Could we get past 7,000 next month? History suggests it’s not out of the question. 

FTSE 100: Santa rally ahead?

December has earned itself a reputation for being the strongest month of the year for UK share prices. In fact, research by Stephen Eckett (and published in Harriman’s Stock Market Almanac) has shown that the FTSE 100 index has fallen just three times in the month since 1995. It even has a habit of outperforming the US S&P500!

Interestingly, there doesn’t appear to be one clear reason for this. What we do know however, is that the final two weeks of December tend to be particularly strong.

Known as the ‘Santa Rally’, here’s why I think this may happen again in 2020.

Why 7,000 might be broken

It seems logical that further good news on coronavirus vaccines could push the FTSE 100 higher. Having received positive results from Pfizer, Moderna and AstraZeneca in the past few weeks, it’s now the job of the Medicines and Healthcare products Regulatory Agency (MHRA) to give its approval. Expect fireworks if we get this in December.

The psychological effect of emerging from lockdown restrictions shouldn’t be underestimated either. While many UK businesses will continue to struggle, the mere belief that things are improving could send share prices higher on its own. Remember — the market is more interested in what will happen next, not what’s happening now.

Despite recent gains, UK shares also remain cheap relative to elsewhere in the world. News of a Brexit trade deal would undoubtedly go some way to addressing this. Further monetary stimulus in the US would be another boost.

On the other hand…

Of course, there’s also no shortage of reasons for why the FTSE 100 will fail to break through the 7,000 barrier.

Aside from the possibility of unexpected hurdles for the aforementioned vaccines, there are fears that coronavirus infection rates could rise as a result of families being allowed to meet over Christmas. This ‘two steps forward, one step back’ state of affairs could slow momentum.

With chancellor Rishi Sunak warning that the full economic impact of the pandemic has only just begun, many in the UK may also be inclined to keep their purse strings tightened until 2021. That’s problematic when you consider how dependent most of the UK’s listed retailers — and their share prices — are on the festive period for sales.

In addition to all this, many traders may begin to bank whatever profits they’ve managed to make in 2020. 

Don’t time the market

It is, of course, impossible to say for sure where the FTSE 100 will be at the end of next month. As such, my investment strategy remains the same. Like top UK fund manager Terry Smith, I’m looking for top-quality companies trading on reasonable valuations that I can hold for years. 

After a rollercoaster 2020, a soaring FTSE 100 would be a nice Christmas present for UK investors. Just don’t bank on it. 

The post Here’s why I think the FTSE 100 could smash through 7,000 in December appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

There’s no sign of demand slowing either. Last week, SMT was the most popular buy from clients on share-dealing platform Hargreaves Lansdown.

This is not to say that the tech-focused fund is without risk. Today, I’m wondering whether I should buy and asking how big the risk is following two seismic events — Joe Biden’s election victory and the coronavirus vaccine breakthrough made by pharma giant Pfizer.

Dark clouds ahead?

Although it’s still too early to say how markets really feel about Biden’s victory, it’s sensible to suppose there will be both winners and losers from this outcome. Big tech could be in the latter, especially when it comes to paying tax.

Joe Biden has previously said that he plans to go back on his predecessor’s tax cuts. Indeed, a 7% increase in corporate income tax to 28% is on the new President’s to-do list.

This could be something of an issue for Scottish Mortgage. After all, its second-biggest holding — Amazon — takes up almost 8% of assets. 

This might not be the end of it. The growing monopoly of tech titans could lead President-elect Biden to enforce greater regulation and the break-up of these companies. 

Too expensive?

Of course, I simply can’t know what happens next for sure. There is a chance that Biden may not be successful in getting some (or many) of his campaign pledges through. The positive news on the Pfizer vaccine could also be undermined by rocketing infection and death rates and/or logistical problems getting it to the people that need it most. 

Rather than speculate, I think it’s more conducive to look at valuations. What I do know is that the US market remains expensive. Indeed, the huge rebound in the tech-heavy NASDAQ since March has pushed the share prices of some of the usual suspects into the trillions of dollars.

This, coupled with the arrival of the promising vaccine, may become temporarily problematic for SMT’s portfolio. After all, a pivot from investors into battered leisure and airline stocks could mean that the share prices of SMT’s constituents hardly move or even fall. 

What I’m doing

Personally, I’m not worried about how Biden and Pfizer may impact SMT (which, for the record, I hold). 

