10 Rock-Solid Stocks for 2006

[BettorsChat]

FORTUNE magazine picks the stocks to rise above market shakedowns for 2006.

· Altria Group (MO)
· Archer Daniels Midland (ADM)
· Berkshire Hathaway (BRK.B)
· Citigroup (C)
· Eli Lilly (LLY)
· Hewlett-Packard (HPQ)
· Kinder Morgan (KMI)
· Norfolk Southern (NSC)
· Phelps Dodge (PD)
· Washington Mutual (WM)

http://money.cnn.com/2005/12/13/mark...2605/index.htm

[TwoTonTony]

big pharma has not been kind to US pharma companies....Check out SNY - Sanofi-Aventis.....best pipeline in the industry....3rd largest surpassing merck...coming out with accomplia.....smoking cessation...weight loss....and cuts lipids...all in one pill...should be out 2q....passing phase III clinical trials at the moment....When it was just aventis stock doubled from 42 to upper 80's in year while merck, pfizer were flat.......

[Spearit]

I concur. I have knowledge of this as well- looks to be a winner. Thanx for the info

[ELJUGO]

big pharma has not been kind to US pharma companies....Check out SNY - Sanofi-Aventis.....best pipeline in the industry....3rd largest surpassing merck...coming out with accomplia.....smoking cessation...weight loss....and cuts lipids...all in one pill...should be out 2q....passing phase III clinical trials at the moment....When it was just aventis stock doubled from 42 to upper 80's in year while merck, pfizer were flat.......

Tony, you suggesting this as a BUY?

[savage1]

At almost $3000 a share, most folks cannot afford too many shares of Berkshire Hathawy.

[10DimeBry]

whats the stock market??

sincerely,

JCindaville

[TwoTonTony]

Tony, you suggesting this as a BUY?

i owned it as aventis...doubled my money in a year and have kept most of my shares after the merger.....I see them as the only BIG PHARMA compmany adding jobs and was just written up the other day in some journal as "BEST PIPELINE"...... they are now bigger than MERCK....it is the biggest company nobody has ever heard of and have solid solid management......i like them long term......but i am not a stock picker, but an investor

[BettorsChat]

News Analysis
By Kerry Capell


Big Pharma's Reversal of Fortune
The industry's 2005 earnings reports reveal that Europe's drugmakers are in much better health than their U.S. rivals, a dramatic change.

Last week, two of the world's biggest pharmaceutical companies kicked off the 2005 reporting season, and the contrast couldn't be starker. For the No. 1 drugmaker, New York-based Pfizer (PFE), it was a year management would rather forget. A slew of patent expirations of key drugs and a shortage of fast-growing new ones to pick up the slack led to the first decline in sales and profits in recent years.



Compounding the problem was the ongoing fallout from rival Merck's (MRK) COX-2 inhibitor Vioxx, which was pulled from the market due to safety concerns. Pfizer was forced to withdraw one of its two similar painkillers, Bextra, in April, 2005, while sales of the other, Celebrex, have eroded. With Pfizer's annual sales and profits down 2% and 7%, respectively, to $51.3 billion and $15 billion, Chairman and Chief Executive Hank McKinnell calls 2005 "one of the most difficult years in memory."

But across the Atlantic, it was a different story. For Swiss drugmaker Novartis (NVS), limited competition from generics, a rapidly growing portfolio of cancer and cardiovascular drugs, and better-than-expected results from the company's generics business led to double-digit sales and profit growth in 2005. Novartis reported a 10% rise in net income, to $6.14 billion, and a 14% increase in sales, to $32.3 billion.

Moreover, with four new drugs expected to be filed with the U.S. Food & Drug Administration this year -- two of which analysts predict will be blockbusters -- Novartis has one of the industry's better new-drug pipelines. In a largely bleak pharma environment in which generic drugs are playing a larger role, the Novartis pipeline is in a strong position, says Chairman and CEO Daniel Vasella. "Unless you bring innovation, there is no way to survive," he says.

GENERIC THREAT. For the first time in several years, European drugmakers are managing to not just survive but thrive, in contrast to their American rivals. That trend became all the more apparent when Bristol-Myers Squibb (BMY) on Jan. 26 reported that sales slipped 1% in 2005. The problem: increased competition for drugs such as its cholesterol-lowering treatment Pravachol, which will go off patent in the U.S. in 2006.

The divergent fortunes of European and U.S. Big Pharma are expected to set the tone for the coming weeks, as the rest of the industry reports 2005 financial results. Analysts say that the major U.S. drug companies are facing more intense competition from generics, weaker growth of existing products, and fewer potential new drugs in the pipeline than their continental counterparts. And although most of the American Big Pharma players have a handful of big new-drug launches planned, it'll be a few years before earnings from those products kick in.

The major European companies are expected to post better sales and earnings growth for the next two years. Jerry Brimeyer, senior pharmaceutical analyst for Dresdner Kleinwort Wasserstein, reckons that earnings at the big European drugmakers will grow by an average of 18% this year and 11% in 2007, compared with 1% and 6%, respectively, for the major U.S. companies, excluding Schering-Plough (SGP). "Today, on all fronts, U.S. drug companies tend to be inferior to the big European ones," says Brimeyer. "It's a complete reversal of the situation a decade ago."

