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Biotechs are the stocks to own during this recession, Cramer said Monday. After all, people don’t stop taking their medicine just because the economy’s bad.
Cramer’s latest pick from the sector is Eli Lilly [LLY
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], which is offering a healthy 5.2% dividend yield right now. The company just upped that payout for the 42nd year in a row, so investors can feel pretty confidant the dividend’s safe. And since big money managers live by the aforementioned thesis – biotech in a recession – their moves into the stock should push the share price higher.
The key to Lilly is that while the negatives are already priced in, the positives are not. So it looks like there’s more reward than risk here. Wall Street already knows that Lilly will suffer a number of patent expirations between 2010 and 2015 on drugs with $10.5 billion in annual sales. But on the flipside, this company has a strong pipeline of treatments that could fill in those gaps. Lilly expects to have 10 drugs in Phase III trials – the last before Food and Drug Administration approval – by 2011, and a product a year will be release between 2009 and 2012. Then it jumps to two per year by 2013.
There are some noteworthy catalysts for Lilly coming up in the first half of 2009 as well. Recently acquired ImClone hopes to receive expanded indications for first-line treatment of lung and colorectal cancers for its drug Erbitux. Erbitux is similar to Genentech’s [DNA
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] Avastin, a big moneymaker due to its own expanding indications for different kinds of cancer. Also, Lilly has six Phase III study data releases that could boost the stock.
Believe it or not, Cramer also likes Lilly’s chart. The Mad Money host usually shies away from technical analysis, but the market is virtually obsessed with charts right now. So he’s taking notice. And the very man who taught Cramer charting said that Lilly’s got the best chart of all the pharmaceuticals.
Finally, Lilly’s been cutting costs, too. $750 million in 2008 alone. And the company’s expecting to end 2009 with $3.4 billion in cash – after paying out $2.1 billion in dividends. Lilly’s earliest debt maturities don’t hit until 2012, again lending further proof that the dividend’s safe.
Add all this together and take into account Cramer’s theory that biotech should rally as it did in 1992, after Bill Clinton took office, and you have yourself a stock worth buying. Wall Street tends to think Democrats are anti-big pharma. But that wasn’t the case then, and Cramer doesn’t think it will be now.
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