SIMON BROWN: I’m chatting with Gary Booysen, portfolio manager at Rand Swiss. Gary, I appreciate your early morning time.
The vaccine companies, the listed ones, Pfizer. Johnson & Johnson, Moderna – the theory was they’re not going to make a lot from the vaccines initially, but now we’re talking about potential booster jabs and the like. Are these some stocks you’ve had a look at and (have you) a preference between them?
GARY BOOYSEN: Thanks, Simon. If you look at them, very different prospects. The big vaccine stocks, as you mentioned, are Pfizer, Johnson & Johnson, and Moderna at the moment and they are very different types of companies. Pfizer and Johnson & Johnson are more similar, typically big blue-chip pharmaceuticals. Vaccines are important to them but not the whole story. Johnson & Johnson, for example, has a significant medical-devices business that’s actually been set back by Coronavirus because people have been delaying elective surgery. On last year’s numbers that make up part of 30% of the business.
But then Moderna is obviously very, very different with the new technology, the mRNA technology coming out – much more speculative, a much newer company. It’s not a pharmaceutical company with a long track record. You can see the differences in the share prices. While Pfizer and Johnson & Johnson have almost just tracked theirs, you’ve got Moderna up 120% over the past year versus a 15% return on the S&P 500.
SIMON BROWN: In the healthcare (industry) you mentioned medical devices and the like. I’ve always been a fan of the medical device space. Certainly healthcare, notwithstanding a pandemic, it’s ‘we will get through it; certain things will return to normal’. This is a sector, a space, with large growth prospects.
Have you been putting healthcare into your offshore portfolios? I assume you must have some exposure there.
GARY BOOYSEN: We do – both Pfizer and Johnson & Johnson. It’s always difficult for the companies because you’re almost trying to manage the expectations of consumers, especially under Coronavirus, saying that you’re producing the life-saving drugs, but at the same time you want a profit – which creates, I suppose, that little fear. But, looking at them, they are very much companies that are absolutely core to the way civilisation works at the moment. They’re not going anywhere and they have a much lower risk profile. So while I don’t think you’re going to see supernormal profits out of them, they aren’t particularly expensive if you’re looking forward.
If you’re looking at something like Pfizer, on next year’s earnings you’re looking at a one-year forward PE of only 11 times, which is pretty cheap for what you’re getting; Johnson & Johnson is a little more expensive, looking at about 17 times earnings one year out. Both of them pay decent dividend yields. Next year we’re expecting around 2.4% from Johnson & Johnson and around 3.8% from Pfizer. We do hold both.
At the moment, if you’re a new investor, I would probably be going for Pfizer. It’s not just because the metrics are little bit cheaper, a little bit better in the yield, but it’s also the mRNA technology that Pfizer has access to. It partnered with BioNTech for the coronavirus vaccine. But, as we know, it’s all about what’s going to happen with the booster shots, which could be potentially more profitable. At the moment we’re seeing a big kickup in revenue but not a subsequent kickup in earnings. That could change in the years to come as we see more and more variants coming out and as these companies are allowed to become a little bit more profitable.
SIMON BROWN: Yes. And with those booster shots potentially a couple of billion a day. But those valuations are crazy. Pfizer 11 forward, Johnson & Johnson 17 forward.
If I look at the tech stocks, look at some of the Netflixes of the world – those are amazingly cheap.
Gary Boysen, portfolio manager at Rand Swiss, I appreciate you early morning time.
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