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While the losses were rising in the market, this group of stocks was hitting all-time highs and was poised for even higher gains. The group is Big Pharma. It has long been viewed as odd by investors looking for rapid price gains. More recently, however, these companies have become more attractive because of their stable business model and stable dividends, as other stocks have declined. “Some of it is that they are defensive,” said Lewis Chen, managing director of Cantor Fitzgerald, who follows pharmaceutical and biotech companies. “The market is not what it used to be. There are a lot of headwinds. These guys have good balance sheets. They have a good pipeline. They were beaten down a bit because of the ‘patent cliff’.” The patent cliff is the anticipated expiration of a major drug patent, which then allows competitors to make generic versions. She said this is an issue for Merck and Pfizer. Big pharma companies have also proved to be inflation proof for now with strong margins. “I think they’re turned upside down,” Chen said. “I think they have a good balance sheet. They are diversified and nothing is going to bring them down.” He added that inflation may eventually catch up to the sector, but it has proved resilient. “So far, they’ve survived the macro stuff. They survived the Covid. They survived the Russian-Ukraine war that’s still going on. They survived the high interest rates,” she said. Chen noted that the industry’s business models have been profitable. “Their business model, people look at and say it’s something sustainable,” she said. “They’re safer than biotech.” On Monday, Merck set a new intraday high, and Bristol-Myers Squibb moved to a new all-time high last week. Eli Lilly and Johnson & Johnson both hit new highs in April, and are now down about 3% from those levels. But that compares with the broader S&P 500, which is down more than 20% from its highs, with several components showing significant losses. Merck and J&J were slightly higher on Tuesday, with the S&P down about 1.5%. Lillee was unchanged in afternoon trade and Bristol-Myers was down slightly. Separately, Pfizer, up slightly, is about 14% off its high set in December. In Pfizer’s case, there are some concerns about the longevity of its revenue from the COVID-19 vaccine, Chen said. “Of which I cover, Lilly has done the best,” she said, citing two very innovative products as drivers of its profit. One is a product for the control of diabetes that can also be used for obesity, and the other is a drug for Alzheimer’s. Cantor has a 12-month target of $335 on Lilly. The firm’s target is $107 on Merck and J&J $215. Everyone is rated as overweight. Lilly’s dividend yield is 3.9%, while J&J’s yields of 2.5% and Merck’s 2.9%. In the long term, the group has also been held back by regulatory concerns and fears that drug prices will be controlled. Mark Newton, Head of Technical Strategy at Fundstrat, said he is looking at the group’s charts and expects further upside. “Technically, these are some of the best charts I’ve seen in a long time,” Newton said. “It’s rare that you see something making 15- to 20-year long bases. It’s just starting to rise higher.” He added that even if Pfizer made its move in December and pulled back, “it’s good risk reward now.” “Bristol-Myers is on the right verge. It’s based on the past month and a half,” he said. Although it set a new high, the stock is still close to highs in 2000 and 2016. Newton said that over the past 10 years, this is the time of year when health care performs best, from June to July. November is also a good time. “This move is underway right now, in relative terms and health care is at one of its best times of the year, which is June and July. Now you see the whole group showing evidence of strength,” Newton said. . “It’s a great tailwind not only for the financials as well as the market. I think pharma, in particular, may be closer to a time when many of these are starting to do well. Me Group like.” The average return over 10 years in the XLV, the S&P Select Sector SPDR Healthcare ETF, has been 3.23% in July and 1.62% in June, Newton said. So health care stocks in general are going higher in bullish times. Newton said he also likes medical devices within health care, but he sees a lot of promise in pharmaceuticals. “This will be my number one group for the next five years,” he said. “This is an intermediate, long term bullish call. When you see a breakout like this, it is exciting.”
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