Toyota Stock Surges on Report of 20% Return-on-Equity Goal — Barrons.com

Toyota Motor Corp. Sponsored ADR (TM) is currently at $195.99, up $14.56 or 8.03%

• Would be highest close since July 24, 2024, when it closed at $197.20
• On pace for largest percent increase since March 17, 2020, when it rose 9.58%
• Currently up six consecutive days; up 13.11% over this period
• Longest winning streak since March 22, 2024, when it rose for six straight trading days
• Best six day stretch since the six days ending Feb. 13, 2024, when it rose 13.78%
• Up 14.86% month-to-date; on pace for best month since Feb. 2024, when it rose 20.46%
• Up 6.88% year-to-date
• Down 23.07% from its all-time closing high of $254.77 on March 22, 2024
• Up 8.22% from 52 weeks ago (Dec. 28, 2023), when it closed at $181.11
• Down 23.07% from its 52-week closing high of $254.77 on March 22, 2024
• Up 17.23% from its 52-week closing low of $167.18 on Aug. 7, 2024
• Traded as high as $196.52; highest intraday level since July 25, 2024, when it hit $197.43
• Up 8.32% at today's intraday high; largest intraday percent increase since Feb. 6, 2024, when it rose as much as 9.23%

All data as of 10:34:27 AM ET

Source: Dow Jones Market Data, FactSet

By Dean Seal

Toyota Motor's American depositary receipts are trading higher following a report that the automaker aims to double a key profitability metric.

The stock was up 6.9% at $193.90 just after the opening bell, and is up about 7% year to date.

The Japanese newspaper Nikkei reported on Wednesday that Toyota aims to double its return-on-equity target to 20%. The report cites an unnamed source.

Write to Dean Seal at dean.seal@wsj.com

By Ian Salisbury

Stocks have logged a historic run thanks to AI, Nvidia and other growth drivers, but some Wall Street strategists warn the market will spend the next decade feeling winded. While the warnings are worth heeding, there are ways to protect yourself and possibly avoid a "lost decade" for stocks.

Steep valuations and extreme concentration in tech are the main causes for concern, according to Goldman Sachs. The market's cyclically-adjusted price-to-earnings ratio has reached 38 — putting it in the 97th percentile going back to 1930, Goldman noted in an October report. Thanks to tech's big rally — yes, we're looking at you Magnificent Seven — market concentration is in the 99th percentile.

The upshot, Goldman says, is that investors should expect annualized returns of 3%, or 1% after inflation, for the next 10 years.

Goldman is hardly alone in expecting meager gains. Vanguard issued a similar forecast, pegging U.S. stock returns for the next decade at 2.8% to 4.8%. J.P. Morgan strategists predict 5% returns.

Dissenters say the bears are too pessimistic about the dynamic U.S. economy and its growth potential. Economist Ed Yardeni expects big productivity gains, driven by innovations like AI to support the S&P 500's historically high forward price-to earnings ratio, which sits at about 22. And he hasn't backed off his longstanding view that we are in a "Roaring 20s" that will see the S&P 500 hit 10,000 by end of this decade.

"There's sort of a knee jerk belief that the forward P/E should be around 15 — that has / that is the historical average," he says. "The problem with that is that there's nothing in the bible or U.S. constitution that says that the forward P/E has to revert to 15.

The other problem with avoiding stocks due to high valuations is that the market can stay expensive and hold its value; naysayers have been warning that stocks look overvalued for years. GMO founder Jeremy Grantham told Barron's that price-to-earnings ratios appeared frothy as far back as 2014. Meanwhile stocks have continued to climb, partly thanks to waves of tech innovation and other growth drivers.

GMO declined to address its prior forecast and directed Barron's to a commentary from Ben Inker, co-head of asset allocation, pointing out "the most attractive prospective investment opportunities rarely come from past winners, especially when they have been of this magnitude."

Many macro factors influence valuation too, notably interest rates — the lower the better. And while foreign stocks are cheaper, especially in emerging markets, they don't offer up nearly as much earnings growth, making the U.S. a top destination for global asset flows.

Still, there are ways to address the pain points. One solution endorsed by Goldman's analysts is to swap an index fund tracking the S&P 500 for one that weights all 500 stocks the same. While tech stocks make up about 33% of the S&P 500, they represent only 17% of the Invesco S&P 500 Equal Weight ETF. The fund trades at a forward price-to-earnings ratio of less than 18, compared to more than 22 for the standard version.

Investors can accomplish similar goals by moving some holdings into small-cap or value funds, targeting undervalued stocks directly. Bill Nygren, co-manager of the $25 billion Oakmark Fund, says he's found plenty of bargains in sectors like energy and financials, both trading at forward P/Es of less than 18.

ConocoPhillips, Citigroup, and Charles Schwab are among Nygren's favorites. Schwab, which earns a large share of its profits from investing its brokerage customers' cash, has seen its share price suffer after its short-term borrowing costs spiked. That problem is now in the rearview mirror, says Nygren, which should allow its core business to shine.

