The main obstacle is successfully timing the market. This applies to the stock market in 2023. Economic worries arose, and geopolitical events were grim, but we’ve not had a recession or an extended market drop.
There were two 10% corrections. Once again, they’ve proven that the secret to successful stock investment is not letting fear drive you out of it. The average stock was in the red for much of the year before rallying post-Halloween. Then, they went on to post solid gains for the entire year. Many investors turned to alternative investments like Hellspin Casino during these uncertain times.
The significant contributions from a few mega-cap names have boosted the returns of the market indexes (e.g., S&P 500). But, value remains for those looking past the so-called Magnificent Seven.
Stock Market Outlook 2024
In my most recent report, I delved into seven different investment themes. I wrote that I prefer to leave the economic worries to others. I seek to grow capital and get income from my Value-oriented portfolios.
I’ll discuss The Prudent Speculator’s 2024 Stock Market Outlook in a webinar on Tuesday, January 9, at 1:00 Pacific Time. I’ll offer specific stocks for those who share our long-term view. As 2024 unfolds, we should consider them.
2024 Investment Themes
One of the themes is Health Care (Temporarily) in the Sick Bay. Investors have shifted away from safer stocks. They worry about government price controls. They also question medical cost ratios. The ratios have kept a lid on many healthcare stocks in 2023.
This will be temporary. It’s due to long-term trends. These trends support growth and good earnings and help companies like Bristol Myers Squibb (BMY).
Pharmaceutical titan Bristol Myers recently announced that it’s acquiring Karuna Therapeutics. The deal is worth $14 billion in stock, but after subtracting the cash acquired, the net value is $12.7 billion. Karuna is a biopharma company focusing on treatments for the mind and nerves. It fills a gap in BMY’s medicines.
Karuna is developing a schizophrenia treatment called KarXT. It is awaiting approval from the United States and will expand Bristol’s neuroscience portfolio. Neuroscience is gaining interest from drugmakers. Analysts predict the therapy could generate $4 billion by 2030 if approved.
Of course, in the near term, the deal’s financing cost will hurt BMY’s earnings. It will dilute them by about $0.30 in 2024. But, the company expects to offset the costs through better operations. They will divide resources, save costs, and focus on their portfolio. BMY expects to finance the acquisition with new debt issuance.
Bristol’s managers are confident. They think their strong cash flows and financial profile will keep a high credit rating. This stability will support more growth through business opportunities and continue to reward shareholders with steady dividends and share buybacks.
There are huge opportunities in neuroscience. Karuna boosts our position. It speeds up our diversification in the field. We expect KarXT will drive our growth into the late 2020s and beyond. BMY CEO Christopher Boerner, Ph.D., said, “This deal fits our business goals. We aim for strong, appealing assets that can solve big medical needs.”
Schizophrenia and Alzheimer’s cause psychosis. They affect millions of people worldwide. Yet, there are few or no treatments. “KarXT’s latest approach has had a profound impact on the management of schizophrenia.” It’s worked well and is very safe,” said Chief Medical Officer Samit Hirawat, M.D. “It has the potential to benefit patients. It may be worth incorporating into the treatment of schizophrenia.” It’s also the first treatment for Alzheimer’s disease psychosis.”
Only time will tell. I’m optimistic about the acquisition, though. The 50% premium paid over the then-market price seems high. The pipeline enhancement is what the doctor ordered. BMY shares fell over 25% last year, and generic drugs have cut Revlimid’s sales.
Revenue from Opdivo and new drugs has strengthened the top line. Opdivo leads in oncology, while Camzyos treats cardiomyopathy. Opdualag fights melanoma, and Zeposia tackles M.S. and U.C. Sotyktu addresses plaque psoriasis, showing promise across indications.
As seen, business development remains a priority for BMY. Shares trade for seven times NTM-adjusted EPS guidance, which is far too low for a company of Bristol’s quality. This is especially true as the shares also yield a robust 4.6%.
