History tells us that 10% corrections take place eery 11 months on average and 20% bear markets every 3.5 years, cautions John Buckingham, money manager, value investing expert and editor of The Prudent Speculator.
Nothing, therefore, about the current selloff is particularly unusual, though it is nice that this one is hitting richly priced stocks much harder than inexpensive companies and that the Value indexes have lost less this year than even the U.S. and Global Aggregate Bond benchmarks.
Obviously, downside volatility could resume after the recent respite, but as Warren Buffett states, “Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.” The Oracle of Omaha, not surprisingly, has been a big buyer of stocks this year, and we note that corporate insiders bought in May at their strongest pace since March 2020!
Abbott Labs (ABT) develops, manufactures and sells health care products and services with a portfolio of leading, science-based offerings in diagnostics, medical devices, nutritionals and branded generic pharmaceuticals. A major cog in the fight against COVID-19, Abbott benefited mightily from sales of tests and diagnostic equipment throughout the pandemic.
However, the firm found itself in a negative spotlight when it recalled batches of Similac and idled production at its Sturgis, MI facility in February, due to four complaints of Cronobacter sakazakii — a common environmental bacteria—in infants who consumed infant formulas produced in this plant.
Abbott is working with the FDA and is on track to resume production of formula, while we think its diversified business model will continue to prove valuable in the years ahead. We still view ABT as a high-quality stock (50 straight years of dividend increases) even as shares have slid some 15% year-to-date.
The near term performance is anyone’s guess, but in the long run, we believe that Abbott should be able to continue to enhance its free cash flow generation, especially as its continuous glucose monitoring system, the FreeStyle Libre, increases in popularity.
Moderna (MRNA) is a clinical stage biotech company that focuses on messenger RNA (mRNA) therapeutics and vaccines. The company manufactures medicines for infectious, immuno-oncology and cardiovascular diseases.
MRNA has experienced spectacular success in the efficacy and distribution of its COVID-19 vaccine, but recent victories have been difficult to come by. Still, the company has many pots on the stove, including a monkeypox vaccine in a pre-clinical trial and a combination flu-COVID shot.
The challenges in producing revolutionary vaccines are numerous, but we think MRNA has the balance sheet (thanks to the COVID vaccine’s success) to see some of their trials through to marketable disease-fighting systems.
Moderna shares have been pummeled this year as governments adjust their order volume based on demand, even though COVID-19 infections have jumped and efficacy data shows the value of vaccinations.
At the current level, we think the valuation is inexpensive, especially with more than $9 billion of net cash plus $9.2 billion of non-current long-term investments as of Q1. That cash hoard should grow much larger over the rest of this year and next, providing plenty of funding for R&D and M&A.
