Investing Wisely -- Five High Profile Health Care Company Valuations With Warnings

By: Steve Bauer | Wed, Mar 2, 2011
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The selection of these five drug / pharmaceutical companies is based on the following supportive data. It includes their short and longer-term price, and earnings projected price performance. Other than Pfizer, I do not expect these companies to have any notable and / or improved - earning's growth over the next couple of years. For those reasons and as a warning, I do not recommend, price wise, to hold or take new bullish positions at this time. This is a good time to hold cash.


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The Major Pharmaceutical industry group, both U.S. and International, is quite low on my consensus rankings of over 200 industry groups. It is currently ranked as "unfavorable."

In the table below you will see why the quantitative approach of valuation offers conclusive data that either a) supports buying / holding or b) fails to support buying or holding positions in any given security. These five companies, by design, provide examples of the good, the bad and the ugly.


Valuation Analytics Table
Major Pharmaceutical - Industry Group:

Stock Name & Symbol

Approx. Current Price My Target Price % Above (+) / Below (-) Current Price - PEG

P/E

Forward P/E Valuation Divergence (%) One - Year Projected from a Mean - Sigma and from the next -- Bullish Inflection Point.
 
1. Abbott Labs, (ABT) 46.7 20% to 35+% 1.10 15.7 9.4 67%
Comments: Abbott Labs offer an "excellent" valuation and not a bad long-term target price projection. A problem is that the longer-term earnings growth is contracting. Reviewing the technical and consensus analysis, tells me that ABT is currently just another pharmaceutical company!
 
2. Bristol-Meyers Squibb, (BMY) 25.2 10% to 15% 30. 14.1 12.5 13%
Comments: Unless I am focused on shorting a company I dislike "poor" valuations and hence poor or low long-term target price projection. Add to that the fact that earnings growth is negative and you can quickly pass on holding or buying BMY.
 
3. Eli Lilly 34.0 negative -1.34 7.4 9.3 negative
Comments: I believe there are better candidates for possible shorting so despite the "negative" valuation I would just let LLY work through its current problems . Longer-term earnings growth is also negative. Adding the technical and consensus analysis, you have a confirmation that LLY is currently not a very good pharma. / drug company!
 
4. Pfizer, (PFE) 18.8 25% to 40% 3.01 18.4 8.2 124%
Comments: Clearly this is an "excellent" valuation and not a bad long-term target price projection. Longer-term earnings growth is expanding and the company is looking quite strong. For me, PFE is currently the most positive of these five companies!
 
5. Novo Nordisk, (NVO) 123. 10% to 25% 1.50 27.3 22.7 20%
Comments: This is only a "good" valuation and a moderate long-term target price projection. I focus on the longer-term earnings growth and unfortunately it is contracting. When I review the technical and consensus analysis, it is clear that NVO has out paced the other pharmaceutical companies, but not so for the longer-term!
 

Notes: Valuation is definitely both an art and a science. I emphasize the importance of "Selectivity" in the below comments surrounding my 'Bell Curve.' Given the substantial move in many equities since early 2009, it is quite likely that selectivity will be even more important when investing in 2011. So, the focus remains the same, that is - we invest in companies that project to grow meaningfully faster for bullish candidates and meaningfully slower for bearish candidates than their peers and other quality companies. These companies are not poised to outsize growth and therefore conform to the title of this article.


Summary of my Three Disciplines:

Company Symbol My Categories for all Securities Fundamental (weighting 40%) Technical (weighting 35%) Consensus (weighting 25%)
         
1. ABT High Profile Excellent Good Good
2. BMY High Profile Negative Good Good
3. LLY High Profile Poor Good Good
4. PFE Bellwether Excellent Very Good Good
5. NVO High Profile Good Excellent Very Good

Notes: When these three disciplines are Excellent to Very Good they become Candidates for Buying and when they are Poor or Worse they become Candidates for Short Sale. There is always rather large number of companies in both categories. You might want to think of it as a slot machine. When my '3 Disciplines' have 3 bars of Excellent / Very Good - it's a bullish Jack Pot! Strangely enough, when I have 3 lemons of Poor or Very Poor - it's a bearish Jack Pot!


