What No One Says About This 'Recession-Proof' Sector
By Rob Fannon, editor, Phase 1 Investor
October 24, 2008
Right now, you can't pass a newsstand without hitting an article touting the world's best "recession-proof" stocks.
These so-called defensive industries include groceries, cigarettes, and drugs. Supposedly, consumers will continue to spend on these items no matter the state of the economy. They may skip Cancun getaways and Coach handbags, but they won't cut insulin or heart meds. Maybe so...
But here's something you probably aren't hearing about: Patients will sacrifice a pricey brand-name drug for a cheap knock-off...
In fact, patients are already cutting back on drugs like Lipitor – Pfizer's cholesterol medication and the world's top-selling drug. They're switching to generic drugs that cost 30% as much.
For Big Pharma, this dose of bad news couldn't have come at a worse time. In 2009, the industry will face generic competition on products that currently bring in $10 billion a year.
The combination of looming patent expirations, lagging drug sales, and crummy market conditions has crushed Big Pharma stock prices. On average, the big drugmakers are down 25% on the year. Now they're yielding as much as 7.5%.
But as I warned you before, don't be tempted by Big Pharma's high yields. A protracted recession will dampen sales of the industry's top-selling products right up until these big brand-name drugs lose patent in 2010 and 2011. Big Pharma shares could fall another 20% from here. That would wipe out several years of dividends.
So if you're looking for recession-proof stocks, drugs are the right idea. But Big Pharma's not going to take good care of your cash. Instead, you should turn to major players in the generics industry. Teva Pharmaceuticals (TEVA), Mylan (MYL), and Watson Pharmaceuticals (WPI) are the biggest names.
Take a look at this one-year chart that compares Teva to my favorite whipping-boy, Pfizer (in blue):
Teva handily outperformed Pfizer as the market fell apart. Sure, Teva's down about 9% on the year. But compared to the S&P's 40% beating, that's not too shabby.
Few businesses look better than a company selling cheap drugs to an aging population during tough economic times. So double-check your portfolio. If you bought Pfizer or Merck hoping to wait out the recession, you'd be better off replacing it with a name like Teva.
Good investing,
Rob
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China Jumpstarts Economy
China is stepping up its efforts to boost its slowing economy by unveiling the first steps in a potentially large fiscal stimulus programme.
After weeks of debate, the government this week started to detail aggressive policy steps following Monday’s announcement that third-quarter growth slowed to 9 per cent, the lowest level in five years and well below many forecasts. FT ($) Read on...
Shipping Rates Tumble on Slowing Global Demand
Dry bulk shippers are going the way of the global economy: under water. Among the shippers, DryShips and Excel Maritime Carriers have been hit particularly hard because of their large debtloads and significant spot market exposure.
For the 13th straight day, the Baltic Dry Index, which measures dry bulk shipping rates on 40 routes across the world, tumbled Wednesday, falling 71 points to 1,221. Read on...
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Greenback soars against the loonie... up 26% in three months. |
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Big three casinos crash... MGM Grand, Wynn Resorts, and Las Vegas Sands drop double digits to new lows. |
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Foreclosures up, construction down... homebuilders D.R. Horton, Lennar, Beazer, and Hovnanian hit new lows. |
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Earnings today... Alexander & Baldwin, Exelon, Gannett, T. Rowe Price. |
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Last |
Change |
52-Wk |
| S&P 500 |
896.78 |
-6.10% |
-40.99% |
| Oil (USO) |
54.93 |
-6.53% |
-16.56% |
| Gold (GLD) |
71.71 |
-5.68% |
-4.68% |
| Silver (SLV) |
9.45 |
-5.31% |
-29.80% |
| U.S. Dollar |
85.82 |
+0.49% |
+10.72% |
| Euro |
1.28 |
-0.47% |
-10.35% |
| VIX |
69.65 |
+31.14% |
+241.25% |
| HUI |
168.36 |
-16.32% |
-58.44% |
| 10-Year Yield |
3.62% |
-0.08 |
-0.65 |
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| Company |
Sym |
Industry |
Sears Holdings |
SHLD |
retail |
Janus |
JNS |
asset mgmt |
Palm |
PALM |
technology |
Alcoa |
AA |
aluminum |
Hovnanian |
HOV |
homebuilder |
D.R. Horton |
DHI |
homebuilder |
CS Canadian Dollar |
FXC |
ETF |
Bassett Furniture |
BSET |
furniture |
J.C. Penney |
JCP |
dept store |
Leucadia |
LUK |
holding company |
ABB |
ABB |
electrical equip |
CS Euro |
FXE |
ETF |
Dillard's |
DDS |
dept store |
Manitowoc |
MTW |
heavy machinery |
AXA |
AXA |
insurance |
CS British Pound |
FXB |
ETF |
U.S. Natural Gas |
UNG |
ETF |
Las Vegas Sands |
LVS |
casinos |
Beazer Homes |
BZH |
homebuilder |
Foster Wheeler |
FWLT |
construction |
Men's Wearhouse |
MW |
clothing |
Alcon |
ACL |
medical equip |
McDermott |
MDR |
construction |
US Steel |
X |
steel |
CB Richard Ellis |
CBG |
real estate |
Hertz Global |
HTZ |
auto rental |
Brunswick |
BC |
boats |
Western Union |
WU |
wire transfers |
MGM Mirage |
MGM |
casinos |
Apartment Invest |
AIV |
apartment REIT |
Sonic |
SONC |
restaurants |
Gap |
GPS |
clothing |
Chicago Bridge |
CBI |
construction |
Hanesbrands |
HBI |
clothing |
BHP Billiton |
BHP |
mining |
Wynn Resorts |
WYNN |
casinos |
Amazon |
AMZN |
online retail |
Hewlett-Packard |
HPQ |
technology |
Covance |
CVD |
med research |
Brinker Intl |
EAT |
restaurants |
CF Industries |
CF |
agriculture |
Allianz |
AZ |
insurance |
Mattel |
MAT |
toys |
Ultra Real Estate |
URE |
ETF |
Lennar |
LEN |
homebuilder |
Caterpillar |
CAT |
heavy machinery |
Jones Lang LaSalle |
JLL |
real estate |
Beckman Coulter |
BEC |
medical equip |
ArcelorMittal |
MT |
steel |
SPDR Homebuilders |
XHB |
ETF |
China Life |
LFC |
insurance |
Deere |
DE |
heavy equipment |
Corning |
GLW |
technology |
Schering-Plough |
SGP |
Big Pharma |
T. Rowe Price |
TROW |
asset mgmt |
Belden |
BDC |
industrial equip |
Textron |
TXT |
conglomerate |
Siemens |
SI |
telecom |
Under Armour |
UA |
athletic apparel |
SL Green |
SLG |
commercial REIT |
Liz Claiborne |
LIZ |
clothing |
Borders |
BGP |
books |
Skechers |
SKX |
shoes |
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