I decided to keep my powder dry this summer. The market has been too exuberant for my liking. Now, the U.S. economy shows signs of strain. Normally, August and September are the weakest months in the market. These two factors can influence the stock market and give us some upcoming buying opportunities.
It's starting to get weird
Trump’s tariff hoopla is nearing its close. What started as a tragedy seems to end in a farce. As things stand now, American car manufacturers face higher costs than their foreign counterparts, and companies like Mercedes, BMW, and Toyota can actually save costs by shutting down their American plants and moving production back home. General Motors and Ford have already taken substantial hits to their bottom line.
Obviously, this travesty can’t continue for much longer. We should, therefore, see the end of the trade war in a month or two. It will likely end with an average base rate of 15% for most American trading partners. All the talk of moving manufacturing to the U.S. will not occur; if anything, the American manufacturing sector will contract somewhat as a result of all this. However, the tariffs are projected to reduce the deficit to 3% of GDP from the current level of around 6%, as they are expected to generate between $400 and $500 billion in annual revenue for the federal government.
In terms of economic stimulation, Trump’s economic policies, tariffs on one side and tax cuts on the other, work in opposite directions. One side stimulates activity while the other side contracts. Tax cuts require more time to influence the real economy than tariffs.
The shitshow called Novo Nordisk
NOVO just delivered its second profit warning this year. Naturally, the stock got hammered.
NOVO’s problem is American. It’s obesity drug Wegovy can’t compete with Eli Lilly’s Zepbound. Furthermore, cheaper knock-offs are hurting sales among patients who can’t afford prescriptions.
So, what can NOVO do? By having an inferior product, I can’t see that NOVO has any other choice than to compete on price. Price wars are uncommon in the pharma sector. Nevertheless, Trump’s call for cheaper prescription drug prices can give NOVO the cover to go down this route.
We have to see what NOVO decides to do. Under the current circumstances, NOVO’s share price is so depressed that investors calculate almost no value from the company’s obesity division. This seems like an overreaction. Regardless, investors who don’t want to cut their losses and move on must have patience and wait until things sort themselves out. NOVO’s intrinsic value is far above today's prices. It may take some time for confidence to return. NOVO’s new leadership must present a turnaround plan this fall and stop giving us more negative surprises. Hopefully, NOVO’s management threw the kitchen sink at us this time. I have decided to grind this one out. Believe it or not, but I am up 100% in the name despite last year's drawdown.
AbbVie
While NOVO is a shitshow, ABBV is a success story. Q2 earnings were just as good as I projected. ABBV upped its full-year guidance once again.
The story is the same as before. ABBV’s two Arthritis drugs, Skyrizi and Rinvoq, are growing at an impressive pace. Its neuroscience drugs, led by Botox, are also showing gains. Furthermore, ABBV’s oncology division has launched some good sellers. However, the growth items in the oncology division happen from such a low base that it doesn’t show up meaningfully in the total numbers yet.
Following the earnings report, Goldman Sachs and Morgan Stanley revised their price target upwards to $217 and $255, respectively. Among the two, I am more in agreement with Goldman Sachs. I have not revised my estimates in my DCF model, but by glancing at the first-half results and the full-year guidance, I’d suggest that a fair price sits around $220.
Last year, NOVO constituted approximately 7% of my portfolio, and ABBV just below 3%. Now, ABBV makes up 4% while NOVO sits at 3%. This is how things can play out in the stock market.
Nasdaq Inc.
I’ve been trying my hardest to add more NDAQ to my portfolio. Honestly, I figured I’d get in somewhere between $85 and $88 since I thought the price would consolidate there before the next leg up. Totally spaced on the fact that earnings season was coming up—and of course, NDAQ crushed it. Now the stock’s at $95.17. Yeah, I know, not my smartest move!
NDAQ increased its net income by 24% year-over-year, with revenue rising 12%. Its SaaS services grew annual recurring revenue (ARR) by 9%, roughly in line with expectations. What truly boosted the results was a surge in new listings on the exchange, which drove the Market Services division’s revenue growth to over 20%.
Most analysts have set price targets in the $105 to $115 range, and the outlook for the stock remains strong. With more listings expected on the exchange, steady growth in ARR, and a rapid reduction in debt, the fundamentals look solid. How should we approach this from now on? A market correction might present a good buying opportunity—let’s hope for that, because I’m eager to add more shares to my position.
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