For one, the trust isn’t as highly invested in the US as other popular trusts/funds. According to Hargreaves Lansdown, only 44% of the stocks held are listed in the US. I find this more reassuring than if I were invested in a fund solely focused on the American market. The fact that Scottish Mortgage Investment Trust’s portfolio also includes 47 private companies is also comforting.

So, rather than sell and miss further gains, I’m more inclined to check I’m suitably diversified elsewhere. Recognising that only 8% of SMT is exposed to the sector, I’ve recently bought iShares Healthcare Innovation ETF, for example. This may help if/when SMT’s share price takes a breather.

In investing, it pays to know what you don’t know. By spreading money around, I hope to take events — positive or negative — in their stride.

The post Hargreaves Lansdown investors are still buying Scottish Mortgage Investment Trust. Here’s what I’m doing appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares in Scottish Mortgage Investment Trust and iSharesHealthcare Innovation UCITS ETF. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The deal is perhaps smaller than many investors would have liked with Pfizer agreeing to pay $550m upfront for Astra’s small molecule antibiotics business. It seems that for now at least, Pfizer is content with owning just part of Astra, rather than the whole company. 

Still, the deal could give Astra a much-needed cash boost over the next few years. In total, it could net the company $1.6bn through a combination of staggered payments and royalties. As well as the $550m upfront, the US company will pay an unconditional $175m in January 2019. 

The deal includes three already-approved antibiotics, Merrem, Zinforo and Zavicefta, and two drugs in clinical trials. Depending on the progress of these treatments, Pfizer will pay Astra a further $850m on top of the upfront payment. 

The market’s reaction to this deal doesn’t instil confidence. Shares in Astra are trading down by nearly 1% in early deals.

Approach with caution 

The market’s cautious reaction to today’s announcement is understandable. Astra is facing a massive headwind in the form of patent expirations this year and so far it looks as if the company’s only action to stem revenue declines is to sell off the family silver.

Indeed, so-called externalisation deals have become a key part of the company’s drive to boost sales. The deals involve selling some of the future upside in Astra’s drugs for one-off payments. These deals are by their very nature one-off, but Astra is using them as a key revenue stream. Last year these one-time gains accounted for some $2.5bn of Astra’s $5.5bn of operating profits. Long term this gamble by management may pay off but there’s no denying that Astra is sugar-coating short-term profits.

Today’s deal with Pfizer seems to be another attempt by management to sell off drugs for a one-off income boost. 

Barring today’s deal, the bigger concern for Astra’s shareholders is how quickly the company’s sales decline after Crestor, Astra’s best-selling treatment comes off patent. The substance patent for Crestor expired, on 8 July, a week after the end of Astra’s Q2, so as of yet, investors have no idea how the company is faring in the new environment. The patent was set to expire at the beginning of January, but AstraZeneca won a six-month extension under the US paediatric trials incentive programme. 

The bottom line 

Overall, today’s deal with Pfizer isn’t a game-changer for Astra. While management will welcome the additional cash, until the full impact of Astra’s loss of exclusive manufacturing rights for Crestor is known, the market will likely view the company with caution. 

City analysts expect Astra to report a 5% decline in EPS for 2016. Based on these forecasts the company is trading at a forward P/E of 16.5 and the shares support a dividend yield of 4.2%.

The post What does AstraZeneca plc’s deal with Pfizer mean for shareholders? appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

This strength has been a result of renewed merger speculation, which has been surrounding the company for some time. Rumours circulated earlier in the week that Pfizer, the US pharmaceutical giant that tried and failed to buy AstraZeneca last year, is putting together a £19-per share bid for Glaxo. 

Pfizer has yet to confirm or deny these rumours, although analysts have been speculating that Pfizer will make an offer for Glaxo for around a year now. So far, no bid has emerged, and it’s unlikely an offer will be made this time. 

However, Pfizer isn’t the only company that’s been cited as having an interest for Glaxo. There’s also talk that Swiss pharma giant Novartis, which bought Glaxo’s oncology operation for $16bn last year, could make a bid for the UK group. That said, it’s believed that Novartis will only make an offer if peer Roche was to agree to buy parts of Glaxo after a deal.

Nothing’s certain 

There’s no guarantee that Pfizer or Novartis will make an offer for Glaxo in the near future. As you come to realise, many of the market’s takeover rumours never mature, and it’s likely that this rumour has no weight behind it. 

