Some Bailed Out Global Banks May Require Bailout Again

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At the height of the global financial crisis in 2008 many banks in the developed world were on the edge of failure. To protect the financial system from total collapse, governments bailed out most of these institutions by injecting billions of dollars in capital. Some of these banks were bailed out by foreign banks and Sovereign Wealth Funds (SWFs). These bailouts were so large that they qualified as Foreign Direct Investment (FDI) according to a report by UNCTAD.

In the UK, the British government injected £37 billion into two of the largest banks, Llyods Banking Group (LYG) and Royal Bank of Scotland(RBS) there with additional support in the following year. These bailouts came with conditions such as the sales of branches by the recipients, reduction of market shares and others.

The table below shows the state bailout of select banks during the financial crisis:

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Source: World Investment Report 2011, UNCTAD

While the governments were successful in preventing a global armageddon back then, it appears that the very institutions they rescued may require another bailout soon. With fear of losses mounting from exposures to the PIIGS countries some European banks need to raise additional capital to cushion against such losses.

The chart below shows the disastrous equity performance of six bailed-out banks since 2008:

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Llyods Banking Group and RBS, both majority-owned by the British state, have been the worst performers with losses of about 95%. US-based Bank of America (BAC) and Citigroup (C) have not fared any better either with some experts suggesting that these TBTF banks should be split into multiple pieces for the benefit of the economy and also to increase competition in the banking industry. As many investors question the survivability of Bank of America, Barry Ritholtz of CEO and Director for Equity Research for Fusion IQ recently said in a Bloomberg interview that BofA should should seek a GM-style bankruptcy.

Disclosure: Long RBS, LYG, CRZBY, ING

The World’s 50 Largest Pharmaceutical Companies by Sales

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The pharmaceutical industry used be a highly profitable industry and pharma stocks were long considered as conservative investments that offered slow, steady growth with attractive yields. However that has changed in the past couple of decades. Though profit margins for blockbuster drugs are high, drug companies’ earnings are under enormous pressure due to many factors including regulatory issues, high R&D expenses, length of time for FDA approvals, legal costs, etc. Despite these issues, stocks of some pharma companies are good long-term investment opportunities. For example, companies that have high exposure to emerging markets offer potential for growth as the demand for drugs grows in those countries. For example the Danish drug maker Novo Nordisk(NVO) is a world leader in diabetes care. With diabetes becoming more prevalent in emerging countries such as China, Novo Nordisk can tap this huge growing market. According to one estimate, the number of Chinese having Type 2 diabetes may reach 80 million over the next 15 years. As of this year, China is the third biggest market for Novo Nordisk and the second largest insulin market.

The chart below lists the World’s 50 Largest Pharma Companies for 2010 by sales of prescription drugs:

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Source: Pharm Exec

Some interesting stats from the report discussing the rankings:

  • The top 50 companies accounted for $593.4 billion of prescription drug sales in 2010.
  • Swiss-drug maker Novartis(NVS) moved to the second place beating Sanofi-Aventis (SNY) and Merck (MRK) jumped from 7th to 4th place.
  • Fueled by the acquisition of Wyeth,  Pfizer(PFE) grew its prescription drugs revenue from $45.4 billion to $58.4 billion.
  • For the first time, all the 50 companies in the above list have sales of at least $2 billion.
  • Similar to Pfizer, Merck(with the acquisition of Schering Plough) and Abbot (with the acquisition of Piramal and Solvay) also increased their annual revenues substantially in 2010.
  • Irish drug maker Warner Chilcott raised its drug revenues by a whopping 111% due to its acquisition of the drug business of P&G.
  • Many of these drug firms stand to profit when 30 million previously uninsured Americans obtain heatlh insurance coverage as a result of the healthcare reform.
  • Half of the top 10 drug firms shown in the rankings above are based in Europe.
  • North America alone accounted for 42% of global pharma sales.
  • The top five drugs by global sales are Lipitor, Nexium, Plavix, Advair Diskus and Abilify.
  • Israel-based Teva Pharmacetuicals (TEVA) took the 12th rank with 2010 sales of $16.1 billion (16.0% higher than 2009 sales). Teva spent $933 million last year in R&D.
  • The US patents of top selling drugs Lipitor and Advair will expire this year adversely impacting the earnings of Pfizer(PFE) and GlaxoSmithkline(GSK) respectively.

