This week brings earnings reports from many of the biggest pharmaceutical companies — this important milestone should give us a look at how drug companies are faring in the wake of healthcare reform.
Healthcare is going to see a strong favorable demographic shift over the next decade, and the best pharmaceutical companies should be major beneficiaries of the increased spending. Each day 100,000 baby boomers turn 65; eventually this group will create a population of more than 77 million needing increased medical care. It should be a solid growth market for at least the next decade.
Let’s take a look at some of the major players, with the aid of Portfolio Grader, my stock-rating tool.
Merck (NYSE:MRK) is one of the largest pharma companies reporting this week, and it should post a solid quarter. Merck faces stiff losses to generics but that should be partially offset by its diabetes and HIV drug offerings. Merck also has new drugs for the vaccine and animal health markets that should very well this year. Merck has seen its estimates move higher in the past month, and the company could easily posts its fifth consecutive positive earnings surprise. The stock was downgraded from the top ranking in Portfolio Grader but still remains a buy-rated stock with a solid “B” rating.
Generic drug companies have carved out a huge segment of the global pharmaceutical market, and one of the best of the bunch reports earnings on Thursday. Mylan Labs (NYSE:MYL) markets more than 1,100 generic drugs around the globe and has made some smart acquisitions in the past few years to broaden its product line. The stock was just upgraded to a strong buy last week — I expect the company to report another solid quarter.
The most exciting segment of the drug market is biotech. These are the companies that make the breakthrough drugs that change the face of medicine and healthcare. While spotting the companies that will make a breakthrough can be difficult, it’s not as tricky to find companies that will profit from making research possible. Repligen (NASDAQ:RGEN) provides proteins and growth cultures that aid in biotechnology research and manufacturing. In fact, the company supplies 98% of the world market for Protein A, an agent used for purifying in the manufacturing process. The stock was upgraded to the highest ranking of “A” this past week and is a strong buy going into the earnings report Thursday. The company has posted three triple-digit earnings surprises in a row, and analysts have quadrupled their estimates for this quarter since the first of the year.
Drug stocks should benefit from the long-term demographic trends that will lead to higher healthcare spending. They should also benefit from the maturing bull market and increasing emphasis on stocks with the very best fundamentals.
Louis Navellier is the editor of Blue Chip Growth.