1. Novo Nordisk A/S (NYSE:NVO)
Number of Hedge Fund Holders: 28
Net Income (TTM): $47.75 billion
Novo Nordisk A/S (NYSE:NVO) is a Danish company that specializes in treatments for diabetes. As the disease becomes more prevalent around the globe owing to sedentary lifestyles, Novo Nordisk A/S (NYSE:NVO) is poised to take advantage as an industry leader in insulin treatments. The firm also provides treatments for haemophilia, growth disorders, and hormone replacement therapy. It boasts production facilities in 8 countries and employs more than 45,000 people around the globe.
85% of Nordisk’s business comes from selling its diabetes treatments. In 2002, it founded the The World Diabetes Foundation which aims to alleviate suffering from diabetes around the globe by providing funding for prevention and care projects in low and middle-income countries.
Novo Nordisk A/S (NYSE:NVO) is a pioneer in gene engineering technology. The company initially extracted insulin from the pancreatic glands of pigs in 1923, when it first commercialised the production of insulin. Using gene editing technology, the firm managed to convert the pig insulin into human insulin by 1982. Five years later in 1987, Novo Nordisk A/S (NYSE:NVO) produced human insulin from yeast cells, eliminating the need for pig glands. Nordisk has not only produced a wide variety of insulin variants, but developed new strains of yeast which produce larger quantities of yeast whilst also lowering the consumption of raw materials.
Deutsche Bank analyst Emmanuel Papadakis gave Novo Nordisk A/S (NYSE:NVO) a ‘Buy’ rating on March 16, noting that the firm looks well-positioned to enjoy another decade of leadership in diabetes medicine. Novo Nordisk A/S (NYSE:NVO) posted an annual revenue of $22.40 billion for 2021, showing a 15.18% increase from 2020.
Investment firm LRT Capital Management talked about Novo Nordisk A/S (NYSE:NVO) in its Q4 2021 investor letter. The fund said:
“Novo Nordisk is the global leader in insulin, which is, sadly, a growing business as more and more people around the world suffer from diabetes. Millions of people need daily injections of insulin to stay alive, a number that, unfortunately, is likely to continue to grow by millions more in the coming decade. It may seem at first glance that insulin should be a commoditized business, after all, it was discovered and synthesized over a hundred years ago, but nothing could be further from the truth. There are many types of insulin and Novo Nordisk has spent billions on R&D over the years to develop new products. On February 11th, the company reported favorable results from a phase-3 trial of Semaglutide, a drug that is currently used for Type 2 diabetes treatment. The study evaluated the use of Semaglutide for weight loss treatment in non-diabetic patients and found a significant impact on weight loss for patients receiving Semaglutide vs. the placebo control group. If Semaglutide is approved for weight loss treatment, we expect it will be meaningfully accretive to the company’s bottom line.
The company’s proprietary product line supports returns on invested capital of over 40%, and while sales growth is relatively slow (+6% annualized CAGR over the past decade), the company’s shares trade at a reasonable valuation of only 22x forward earnings. For a company with an extremely predictable business, high returns on capital, and an easily forecastable future, we believe this to be highly attractive.”
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