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  • Retirees: 7 High-Yield Pharma Stocks for the Golden Years [View article]
    Retired from sales?! From becoming a cost accounting manager in 1979 until retirement in 2010, I was having this same argument with sales people regarding what top line growth may or may not mean to the bottom line. In retirement, I managed to stumble across of retired sales executive. Nothing changes!!!!!!

    You asked how I arrived at my gross profit percentages. Pfizer is as close to a pure-play pharma as I could find . Their gross profit is over 80%. Given that they have a generic division, I'm sure the margin on branded drugs is even higher. My 40% generic margin is based on MYL's (Mylan) financial statements that show a gross profit of 39%.

    Mylan is a producer of the generic equivalent of Norvasc, which was once under patent by PFE.

    Why would you think margins would go up for "unprotected products"? SG&A expenses do not go into the calculation of margins. A ninety-day supply of generic Norvasc can be purchased for under $15.00. That is less than the co-pay on my insurance. I can assure you that the retailer who sold it to me is not losing money on it.

    I imagine there are selling expenses on both branded and generic drugs. They would be different. The branded drug companies have to convince doctors to prescribe their drug. The generic companies have to convince retailers and PBM's to buy from them instead of their competitors. Additionally, there are the factors I stated before regarding increased costs of selling commoditized products to dominant retailers.

    Yes, you are correct in that the pharmaceutical companies make money on generics. However, they take that business because it's better than nothing. They become the franchisees while the retailers are the franchisers. I hold stock in MCD, but I'm not about to invest in a minority interest in a MCD franchise store.
    Feb 21 01:09 PM | 2 Likes Like |Link to Comment
  • 5 Dividend Darlings [View article]
    OK, but within its peer group, its 21X p/e ratio is high while its 4.1% net margin is below that of its peers. I realize that these two are really one factor. I wonder if the family that owns 5% of the company does not use it as a private fiefdom. I think there are better places to seek a 3.2% yield.
    Feb 21 10:07 AM | Likes Like |Link to Comment
  • 5 Dividend Darlings [View article]
    "More work to do, but payoff is much bigger!"

    Or the loss will be greater. For each of the companies mentioned, the author astutely recognized why these "darlings" may not be gems.
    Feb 20 10:58 PM | Likes Like |Link to Comment
  • Retirees: 7 High-Yield Pharma Stocks for the Golden Years [View article]
    Your observation is correct, but your analysis is incomplete. Sales do not go to the bottom line; gross profits go to the bottom line. MRK's 2005 sales of $4.4 Billion probably generated gross profits of $3.5 Billion. When the product became a commodity, MRK had to compete with TEVA et.al. for the business of PBM's and retailers. That means that 2007 sales of $876 Million would have yielded gross profits of $350 Million. In one and a half years, that is a 90% decline.

    In addition, when Zocor was a proprietary product, MRK could insist on economic order quantities that favored them. When selling a commodity to dominant retailers, the manufacturers must carry the inventory and replenish retailer stocks only when the retailers request. That change in the business model increases inventory carrying costs, distribution costs, and G&A costs.

    Put the two factors I've stated together and I'd say profits did fall off a cliff in short order when a drug loses patent protection.

    If you have a plan that pays for branded Zocor and Pepcid (which went OTC several years ago) without a substantially increased co-payment you are in a small minority. Are you a member of a civil service union perhaps?

    In addition, patent expirations are not secrets. However, if it takes a CFO (which I was before retirement) to see beyond the numbers, while an intelligent guy like yourself did not, then perhaps all impact is not baked into the numbers.
    Feb 20 10:48 PM | 3 Likes Like |Link to Comment
  • Retirees: 7 High-Yield Pharma Stocks for the Golden Years [View article]
    Tylenol! Then there is hope for JNJ.
    Feb 20 03:38 PM | 1 Like Like |Link to Comment
  • Bank on These 7 Preferred Dividend Shares [View article]
    We absolutley have to check whether the dividend is a dividend or interest for tax purposes. I use quantumonline.com for this research. Keep in mind, however, that there is no such thing as a free lunch with the 15% rate. As I understand it (please do your own due diligence), the "dividend" tax treatment often, but not always,relates to preferred's where the issuer can cancel the payment. The "interest" tax treatment usually, but not always relates to securities where the issuer can defer the payment.

    Therefore, I believe the author's comment, "This type of stock guarantees dividends, which common stock does not" may or may not apply to each situation. For example, the author's first holding (BAC-I), is eligible for favorable tax treatment, but is NON-cumulative.
    Feb 20 12:58 PM | Likes Like |Link to Comment
  • Analyzing the Top 5 Holdings of the S&P Dividend ETF [View article]
    I agree. For every holding in this fund, you were astute enough to point out why investors should steer clear of it. If the quality of the top holding of the fund is so poor as to bring doubt as to how sustainable the dividends are, investors should keep away.

