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Thursday, February 16th, 2012
a drug for that

This chart looks at the Bloomberg Industries index of “large pharma” stocks.  It’s an equal weighted index of Abbott (ABT), Bristol-Myers (BMY), Lilly (LLY), J&J (JNJ), Merck (MRK), and Pfizer (PFE).

In the top panel is the relative performance of the index against the market.  You can see that this is basically a “risk off” group.

The middle panel shows why.  Sure, you can count on the earnings holding up well in bad times, but there’s really not much to get excited about.

Of greatest interest now are the yields, as shown at bottom.

I have used this group over the years in presentations on growth and value.  It wasn’t that all that long ago that these stocks sold at fancy multiples and everyone had to have them.  Then the pipelines got less exciting and couldn’t keep the growth going, just as multiple compression hit the entire market.  Now there’s a wall of patent expirations to worry about.

Is it possible that there’s a new class of drugs on the horizon that can cure these blues?  What could cause a lift in expectations?  (Chart:  Bloomberg terminal.)

Contest:  In 1969, a novel foresaw the coming of erectile dysfunction drugs — and the mass media marketing of them.  Specifically, the lead character heard a commercial that featured a husband and wife talking about the problem (and the drug that could provide a remedy).  The first person to provide the name of the author and the book gets a half hour of my consulting time on a project of their choice.