Next stop: Pharma

Now, picking some Pharmaceutical companies has been a bit harder than previous picks. Why? Well, the sector is actually outperforming the S&P 500 during this slump, so its harder to throw some out as junk or find some that are super discounted.

Now, what companies am I looking at?

BVF- 16.57% no increases but solid yield ANALYSTS:2.67 PE 30.77 PB 4.6 (1.26)

JNJ ***** (3.18) ANALYSTS:2? 1.83 PE 13 PB 3.48 (9.26)

PFE ***** (hi) 7.7 ANALYSTS: 2 PE 10.89 PB 4.22 (1.7)

GSK 5.9% pharma growth slight cut ANALYSTS:3.13? 2.71 PE 13.81 PB 79?? (8.22)

BMY 5.51 pharma slow growth ANALYSTS: 2.19? 2.43 1 underpreform of 16 PE 24.61
PB 6.45 (3.43)

SNY 5.4 growth pharma ANALYSTS:3.2 1 underpreform of 5 PE 11.73 PB?

LLY ***** 5.32 growth pharma ANALYSTS:2.64? 2.94 2 sell 3 underpreform of 18
PE 16.51 PB 3.61 (3.01)

MRK 5.7 slow growth pharma ANALYSTS: 2.36 PE 12.86 PB 3.25 (2.92)


Stars indicate dividend achiever ranking, while the PB in ()'s is the PB listed on Reuters, as opposed to tangible PB which I prefer (intangibles are hard to value!).

When I look at the charts, a few things stand out.

Over the last three months, the sector has outperformed the S&P, and BMY is even up. PFE is second, with the rest down in a group.

SNY and GSK look okay on the 2 yr chart, but aren't outperforming the S&P.

However, we note that JNJ has been outperforming, pretty much forever. Looking at the 30+ yr chart is entertaining, you see some 3000-6000% increases. Wouldn't that be nice, to make 30x-60x your money.

Well, even though the dividend is low, I'm going to add JNJ to the list right now, for the 5 star rating, constant performance, and sane PE ratio. Well, maybe not quite so fast, I'll check the financial statements later...

Now, right off the bat I am going to eliminate some stocks, as I have too many to look at more in depth. GSK had bad ratings and a crazy PB ratio, although maybe that was bad data. The slight dividend cut is enough to push it off the list however. BVF just has too high a yield and PE ratio- I think something is off there, although maybe I should check the balance sheet. SNY on the other hand, has very attractive looking ratios and bad analyst ratings, so I suspect it may be a bit broken.

That leaves me LLY,MRK,PFE, and BMY to think about. Two of those (LLY & PFE) are 5 star dividend payers, and I suspect they will pass muster. Over the long run, these stocks have been under preforming, but they are at a discount currently.

LLY:nothing major i noticed.
PFE:income was down quite a bit last year due to increased expenses.
MRK: similar increase in expenses... I wish I knew why... -? large deferred income tax.. odd
BMY:didn't show the increased expenses trend- noting jumped out at my untrained eye.

I think I will drop BMY because it's dividend growth has been rather slow. I like LLY and PFE for the five stars, and PFE has a very high yield which to me discounts the increased expenses. MRK seems okay, and as it is rather a big name I don't think its too speculative. I might as well just pick these four and throw 10k at them to make up the first half of the pharmaceuticals in the fund. If I can't find more good companies, I may weight them more- I need to keep some cash from the 8% as a pharma hedge as well- I don't know what that would be, as yet. Or if I really need one...its not like a commodity really... well I'll consider that later.

So: I'll take 10k positions in JNJ, PFE, LLY, MRK in the fictitious fund.

Disclosure: NONE, as allways, I don't know anything about investing so please ignore me.