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Food and sweet treats never go out of fashion even in a recession: 3 steady stocks to take advantage

Inflation is soaring, reaching 8.2% over the 12 months to June with price rises led by energy and fuel, materials and foodstuffs. An already increasingly…

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Inflation is soaring, reaching 8.2% over the 12 months to June with price rises led by energy and fuel, materials and foodstuffs. An already increasingly problematic inflation trend was magnified by Russia’s invasion of Ukraine earlier this year and the continuing war is disrupting oil and especially gas supplies as well as those of the wheat and other grain crops both countries are major global exporters of.

Interest rates are also rising with central banks including the Bank of England and the Federal Reserve making steady hikes this year in an effort to bring inflation, which is tipped to hit 11%, under control. The combination of a quickly rising cost of living and the cost of borrowing starting to return to historic norms after more than a decade at and around record low levels means a period of recession is now considered more likely than the chances of avoiding one.

It all adds up to consumers having less expendable income than they have had for years and the situation is expected to deteriorate with inflation expected to remain at elevated levels deep into 2023 if not longer. Analyst consensus is that higher levels of household savings built up during the Covid-19 pandemic have helped cushion the blow of runaway inflation so far.

But as savings dwindle belts are starting to tighten. Economic data over the past few months shows UK retail spending is contracting, by 0.8% in May and 0.1% in June. June’s figure was boosted by a 3.1% rise in food sales with groceries companies putting the strong month down to shopping for the Queen’s Jubilee celebrations.

Groceries shopping is not, however, escaping the cost of living crisis entirely with evidence suggesting consumers are limiting their shopping baskets with luxury items taking the greatest hit. In May, food sales volumes were down 1.6% on the year earlier and 2.4% below pre-pandemic levels.

sales volume

Source: The Guardian

But while shoppers might go for a slightly cheaper bottle of wine for Friday night or choose less expensive olives from the deli, basic food staples are one thing that tends to hold up best during a recession or when consumer sentiment turns negative. Which is why investors looking to tweak portfolios often turn to consumer goods companies when the going gets rough.

The biggest consumer goods companies focus their brand stables on mass market products which means the food and household staples they sell tend to be budget-friendly. Even their more premium brands are typically sold at a price point that makes them accessible to the average household.

Here we’ll look at the investment credentials of two of the world’s biggest consumer goods companies, Nestlé and Unilever, as well as McDonald’s, the world’s biggest fast-food company most famous for its cheap and tasty burgers.

These three companies are never going to offer the kind of returns that get investors excited but that’s not necessarily a bad thing. They have all offered investors solid returns and growing dividends over their recent histories and should hold up better than most stocks that rely on discretionary consumer spending over the period ahead. And longer term, these are the kind of reliable, income-earning stocks that can act as cornerstones for a diversified equities portfolio.

Let’s look at each in some more detail.

Unilever

unilever plc

Unilever is the biggest London-listed consumer goods group and one of the world’s biggest. Its stable of brands includes sweet summer treats like Magnum ice creams and Solero fruit sorbets, sales of which will have been boosted by the recent heatwave. It also sells Hellman’s mayonnaise, Knorr stock cubes and household essentials like the Dove soap brand and Domestos among over 400 brands, 13 of which brought in more than $1 billion in sales each in 2021.

This week the Unilever share price rose 2.5% in Tuesday morning trading after it published a quarterly earnings report that pleased investors. As did the company raising sales forecast thanks to increasing the prices of its products to offset higher costs. Across its brands, Unilever said prices were up 9.8% over the first half of 2022 compared to the same period a year earlier. Second quarter prices were up 11.2%, keeping them ahead of inflation.

The price hikes saw revenues rise by 8.1% over the half despite volumes dropping 1.6% and Unilever told investors it expects growth to beat its previous forecast for between 4.5% and 6.5%. It didn’t put an exact figure on what it now expects growth to be but did say it expects it to be “driven by price”.

But what is Unilever’s long-term outlook? The company has been criticised in recent months by major investors including Terry Smith and Nick Train, two of the UK’s most successful fund managers. Smith accused the company of “trying too hard to display its sustainability credentials instead of focussing on running the business” and improving shareholder returns.

Some analysts believe the company has also grown too big and managing over 4000 brands makes it slow to react and less entrepreneurial than smaller rivals. But the negatives also suggest room for improvement which could make the current £100.42 billion valuation attractive and offer potential upside. A dividend return of 3.64% at the current share price is also not to be sniffed at.

Analyst price targets indicate a belief that the Unilever share price is seen as likely to make gains over the next twelve months with the 23 analysts polled by the Wall Street Journal setting an average target of £50.30 compared to the current £39.72. 11 of the analysts rate the stock as a hold with 7 rating it a buy, 2 overweight and just 3 a sell.

It’s not a stock that will get anyone salivating but looks a solid near-term option under current economic conditions, has reasonable potential upside, offers a good dividend and should provide reliable returns longer term.

