Markets are down this morning with the Nasdaq down over 1% at 10,504. Semiconductor stocks have been hit by the Biden’s administration decision to restrict China’s decision to buy certain chips, and the news has hit sentiment for technology stocks across the board. Especially growth stocks with significant exposure to China.
Read on as we focus on one of the biggest semiconductor fallers, along with several health stocks that have had a positive start to the day.
Shares in the pharma giant Merck (MRK) are up 2.8% to $90.12 after the company announced positive late-stage trial results on a new heart drug called Sotatercept. The news means that the chances of a final FDA approval for the drug in 2024 have improved significantly.
Sales and profits at Merck are rising fast at the moment, and much of that rise is down to the very strong performance of Keytruda, a blockbuster cancer drug. Keytruda generated sales of $17.1 billion in 2021 – 35% of Merck’s total revenue. However, Keytruda’s patents will start to expire in 2028, so Merck needs new drugs like Sotartecept to come through over the next few years.
If you’re confident that Merck can do that, then Merck’s financial metrics look attractive – it has a 3% dividend yield and is trading on only 11 times earnings.
Food stocks like Kraft Heinz (KHC) are often popular with investors during slowdowns. That’s because we’ve all got to eat, so we cut back in other areas while continuing to buy Kraft brands such as Philadelphia cheese and Oscar Mayer hot dogs.
So perhaps it’s no surprise that KraftHeinz’s shares are up 1.7% today to $33.58. Today’s rise follows an analyst upgrade to ‘Buy’ from Goldman Sachs. Goldman has also raised its price target from $37 to $43. Goldman likes the fact that Kraft Heinz has strengthened its balance sheet and is successfully fighting back against the private label competitors. What’s more, the broker thinks that cost pressures for the company are set to ease.
Walgreen Boots Alliance (WBA)’s stock price is up 3.7% at $31.99 this lunchtime. The retail pharmacy giant will release fourth quarter earnings results on Thursday, so investors may have decided to buy into the stock ahead of those results.
Walgreens suffered during the pandemic as shoppers stayed away from their stores but the chain has made some sensible moves since then. It has improved its online and drive-thru businesses and formed a partnership with Village MD. The partnership operates full service healthcare clinics where there’s lot of potential for Walgreens to sell its products.
The White House has said that the fall COVID booster campaign has got off ‘to a really good start’ and that has boosted shares in Moderna (MRNA) by 2.9% to $122.76.
Moderna’s future performance is hugely dependent on demand for its COVID vaccines, but it’s not totally reliant on COVID. It has vaccines for flu and Respiratory Syncytial Virus (RSV) in late-stage trials. If all goes well, they could be launched in the next two or three years. What’s more, demand for COVID vaccines is likely to stay high for years to come.
It’s been a dreadful morning for casino stocks with businesses in Macau. The worst performer has been Wynn Resorts (WYNN), which has crashed 10% to $64.80.
The problem is that COVID cases in Macau rose in August and that means an expected jump in visits from mainland Chinese gamblers probably won’t happen. As a result, analysts at Citi have cut their estimate of Macau’s gaming revenues for October.
Other casino stocks on the slide include Las Vegas Sands (LVS), down 8% at $38.73, and MGM Resorts International (MGM), down 3% at $31.96.
Lam Research (LRCX) is the biggest of the semiconductor fallers at lunchtime, down 6% at $349.51. And the shares haven’t just had a bad day, they’re down 51% this year.
But in spite of today’s bad news from the Biden administration, there is a positive long-term story here. Intel expects global demand for semiconductors to rise from $600 billion this year to $1 trillion in 2013. And Lam is well set to benefit. It doesn’t make semiconductors itself; instead it supplies equipment that is used in the manufacturing process. What’s more, it’s a tech stock that pays a dividend! After today’s fall in the share price, the yield is approaching 2%.
The Biden administration’s clampdown chip sales to China hasn’t just affected semiconductor stocks. It’s also worried investors that a forced delisting of Chinese technology stocks on US markets is now more likely. Pinduoduo (PDD), a major player in Chinese e-commerce, has been badly hit with a 10% fall to $57.18.
Pinduoduo has delivered spectacular growth since it was founded in 2015 and has almost 900 million active users, but investor nervousness is understandable.
On a bad day for tech stocks, Zscaler (ZS) hasn’t escaped the carnage. The shares are down 6% at $158.96, and you could argue that the cloud security company has further to fall. Zscaler is losing money and is trading on a multiple of 22 times sales. That kind of multiple wasn’t a problem a year ago but investors are much more wary now of heady growth stock multiples.
That said, Zscaler really is growing – fourth quarter sales were 61% higher than those for Q3! And analysts expect the company to move into profit next year. So brave investors may make money.