Rob Black's Healthcare Stock Report (CL, GSK, JNJ, MRK, PFE)

Includes: CL, GSK, JNJ, MRK, PFE
by: Rob Black

Bear Stearns upgraded U.S. Hospital stocks to Overweight. For the last 16 years, hospital stocks have traded in consistent and fairly predictable cycles lasting 18 to 24 months (18 months since 2000). Based on this historical trading cycle, hospital stocks should bottoming out some time around June 2006 and show improved performance during the back half of the year.

EPS growth for the group will accelerate in the back half of 2006 as we overcome a number of industry challenges which depressed admissions growth and increased bad debt expense. Historically, an acceleration in EPS growth has often acted as a catalyst for the stocks.

In an admission that could undermine one of its core defenses in Vioxx-related lawsuits, Merck (NYSE:MRK) said yesterday that it had erred when it reported in early 2005 that a crucial statistical test showed that Vioxx caused heart problems only after 18 months of continuous use.

Almost a half-dozen buyers are vying for Pfizer’s (NYSE:PFE) over-the-counter unit, which has about $3.9 bln in sales and a host of well-known brands, including Listerine, Sudafed allergy medicine, Visine eye drops, and Lubriderm skin lotion. Colgate-Palmolive (NYSE:CL), Johnson & Johnson (NYSE:JNJ) and GlaxoSmithKline (NYSE:GSK) are among bidders in the second round.