Energy
- We continue to believe that crude oil prices will fall further.
- As long as the long-term per barrel price outlook does not fundamentally change, industry majors cannot devote sufficient capital to new projects.
- The near-term outlook remains unclear too. The cash-hungry countries such as Saudi Arabia, Venezuela, Iran, and Russia are unwilling to a) cut production, and b) defend spot price levels of around USD 50 per barrel.
- For the second year, capital spending on oil-related down and upstream projects was reduced. While the impact of the spending-cut, will take some time to materialize, the reduced investments will at some point help to re-balance the market.
- Abundant supply of oil and gas from cheap production regions will set the future price range USD 40 to USD 60.
Financial Services
- We hold a positive stance towards the financial services sector, except for UK Banks as BREXIT concerns and due to wrong business models, i.e. exposure to capital intensive business structures.
- Its valuation remains attractive at a price/fair value ratio of 0.90.
- While some sub-sectors of the financial industry might feel the headwinds of the oncoming interest rate cycle in the US more strongly, the changes offer an excellent opportunity for lenders and investment product manufacturers.
- We assess the retail banking sub-sector as a clear winner from the long-term trend of rising interest rates.
Healthcare
- Last year’s market consolidation in the biotech sub-sector has pushed the sub-sector valuation undervalue with some stocks significantly undervalued, including Amgen (AMGN), Biogen (BIIB), BioMarin Pharmaceutical (BMRN), Celgene (CELG), and Roche (ROG).
- Despite increasing political rhetoric, we expect pricing power for drug and biotech companies to remain high.
- M&A should continue to drive the price tag for healthcare companies.
- Strong drug launches and excellent clinical data in specialty-care areas, such as oncology, are increasing the productivity of drug and biotech companies.