- Signs of rotation out of tech and into lagging sectors of the market. SXDP trading at record valuation discount vs STOXX
- Renewed optimism on the obesity drug theme following US pricing deal
- Novo Nordisk trading at lowest valuation rating since 2016. Rebounding from 5y price range lows, reflecting increasing probability for price retesting the 400 level.
Novo Nordisk lost almost 34% since our entry on our June Novo Nordisk Trade idea, after the company cut its sales and profit forecasts, raising questions over the long term growth, with the market turning its attention to Lilly given its stronger GLP-1 offering.
With the signs of slowing hype around the AI theme, we see a likely market rotation to the lagging sectors of the market, one of which is Health Care posting a c.3% YtD gain vs 15% for the STOXX, as we see signs of renewed interest on the Obesity theme, following the latest US pricing deals. Both Lilly and Novo Nordisk have been derating significantly since the peak of the obesity drug hype in mid-2024 but following the drug price deal in the US, Lilly has rerated significantly. We anticipate Novo Nordisk to also benefit from renewed optimism on the theme.
In terms of valuation, Novo is now trading at 13.4x PE its lowest rating since 2016 with price currently rebounding from 5Y range lows. In terms of volatility, 6M call Skew (110%-100) at 3YPc96 is attractive for call spreads and with valuation now at record lows, we propose Long June26 340/400 call spread financed by Jun26 260 puts at a net credit of 0.7% underlying. (Spot ref: 321.8, Fut. ref 319.6).