Epiphany Investing

Searching Out the Optimal Portfolio of “Revelation” Stocks

Dipping into Big Pharma on Hunt for Yield

Posted on | September 26, 2008 Time: 7:05 pm |

After spending the past few days reviewing my old friends in Big Pharma (MRK, PFE, SGP, LLY, BMY, NVS) I am struck by how much pessimism reigns over the industry. Yes, there are always the occasional big multiple stocks with a current compound driving expectations…but on the whole, valuations are low, cash and balance sheets are strong, and defensive money has been slow to enter.

There’s a good case to be made that we won’t see “common” sector rotations if the economy continues to slump. We’ve seen rotation into consumer goods, as names like JNJ, KFT, etc have outperformed. They’re great companies but I can’t justify paying above-market multiples solely on the perceived defensive qualities. I also demand yield, and a balance sheet that can buy distressed stocks (which will be plentiful) while avoiding short-term funding (which will remain horridly expensive). But on the whole, rotations may be limited, and global investors have every reason to be petrified of our economy.

To that end, I’m picking up a 3% position in Pfizer, a name I have scoffed at for years. The risk/reward is just too compelling with a 7% yield and sub 12-multiple:

I am hoping they announce an acquisition before early January, because this position may be out the door by then. I’m going to pick up the dividend and look for whatever droplets of sideline defensive money arrive in the sector before the end of the year.

Adding 1600 shares at $18.50

Ryan Barnes

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Category: Big Pharma
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