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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (36246)12/18/2009 4:44:26 PM
From: E_K_S1 Recommendation  Read Replies (3) of 78750
 
OK Paul - Thanks for the heads up on the Pharma. Pulled the sell order on SNY and will hold (Forward PE is low as you point out). Sold out of my JNJ to book my profit instead. Hedged my BMY selling June $27 covered calls. Will look to sell my LLY after their divi or at least hedge the position. The patent concern is a bit over done and is known by the market but one can get caught chasing the high dividend yields too. BMY is raising cash by selling their interest in Mead Johnson (their swap bid was over subscribed). They plan to use this cash to buy a biotech or pharma company w/ a big drug pipeline. LLY is a different case and I am now a bit concerned it might be a value trap.

These drug and pharma companies are difficult to value. In the 90's anything with a PE <20 was a steal and now most of these companies sell at 10PE or less. I try to hold a basket of these companies and book my log term profits as they are generated. I like to re-deploy the funds when the news is bad or the sector is over sold (especially if I can buy at a PE <10).

My portfolio only has 7% exposure to the pharmaceutical sector and I should probably build this up to 10%. I have not been very successful with my health care stock picks over the years and have concluded that many of the typical value measures just do not work. Experience has taught me to buy the larger companies that pay a dividend and book your long term profits from time to time. These companies can hit a land mine from a lawsuit, get whacked from new government legislation or enter into a stupid and/or expensive merger agreement. Many of these things do not benefit the long term shareholder.

EKS
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