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Pharma Stock Picks From a Five-Star Fund Manager

To a five-star fund manager, it's not how big the stars are, but how brightly they're shining. In the pharmaceutical field, Kris Jenner of T. Rowe Price finds brightness at both ends of the size spectrum.

Among the giants, Jenner likes Merck, which just posted "yet another strong quarter...and we think, in fact that what they did in this quarter, we're going to see more of the same in the future. Merck is going to be a good stock over the next one to two years."

The share price of Dow component Merck has more than doubled over the last two years. So is now really a good time to buy it?

"I still think that they're probably not getting all the credit for the level of the earnings that they're delivering and will deliver," Jenner said.

As to trends, "You've got an economy that's slowing, that's generally good for health-care investing," he said.

On the downside, "Probably, the strongest headwind is the presidential elections in 2008; that's going to weigh heavily on the pharmaceutical industry. Merck is still a very good bet."

Jenner finds another "good bet" in Onyx Pharmaceuticals. He finds "a lot more risk here, but a lot more upside."

In co-operation with Bayer Pharma of Germany, Onyx markets the FDA-approved kidney-cancer drug Nexavar. Jenner believes "Nexavar is going to become the standard of care in the treatment of liver cancer, a very deadly disease for which there hasn't been good therapy.

"There should be more information on other cancers to come," he said, "so [there are] lots of good things to look forward [to] here."

Analyst disclosure: Jenner personally owns Merck, but not Onyx.