Dear fellow readers,
Once
again, these writings are just my humble highlights (not
recommendation), feel free to have some intellectual discourse on this.
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__________________________________________________________
At
first instance, my article title may appear plainly ridiculous. A 10
year old may even answer “If there is vaccine, demand for gloves are
over!” However, not everything is so simplistic. A correlation does not
equate conclusion. The reason I am writing this article is not to
contradict anyone publicly but to share my humble point of view which I
advised my private subscribers on why I chose to invest in Pharmaniaga, Duopharma, Ahealth, YSPSAH. DKSH was a long term value stock which has always been in our portfolio as far back as 2018.
Now,
the argument between Pharma sector vs Glove sector shouldn’t be look at
superficially. If we think deeper, the glove & PPE is a form of
preventive / protection medical gears supply. Vaccine and supplements
are also a form of preventive / protection medical consumable supply.
Both serve the same function to protect human from virus except one
internally and one externally. So it is actually wrong to say having one
means the other is unnecessary.
Example
: the common understanding is once a vaccine is found, the gloves
sector is doomed because its redundant due to lack of demand. Gloves
stocks share price will plunge and Pharma stocks will fly. This is also
one of the reasons that a notable prominent investor came out to
criticise when the Pharma sector limit up few days in a row.
Why do I think this thinking is superficial? There are many counter arguments such as :
1. If there is mass vaccination, those administering will need gloves hence demand is still there.
2.
Those who use gloves already won’t stop using just because a vaccine is
found. This is because of “new normal” / “hygiene practice”. Various
other sectors have adopted this best practice such as F&B.
3.
There will be major need for stockpile replenishment by government and
healthcare providers around the world due to the vacuum left by this
pandemic.
Moving
on, I would go as far as to say the Pharma sector and Glove sector are
complementary. So do not misunderstand my favour for the Pharma sector
means I dislike gloves sector. Holding both is not contradictory. In
fact it’s a great investment technique & diversification. It is both
a symbiotic and hedge for one another.
Now
the key reasons I recommended these 4 Pharma stocks to my private
subscribers as far as few months ago was because the sector is
1. defensive & stable with good yield
2. high barriers of entry & monopolistic
3. potential for growth
Let’s
take Duopharma as example. It is a very good and well managed company.
If you look at their long term trend and growth in share price, it’s
been up trending since their demerger from CCM. Compared to Pharmaniaga
which has performance risk and inconsistency, Duopharma is more steady.
We also foresaw Duopharma and Pharmaniaga would be a major beneficiary
for the MOH expanded funding during the pandemic, concessions agreement
continuation and potential for future distribution of vaccines. This was
my advice to my subscribers on 12th May 2020.
As
for Ahealth and YSPSAH, both are value stocks with strong earnings
growth, good dividend yields and solid management with export markets
exposure (forex gain). The share price is not overly demanding given its
clean balance sheet and continuous growth in earning potential. It was
simply a value worth investing. If tech sector can rally without
earnings viability and justification going up to almos 150x PER, loss
making penny stock moves because of unsubstantiated rumours, why
wouldn’t such a good value stocks in the Pharma sector that contributes
to the betterment of mankind demand better valuations? The pharma sector is simply a very stable growth sector.
The
reason why this sector became hot last week, went beyond my
expectations. It is not like the vaccine is ready tomorrow or next
month. I believe it was a good new trade idea for funds / retailers and
thematic play which excites the market as this sector barely moved
compared to US, China, Hong Kong, South Korea markets. Hence it was good
that we held big position in this sector before the market took notice.
That’s
why we entered earlier to hold for long term. It has always been our
investment technique - to be contrarian, to enter when value emerges and
to be forward looking. So last week was a pleasant surprise.
As
for gloves, do I still I like gloves? I do. Is the price high? Compared
to what it was at the start of the year, yes. Will I put 80% of cash
into gloves? No. But is there still any upside? Definitely yes.
Telegram channel : https://telegram.me/tradeview101
Website / Blog : http://www.tradeview.my/
Facebook : https://www.facebook.com/tradeview101/or
Email me to sign up as private exclusive subscriber : tradeview101@gmail.com
Food for thought:
http://www.tradeview.my/2020/07/tradeview-2020-pharma-vs-gloves-is-it.html
