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MARCH 26, 2001

INSIDE WALL STREET

Pharmaceutical Time

 
By Gene G. Marcial
Gene G. Marcial

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With the market still very much under siege, buying growth stocks "at a reasonable price," as some advocate, is not nearly enough to protect and enhance a portfolio. What some pros advise now: Buy into growth companies endowed with defensive characteristics. Investment adviser Stephen Leeb recalls that survivors of past bear markets were defensive companies whose earning power stayed strong. So Leeb, editor of Personal Finance newsletter, advises taking refuge in drugmakers. Leeb's top choices: Quest Diagnostics (DGX ), Elan (ELN ), and Pfizer (PFE ).

"Well-situated drug companies have the potential for long-range steady and rapid growth," says Leeb. And they are defensive in that, no matter how the economy turns, people will need health care.

Quest Diagnostics, which provides diagnostic testing for doctors, has fallen from 146 a share in December to 88 on Mar. 14. Elan, an Irish company based in Dublin that makes medicines for pain and neurological disorders, is down from 60 to 48. It has transformed itself from a drug delivery and research outfit into a fast-growing drugmaker. But investors still value Elan on its former self, observes Leeb. Pfizer hasn't suffered all that much: Though off its 52-week high of 49, the stock isn't far behind, currently at 39.

The growth rates of both Elan and Quest exceed their price-earnings ratios, a positive sign. Pfizer's growth rate of 21.5%, however, is below its p-e of 29. But, notes Leeb, the company's projected growth is much more predictable than most other drugmakers. It has become a nearly "unstoppable marketing juggernaut" now that it has Warner Lambert in the fold, says Leeb.


By Gene G. Marcial
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