But there is a chance that Glaxo could be acquired by a larger peer over the long term. You see, Glaxo has the best pipeline of treatments under development within the pharmaceutical industry. Indeed, the group has 258 new products in its pipeline, 40 of which are in advanced clinical trials. Management expects at least half of these drugs will be on the market by 2020.

And as many big pharma groups are now buying up growth, rather than building it themselves, Glaxo’s sector-leading pipeline could be too good to pass up. 

What’s more, Glaxo is one of the cheapest companies in the big pharma group. 

Undervalued 

Glaxo’s peers, including the likes of Novartis, Pfizer, Roche and Sanofi all trade at an average forward P/E of 22.2. Glaxo trades at a forward P/E of 17.5. What’s more, based on City earnings estimates for 2016 and 2017, Glaxo is currently trading at a valuation discount of 25% to its wider peer group.

Other valuation metrics also show the same kind of discount. Using the enterprise value to earnings before interest and tax or EV/EBIT metric, Glaxo is trading at a discount of 25% to its wider peer group on both a forward and current basis. Glaxo’s shares are clearly a steal at present levels. 

As Glaxo is trading at such a wide discount to the rest of its peers group, and the company has one of the best treatment pipelines in the group, it can only be a matter of time before a larger peer swoops on the company.

Also, Glaxo currently supports a dividend yield of 5.5% so investors will be paid to wait for an offer.

The post Is Pfizer Inc. Considering A £19-Per-Share Offer For GlaxoSmithKline plc? appeared first on The Twelfth Magpie.

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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns shares of AstraZeneca and GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Rumours & Deals

There are “widespread rumours in the asset management community that Pfizer is considering another bid for Astra,” a senior banker in London told me this week.

That possibility was reinforced on Tuesday, when Teva Pharmaceutical made an unsolicited offer for Mylan; at $40bn, the deal could turn out to be the biggest acquisition in the pharmaceuticals industry in 2015 and could strengthen the position of Teva as the biggest generic drugs business on a global scale. 

The stars seem aligned for a Pfizer’s comeback — but are they, really? 

Performance

AstraZeneca is currently valued at 4,851p a share, which is in line with the level it recorded in early May 2014, when investors were eager to bet on a successful outcome for Pfizer’s proposed offer. By late May, however, Astra had rejected Pfizer’s £70bn proposal, noting that the bid had undervalued its growth potential. 

“AstraZeneca’s shares tumbled 13% to £42.04 on the news, wiping about £8bn off the company’s market value as investors concluded that the chance of a deal was now remote,” The Guardian reported at the time. 

How serious is the risk that Astra stock will dive again?

Even after its recent rally, Astra is up only 6% this year, which is a poor performance compared to Shire (+22%) and Glaxo (+13%), and is also a couple of percentage points below that of the FTSE 100.

Pfizer/Results/Drugs

I think that Pfizer won’t make any comeback as tax-driven deals appear to be off the table, so there are two elements you ought to take into account right now: first-quarter results, which are due on Friday, and Astra’s pipeline of drugs. 

On the face of it, 2014 quarterly figures are relatively easy to beat, so I would not be surprised if good news surrounded Astra in the wake of the announcement. That may contribute to short-term upside, but it’s hard to believe capital appreciation would be greater than 1% to 1.5% on the day, regardless of how the market performs. 

Let’s consider its drugs pipeline, then: there has been much talk of upside potential for cardiovascular pill Brilinta in recent weeks. Astra has been talking about Brilinta for a very long time and has been investing hugely in its development. So, is that the reason why Astra stock is on a roll?

“Heavy investment should be a real concern, as virtually nobody in the market believes in Brilinta, and hasn’t done for a long time. If anything is going to push the stock up it’s M&A, or oncology,” a second senior analyst in London pointed out, ruling out M&A upside. 

Oncology? Well, is that behind the rally, then? 

“Its oncology pipeline could be a factor, and in particular its checkpoint inhibitors…anti-PD1, anti-CTLA4 and others, but here it gets a bit sciency!” the analyst concluded, noting that “lots of study data” is shortly coming up at the ASCO conference both for Astra and such competitors such as Bristol-Myers Squibb, Merck and Roche.

The post Are Investors Betting On Pfizer Inc. Coming Back For AstraZeneca plc? appeared first on The Twelfth Magpie.

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.