PATENT LOSS. In the mid-1990s, American drugmakers such as Pfizer, Bristol-Myers Squibb, and Merck boasted some of the fastest-growing drugs in the world and the best stock-price performance in the industry. In 2001, the big U.S. pharmaceutical companies accounted for two-thirds of the $1 trillion global market value of the industry. Today, that situation has been reversed, according to research from Goldman Sachs.

Over the last 12 months, shares of Britain's GlaxoSmithKline (GSK), France's Sanofi-Aventis (SNY), and Switzerland's Novartis and Roche (RHHVF) were up 21%, 36%, 22%, and 51%, respectively. In contrast, those of Pfizer, Merck, Schering-Plough, and Bristol-Myers were either down or posted low-single-digit gains. As a result, European large-cap drugmakers are trading at a premium to the major U.S. companies. The European outfits are trading at an average 2006 price-earnings ratio of 17.9, compared to 15.2 for the U.S. majors, according to analysts at Societe Generale Cross Asset Research.

Safety concerns over major new drugs, litigation, and a huge increase in generic competition have taken their toll. And many of the drugs that made the U.S. companies so successful a decade ago, such as Pfizer's epilepsy treatment Neurontin and antibiotic Zithromax, have lost their patents. Analysts predict the threat from generics will only get worse. According to IMS Healthcare, drugs worth $23 billion in sales will come off patent this year alone, rising to $34 billion in the next three years.

"SWEET SPOT." U.S. drugmakers will take by far the biggest hit. Research from Morgan Stanley and Danish investment bank Jyske Bank estimates that patent expirations this year will equal 25% of Merck's 2005 sales and 21% of Bristol-Myers Squibb's sales, as major medicines -- including such cholesterol-busting drugs as Merck's Zocor and Bristol's Pravachol -- face generic competition.

Pfizer's best-selling antidepressant, Zoloft, which accounts for an estimated 10% of the company's overall revenues, will lose patent protection this year. In total, analysts estimate that 80% of the $44 billion in ************ drugs set to go off patent between now and 2008 will come from U.S. companies.

As a result, American drugmakers have had to rely heavily on cost-cutting to prop up profits. Pfizer, Wyeth (WYE), and Merck have all launched major expense-reduction programs. Some have even been forced to cut spending on research and development to offset the damage. Pfizer reduced its R&D spending by 13% in 2005, to $7.4 billion, a move analysts at First Global describe in a report as a "somewhat suspect device for improving earnings."

In contrast, earnings at the major European pharma players are fueled mainly by strong sales growth of existing products. Today, such companies as Novartis, GlaxoSmithKline, Sanofi-Aventis, and Roche find themselves in a "sweet spot" with minimal patent exposure, strong growth of marketed drugs, and growing profitability, says Dresdner's Brimeyer.

PIPELINE DREAMS. Roche, for instance, is by far the leader in cancer treatment today, thanks to its ownership of U.S. biotech Genentech (DNA). Sales from Roche's stable of cancer medicines -- such as Avastin, which fights a range of cancers, and targeted breast-cancer drug Herceptin -- are expected to account for more than half of the company's overall sales by 2007. Similarly, Novartis has four blockbuster oncology drugs, including Femara for breast cancer, Zometa for bone complications from cancer, and chronic myeloid leukemia drug Gleevec, which is expected to reach $4 billion in sales by 2008.

The major European drugmakers also are set to benefit from a number of product launches. The most high-profile is Paris-based Sanofi-Aventis' obesity and smoking-cessation drug Acomplia, which could receive FDA approval as early as next month. Dr. Gbola Amusa, senior research analyst for Sanford C. Bernstein & Co. in London, believes sales of Acomplia could hit more than $5 billion by 2010.

Among the four new drugs Novartis expects to launch this year are Galvus, a once-daily drug for diabetes, and Aliskiren, a novel hypertension treatment. Roche, meanwhile, has one of the biggest development pipelines around, with 32 potential new drugs in late-stage human trials. And GlaxoSmithKline has four potential cancer drugs in late-stage development, including potential blockbuster Tykerb, a genetically targeted treatment for breast cancer.

DISEASE PREVENTION. Another source of growth for European drugmakers is vaccines, an industry expected to grow 20% annually until the end of the decade. European companies control roughly 65% of the world's flu-vaccine production -- and world demand for flu vaccines has more than doubled since 1994, according to the journal Vaccine.

Over the next five years, GlaxoSmithKline plans to launch five new vaccines. These include recently launched Rotarix, which treats a common intestinal disorder called rotavirus. Later this year, Glaxo hopes to file Cervarix, its vaccine against cervical cancer, with European regulators. Although Merck is expected to be first to market in the U.S. with a rival cervical-cancer vaccine, analysts predict that Glaxo will gain first approval in Europe. Many expect the vaccine to become a major growth driver in the years ahead.

The positive prospects for the vaccine business led Novartis to buy U.S. vaccine manufacturer Chiron for $5.1 billion at the end 2005. "It's a chance to build a new business and one that, more importantly, has a future," says Vasella. And with stronger earnings growth in the cards, at least for the next two years, the future looks bright for Europe's big drugmakers.