Joe, Industry specific is the fact that every time the druggies start making huge profits gouging the public and sell at premiums to the market, somebody, usually the govt., starts screaming about the high price of drugs. Company specific is the fact that research, the life blood of the industry, is also a hungry cannibal. When a new drug is proven more efficient, whether a standard chemistry set dope or a biotech compound, the sales of high-profit cash cow drugs go away. Or, if no new drug comes along, patents expire and major cash cows have to move to generic prices or lose all market share.
So, company specific, I look at new drugs in the pipeline vs. cash cows that are long in the tooth. Here it gets a bit trickey, as you have to judge the potential market impact of drugs that are still in development. The funny thing is that the companies kicking down the highest eps growth today are usually the most vulnerable. Merck, AHP, ABT, BMY,and JNJ (all except MRK also have a large over-the-counter business that could be hurt by consumer trends) seem to have a lot more being sold right now than they have potential in the clinic, IMHO. Pfizer and SGP have more of a balance. But all are selling at pe ratios above their long term growth rates and that bothers me a lot.
I still remember buying these cos when everyone hated them during the Bilary Health Plan. On avg. they were selling for 20 pct. less than the market. The generics were on a spike. When I told one of my TA friends, "I am buying the big dopers and shorting the generics," he just about had a seizure. "Don't you want to buy anything that is going up?" The answer is no, that is not my preference. Now the worm has turned and the big dopers look awfully pricey and discount a lot of perfect world. MB |
