Tough day for investors...but the Dow Jones has reassuring news:
BigKNY3
Dow Jones Newswires -- August 27, 1998
Drug Stocks Seen As Safe Haven In Volatile Market
By Melanie Trottman
NEW YORK (Dow Jones)--Investors trying to weather the recent stock market volatility view drug stocks as a safe-haven.
Shares of the largest pharmaceutical and biotechnology companies, though down Thursday, are holding up well under current market conditions, due largely to their steady and reliable earnings stream, built-in market demand and limited exposure to emerging markets experiencing trouble, industry observers said.
"The drug companies are essentially your classic defensive plays," said Dresdner Kleinwort Benson pharmaceutical analyst Premal Rajwani.
And in a market filled with uncertainty, investors want to avoid risk, said Lehman Brothers biotechnology analyst Matt Murray. Stocks like Merck & Co. (MRK), Pfizer Inc. (PFE) and Eli Lilly & Co. (LLY) are "less volatile because they're generally valued based upon more stable variables," Murray said.
The Dow Jones pharmaceutical index is trading off 1.6%, compared with a 2.7% drop for the broad-based Dow Jones Equity Market Index. The biotechnology index is off 1.8%. Mining is the biggest loser, off 7.4%.
Boasting double-digit earnings growth of 15%-20%, compared with 5%-10% for the S&P 500 Index, drug companies remain fundamentally strong, making investors flock to them in uncertainty.
"This is flight to quality in the equity sector," Murray said.
Demand for drugs is high and a market downturn isn't likely to change that, market watchers said. "People still fall sick in bad times or in good times." Rajwani said.
Ken Kam, a portfolio manager for First Hand Funds, agreed. "Drugs are one of the things that people cut back on last," he said. His funds hold shares of Amgen Inc. (AMGN) and Centocor Inc. (CNTO).
Even as the overall market has suffered a beating recently, Eli Lilly reached a 52-week high Wednesday of 77 11/16, a gain of about 13% in just two weeks. The FDA on Wednesday approved the company's anticancer agent Gemzar for an additional use.
The stock closed Thursday at 74, down 3 1/8, or 4.1%.
Merck closed at 129 1/8, which represents a decline of about 7% from the stock's 52-week high of 139 1/8 set on July 17.
Similarly, Schering-Plough Corp.'s (SGP) shares closed at at 97 1/16, which is down about 8% from its 52-week high of 105 1/2 set July 16.
Johnson & Johnson (JNJ) closed at 73 15/16, which is a decline of about 7.5% from its 52-week high of 79 3/8 reached July 30.
Not all drug stocks have weathered the downturn as well. For instance, Warner-Lambert Co.'s (WLA) shares closed at 74 15/16, down about 13% from their 52-week high of 85 15/16 on July 20.
If the volatility were taken out of the market, investors might move more of their money to the smaller-cap biotechnology firms, Lehman Brothers' Murray said. But for now, drug stocks are seen as a safety net.
|
