Who owns stocks like Diplomat Pharmacy (DPLO) or Lannett (LCI) ? On a day of total carnage masked, once again, by some benign prices in the averages, I hit up stocks like DPLO, down 42%, and LCI, off 26%, and I wonder what were the owners thinking? Diplomat is the nation's largest independent specialty pharmacy and its sales have been hurt badly by the softness in the hepatitis-C business.
Now let's puzzle through this. I didn't know Diplomat until I hit it up when I saw it was down so much, and I know hindsight is distinctly 20/20, but seriously, if you owned this did you really think there wasn't pricing pressure in the system after what McKesson (MCK) told you last week? Did you not know you were levered to Gilead's (GILD) hep-C drug, which has been under fire for months on end? What did you think you were levered to? Why would it shock you that there would be a shortfall here? This isn't exactly Walgreens (WBA) . (Walgreens is part of TheStreet's Action Alerts PLUS portfolio.)
Or how about Lannett? Here's a company that makes generic drugs. Today we learned that the Justice Department is looking into the pricing of generic drugs to see if there was collusion.
I don't know if there was collusion. That will be up to the judge and jury to decide if they ever bring indictments.
But I would suggest that this time the Justice Department would be going after the people who did the rigging, not the companies themselves, because of the subtle Arthur Andersen doctrine which says the Justice Department shouldn't indict a company for some individuals' actions. That would mean, presumably, that Lannett isn't about to go under.
Now, Lannett did beat its earnings but cut its sales forecasts, so you could expect it to go down even as it told you the remaining quarters would be stronger than this one.
The important thing for me is that this company is selling at a little more than 5x earnings, so either earnings are going to fall apart or, after this kind of selloff, you have a real bargain.
The problem is that this kind of share base is not worth dealing with. I would rather deal with the share base of Amazon (AMZN) than of this one, and that stock has a ridiculous P/E. (Amazon is part of TheStreet's Growth Seeker portfolio.)
Where am I going here?
Simple: These stocks and dozens like them in the health care sector seem to have no underpinnings whatsoever and have shareholders who have done no homework or are scared of their shadows or have no idea about stock markets.
It's pretty darned insane.
In the end, generics, specialty pharma, biotechs, big pharma, medical devices, health maintenance organizations, pharmacy benefit managers and contractors are all under fire. If you own them, how do you not know that? We have one for Action Alerts PLUS, Allergan AGN -- our only health care position, thinking that we have to have something and it is the cheapest of the big pharmas, and it doesn't matter. Not one bit.
It's a terrible group. If you don't love what you own, sell some. Buy it back later, lower. Don't just stand there like Bambi.
It's painful to watch, but it must be excruciating to have happen to you.