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When Poor Performance Gives You an Edge

By Jeff Clark
Tuesday, November 27, 2007

Happy International Impotence Awareness Month.
 
Forget about turkeys, cranberries, and Grandma's cornbread stuffing recipe... this month is dedicated to erectile dysfunction – and the $3 billion in annual drug sales the affliction brings to the pharmaceutical industry.
 
Three billion dollars can buy an awful lot of awareness. But it can't buy its own, exclusive month. November is also American Diabetes Awareness Month.
 
For the first time ever, diabetes broke into the top 10 therapeutic drug markets, with more than $10 billion in domestic sales last year. That's a lot of prescriptions. And the drugs are doing a lot of good. But it's not good enough to get top billing...
 
That honor goes to heartburn. With more than $13 billion in annual prescription drug sales, heartburn earns the top spot on the marquee for November. You see, November is also Heartburn Awareness Month.
 
Now, you might think that being an impotent diabetic with acid reflux would be enough to get you your own month. But, you'd be wrong. November is also dedicated to lung cancer awareness, pancreatic cancer awareness, pulmonary hypertension, and healthy skin. I'm not joking.
 
The problem is that there are many more afflictions than months of the year. The prescription drug business is a $600 billion per year cash cow... and it's getting bigger every year. Combine an aging population with an increasing reliance on prescription drugs to solve myriad problems – including chronic pain, obesity, sexual dysfunction, and more – along with a plethora of new drugs introduced to the market every year, and you have an enormously profitable business.
 
But pharmaceutical stocks can't catch a bid.
 
Drug stocks are among the worst performers since the bull started kicking almost five years ago. Since then, the Dow and S&P 500 have rallied to new all-time highs. The Nasdaq Composite Index has more than doubled. But the pharmaceutical sector – as measured by the Dow Jones U.S. Pharmaceutical Index (DJUSPR) – is up a measly 17%.
 
That's 17% in five years. Heck, my money market fund has done better than that.
 
But poor performance can sometimes have its advantages. For example, when the stock market looks "toppy" and you're trying to capture a conservative return without taking on a lot of risk, often the best place for new money is in the stocks that haven't gone anywhere. After all, stocks that haven't shot to the moon don't have very far to fall. That describes the drug stocks perfectly.
 
During the past five years, as the drug stocks have been marking time, the drug companies have been growing their earnings, shoring up their balance sheets, creating new products, and eliminating competition by buying up one another.
 
In short, the drug companies are stronger than ever – and that fact is not yet reflected in the stock prices. But it's only a matter of time before it is... particularly for the generic drug companies poised to profit off of the tens of billions of dollars in drugs set to go off-patent.
 
Pretty soon it'll be Generic Pharmaceutical Company Stock Price Awareness Month. You'll want to be in position before that happens.
 
Best regards and good trading,
 
Jeff Clark




Market Notes
Running out of easy barrels... Deepwater drilling giants Transocean and GlobalSantaFe at all-time highs.
 
Machinery companies Deere and Bucyrus hit all-time highs.
 
Bear market in sunshine... Tejon Ranch (California) and St. Joe (Florida) hit new lows.
 
Restaurants find new lows... Wendy's, Triarc, Ruby Tuesday, IHOP, and Morton's.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%

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