Major Drug Companies With Valuations And Bearish Warnings

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 |  Includes: ABT, AZN, BMY, GSK, JNJ, LLY, MRK, NVS, PFE, QQQ, SNY, SPY
by: Steven Bauer

The selection of these ten drug/pharmaceutical companies and industry peers is based on the following supportive data. It includes their short and longer-term price, projected revenue, and earnings growth performance and charts. You will note that I have valuations on the five (largest) cap companies and have rated the remaining five.

There are just four semi-positive valuations including: Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE), and Novartis (NYSE:NVS). GlaxoSmithKline (NYSE:GSK) is the standout and would be a company to follow for a future bullish position. I do not expect any of these companies to have notable earnings growth or revenue growth over the next year or so. For those reasons and as a warning, I do not recommend taking new bullish positions at this time. The Major Pharmaceutical or Drug industry group, both U.S. and international, is quite low on my comparative rankings of over 200 industry groups. It is currently ranked as "unfavorable."

My postings for well over a month have been bearish, to say the least. The accuracy of my bearish call is right on the button for both the market and the pharmas.

The major drug industry group is and will be under pressure for some time to come. Pull backs from recent highs range from 15% to 30% in all of these companies. Earnings growth is on the decline for all of these companies. Revenue projections will be relatively flat for the coming year or more. I suppose you could conclude that I am, and will remain bearish on this industry group.

In the tables below you will see why the quantitative approach of valuation offers data that either supports or fails to support buying or holding positions in any given security.

These these ten companies, by design, provide excellent examples of the good, the bad and the ugly.

Valuation Analytics Table -- Major Pharmaceutical - Industry Group:

Symbol

Price

My Target Price % Above (+) / Below (-) Current Price -

P/E

Forward P/E

PEG

Yield ( % )

Valuation Divergence -- percent (%)

Six Months to One Year - Projected from a Mean - Sigma and from the next - - Bearish Inflection Point.

JNJ

62.00

+5% to -15+%

17.0

11.3

2.6 - high

3.95%

Minus - 18%

Comments: JNJ is conservative but does the job as well or better than most pharmaceutical companies. This is not an "excellent" valuation and the long-term target price projections are not currently positive, but I like the company.

PFE

21.6

+5% to -15+%

20.4

9.3

8.8 - high

4.10%

Minus - 17%

Comments: I dislike "poor" valuations and hence poor or low long-term target price projections. So, PFE brings a longer-term smile to my work.

NVS

52.00

+5% to -15+%

14.6

9.4

3.8 - high

4.79%

Minus - 19%

Comments: I believe there are better candidates for holding or owning, but it is not the worst of the bunch. Longer-term earnings growth is also negative. Adding the technical and consensus analysis, you have a confirmation that NVS is currently good pharmaceutical company, but not one to own at this time.

Merck (NYSE:MRK)

37.00

+5% to -18+%

16.5

10.1

3.9 - high

4.52%

Minus - 22%

Comments: Clearly this is a "poor" valuation and a bad long-term target price projection. Longer-term earnings growth is not expanding and the company is looking quite anemic. For me, MRK is currently not the most positive of these pharmaceutical companies.

GSK

43.5

+5% to -15+%

14.0

10.1

2.4 - high

5.24%

Minus - 15%

Comments: This is only a "good" valuation and a currently negative long-term target price projection. I focus on the longer-term earnings growth and unfortunately it is good but status quo. When I review the technical and consensus analysis, it is clear that GSK has outpaced the other pharmaceutical companies.

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Ratings for Five Major Drug Industry Peers

Symbol

Rating: (ascending / status quo / descending)

Abbott Labs (NYSE:ABT)

Good -- descending

Sanofi SA (NYSE:SNY)

Poor -- descending

Bristol Myers Squibb (NYSE:BMY)

Very Poor -- descending

Astrazeneca PLC (NYSE:AZN)

Poor -- descending

Eli Lilly (NYSE:LLY)

Very Poor -- descending

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My Ratings range from Excellent to Very Poor.

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Market Status

I use several indices in my focus to identify the on-going bullish and bearish inflection points. The New York Composite Index is represented well by the ETF, SPDR S&P 500 (NYSEARCA:SPY). The Nasdaq Composite Index is represented well by the ETF, Powershares QQQ Trust (NASDAQ:QQQ). In my work the identification of bullish and bearish inflection points is of critical importance. Because this is so critical, I also emphasize and use market breadth indices. 'Breadth' does not have a tracking ETF; therefore, I have created my own excel charts.

Further support for my guidance for the general market can be read in my Instablog article on "Wednesday - General Market Update & Commentary."

Summary

The above tables and charts present a clear and not-so-positive account of these majors in the pharmaceutical industry. You may want to focus on my above referenced 'positive' companies when the next bullish inflection point occurs. A bullish inflection point could be quite some time henceforth.

In most of my postings, I recommend taking a few minutes to study a 20-year chart of each company you may be considering for purchase. I hope you will follow this advice when buying or selling, that is, taking a longer-term view of a security's price history.

This is a warning about buying or holding these major drug companies.

Conclusion

I am bearish on both the world economies and the general market. My more recent Instablog postings are focused on securities that should not be currently held in your portfolio. It is important for you to understand that holding cash during questionable time frames is a wise choice. This is definitely a "questionable" time frame!

Further and on-going support for several of these companies will begin this coming Saturday. My "Saturday Update" can be read weekly in my Instablog article.

Have fun, investing wisely.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.