insurance company as well as a series of specialty companies, both those that work with seniors and those that are strong in home care. These acquisitions seem too expensive to me. I also can’t figure out how they’re shrinking their footprint by closing some stores at Target, which should be a great partnership. Call me confused. Overall, I feel like we may be in a period where people finally stop wanting to pay for all kinds of technology — and as you saw last week, you can’t get too excited about bank stocks if JPMorgan reports a great quarter, the stock soars and then… Ends in decline. What the heck was that? Club name Morgan Stanley reports its financial quarter on Tuesday after fellow club Wells Fargo reported last Friday’s numbers. Health care is the way to go. It’s very easy to like this after a turbulent period where Covid has masked a lot of what these companies do well. (See here for a complete list of Jim Cramer’s Charitable Trust stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund’s portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty exists or is created by your receipt of any information provided in connection with the Investment Club. No specific results or profits are guaranteed.
An exhibit of Abbott during the Consumer Electronics Show on January 10, 2024 in Las Vegas
Brendan Smialowski | AFP | Getty Images
Healthcare could be a real challenge for tech this year, one that can actually grow faster than most tech companies and has the potential to bounce back from the Covid restrictions that many of these companies have been embroiled in. The pandemic has blocked a lot of growth as well Abbott LaboratoriesFor example, pumping money into BinaxNOW tests, and Regeneron Rapid response drug development. Pfizer Seeking vaccines and rapid responses, drug stores turned their resources to Covid immunity vaccines.
Now, with Covid behind them, we’re seeing the real earnings power of many great companies. For our latest bullpen addition, we focused on Abbott Labs, Novartis, Amgen And Walgreens Shoe Alliance. We’ll get to them, but first, let me talk about what I learned at my JP Morgan Healthcare conference last week in San Francisco, and what it means for your portfolio.
We did not spend a lot of our resources on this sector because it was not the right thing to do. Being infected with Covid takes up time and resources not only to develop sources of immunity and treatment but also because you don’t have patients coming in and seeking treatment for more elective surgeries, especially the elderly. This is what fell UnitedHealth Taking on the name of our now disappointing club Humana Down with her.