Interview: Strategist with Intl Strategy & Investment
Interview: Capital Management Associates
>> we’re talking about big companies ignored by wall street, historically reasonably inexpensive valuations and healthcare may be the biggest and ugliest of them all. pfizer, $45 a share five years ago. $25 a share, basically, right now. a lot of stuff coming off patent right now but give us the bull case on healthcare and pfizer.
>> the bull case on major pharma, in general and pfizer in particular, is that major pharmaceutical companies in this country in the u.s. are trading at a deeper discount to the local market than they have really ever, even in the depths of hillary care in 1994, the hillary scare period. and also if you look at valuations of foreign pharmaceutical companies relative to their local markets , again, u.s. pharmaceutical companies really are among the cheapest in the world.
>> but the european counterparts are not?
>> urine counterparts are not -- european counterparts are not.
>> i. i have a feeling, if you look at the big sector-weight increases in the last several years, it’s been in healthcare, technology and footage services. i don’t see any reason why that won’t be the case in the next 15 to 20 years. you have an aging population. these stocks are cheap of the tons of cash, tons of ability to do deals to buy smaller midcap companies to acquire earnings. i like large cap farma.
>> we finally have an area where we disagree.
>> it’s been too chummy in here.
>> when we look at the large cap pharma, we look at companies that are very much like movie companies that need the next big hit, the next big product. and there is an absence of that next big product. there’s litigation involved, there are generics about to take on some of their most profitable products. and we think that - they’re value traps, they are for a reason, they’re selling at low p/e’s because they have a fundamental change in their business that reflects this lack of new product and new competition.
>> yeah, but there’s a lot of new product in the pipeline. and i think that seems to be jason’s point is that maybe things are tough now but you buy for later and as an aging population, everybody wants to be healthier. 80’s the new 40, somebody said the other day.
>> i can make a rosy picture, demgraphically for these companies. they’re going to be there for a long period of time, but at this point in time, they’re being cannibalized by generic manufacturers. the litigation is hurting them and that’s why u.s. companies have a different valuation than european companies.
>> the only thing i would say on that is it depends on your time hors inn f.if you have a long-term time horizon, i like major pharma because you’re paid to wait. you look at merck, tons of litigation problem, but 4.25 yield and as an individual strort, that’s not too bad. if you have a five-year or 10-year time horizon.
>> and you’re paid 4% to wait. do you want to buy the generics, then, joe? somebody’s going to use drugs somewhere.
>> correct. unfortunately for us, our favorite company was idex pharmaceutical, a u.s. generic, taken over by teva, a larger company. we do like the generics going forward. this two-year to five-year time period, we are going to look at profitability and earnings and although we have a long-term horizon, we want something --
>> americans just cannibalizing each other?
>> there’s competition for sure.
>> and that drives down profitability and margins, no?
>> it has from extraordinary highs, but it’s still a very profitable business and as the same demographics that work in favor of the large cap pharma work in favor of generics. the aging population, the pressure on price, the government programs, the drug programs that want the cheapest manufacturer―whether we import it from canada or australia, it doesn’t matter. that’s positive for them.
>> we’re going to go into this blake―break here, come back, finish more, finish up the biotech-healthcare talk and get more ideas about where to invest. coming up in 2006, both of our guests bullish on the stock market so far. where are they going to put their money?
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Listen Interview: Strategist with Intl Strategy & Investment
Interview: Capital Management Associates
>> in the last block, jason, we talked about big pharma, which you like. joe doesn’t like it as much. we talked about generic, which joe does like. what about biotech? i know you’re more of a macro top-down guy and you’ve been pointing us to the biggest player with respect to industries. is that the same way for biotech?
>> i think so. this is not a core competency for me but i know companies like amgen and genentech to me are suy generous, terrific companies, great operating performance and that’s kind of where it’s going. there’s going to be convergence between the old-line biopharmaceuticals and biotech that i think is just kind of the wave of the future. i want to be involved in that.
>> if you look at market caps here and i’m typing some up, you look at genentech, you think biotech, but genentech is 25% bigger than wyeth. the biotechs are now in
