PNU is a turnaround. If it can cut bloated costs, the savings will drop straight to the bottom line. It is not generally considered to have a very strong pipeline, but it does have an innovative urinary incontinence drug that could be a big winner next year. Patience is required, as 1997 is a write-off.
Schering-Plough may be worth a look. It is the leader in pulmonary medicince and is also strong in cancer drugs. Some say that its pipeline is not real strong, but it has good research and an outstanding record of bringing its drugs to market and wringing every dollar out of them, so it routinely has earnings growth rates in the high teens (18 percent in the most recent quarter, if I remember correctly). Clartin and Intron-A are its current big drugs. (I have it in a dividend reinvestment plan, and have enjoyed a 25 percent annual return for years now - I wish I had bought more originally!)
Novartis (ADRs trade under symbol NVTSY) may be worth a look. This is Europe's Merck, the fruit of a recent merger between Ciba-Geigy and Sandoz. I can't really value it, because all the special charges related to the merger confuse me. But it is a genuine blue-chip, with about 40 percent (if I remember correctly) of sales in the U.S, its biggest single market. There are some cost-savings to be realized yet, and they supposedly have a good pipeline. I bought this at 58, and it has hit 80, so it has had a nice run-up. The just-announced earnings came in at the low end of expectations, but it didn't seem to hurt the stock much.
There are no truly cheap drug stocks at the moment. I would guess that PNU is one of the cheapest, simply because its PE of 27 is based on depressed earnings that include special charges. The new CEO, Fred Hassan, is well-respected. A lot of the cost cuts are no-brainers (closing redundant national offices), so I can't believe this company's earnings won't turn around. But, again -- patience will be required.
Good luck!
Chuck Edwards |
