We wrote in the May 1st edition that tax changes expected in the US to deal with the large foreign cash holdings of US corporates would have effects in the Pharma sector. Later we wrote about the effects on the energy sector but this update concerns only Pharma. In that edition we proposed that the most likely effect would be to provoke a wave of acquisitions by US Pharma companies of others in the same sector. As yet, Mr Trump's administration has not made any proposals to encourage the repatriation of the large ($2.8 trillion?, $4 trillion?) amount of money involved but conviction is growing that there will be a one-off tax break of say, 10% on such repatriations. The cash pile exists to avoid paying US corporate tax at 35% so this would probably work to tempt the money back home as it did last time it was tried in 2004.
In the meantime, many shares in the Pharma Sector have been rising and it is time to take a profit. We suggested that Bristol Myers Squibb (BMY) might be top of the list of takeover targets but understandably no-one has made a bid (yet) as the tax break has not yet been declared and so strategy is hard to make. Doubtless there is fevered number-crunching activity behind the scenes.
The price rise in BMY has been a little over 10% since we wrote about it and there are now top extensions at a daily scale. Other Pharma stocks are also making top extensions at a daily and (in some cases) weekly scale. We still think that there will be more upside to come, but a setback is possible first so we would take a profit in this stock and in any other Pharma that you may have bought on our comments:
All signals generated by software supplied by our friends at Parallax Financial Research www.pfr.com