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Pharmaceuticals a Good Bet, Analysts Say

Tuesday, 8 May 2007 | 1:10 PM ET

Michael Krensavage, pharmaceutical analyst at Raymond James, told CNBC’s “Morning Call” that strong revenue and earnings growth will reward investors in the pharmaceutical sector.

He said first-quarter revenue grew about 8% and earnings climbed about 10% as the sector benefited from the Medicare Prescription Drug program that President Bush signed into law last year.

“Growth is looking good for these companies,” Krensavage said Tuesday. “In addition, we’re seeing some improvement in the companies’ pipelines.”

Investing in the Drug Sector
Tips on making money in the drug sector, with Michael Krensavage, Raymond James pharmaceutical analyst; Jeffrey Kraws, Crystal Research Assoc. sr. pharmaceutical analyst; and CNBC's Liz Claman

He likes Johnson & Johnson because it has underperformed. Johnson & Johnson also benefits from comparisons with Merck, which has recently had a strong run-up in price.

“Johnson & Johnson is a company that traditionally represents very good value,” Krensavage said. “Right now, it’s trading at a slight discount to the S&P 500. This is for a well-managed company that has a diverse revenue base. It has consumer products and medical devices –- not just pharmaceuticals.”

Jeffrey Kraws, senior pharmaceutical analyst at Crystal Research Associates, said investors might consider holding a basket of pharmaceutical stocks that include large-caps and generics.

He said patents expire on drugs with total sales of between $15 billion and $25 billion in the next few years, and this should benefit companies like Barr Pharmaceuticals. Among large caps, Kraws recommends Novartis.

  Price   Change %Change
JNJ
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MRK
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NOVN
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