One of the most revealing exchanges of the 2008 Democratic primary came when Hillary Clinton, the front-runner was asked how she felt about upstart Barack Obama being more “likeable” than she was. Mr. Obama chimed in, with a devastating bit of passive aggression, that Mrs. Clinton was “likeable enough.”
Well, after last week, health-care investors may not feel that way. It’s impossible to verify a counterfactual, so we’ll never know how health-care stocks, particularly biotechs, would have done last week had Secretary Clinton not pulled a grandstanding move. In apparent response to Martin Shkreli, the aggressive young health-care financier who fronts Turing Pharmaceuticals, and his plan to multiply the cost of a key AIDS treatment by a factor of 50-something, Secretary Clinton announced her intention to cap drug costs. It’s been sell first and ask later ever since.
Are some tremendous opportunities being created? Almost certainly. Will it be impossible to call a bottom in this group? Without doubt. Is biotech central to the health of the convertible market? Go to the head of the class.
In this issue we review some of last week’s damage and the resulting buyer’s market, viewed through the lens of HOCS. The average overall HOCS score on our top lists rose by about 1% last week. That’s a lot. With convertibles now down on the year, broadly speaking, it seems like a good time to take a new look. The average overall HOCS score on our top 20 list is up from 69.8 in late May to 73.5 now. What does that mean? It’s certainly not tantamount to a cheapening of 4% with a traditional volatility/credit model. Simply put, it just means that today is a much better entry point than a few months ago. Will even better entry points present themselves? I guess that’s why we all get paid the big bucks.
(This is the cover letter for the subscription-based weekly Hillside's Hybrid Vigor newsletter. For a complete copy, please contact John Anderson at + 1 (646) 712-9289 x 107).