    However, your article calls the entire concept of ETF's into question inasmuch as they are predicated on the assumption that investment decisions should be a "numbers game" since investors cannot "beat the market."
    Feb 20 09:53 AM | 3 Likes Like |Link to Comment
  • Analyzing the Top 5 Holdings of the S&P Dividend ETF [View article]
    This is a great article on why NOT to own ETF's. This is not diversification. It is "diworsification".
    Feb 20 09:01 AM | 3 Likes Like |Link to Comment
  • The Best in Generic Drug Company Stocks [View article]
    C.L., thanks for that info. I would imagine that PFE's generic division would also like a piece of the action. How would they fit in the pecking order?

    Informative, but I don't think the 180 day period is sufficient for an investment decision.
    Feb 19 04:15 PM | Likes Like |Link to Comment
  • Retirees: 7 High-Yield Pharma Stocks for the Golden Years [View article]
    HBWOW:

    Given all the mergers that have taken place in recent years, the existence of intangible assets, in and of itself, does not bother me. When we invest in "technology," we are buying proprietary thought processes and not buildings and machinery. When companies like PFE and MRK acquired WYE and SGP, respectively, they paid for intellectual property, and not buildings and machines. You can also look at every major defense contractor. All of them have significant intangible assets that arose from mergers and acquisitions.
    Looking at it another way, the tangible assets of Bethlehem Steel did not do much for shareholder value when all was said and done.

    PFE is the sum of itself and at least three mergers: Warner-Lambert, Pharmacia, and Wyeth. Intangible assets arose as a result of those business combinations.

    In theory, when we buy a stock, we buy the present value of an earnings stream. PFE acquired Warner-Lambert to gain exclusive rights to Lipitor. Lipitor is the largest selling drug in history. It is the best of its breed. My concern is that when its patent is lost, the disruption to PFE's earnings stream will be of such magnitude as to jeopardize its dividend and the funds available to fund the research that will create new products. Lost income and lost growth. The worst of both worlds.
    Feb 19 12:08 PM | 5 Likes Like |Link to Comment
  • Retirees: 7 High-Yield Pharma Stocks for the Golden Years [View article]
    Frank:

    Some agree with you and some do not. Here's my math. Lipitor sales are $10 Billion at a gross margin of over 80%. That is a loss of $8 Billion. It will be replaced by sales of generic atorvastatin. However, those sales will be double-levered downward because (a) there will be several other producers of generic atorvastatin that will erode unit volume and (b) prices will be devastated by the competition for orders from Medco, Express Scripts, Walgreens, CVS, Wal-Mart, Target, and Costco. My generous S.W.A.G. is $2 Billion of additional income to PFE's generic division. That's a net hit of $6 Billion to PFE's operating income. That will sting.

    Why do you think they have already begun to slash R&D? As a pure-play pharma, isn't growth dependent upon product development? It seems like a self-defeating process to me.

    Then again, I don't claim to have all the answers. I would love to see someone else put some numbers to this issue.
    Feb 19 09:50 AM | 5 Likes Like |Link to Comment
  • 5 Dividend Darlings [View article]
    With so many substantial blue chips available, why should any one consider these brand X companies? Their yields are high because their prices are justifiably low because their prospects very uncertain.
    Feb 19 09:03 AM | 5 Likes Like |Link to Comment
  • The Best in Generic Drug Company Stocks [View article]
    bobbob, that period must be very short. I'm certain that several drug makers are gearing up to produce generic atorvastatin once the Lipitor patent expires. PFE has their Greenwood generic division, but other branded and generic manufacturers will be there in short order.
    Feb 18 04:47 PM | Likes Like |Link to Comment
  • 25 Dividend Paying Stocks Raising Their Yield on Cost [View article]
    Mama, as always you raise good points.

    As one who recently retired, I believe my portfolio needs both dividend income and dividend growth stocks.

    High yielding stocks are replacing bonds that mature so that I can keep the yield in my portfolio above the 4% withdrawal rate indicated by the Trinity study.

    As many times as I have run Excel spreadsheets to illustrate the superiority of dividend growth stocks over high yield stocks, I have found that it takes as much as a decade for cumulative distributions on the dividend growth stock to surpass those of the high yield stock. Going out that far is a bit of a stretch in that we cannot predict what the economy or other geopolitical forces will create in that sort of time frame.

    To your point, those who reinvest income will create an increasing revenue stream.

    To my way of thinking, dividend growth stocks belong in a retirement portfolio because the factors that drive dividend increases also drive stock prices thereby creating total returns that would surpass those of high yielding stocks. That would be a retiree's hedge against inflation.

    To your point again, perhaps I have the luxury of holding stocks that yield 2% to 3% as part of a portfolio that meets my current income needs. However, I would recommend that every retirement portfolio have some hedge against inflation even if it means reducing one's current living expenses.
    Feb 18 04:40 PM | 4 Likes Like |Link to Comment
  • Retirees: 7 High-Yield Pharma Stocks for the Golden Years [View article]
    When the Lipitor patent expires this year, it will be Katie Bar the Door for PFE. Prospects for sustaining the dividend will not be as "reassuring" as the author would have us believe.
    Feb 18 11:57 AM | 7 Likes Like |Link to Comment
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