Pfizer (PFE) pushed higher on Monday despite defying White House demands to control prices and a broader market selloff.
Shares of the New York City-based pharmaceutical giant gained 1.54% on Monday, finishing the day trading at $44.18 per share.
Political Pressure Proves Immaterial
At least for Monday, the ire of politicians proved to matter very little for a stock move.
The company noted that it will in fact raise prices in 2019, as CEO Ian Read had suggested in October, even in the face of angry rebukes from lawmakers and government officials.
Caitlin Oakley, a spokeswoman for the U.S. Department of Health and Human Services, lambasted the company's move in a statement to Real Money.
"Actions announced Friday on list prices further illustrate the perverse incentives of America's drug pricing system," she wrote. "Drug companies raising their prices and offsetting them with higher rebates benefits everyone but the consumer, who routinely pays out of pocket based on list price. President Trump and Secretary (Alex) Azar remain committed to lowering drug prices and reducing out of pocket costs and will continue to take bold action to restructure this broken market."
The bipartisanship builds the possibility of regulation on pharmaceutical companies, but the absence of a tweet from the commander in chief appears to have allowed for a positive day for drug stocks.
Shares of Pfizer, Merck (MRK) , GlaxoSmithKline (GSK) , Amgen (AMGN) , Johnson & Johnson (JNJ) , and Eli Lilly (LLY) all finished Monday's trading on a high note in the face of a drooping Dow Industrial Average and a plummeting NASDAQ 100.
Seeking Shelter From Selloff
Part of the disconnect between pharma stocks and the broader market is driven by demand protection and the attractive valuation of many of the stocks.
"The market is telling us what we already know, people are scared of a recession and an escalating trade war and are therefore positioning more defensively," Action Alerts Plus analyst Zev Fima told Real Money. "People don't want to pay up for the high multiple when the cost of money is going up with Fed rate hikes and global growth possibly slowing."
The multiples assigned to many high-growth tech names is adding to selloffs as market fears foment as well.
As such, a forward-looking PE ratio of 14 assigned to a company like Pfizer becomes much more attractive than the 505 PE ratio assigned to cloud darling Twilio (TWLO) , which has marked a nearly 14% slide amid Monday's tech selloff.
Real Money's technical analyst Bruce Kamich noted that there are technical indicators suggesting Pfizer could find yet more gains given its "safe haven" status.
"I think the broad market is close to a bottom and the start of a year-end rally so I am trying to look at PFE will a bullish bias," he wrote. "Traders and investors should look beyond today's news stories and probe the long side of PFE at current levels and on strength."
Regulation Could Ruin the Refuge
To be sure, the positive day did not completely assuage the concerns of analysts wary of a still possible crackdown.
"We think this enflames the debate around drug pricing, especially since it comes less than two weeks following an election that resulted in Democrat control of the House, with many having run on drug price controls/Medicare for All platforms," Wells Fargo analyst David Maris wrote in a research note on the hike. "Pfizer probably had no intent on testing lawmakers' resolve on addressing drug pricing, but it may just have done so."
As a result, he set an underweight rating for the entire large-cap pharmaceutical sector until more certainty on the political implications of pricing becomes apparent and the market determines how much of a price increase is acceptable.
Until that crackdown comes, the market seems to be comfortable with pharmaceutical stocks like Pfizer as a place to park funds.