Betting on Bounce in the World’s #1 Insulin Play

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

It was a flat week for U.S. and global stock markets, as the Dow Jones rose 0.64% and the S&P 500 was up 0.17%. The MCSI Emerging Markets Index ended the week essentially even.

Last week’s Bull Market Alert recommendation, Northern Tier Energy Trust LP (NTI), gained 3.32% for its first week in the portfolio. Otherwise, it was a “risk off” week for your bets on European banks, all of which pulled back. Look for Qihoo 360 Technology (QIHU) earnings on March 5 after markets close. Those results may move the stock.

This week’s Bull Market Alert pick revisits Novo Nordisk A/S (NVO), a Danish pharmaceutical company that also is the world’s largest insulin maker with a 50% share of the global market.

Novo Nordisk estimates that there are more than 370 million people with diabetes in the world today — including 90 million in China alone. Today, more than 26 million Americans have diabetes and another 79 million have pre-diabetes. Experts calculate that by 2050, one in three American adults will suffer from the full-blown disease. As diabetes specialist David Nathan of Massachusetts General Hospital observed, “The market for insulin is almost endless. It is going up and up and up. It is not even close to the peak.” By 2030, over 550 million people across the globe will be suffering from the disease.

On Feb. 11, Novo Nordisk stock dropped as much as 17% in response to the FDA request for more testing on the company’s latest insulin treatment, Tresiba, in the approval pipeline. Despite both Europe and Japan having approved Tresiba, the FDA has now asked for a new study on the drug’s cardiovascular effects prior to approval.

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I believe the market overreacted and that the setback for Tresiba is hardly a disaster. The delay would have no impact on Novo Nordisk’s financial results for the fiscal year. And Novo Nordisk still has the Insulin detemir, a long-acting human insulin analogue for maintaining the basal level of insulin. The company also has a strong pipeline and its fundamentals remain strong. The market agrees and the stock has resumed a steady ascent.

Novo Nordisk trades at a price/earnings ratio of 21. Its share count has also fallen from over 640 million in fiscal 2009 to 580 million at the end of 2012 as part of management’s stock buyback plan. That will boost earnings per share in the future.

So buy Novo Nordisk A/S (NVO) at market today, and place your stop at $164.00. If you want to play the options, I recommend long-dated September $180 calls (NVO130921C00180000).

Portfolio Update

Bank of Ireland (IRE) lost 6.73% over the five-day trading week. Finance Minister Michael Noonan made positive remarks last Tuesday, stating that Ireland will begin withdrawing its “banking safety net” (a.k.a., bank guarantee scheme) at the end of March. This is a positive sign that things are looking up for the Irish financial system. Falling below its 50-day moving average (MA), IRE is now a HOLD.

National Bank of Greece SA (NBG) fell 8.89% last week. Greece is still not out of the woods as far as its economic recovery is concerned. However, NBG remains one of the four major banks that the government will protect as NBG, Alpha, Piraeus and Eurobank will be key lenders to businesses when Greece’s economic recovery begins to gain steam. NBG is a HOLD for now.

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Qihoo 360 Technology (QIHU) dipped 1.23%, though it jumped 4.13% on Friday alone. QIHU completed a convincing bounce off of its 50-day MA last week — a move that may spell future upside. QIHU’s president of Chinese Internet services and security software announced last Wednesday that its goal is to capture 10% of China’s PC search market every year for the next three years. QIHU will report earnings on March 5 after markets close. QIHU is a BUY.

Fomento Economico Mexicano SAB (FMX) fell 4.16% last week, despite issuing a strong earnings report. This makes the sale of half of your options position last week particularly well timed. FMX reported a 35% year-over-year rise in net profits and strong increases in sales figures after recent regional bottler acquisitions. With the market overreacting, FMX is a BUY.

Banco Santander, S.A. (SAN) lost 3.60% over the past five trading days. Although SAN has exhibited some weakness as of late, SAN is expecting healthy revenue growth and solid return-on-equity over the coming quarters. SAN is a HOLD.

Market Vectors Vietnam ETF (VNM) gave back 2.65% last week. Recent selling in VNM abated last week as this Vietnam exchange-traded fund found good support at its 50-day MA. This is an ideal time to add to your position. VNM is a BUY.

Northern Tier Energy Trust LP (NTI) gained 3.32% during its first week in the Bull Market Alert portfolio. NTI will report earnings on March 14 before markets open. NTI is benefiting greatly from the regional flood of cheap Canadian and North Dakota crude oil. If its past 50% gain in earnings and 17.8% yield are any indication of future gains, earnings should be strong. NTI is a BUY.

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European investors awoke to a key change in their world on Monday. The Greek economy has been reclassified from a “developed” market to an “emerging” one by fund manager Russell Investments.

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