Drug Stocks: Time to Buy?

Though pharmaceutical stocks have been ailing of late, the group’s long-term outlook remains strong, says Charles Carlson, editor of DRIP Investor, a newsletter that critiques dividend reinvestment plans. DRIPs, which are geared toward long-term investors, often allow the purchase of small amounts of stock for low fees. With the drug sector slumping amid fears of government price interference and anxiety over blockbuster patent expirations, many of the stocks have pulled back to “enticing” prices, Carlson says. “A quality drug stock should be a core holding in any DRIP portfolio.” Here are Carlson’s top-rated drug DRIPs, along with comments from his latest newsletter and stock information from Bloomberg News:

Stock: Merck

Ticker symbol: MRK

Tuesday close: $69.75

Decline from 52-week high: -20%

P/E ratio*: 31

Proj. EPS growth**: 13%

Toll-free number: (800) 774-4117

Carlson’s comment: “Merck may be swimming upstream in the near term. Long-term, however, the prognosis for these shares is outstanding. I would feel extremely comfortable buying the stock at current prices. More aggressive buying could be done on pullbacks to the mid-$60s.”

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Stock: Pfizer

Ticker symbol: PFE

Tuesday close: $98.38

Decline from 52-week high: -35%

P/E ratio*: 46

Proj. EPS growth**: 19%

Toll-free number: (800) 733-9393

Carlson’s comment: “Historically, Pfizer has been one of the better innovators in the industry. Pfizer still seems a bit pricey [at recent levels above $100]. Nibbling at these prices is probably OK, but aggressive buying would be better served below $100.”

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Stock: Schering-Plough

Ticker symbol: SGP

Tuesday close: $47.25

Decline from 52-week high: -22%

P/E ratio*: 38

Proj. EPS growth**: 15%

Toll-free number: (800) 524-4458

Carlson’s comment: “The $45 range seems a reasonable place to begin buying these shares, and a move below $40 would be a reason to become especially bullish.”

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Stock: Warner--Lambert

Ticker symbol: WLA

Tuesday close: $64.44

Decline from 52-week high: -25%

P/E ratio*: 40

Proj. EPS growth**: 20%

Toll-free number: (888) 767-7166

Carlson’s comment: “Despite the hefty growth in earnings in recent quarters ... the stock has been trading sideways to lower for the better part of the last year. Should Warner-Lambert dip to $60, these shares would offer an especially compelling value.”

*Price-to-earnings ratio based on trailing four quarters

**Projected annualized earnings-per-share growth for the next three to five years, based on analysts’ consensus estimates

Sources: DRIP Investor, Bloomberg News