Here we go again: Drug stocks rally but is that a reaction to merger news or a sign that investors are getting more defensive?
Last time we had a one day pull back that led some of us (okay, me) to question whether this rally was getting tired we saw the stock market as a whole go down but the drug sector move up.
Now today’s strength in the sector on a down day for the market as a whole could just be a reaction to the big acquisition news from Abbott Laboratories (ABT). Nothing like a big deal to remind investors that this sector is still consolidating and that there are more deals to come so hop on now.
But drug stocks are also one traditional haven that investors seek when they get nervous about stocks and their valuations.
That’s especially in play right now because drug stocks have lagged this rally and they are therefore relatively cheaper than usual.
Of course, some would argue (Me! Me!) drug stocks should be relatively cheaper since the industry still hasn’t figured out a way to recapture anything like its historic rates of growth.
But,whatever the reason, money is flowing into health care and drug stocks again. The Healthcare Select SPDR (XLV) is closing in on its highest level in 11 months, for example. Baxter International (BAX) is at a six-month high and Bristol Myers Squib (BMY) is on the edge of a technical chart breakout.
It’s worth noting that these two stocks are more frequently mentioned as acquisition candidates than as acquirers.
Again. Don’t make too much of a one day pattern. But the trend is worth watching as an indicator of market direction.
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Unwilling to overpay, I had been watching ABT for some time. In early September it was trading below $45/share which was getting close to my buy price of $42.18. With the recent run up, it looks like I will be waiting a little longer.
Best Wishes,
D4L
Not sure if you’re aware, but Wyeth is being acquired by Pfizer, with the deal being consumated as soon as next week.
Lilly LLY looks least expensive to me with yield pay to wait, I too will await pullback when market corrects and buy in at 27 or so for my IRA. Hasnt moved with the rest, could pop on earnings w dollar down etc. agree ABT at 42, not 49.
What are your thoughts on DNDN?
Thank you
djw. aware somewhere back in the reptilian part of my brain–which sometimes has trouble speaking to the part that pushes the keys. Thanks for rthe rminder.
Sorry, but I don’t follow DNDN closely enough to have anything useful to offer.
We’ve had this conversation – the development model for the Pharma’s is broke and they’ve been stagnant for a decade, still struggling with finding another as they shift from chemistry to biology meanwhile downsizing and changing go-to-market strategies (ostensibly). With all that true reading Drug stocks as safe havens is betting that the old shibboleth from the ’80s and ’90s, based on post WW2 performance, is still driving investors. It also means that this is a trading strategy not an investment, at least imho.