Happy Cinco De Mayo

Happy Cinco De Mayo

So here we are Cinco De Mayo which this year falls on Taco Tuesday a holiday we can’t really celebrate because of virus named after a Mexican beer – nope you just can’t make this stuff up. And we thought diabetes was a wacky world. Anyway since we’re on the subject of wackiness consider this;

1. The Three Amigo’s – Dexcom – Insulet and Tandem over the past 30 days are up – 38% – 20% and 37% – while this is great news for stakeholders, we have to admit this is somewhat crazy.

2. By comparison Lilly – Novo Nordisk and Sanofi over the same time frame are up – 12% – 4.5% and almost 10%.

3. Let’s throw Abbott into the mix as they are up 15%

Now we should mention that all the major market indexes are all up over 14% which when you think about it makes the performance of the Three Amigo’s more astonishing. This is not to say this move upward is not deserved but we can’t help but believe that things are getting just a little ahead of themselves. We know markets like to climb a wall of worry, but the speed of this climb makes us wonder.

As we noted yesterday Novo Nordisk – Livongo and Insulet all report this week. Novo and Livongo tomorrow and Insulet on Thursday. And just in case you’re wondering Livongo is up almost 40% over the last 30 days. However while we will listen to the call and look over the results, we must reiterate that first quarter results are somewhat meaningless this year.

We suspect that Novo like Lilly will report stronger first quarter sales as patients worried about having an adequate supply of their meds stocked up. All three companies will likely suspend full year guidance noting the continued uncertainties over the longer-term impact of the coronavirus. A wise move for as we continue to point out the real impact of the virus will not be seen until the second and third quarter results are announced.

This Friday we’ll learn just how bad the unemployment numbers are when the numbers for April are released before the market opens. It goes without saying that no one anticipates a pretty picture here the only real question is will the number be really bad or truly horrendous. Yet as bad as we anticipate the numbers to be this is just one piece of the puzzle. The true unknown is when or if these numbers will improve in the future. While we’d like to be optimistic and believe that once the economy reopens these numbers will reverse themselves, we are withholding any optimism.

Our concern isn’t so much what happens with larger companies rather the many businesses that will not reopen. Yes trillions of dollars are being thrown at the economy but this in no way means employers will rehire employees or that employees even if rehired will feel comfortable spending.

Another major concern is the possible reversal of states that have reopened. Already we are seeing reports that the numbers thanks to social distancing have been stabilizing however this stabilization may be temporary. Think of the impact should these states go backwards and have to reclose. This is the one scenario we do not want to see as we believe it would send the markets into a tailspin reversing the gains we have seen over the last month.

Not like we need a reminder but there is a Presidential election coming up in November. After some initial cooperation between the parties we are now seeing signs that things are going back to the way they were before the crisis. While we wouldn’t expect these children to play nicely in the sandbox forever the fact is their work isn’t done yet. The upcoming election only makes this possible cooperation more difficult.

Add it up and what you have is lots of unanswered questions combined with tons of uncertainty. This current upward move is largely a result of first quarter results which weren’t as bad as everyone thought they would be. Yet as we keep saying these results are painting an incomplete picture. The fact is no one knows if this will be a pretty picture when all the pieces are in place.

We’re delighted to see that these companies have seen a nice move upward, but our concern is this may be a temporary move and things could reverse quickly. For these reasons we continue to advise caution and no we would not be buyers at these levels.