Money Times - 29/07/09

Posted by Jill Kerby on July 29 2009 @ 22:59



However goulish it may sound, if you look hard enough, you’re likely to find a silver lining inside whatever cloud happens to be hanging over your head. 

In the case of swine flu, the silver lining, say stock market analysts could be in the form of three giant pharmaceutical companies:  GlaxoSmithKline (GSK), Roche (ROG-VX) and Sonofi-Aventis (SNY), all of which, reported the Financial Times last week, “are reaping billions of dollars in extra revenue amid global concerns” about the spread of the flu. 

According to the FT, these companies’ sales are being lifted by government contracts for flu vaccines and antiviral medicines like Tamiflu and Relenza, the latter of which are said to be effective treatments and are already being prescribed by Irish GPs. 

Most shares have been on the rise since March, when stock markets began  rallying after the huge collapse in share prices last year, but the picture for the big pharma companies has been particularly bright anyway:  from its 52 week high last summer, to a low of $27.15 in March ’09, GlaxoSmithKline, for example, was trading at $37.87 a share (at time of writing) on a strong upward trend.   The charts are looking very favourable right now for Roche and Sonofi-Aventis as well.  (You can check the daily price at www.yahoofinance.com)

That isn’t to say that these shares will keep rising indefinitely, simply that they have very favourable conditions for increased earnings if this pandemic continues in the winter, as is expected. to, into the winter.   

But financial advisors and analysts have been suggesting anyway that pharmaceutical stocks are certainly worth adding to a long term value investment or pension portfolio during this recession for the same reasons that it makes sense to add food manufacturers and distributors and other consumer durable shares that produce essential goods that people need, no matter the state of the economy or their personal circumstances:  we all need energy/fuel, we need to eat, to drink clean water, to wash ourselves.  It’s no wonder that giant companies like BP, Shell and Exxon, Brazil’s state owned oil company, Petrobras, Walmart and Tesco, McDonalds and Coca Cola, Proctor & Gamble and Microsoft have weathered the great recession firestorm better than many other companies that don’t enjoy their massive reserves of cash and relatively low debt.  

The other sectors that are worth including in a basket of shares, say investment advisors, are certain commodities that will be in demand by developing economies like China and India over the foreseeable future:  oil and gas and alternate energy sources; foodstuffs like wheat, rice, edible oils, sugar and meat; water treatment and distribution companies (that make de-salination equipment, pipes, etc); iron and steel and base and precious metals, the latter to satisfy not just the demand in these countries for jewellery, but to fill their national treasuries as concerns about the long term viability of the US dollar grow. 

The amount of money you invest in defensive, global stocks should depend entirely on how old you are and how much risk you can live with.   Be aware that there are significant costs involved – life assurance investment funds are hugely expensive compared to ETFs for example. You will also have to pay tax on dividends and on capital gains.   (The older you are, the less time you have to make up losses so you need to make sure you have sufficient ‘safe’ assets in your pension fund like bonds and cash.) 

I always suggest that if you have money to save or invest and you are not an informed, experienced investor, you should not just seek expert, fee-based advice from an experienced advisor, but you should do your own research as well.  One you know exactly what shares and investments you already have, free financial information sites like www.fool.co.uk or even YahooFinance.com are a good place to start and provide a huge source of data (on the movement of share prices, for example) on individual companies, funds and ETFs.  

The swine flu pandemic isn’t going to help the world economy recover – if anything, traders are getting rid of those shares and investment funds that are going to be even worse hit if even more people stop flying, take holidays, eat out or go shopping in crowded high streets. But even that kind of short selling could eventually be someone else’s opportunity to buy the survivors at rock bottom prices. 

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