"Schwab has grown its number of investors faster than any of the large money management platforms," he says. "They have the lowest cost platform, and that allows them to provide investors more services at lower cost."

Small-caps have been a market laggard for years as investors have flocked to large- and mega-caps. Small-caps have lagged behind larger companies eight out of the past 10 years. The iShares Core S&P Small-Cap ETF is up 17% in 2024 — a big gain in a normal year, but nowhere close to the S&P 500. Stocks in the fund's portfolio trade at 17 times forward earnings. In contrast to large-cap stocks, that has / that is about the same level as a decade ago.

Small-caps now have some tailwinds that could propel them for the next decade, according to Jason Alonzo, portfolio manager at Harbor Capital Advisors. A more favorable interest rate climate should help small-caps, along with a regulatory and tax agenda favoring domestic companies, courtesy of the incoming Trump administration. "That's good for small caps," Alonzo says.

One way to avoid pitfalls of the small-cap space — such as betting on companies whose stock prices have been beaten down for good reason — is to focus on quality stocks with steady profits and strong balance sheets.

The iShares MSCI USA Quality Factor ETF and the Dimensional U.S. Small Cap ETF are both potential options.

Foreign markets have their drawbacks, but still offer up bargains. The iShares MSCI EAFE ETF, which tracks developed markets like Japan, U.K. and Switzerland, trades below 14 times earnings, a low the S&P 500 hasn't hit since 2013. While the iShares fund is light on tech — just 10% of the portfolio — plenty of top holdings are international powerhouses that rival some of the strongest U.S. firms, including Ozempic-maker Novo Nordisk, food company Nestle and luxury goods firms LVMH Moet Hennessy Louis Vuitton SE and Richemont.

Luxury goods have struggled, hurt by weakness in China, but LVMH and Richemont — both highlighted in Barron's recent luxury cover — have brands that will endure.

The strong dollar reduces the value of foreign profits for U.S. investors and poses a headwind for foreign-market index funds. If you're looking out a decade, though, what should matter is enduring earnings growth.

Kimball Brooker Jr., co-head of global value at First Eagle Investors, points out that LVMH and Richemont own top-notch international brands with sales in a host of different currencies, providing a natural hedge. "They are operating all over the world," he says. "So there's a bit of embedded protection."

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

The US Food and Drug Administration on Monday greenlit Hikma Pharmaceuticals' branded generic referencing Victoza, a diabetes medicine by Danish drugmaker Novo Nordisk (NOVO-B.CO).

The once-daily injection is the first approved generic of Victoza, or liraglutide, and will provide an additional treatment option to patients. These glucagon-like peptide-1, or GLP-1, injections stabilize blood sugar levels by improving the glycemic control in type 2 diabetes patients aged at least 10 years, together with diet and exercise.

The regulator prioritizes applications for such medications as they are in short supply. "The FDA supports development of complex generic drugs, such as GLP-1s, by funding research and informing industry through guidance as part of our ongoing efforts to increase access to needed medications," said Iilun Murphy, director of the office of generic drugs in the FDA's Center for Drug Evaluation and Research.

Reuters also reported on the approval the same day and quoted the British pharmaceutical company as "pleased" with the decision. Hikma told the news platform that its generic version is expected to be available in the US before 2024 ends.

Israeli pharmaceutical company Teva Pharmaceuticals' authorized generic of Victoza hit shelves in the US earlier in 2024. Authorized generics are the exact copies of branded drugs, whereas branded generics may offer slight variances.

Bird flu has emerged as a critical public health concern in California, with Governor Gavin Newsom declaring a state of emergency on Dec. 18, 2024, as the H5N1 virus spreads aggressively through dairy farms. The urgency becomes evident with 650 dairy herds testing positive since August, with approximately half of these cases emerging in just the past month.

The situation has intensified with the CDC reporting the first severe human illness in Louisiana. Across the United States, 61 confirmed human cases have been documented across eight states since April 2024, with 34 of these cases in California alone.

The rapid escalation has compelled decisive government action, culminating in a $72 million investment in three leading pharmaceutical companies — Sanofi-Aventis SA , GSK plc , and CSL Limited — to significantly enhance vaccine production capacity.

These companies have not only secured government contracts, but also possess the infrastructure and expertise necessary to address the growing demand for bird flu vaccines. Their strategic importance in pandemic preparedness, combined with their robust financial foundations, makes them compelling investment opportunities in the current market landscape.

Let's examine why these three pharmaceutical stocks deserve special attention as California grapples with a bird flu outbreak.

Sanofi-Aventis SA

Sanofi has solidified its position as a global pharmaceutical leader, focusing on immunology, oncology, and vaccines. Its blockbuster drug Dupixent now accounts for over 20% of total revenue, while a forward dividend yield of 4.2% and annual payments of $2.04 make it appealing for investors seeking growth and income.

