Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Indexes  >  USA  >  S&P 500    SP500

S&P 500

(SP500)
SummaryQuotesChartsNewsHeatmapComponents 
SummaryMost relevantAll NewsOther languagesNews of the index componentsMarketScreener Strategies

Berkshire's bet a bright spot in gloomy year for Big Pharma stocks

11/18/2020 | 06:18am EST
The spread of the coronavirus disease (COVID-19) in New York

NEW YORK (Reuters) - Berkshire Hathaway Inc's new bet on the U.S. pharmaceutical industry signals hope for shares of large drug companies, which have lagged a broad market rally amid concern about efforts to rein in prescription drug prices.

Drug stocks largely outperformed on Tuesday, a day after Warren Buffett's conglomerate, long underweight in the healthcare sector, revealed $5.7 billion of new investments in Abbvie Inc, Bristol-Myers Squibb Co, Merck & Co and Pfizer Inc, whose vaccine has demonstrated effectiveness in late-stage studies against COVID-19.

"It's a recognition of, 'Hey, there's some value there,'" said Walter Todd, chief investment officer at Greenwood Capital, whose funds hold shares of Pfizer, Merck and Eli Lilly.

Pharma stocks also received a boost after the Nov. 3 U.S. elections made clear there would be no overwhelming Democratic sweep, an outcome some investors feared could prompt a major overhaul of drug pricing.

Still, many are reluctant to sound an all-clear on the industry, which is trading close to its biggest-ever valuation gap against the S&P 500 based on forward price-to-earnings ratios, according to Refinitiv Datastream.

Among the issues on investors' minds is whether Democrats can secure a slim margin in the U.S. Senate if their candidates win run-off races in Georgia scheduled for January, a result that could spark volatility throughout the healthcare sector.

Beyond that, pharmaceutical stocks continue to face pressure from concerns over lawmakers' efforts to bring down high drug prices, investors said.

"That is an area where you can quickly get to some sort of bipartisan agreement," said Les Funtleyder, a healthcare portfolio manager at E Squared Capital.

So far in 2020, the S&P 500 pharmaceutical industry index <.SPLRCCARG> has gained 0.6%, versus an 11.7% gain for the overall S&P 500, and an 8.8% gain for the S&P 500 healthcare sector.

Shares of the two biggest pure-play pharma companies by market value, Merck and Pfizer, have fallen 10% and 3%, respectively, this year.

"Big pharma names have underperformed, and look cheap relative to historical valuations and the market overall," said Jim Shanahan, an Edward Jones analyst who covers Berkshire. "These are large, dominant companies in an industry that has demonstrated strong, long-term growth."

Investors say pharma stocks have also lagged because many top-selling products are slated to lose patent protection in the coming years, including Abbvie's blockbuster Humira.

"As you get within five years of patent expirations, people start to look and get more nervous about growth prospects," said Marshall Gordon, senior healthcare analyst at Clearbridge Investments.

Another factor hurting pharma's performance, said Jared Holz, healthcare equity strategist at Jefferies, is that the stock market currently is dominated on a given day by either a trade favoring big tech, stay-at-home stocks, or a trade favoring economically cyclical stocks.

Pharma does not fall into either of those categories, Holz said, so "they seem to underperform irrespective of what the broader markets are doing."

At the same time, he said, the stocks "are trading at such a meaningful discount on an absolute and relative basis that they are intriguing almost solely due to that."

(Reporting by Lewis Krauskopf; additional reporting by Jonathan Stempel; Editing by Ira Iosebashvili and Dan Grebler)

By Lewis Krauskopf


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
ABBVIE INC. -0.36% 110.86 Delayed Quote.3.84%
BERKSHIRE HATHAWAY INC. -0.95% 350620 Delayed Quote.0.81%
DJ INDUSTRIAL -0.57% 30996.98 Delayed Quote.1.86%
NASDAQ 100 -0.29% 13366.396971 Delayed Quote.4.01%
NASDAQ COMP. 0.09% 13543.061633 Delayed Quote.4.41%
PFIZER INC. 0.19% 36.55 Delayed Quote.-0.71%
S&P 500 -0.30% 3841.47 Delayed Quote.2.27%
All news about S&P 500
05:32pMorgan Stanley CEO James Gorman Got a Big Raise for 2020
DJ
04:43pDow, S&P 500 Decline But Post Gains for the Week
DJ
04:36pDow, S&P close lower as IBM, Intel weigh, coronavirus concerns rise
RE
04:34pEquities End Mixed on Concerns of Rising COVID-19 Cases, Reports of Deadlier ..
MT
04:24pCLOSE UPDATE : Nasdaq Leads Indexes Higher for Week as Stocks End Friday Mixed
MT
04:18pDow Drops But Notches Weekly Gain
DJ
04:12pUS Oil Rig Count Rises by Two, Marking Seventh Straight Weekly Gain
MT
04:10pSTREET COLOR : US Treasury and Equity Closing Levels for Friday
MT
03:51pDollar gains after three-day fall as risk rally takes a breather
RE
03:45pStocks Set to Close Mixed Friday, But Poised to Post Gains for Week
MT
More news
Chart S&P 500
Duration : Period :
S&P 500 Technical Analysis Chart | SP500 | US78378X1072 | MarketScreener
Technical analysis trends S&P 500
Short TermMid-TermLong Term
TrendsBullishBullishBullish
Heatmap :