Brian Rauscher, chief portfolio strategist at New York private bank Brown Brothers Harriman, argues that Wall Street has bid down the stocks of large US pharmaceutical companies too far, to the point where they now look attractive. The best way to buy them? Pharmaceutical HOLDRs (PPH).
Mr Rauscher's key points:
- Sentiment on large pharma stocks is now strongly negative: earnings revisions have been downward for the last two years, and 20% of recent revisions have been downward.
- Valuations are now below historical levels at 19 times forward earnings versus 22 times historically.
- Large pharma companies will benefit from subsidies for seniors in Medicare reform that total more than $700 billion over 10 years; but that's not priced-in to the stocks.
Brian Rauscher's argument is outlined in an article by Jack Willoughby (paid sub req'd) in this weekend's Barron's.
Note, however, Nick Perry's view that Pharmaceutical HOLDRs are looking precarious from a technical perspective.