To download the full Pharma Exec Top 50 report in pdf format click here.

You may also like to check out:

The Top 25 Global Pharmaceutical Companies by 2011 Sales

Chart: Top 50 Global Drug Companies by Sales in 2011

Disclosure: No positions

Nine U.S. Consumer Staples Companies With High Emerging Market Sales

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In my earlier post we looked at some European firms with strong sales in emerging markets. In this post let us take a quick look at some U.S. companies which have a strong presence in emerging countries.

The table below lists nine U.S. consumer staples companies with emerging market sales of 20% or more:

[TABLE=1035]

Source: Global Equity Strategy, Credit Suisse

Philip Morris(MO) is a good pick for long-term investment due to consistent past performance. Currently the stock has a 6.24% dividend yield.It is surprising to see that PepsciCo’s (PEP)emerging market sales is only 20%. As the main competitor to Coca Cola one would expect PepsiCo to have ta much larger exposure to EM. Overall as consumer staples all these stocks can offer stability to a well diversified portfolio during wild market conditions.

Disclosure: No positions

21 European Consumer Staples Companies With Strong Emerging Markets Exposure

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The exponential rise in the middle class population in emerging countries offers excellent growth opportunities for multinational companies that have presence in those countries. In countries such as Brazil, India, China, Turkey,Indonesia the growing demand for consumer goods continues to increase with the rise in the standard of living of the middle class.

Since many multinational companies based in Europe have large exposure to emerging markets one simple way to profit from the growth in emerging markets is to invest in these companies. The current turmoil in European markets has significantly reduced the equity prices of some of the these European MNCs. So investors looking to gain some emerging market exposure  can add these stocks at current levels.

The following table lists 21 European consumer staples with emerging market sales of more than 15%:

[TABLE=1034]

Source:  Global Equity Strategy, Credit Suisse

UK-based cigarette makers British American Tobacco PLC (BTI) and Imperial Tobacco Group PLC(ITYBY) have dividend yields of 4.65% and 4.50% respectively.Diageo, one of the largest international producer of alcoholic beverages, is the owner of many famous brands including Diageo Johnnie Walker scotch whisky, Baileys Original Irish Cream liqueur, Captain Morgan rum, etc.Netherlands-based beer brewer Heineken NV (HINKY) owns over 125 breweries in more than 70 countries.

Disclosure: Long HENKY

To Make Money Just Follow the Equity Sentiment Roadmap

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Baron Phillipe Rothschild: “The time to buy is when there’s blood in the streets.”

Warren Buffet: “Be fearful when others are greedy and greedy when others are fearful.”

Extreme turmoil in the market generally excellent creates buying opportunities. Smart investors tend to take advantage of such situations to add high-quality stocks at rock bottom prices.

The following roadmap shows the relationship between emotions and risk/return with respect to investment:

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Source: Why turmoil creates opportunities, Trustnet UK

From the Trustnet article:

Chris Spear, managing director of Spear Financial in UK says that investors who remain emotionally removed will stand the best chance of making money.

“It is ridiculously simple. Whatever your emotions are saying, do the opposite,” he explained. “If you think things are really bad in the markets, then it may well be a good time to invest.”

An opportunity of a lifetime presented itself to investors in March 2009. The S&P 500 hit a bear-market low of 676 on March 9 with an intra-day low of 666. By mid February of this year, the S&P 500 closed at 1,332 – virtually doubling from the March, 2009 lows. Some foreign stocks more than doubled during the same period. For example, Banco Santander (SAN) of Chile reached as low as $30.56 in March 2009 only to rebound to about $100 by September 2010. Yesterday it closed at $81.58.  The main point here is that investors who scooped up stocks on the cheap in March 2009 are sitting on strong gains despite the recent volatility in the markets in the past couple of months.

Disclosure: No Positions