So, what in the heck does pharma have to do with mortgage giants Fannie and Freddie and the government's action to save them? John Sullivan, the Director of Research at Lerrink Swann, which specializes in healthcare stocks, says there is a potential trading opportunity in the sector related to F & F.
He put out a research note to clients this morning titled, "High-Beta Healthcare Stocks Can Benefit from the Fannie/Freddie Resolution."
His thesis is based on the old axiom that, "Markets hate uncertainty and love resolution; from a near-term trading standpoint, we therefore think the Fannie/Freddie bailout is a good thing for the U.S. market in general and for financial stocks in particular; some healthcare stocks can even trade with more upward bias." But Sullivan thinks high-beat healthcare names "will likely surf a positive market wave better than low-beta healthcare names."
But he quickly points out that conversely, the traditional safe-haven healthcare stocks that might have outperformed the overall market recently could be due for a near-term rotational pullback now.
And in the long term, Sullivan believes the sector will suffer from the F & F fallout, which he sees as "a negative for the U.S. healthcare industry, in that the $200-$300 billion in taxpayer money that us expected to be needed is money unavailable to buy healthcare products and services for Medicare recipients."
He didn't name names, so I called Sullivan to ask him for some examples of high-beta and low-beta healthcare stocks or, at least, sub-sectors. He said he'd get back to me. I didn't hear back from him, so I called back and left a voicemail message. If/when I get his ideas, I'll update this entry.
This morning most, but not all, of the big pharma names--Merck, Schering-Plough, Pfizer, Wyeth, Bristol-Myers Squibb, Eli Lilly and Johnson & Johnson (at another new high again following a positive article in Barron's)--are participating in the rally.
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