Economy Markets & Equities

An investment opportunity in Trump’s victory

As I was writing this week’s article, the announcement was made that Donald Trump has officially been elected as the new president of the USA. As shocking and unanticipated as the outcome of the election may be for many, it is also final, and investment decisions will have to be made on a brand-new playing field where Trump captains as the 45th US president. Speculation made the rounds leading up to the election, considering what may happen should Trump become president, the probability that the US dollar may come under pressure if that happened and the possibility that it will result in a stronger Rand against the US dollar. Another view was that investors may seek their salvation in gold in fear of the effect that Trump’s new policies may have on the economy. But the reality is that most of these events had an effect on the market long before Trump was announced as the new president.  So aside from hiding in cash, are there any other investment options available in current market conditions?

Before I attempt to answer that question, I would like to turn back the clock to September 2015 when Hillary Clinton was still standing strong as the favourite to become the next US president, and she openly protested against Biotech companies on Twitter by saying that “price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on”. This resulted in a lot of pain and suffering for Biotech shareholders, with the Nasdaq Biotech index falling by 10% in US$ terms in the week that followed her remarks, and by more than 26% in US$ terms in total until shortly before the US elections.

Graph 1: Nasdaq Biotech Index vs. SP&500 Index year to date 2016 (source: MarketWatch.com)
Graph 1: Nasdaq Biotech Index vs. SP&500 Index year to date 2016 (source: MarketWatch.com)

This year to date (8 November 2016), the Biotech Index has already declined by almost 23% in US$ terms, while the S&P500 Index has increased by 5% over the same period. This is the same Biotech Index that grew by nearly 300% in US$ terms in the five years leading up to Clinton’s tweet. Clearly this index was close to boiling point and above all likelihood, in need of a correction even before Clinton’s remarks. But one cannot ignore the fact that there were shares within this sector that suffered the same fate, despite not necessarily being as close to boiling point as the index itself.

In my opinion, there are three shares that can be seen as investment opportunities for those who feel that these sales were somewhat exaggerated, especially in light of the fact that Clinton was not elected as president:

Gilead Sciences Inc. (listed on the Nasdaq)

Gilead Sciences, Inc. is a research-based bio-pharmaceutical company that discovers, develops, and commercialises therapeutics to advance the care of patients suffering from life-threatening diseases. The company’s primary areas of focus include HIV, AIDS, liver disease, and serious cardiovascular and respiratory conditions. This company is currently trading at a historical price earnings ratio (PE) of only 6.6 and a dividend yield of 2.5%. At its current trading price of $74/share (8 Nov 2016), it has fallen by 30% in US$ terms since Clinton’s remarks.

Roche Holdings (listed on the Swiss Ex)

Roche Holding AG develops and manufactures pharmaceutical and diagnostic products. The company produces prescription drugs in the areas of cardiovascular, infectious, autoimmune, respiratory diseases, dermatology, metabolic disorders, oncology, transplantation, and the central nervous system. This company is currently trading at a historical PE of 22.3 and a high dividend yield of 3.4%. At its current trading price of 224.90CHF/share (8 Nov 2016), it is now down by 10% in Swiss Franck terms since Clinton’s remarks.

Sanofi (listed in Paris)

Sanofi is a global pharmaceutical company that researches, develops, and manufactures prescription pharmaceuticals and vaccines. The company develops cardiovascular, thrombosis, metabolic disorder, central nervous system, internal medicine and oncology drugs, and vaccines. It is currently trading at a historical PE of 24.1 (8 Nov 2016) and a high dividend yield of 3.9%. At its current trading price of 72.89EUR/share (8 Nov 2016), it has now fallen by 13% in Euro terms since Clinton’s remarks.


The opinions expressed in this blog are the opinions of the writer and not necessarily the opinions of PSG. These opinions do not constitute advice. Although the utmost care has been taken in the research and preparation of this blog, no responsibility can be taken for any actions taken based on the information contained in this blog.

Schalk Louw
As Portfolio Manager at PSG Wealth Old Oak and with over 20 years’ experience in the investment industry, Schalk has consistently delivered solid returns to his clients and has certainly become one of South Africa’s most well-known strategists. He started his career in 1994 at the stockbroking company, Huysamer Stals (later ABN Amro). He joined SMK Securities in 1997, (later became BoE Personal Stockbrokers) and was later appointed as director and branch manager. In 2001 he co-founded Contego Asset Management and managed the company as CEO up to March 2014, after which he joined PSG Wealth Old Oak. Schalk has also become a regular household name with investors, with his reports being published in many of the national press. He completed his MBA in 2008.

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