Currently trading near $49, Sanofi has seen notable volatility this year, ranging from a low of $45.22 in April to a high of $58.97 in September.

Sanofi reported 15.7% year-over-year growth in Q3 sales, driven by early vaccine sales and the success of its flagship product, Dupixent, which saw a 23.8% increase in revenue. Dupixent alone is expected to achieve approximately 13 billion euros in annual sales this year, underscoring its blockbuster status.

Sanofi's vaccine division also experienced a 25.5% surge in sales, bolstered by the phasing of flu vaccine deliveries and increased production capacity for its RSV vaccine Beyfortus. This strong performance has led the company to revise its earnings guidance upward for the year, reflecting confidence in its growth trajectory.

One of Sanofi’s recent highlights is its announcement that the FDA granted Fast Track designation to two of its combination vaccine candidates for influenza and COVID-19. While these vaccines are not specifically for bird flu, Sanofi's expertise in vaccine development positions it well to tackle emerging threats like avian influenza. The company aims to achieve 2 billion euros in cost savings by 2025, which will be reinvested into R&D.

The analyst community is bullish on SNY, with 10 of 14 analysts recommending a “Strong Buy.” The consensus target price of $64.50 indicates potential upside of 33%.

GSK plc

GSK plc stands out as a global biopharmaceutical leader, specializing in innovative medicines, vaccines, and healthcare products. With a strong presence in specialty medicines and vaccines, GSK's portfolio includes treatments for HIV, oncology, and respiratory conditions. The company offers an attractive quarterly dividend yield of 4.6%, appealing to investors seeking growth and steady income.

GSK has also experienced notable volatility in 2024 with a 52-week high of $45.92 in May and a 52-week low of $32.83 in November, a 26.84% decline. Recently, however, the stock has shown signs of stabilization, rising 0.3% over the past month.

The company’s forward P/E of 8.61x is well below the sector average of 20.22x, which suggests an attractive valuation.

GSK's third-quarter financial performance showed mixed results. Turnover reached $10.42 billion, down 2% from Q3 2023, but its core earnings per share were up 5% to $1.29. Looking ahead, GSK has raised its full-year guidance, projecting turnover growth of 12%-13% and adjusted EPS growth of 10%-12%.

GSK's $800 million investment in its Marietta, Pennsylvania facility is its largest in U.S. manufacturing, boosting capacity for medicines and vaccines. Its drug Jemperli also received FDA Breakthrough Therapy Designation, achieving 100% disease elimination in all 42 trial patients.

Additionally, belantamab mafodotin demonstrated a 42% reduction in death risk for multiple myeloma patients, showcasing the company's strong pipeline.

Analysts are cautiously optimistic about GSK, with 13 giving a consensus "Hold" rating. The mean target price is $42.68, suggesting potential upside of 25%.

CSL Limited

CSL Limited is a global biotechnology leader known for its plasma-derived therapies, vaccines, and treatments for rare diseases. The company operates through three main divisions: CSL Behring for plasma products, CSL Seqirus for influenza vaccines, and CSL Vifor for iron deficiency and nephrology.

For income-focused investors, CSL offers a semi-annual dividend yield of 1.68%, with an annual payout of $1.48 per share, making it attractive alongside its growth potential.

CSLLY currently trades at $87.81, reflecting a volatile year marked by a peak of $109.00 in August and a subsequent decline to a 52-week low just above $83.

With a market cap of $83.76 billion, CSL remains a formidable player in biotech, despite a year-to-date dip of 10.94% from December 2023 levels. The stock’s forward P/E ratio of 25.56x is higher than the sector median of 20.3x, indicating market confidence in CSL’s growth trajectory.

Financially, CSL reported a 15% increase in net profit after tax to $2.64 billion for fiscal year 2024, with revenue climbing to $14.8 billion—an 11% increase at constant currency. Immunoglobulin product sales surged by 20% to $5.66 billion. Looking ahead, management anticipates FY25 revenue growth of 5%-7%.

CSL Seqirus has secured multiple government contracts, including a recent $34 million award to deliver 3 million doses of its H5N1 vaccine. The company boasts impressive manufacturing capabilities at its North Carolina facility, which can produce up to 150 million influenza vaccine doses within six months of a pandemic declaration.

Notably, CSL has received five other separate awards from BARDA for its avian influenza response and recently secured a $121.4 million contract to expand its vaccine stockpile program.

The investment community seems to be giving CSLLY a “Strong Buy”, and a mean target price of $110.00, suggesting potential upside of 25%.

Conclusion

The escalating bird flu crisis has positioned Sanofi, GSK, and CSL Limited as prime investment opportunities in the pharmaceutical sector. With secured government contracts worth $72 million and expanding vaccine production capabilities, these companies offer both defensive stability and growth potential. Their strong dividend yields, proven track records, and strategic positioning make them compelling choices for investors seeking value from this emerging health crisis while maintaining a balanced risk profile.

On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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