At times like these I find myself reading over the conference calls of the health care stocks, trying to figure out whether there is anything worth owning, anything that can hold up, anything worth hanging your hat on; maybe some yield, a wonder drug, a possible breakthrough somewhere.
Take Merck (MRK) . Here, in the last three months, is a company that has seen its stock increase in value by $16 billion off of promising lung cancer results for its Keytruda drug in head-to-head results against Opdivo from Action Alerts PLUS charity portfolio holding Bristol-Myers (BMY) .
The hopes for Opdivo were high, some factored in the same amount of sales that Merck gained in market cap, $16 billion. As the timeline went along, things grew worse for Bristol as it appears that it may not, at least alone, be nearly as effective as Keytruda for the unfortunately giant lung cancer market.
That's how Bristol has now dropped $38 billion in market capitalization.
I think at this point both are an overreaction, Bristol because it does have other franchises and is now worth only $85 billion with about a 3% yield and Merck, because the market-wide anti-health care move has shaved off almost the entire Keytruda gain and it, too, has a 3% yield.
That's right. You are getting Merck at pretty much the same price before we figured out how much better Keytruda is than Opdivo.
I think that's absurd. But if you think that Hillary Clinton and the Democrats are going to sweep Washington and you think that Proposition 61 in California is going to win -- an initiative meant to restrict pricing -- then I can see where you don't want to trust these stocks.
There's no secret there is pricing pressure everywhere in health care. The decision by AmerisourceBergen (ABC) to go after market share in the oligopoly that is Cardinal (CAH) , McKesson (MCK) and ABC, mitigates all sorts of good assets that McKesson has and makes it so you can't value them.
Or take Allergan (AGN) . Here's a company that has a ton of cash, has been deploying it correctly buying niche products and purchasing stock while beating numbers and -- keeping in mind we own this stock for Action Alerts PLUS -- we have told people it simply can't be touched yet. It is toxic until after the election.
Did you get a chance to listen to the Novo Nordisk (NVO) call on Friday, the one where management talked about U.S. insulin and human growth hormone pricing pressure? You need to listen to this call. The analysts on this call were as dumbfounded as they were on the McKesson call. They just didn't see it coming at all. They all seemed to think that business was doing pretty good and there could be good growth.
There's going to be negative growth, if there can be such a thing.
What makes this such a tough moment, though, isn't just that the health care stocks in unison are so terrible. It's that so many other groups have stocks within them that are looking up. There are industrials that hang in like champs, even after so-so earnings. Aerospace stocks held up well. Tech stocks that continue to break out. Bank stocks, particularly the regionals, that look good on both rate hikes and the potential lack of a push back from the Elisabeth Warren contingent because regionals are historically sainted.
We are all so used to seeing the hiding trade of health care winning and the aggressive trades losing, that the idea of hiding in a loser is pretty darned unpalatable.So, in a "take no pain, take no prisoners" market, these stocks languish. Somehow, I think we will look back at Merck and say "why didn't we buy"? But right now, I think we will we look at Merck and say "why didn't we buy Qualcomm ( QCOM) "?