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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (13387)	11/27/2001 11:23:58 PM
From: Spekulatius	Respond to of 78486

I do like pharma stocks specifically in recessionary times and I think they deserve a premium PE because of the superb business economics of the drug business: 1) Low capex/high free cash flow. R&D is expensed directly rather than depreciated over time 2) Recession resistant. Low price elasticity 3) Lt favorable and predictable growth I do think that pharma stocks are rlative bargains since they trade at a discount PE to the market. My rule of thumb is to look at buying a pharma stock when the PE is about 20 or less. I think NVS is one of the best values right now. BMY looks interesting too since R&D seems to gain traction and PE is fairly low. SGP has huge issues right now, so I am avoiding this stock at current prices but i would look into buying at less than 30$.

To: Paul Senior who wrote (13387)	11/28/2001 9:34:40 PM
From: Spekulatius	Read Replies (1) \| Respond to of 78486

I know it sounds like hindsight but I excited DNR at a loss, because I feared exposure to Enron. I followed you into DNR because fundamentals looked good: high cash flow, low PE etc. but I became very concerned about possible hedge exposure to Enron, after reading that Apache has closed all, hedge positions with Enron a few days ago. It seems that caution is justified: biz.yahoo.com DNR has done significant hedging after the Matrix natural gas acquisition to stabilize cash flow. Since the price floor is 4.25$/BOE for 2002 and 3.75$/BOE for 2003, these hedges are worth serious money at current prices of 2.2$/BOE. I blowup would certainly hurt badly, if these hedges are with Enron as a counterparty (I do not know if that is the case). I did not like the Matrix acquisition after crunching the numbers even with the hedges being OK. Very short reserve lifetime and a high price paid per reserve BOE made hedging necessary.