Novo Nordisk is undervalued, this fund manager says

Darren Sissons, partner and portfolio manager at Campbell, Lee & Ross Investment Management, told BNN Bloomberg’s Market Call on Aug. 26 that Novo Nordisk (Novo Nordisk Stock Quote, Chart, News, Analysts, Financials NYSE:NVO) remains a compelling long-term investment despite recent volatility in the pharmaceutical sector.

Novo Nordisk, like many pharma stocks, has been battered this year. Still, there’s a lot of optimism around its diabetes treatments, which have also proven effective as weight-loss drugs.

Sissons noted that the company is developing an oral version as an alternative to injections.

He pointed out that competition with Eli Lilly has contributed to swings in sentiment, as Lilly’s early oral drug data was initially seen as more promising.

“A couple of weeks ago, that data was presented again in a fuller study, and it was inferior to Novo’s, so the stock rebounded,” he said. “Both companies are growing in double digits in this space.”

From a valuation perspective, Sissons contrasted the two rivals, saying, “One is trading at about 53 times, the other at 16. In classic Street language, you go short Lilly and long Novo.”

He added that his firm, which has held Novo for nine years and trimmed the position seven times, recently bought more.

“We think there’s upside here, and we don’t think obesity is going away. Diabetes is definitely not going away either. It’s still a growth market.”

Sissons emphasized that growth opportunities extend beyond North America.

“Unfortunately, we have obesity and type 2 diabetes problems everywhere, in Europe, New Zealand, Australia, Germany, China, Japan. The modern life is sitting in a chair and working at a computer, and that doesn’t bode well for non-obesity outcomes.”

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