Analyst: Be wary of big pharma stocks
Investors should be wary of global pharmaceutical stocks over the next six months, a Jefferies & Co. analyst said, because the stocks have become overpriced even though the companies will face a tough future, according to an Associated Press report.
Analyst Jeffrey Holford said pharmaceutical stocks have rallied over the last two months because of solid first-quarter results and recent product approvals, along with uncertainty in other sectors of the market. But Holford thinks results from drug companies will remain weak at least through the third quarter of this year.
"The recent rally in the pharma sector... has prompted many generalists and commentators on the sector to speculate that the prolonged period of underperformance by the sector may finally be over," he said. However, Holford said, the next 12 to 18 months "will likely see the worst period of top-line growth and margin pressure ever seen by the industry" as patents on many popular products expire, allowing low-cost generic versions to reach the market.
The rollout of the U.S. healthcare overhaul will also continue, and state and federal budgets will remain tight.
Holford added that changes in R&D procedures have not really started to pay off, although there are encouraging signs.
He said Pfizer, Novo Nordisk, GlaxoSmithKline and Bayer are the companies most likely to top expectations in the months ahead. Holford is less optimistic about Sanofi, Bristol-Myers Squibb, Merck and Eli Lilly.