Good article on pharmaceutical & biotech stocks
Stocks mentioned:
Merck (MRK, 83, -3/4)
Pfizer (PFE, 89 5/8, +3/4)
Schering-Plough (SGP, 71 1/4, -3/8)
Columbia/HCA (COL, 40, -1/2)
Amgen (AMGN, 60 7/8, -1/4)
Biogen (BGEN, 38 1/4, +3/8)
Genetech (GNE, 54 1/8, +3/8)
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San Antonio Express-News David Hendricks Column
By David Hendricks, San Antonio Express-News Knight-Ridder/Tribune
Business News
Nov. 28--If medical and health-care industries rose only as fast as the economy and the population, the stocks would be decent prospects.
But they're not. They're growing faster than that. Much faster. "Expenditures in health care are growing more rapidly than the economy. They are growing 14 percent annually," said Eugene Melnitchenko, senior vice president for Principal Financial Securities in Dallas, which has an unusually strong group of health-care stock analysts.
Melnitchenko and the three other members of his health-care group
visited Principal customers in San Antonio last week to discuss stocks
they favor.
"Our main point is that despite changes and confusion in health care,
total expenditures will continue to grow more rapidly than the economy
because of demographics, medical technology and inflation," Melnitchenko said in an interview before the presentation.
Few people probably do not already understand how the baby-boom
generation is aging and will place unprecedented demand on health- care companies over at least the next four decades.
Melnitchenko expresses the figures this way: 10,000 people turn 50 years old every day in the United States. Once 50 or older, they will use, on average, twice as many medical drugs as those who are younger, pay three times as many visits to doctors and record four times as much hospital time.
In other words, the increase in health-care expenditures as the baby
boomers age will not be simply arithmetic. Expenditures will zoom
exponentially.
Medical technologies, both new drugs and equipment, are different from
other technological fields, he explained. "Medical technology creates
its own demand and creates its own market," he observed.
In medical services, market forces favor increased efficiencies and are sparking a drive toward consolidation among providers, especially
hospital chains.
"The big ones will get bigger," Melnitchenko said. His current stock recommendations are Merck & Co. Inc., Pfizer Inc. and Schering-Plough in the drugs sector. In the medical services field, Melnitchenko said he favors the Columbia/HCA Healthcare hospital chain.
Growing at much the same pace are treatment costs for cancer ($100
billion per year), cardiovascular disease (also $100 billion) and
strokes ($35 billion), said J. William Tanner, another Principal
health-care analyst from Dallas who came to the San Antonio
presentation.
As medical research advances, biotechnology companies will issue new
products in those areas, as well as for diabetes and obesity, Tanner
said.
In addition to providing good areas for investment, this trend will help spur demand and growth for biotechnology research and development firms and institutions in San Antonio.
In fact, Tanner said he can foresee San Antonio, Dallas and Houston
joining the list of the current biotechnology capitals of San Francisco, San Diego and Boston.
Tanner's favorite biotechnology stock picks are Biogen Inc., Amgen Inc. and Genentech Inc.
"It's safe to say these companies will not disappear," Tanner said.
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I agree with the article. Looking at the p/e's and growth rates of health stocks, I think the prices are reasonable. P/e's are in line with projected growth rates. I hold CHIR, AMGN, and BGEN. Also looking at buying the big pharmaceuticals.
Philip |
