Stinky socks or bargain stocks ?
Aug 12, 2022
“Whether we are talking about socks or stocks, I like buying quality merchandise when its marked down.” is one elegant quote from Warren Buffett. We may well have such an opportunity popping up in the European pharma sector. Concerns over a negative outcome on a trial about improperly warning US patients on the once-popular antiacid Zantac possibly causing cancer made Sanofi, GlaxoSmithKline and Haleon loose a combined 40bn USD in market cap since Tuesday this week. Companies are strongly denying all link between their product and cancer. The product has been withdrawn from the market in 2019. After a 20% fall of its stock price over the last 2 trading days, Sanofi is now trading at less than 10 times 2022e free cash flow and carries a dividend yield 4.2%. Not bad for a quality compounder with a solid balance sheet estimated to grow 9% CAGR over the next 5 years ( source: Bloomberg ). While we are not underestimating litigation risk, we believe opportunity knocks to increase one of our portfolio holdings.