Nestlé

nestle sa

Switzerland’s Nestlé is the world’s biggest consumer goods company, worth CHF322.41 billion (£277.93 billion) and sells brands including Nescafe, Nespresso, Häagen-Dazs ice cream, Cheerios, Maggi, KitKat and Smarties. The company currently offers a dividend yield of 2.39% and a gross profit margin of 48% provides a return on investment of 9.4% and grounds for optimism dividends might continue to rise by their five-year average of 4% a year.

This week Nestle followed the positive trend of strong results for consumer goods groups when it revealed that steep price increases to offset rising input costs had bolstered sales during its second quarter. The Kit Kat maker said it had managed to maintain a 17% margin and it was yet to see any big fall in demand from rising prices. It raised its full year sales growth forecast to 7-8%.

Of 25 analyts setting price targets for Nestle polled by the WSJ, 12 rate the stock a buy at its current valuation and another 3 as overweight with 8 recommending it as a hold. Only 1 analysts each has Nestle as underweight and a sell. The average 12 month price target for the company is CHF131.79 compared to the current share price of CHF122.25. That has to represent solid potential upside in the context of current market conditions.

McDonald’s

mc donalds corp

The world’s biggest fast food brand may have just raised the price of a cheeseburger for the first time in 14 years but it still offers the cheapest prices for a quick bite to eat on the high street. And while it may take some flack for the nutritional quality of the meals it offers, and some wouldn’t be seen dead in one of its restaurants, McDonald’s benefits from enduring popularity. That’s unlikely to change anytime soon, especially during a cost-of-living crisis hitting lower-income households hardest.

McDonald’s shares also yield 2.2% in dividends and the company has increased shareholders’ income every year, without fail, since 1976. When the company reported fiscal 2022 second-quarter earnings on July 26 it showed comparable store sales, which exclude the impact of store openings and closings, jumped by 9.7%.

A negative has been the divestiture of McDonald’s Russian business which represented 2% of systemwide sales, 7% of revenue, and 2% of operating income. The positive is that rising prices don’t seem to be putting off customers, likely because rivals have made larger hikes. Trading at a price-to-earnings ratio of 27, McDonald’s shares are also reasonably priced.

That’s reflected in 20 of the 34 analysts polled by the Wall Street Journal rating McDonald’s as a buy, 4 as overweight and 10 a hold with none rating it as underweight or a sell. The average analyst price target for the stock is $281.29 compared to the current level of $258.89.

Every portfolio needs its reliable, steady cornerstones but these stocks are particularly important during periods we are currently experiencing. But all three of the stocks covered also represent solid potential for upside and dividend income.

The post Food and sweet treats never go out of fashion even in a recession: 3 steady stocks to take advantage first appeared on Trading and Investment News.

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…

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To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….

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Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 

 

About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. www.insilico.com 


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Another country is getting ready to launch a visa for digital nomads

Early reports are saying Japan will soon have a digital nomad visa for high-earning foreigners.

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Over the last decade, the explosion of remote work that came as a result of improved technology and the pandemic has allowed an increasing number of people to become digital nomads. 

When looked at more broadly as anyone not required to come into a fixed office but instead moves between different locations such as the home and the coffee shop, the latest estimate shows that there were more than 35 million such workers in the world by the end of 2023 while over half of those come from the United States.

Related: There is a new list of cities that are best for digital nomads

While remote work has also allowed many to move to cheaper places and travel around the world while still bringing in income, working outside of one's home country requires either dual citizenship or work authorization — the global shift toward remote work has pushed many countries to launch specific digital nomad visas to boost their economies and bring in new residents.

Japan is a very popular destination for U.S. tourists. 

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This popular vacation destination will soon have a nomad visa

Spain, Portugal, Indonesia, Malaysia, Costa Rica, Brazil, Latvia and Malta are some of the countries currently offering specific visas for foreigners who want to live there while bringing in income from abroad.

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With the exception of a few, Asian countries generally have stricter immigration laws and were much slower to launch these types of visas that some of the countries with weaker economies had as far back as 2015. As first reported by the Japan Times, the country's Immigration Services Agency ended up making the leap toward a visa for those who can earn more than ¥10 million ($68,300 USD) with income from another country.

The Japanese government has not yet worked out the specifics of how long the visa will be valid for or how much it will cost — public comment on the proposal is being accepted throughout next week. 

That said, early reports say the visa will be shorter than the typical digital nomad option that allows foreigners to live in a country for several years. The visa will reportedly be valid for six months or slightly longer but still no more than a year — along with the ability to work, this allows some to stay beyond the 90-day tourist period typically afforded to those from countries with visa-free agreements.

'Not be given a residence card of residence certificate'

While one will be able to reapply for the visa after the time runs out, this can only be done by exiting the country and being away for six months before coming back again — becoming a permanent resident on the pathway to citizenship is an entirely different process with much more strict requirements.

"Those living in Japan with the digital nomad visa will not be given a residence card or a residence certificate, which provide access to certain government benefits," reports the news outlet. "The visa cannot be renewed and must be reapplied for, with this only possible six months after leaving the countr

The visa will reportedly start in March and also allow holders to bring their spouses and families with them. To start using the visa, holders will also need to purchase private health insurance from their home country while taxes on any money one earns will also need to be paid through one's home country.

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