The R&D Index: Market Watch for the week ending Feb. 26, 2016, closed at 1,390.53 for the 25 companies in the R&D Index. The Index was up 0.46 percent (or slightly more than 6 basis points) over the week ending Feb. 19, 2016. The stocks were mostly split with 14 R&D Index members seeing increases for the week from 0.49 percent (Oracle) to 4.45 percent (Qualcomm) and 11 members seeing declines for the week from -0.13 percent (Toyota) to -2.28 percent (Novartis).
Oil and natural gas executives (both OPEC and non-OPEC) met last week in Houston for the annual IHS CERAWeek (Cambridge Energy Research Associates) to discuss the current energy situation. The consensus at the end of the week was that the oil situation has been created by pure economics with North American shale oil creating a large surplus in supply that has driven down prices. Saudi Arabia stated that it will not cut production waiting on the fallout from the high-priced shale oil producers to reduce the surplus and raise the prices. But, they similarly note that when prices do go back up, the shale oil producers will similarly get back to work.
Some CERA analysts stated that prices could increase from their current $30/barrel level by the end of 2016. Some even expect to see a price rebound in 2017, perhaps back to $50/barrel. And possibly a stable market might be seen by 2020 with prices in the $80/barrel region. As we noted earlier, however, the current situation will become ugly when shale oil producers fail and banks (which provided the initial production loans) are faced with very large failed loans in the tens of billions of dollars.
Oil production is a long-term business, but everyone right now is thinking short-term because it’s now in the survival category. The major oil companies will likely survive due to their distributed holdings—they will continue to reduce spending, reduce R&D and continue rounds of layoffs, but they will survive. The smaller strictly shale oil producers are not as likely to survive.
North American natural gas suppliers are in a different category altogether. The U.S. has the resources and has created the technology infrastructure to produce liquified natural gas (LNG) at the lowest prices in the world – European gas is currently three times as expensive as it is in the U.S. And the U.S. has already shipped LNG to Brazil out of its new port in Sabine Pass, La. The global market is expected to increase by 50 percent over the next five years, with 16 new liquefaction plants being brought into production over the next two years. The IEA projects that world gas demand will double by 2040 with much of the shipments being made to Asia and Japan. U.S. technology continues to evolve and the liquefaction costs are expected to drop even further.
|Ticker||Exchange||2014 R&D billions$||02/19/16||02/26/16||2/26 to 2/19||2/26/16 since 1/1/15|
|5||Johnson & Johnson||JNJ||NYSE||8,672||104.13||105.78||1.58%||1.16%|
|9||Merck & Co.||MRK||NYSE||7,180||50.12||50.64||1.04%||-10.83%|
|16||Astra Zeneca PLC||AZN||NYSE||5,579||29.56||29.37||-0.64%||-16.54%|
|22||Eli Lilly Co||LLY||NYSE||4,934||72.61||73.60||1.36%||6.68%|
About the R&D Index
R&D Magazine’s R&D Index is a weekly stock market summary of the top international companies involved in research and development. The top 25 industrial spenders of R&D in 2014 were selected based on the latest listings from Schonfeld & Associates’ June 2015 R&D Ratios & Budgets. These 25 companies include pharmaceutical (11 companies), automotive (5), ICT (7) and conglomerate (2) organizations who invested a cumulative total of more than $170 billion in R&D in 2014, or approximately 10.8 percent of all the R&D spent in the world by government, industries and academia combined, according to R&D Magazine’s 2014 Global R&D Funding Forecast. The stock prices used in the R&D Index are tabulated from NASDAQ, NYSE, XETRA and OTC common stock prices (in U.S. dollars) for the companies selected at the close of stock trading business on the Friday preceding the publication of the R&D Index in R&D Magazine’s R&D Daily eNewsletter.
The companies used in the R&D Index include Microsoft, Intel, Roche Holdings, Novartis, Johnson & Johnson, Pfizer, Toyota Motor, General Motors, Merck & Co., Ford Motor, Cisco, Apple Computer, Sanofi SA, Qualcomm, IBM, Astra Zeneca plc, Honda Motor, Daimler, Oracle, GlaxoSmithKline, Siemens, Eli Lilly Co., Ericsson, Bristol-Myers Squibb and Bayer AG. Stock prices are based on those stocks traded on the U.S. exchanges. R&D Index trends (in the stock prices) are just one indicator of the amount of capital available to these high-technology companies to invest in R&D and should not be implied to indicate the absolute value of R&D investments made by these organizations. The companies chosen for the R&D Index have very large sophisticated internal and global R&D organizations with each company investing between $4.3 and $11.7 billion annually on their R&D efforts.