What are drug stocks? Drug stocks are shares in pharmaceutical companies that create drugs. One of the largest drug companies is Pfizer (symbol PFE on New York), a stock we cover in our Wall Street Stock Forecaster newsletter. A few years ago, investors valued drug stocks the way we value the top software growth companies like Symantec, bidding them up to 30 or more times earnings. Drug stocks can show fantastic profits, but it might be more appropriate to value drug makers the way you value companies that are trying to bring new mineral discoveries into mines: at 10 times earnings or less. Drug buyers have no brand loyalty; when a better drug comes along, use of the old standby collapses overnight. Drug companies face horrendous investment requirements to bring new drugs to market, and great risk that their new drugs will fail to clear all the necessary hurdles. When a new drug fails to clear the hurdles, it can leave the developer with a zero return. In addition, even if they pass all of the hurdles and successfully bring a drug to market, drug makers eventually face the competition of generic manufacturers. Generic producers can duplicate their drugs after the trademark period without the original research-and-development expenses. We've often warned that drug stocks are riskier than investors realize. The cost of developing a new drug is huge, and the payoff, if any, is uncertain. As well, if investors come around to common-sense views, such as the best treatment for diabetes is a combination of improved diet, more exercise and fewer calories, they may lose their appetite for the higher risks and costs of drug stocks. When buying drug stocks, or any stock for that matter, we recommend that you follow TSI Network and use our three-part Successful Investor strategy:
Most investors who successfully build wealth over the long term follow certain investing practices. Find out what they are in our FREE investing guide, The 10 Best Practices of Successful Investors.
We’re now seeing some attractive investment opportunities in drug stocks for our subscribers—and we’re adding the best of them to your Power Growth Investor.
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Here’s an Excerpt from a recent issue of Advice for Inner Circle Pro Members:
“Based on lots of things I’m looking at, I’m still reasonably sure that stock prices will be higher in a year or two than they are today. But the market rarely goes straight… Read More
Last week we published our latest quarterly client letter, which we sent to our portfolio- management clients in April. In it, we talked about the evolution of drug stocks as investments.
We explained why we mostly stayed out of drug stocks for much of the past… Read More
Here’s the text of the most-recent letter I sent to our Portfolio Management clients last month:
“We’ve generally stayed out of drug stocks for much of the past two decades, but that will change over the next year or two. In fact, we now expect to… Read More
Eli Lilly’s shares haven’t just bounced back from their drop during the March market meltdown. In fact, they’ve soared to new all-time highs for investors and are now up a stellar 36.7% over the last year.
What has spurred this strong performance? Well, it’s a combination… Read More
Even top drug stocks can be riskier than many investors assume, but here’s how to spot the best ones
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The amount… Read More
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Penny stocks are typically the quickest to fall when the bubble bursts in an industry. Some investors get hooked on the potential for high profits in… Read More
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When one of the top hedge fund managers goes into a performance slump, media and investor reactions often leave us with an odd feeling. They make us… Read More
When a hedge-fund manager goes into a performance slump, media and investor reactions often leave me with an odd feeling. They make me wonder, “Why does this surprise you?”
The media and the investors they quote seem to treat a hedge fund manager’s slump as a.. Read More
High costs, strong competition, and a lack of brand loyalty make pharmaceutical penny stocks very speculative investments, even if the company has a drug that’s reached commercialization
Major pharmaceutical companies are a more-speculative investment than most investors realize. They need a continuing flow of successful new… Read More
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' FREE Special Report from The Successful Investor.
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What personal information do we collect?
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Changes to this Policy
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