General Market - Current Perspective

The general market is currently over-valued, over-bought and is showing signs of deteriorations, especially in the area of breadth. Interest rates are on the rise, and inflation is already becoming a serious problem. This means, with regard to your portfolio - you might consider moving to and holding cash or perhaps begin taking bearish positions. And as another warning, I would not recommend taking bearish positions in these five securities - there are much better candidates to consider with equally low risk.

For a current (up to the minute) chart of PFE, and many other securities from all sectors, click here and scroll down.


A Brief Introduction to my Work / Analytics

Comparative analytics all securities with their peers provide a clear perspective as to both What and When to Buy and What and When to Hold / Fold. As they (companies) get close to the top tier (within my three disciplines) I buy them confidently. When they do not compare well, I simple avoid them. You will note in the above table, those disciplines are my weighted fundamental, technical and consensus analysis. Furthermore, noted above, I have just two categories of investments for all securities. They are "Bellwether" and "High Profile" companies. PFE is just one of my Health Care "Bellwether" companies. All others are in the above 'chart' URL.

As you know, all companies, sectors and industry groups rotate into and out of favor over random time frames, from both a valuation and price analytic point of view. For me to be interested in any company (long or short), my most current projected target price and the risk/reward ratio must be in the bullish - top / bearish - bottom 5% of all my candidates.

An Old Fashioned and Simple Bell Curve Helps Explain Why My Rotation Model is so Important to Your Annual Bottom Line:

Bell Curve

Notes for the above Bell-Curve: The far left is where the very best (Top) bullish candidates for buying currently reside at a given time. The far right is where the very best (Bottom) bears candidates for shorting currently reside at a given time. The blue line or Bell-Curve has three important areas of consideration. The Top and between -2 and +2 are where most companies are price and valuation wise, most of the time. The far Left and the far Right is where rather few companies reside at any given time. The Bullish - Top 5% at or around Bullish Inflection Points and the Bearish - Bottom 5% at or around Bearish Inflection Points.


Summary

My Logo and Focus are on "Investing Wisely." For me that means, patiently and selectively participating in the respective bullish and bearish cycles, and doing so at or around the corresponding inflection points. Using valuation analytics within these earnings / price cycles, I suggest that you are able to balance the risks of investing your money in securities.

Hopefully, you agree that all securities, (including these pharmaceutical companies) sectors and industry groups are constantly rotating / cycling into and out of favor. You may want to read my articles on Rotation Model, Cycle Analysis and Inflection Points.

I believe this methodology is a vital discipline in "Investing Wisely."

Source information and data:

If you would like to have further information on my work / analytics or perhaps my professional asset management, mentoring or consulting - services . . .

I would appreciate your sharing just a bit about yourself and your investment objectives, just send me an Email, and I will respond promptly.

Thank you for your time in reading my "stuff" and continued interest in my work / analytics.

Smile, have Fun - "Investing Wisely",

 


 

Steve Bauer

Author: Steve Bauer

Steven H. Bauer, Ph.D.

Steve Bauer

Steve has several degrees, i.e. post graduate degrees and doctorate and a great deal of (too much) continued education. For seven years, he did a stent as a University Professor of Finance and Economics.

Dr. Bauer also writes for SeekingAlpha.com. His articles can be viewed at: http://seekingalpha.com/author/steven-bauer?source=search_general&s=steven-bauer

He owned a privately held asset management firm and managed individual investor and corporate accounts as a Registered Investment Advisor - for over 40 years.

Professionally he is a financial analyst and private asset manager / consultant / mentor.

Steve can be reached at senorstevedrmx@yahoo.com

Copyright © 2010-2013 Steven H. Bauer, Ph.D.

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