Despite the flurry of debate surrounding ObamaCare, which the U.S. Supreme Court is set to rule on later this week, two managing directors emphasized the new products that will be emerging from pharmaceutical companies’ pipelines soon.
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“I think we are seeing a fundamental improvement in the level of innovation from the industry, and that’s really the single-most important aspect of driving out multiples for the sector,” said Barbara Ryan, a managing director at Deutsche Bank Securities.
In an interview with CNBC’s “Squawk on the Street,”Ryan listed Abbott Laboratories, Bristol-Myers Squibb and Merck among her top picks in the sector. All three traded near their 52-week highs on Monday.
“We also see the opportunity in all three of those companies for the multiples to expand as a result of an improving new product portfolio,” she said.
In the pharma sector, many of the companies are well capitalized by very visible cash flows and have active share-repurchase programs, Ryan added.
Catherine Arnold, a senior analyst and managing director at Credit Suisse, is seeing new drug mechanisms compared to five years ago, whereas before companies released a lot of “me-too” drugs, or ones that were very similar to existing products.
“We think there is an uptick in productivity in the industry that is also helping beyond the yield trade,” Arnold said.
Her top pick in the sector is Merck, but she also likes Allergan and Forest Laboratories.
“Merck is a stock that I think has had a low level of catalysts, but that’s changing,” Arnold said. “I think there are low expectations.”
She said the company has an interesting cholesterol drug program in addition to cancer and Alzheimer’s disease products that she thinks will start to attract more attention over the next year or two.
—By CNBC.com’s Katie Little
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Disclosures:
Disclosure information was not available for Barbara Ryan or Catherine Arnold.
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Follow Katie Little on Twitter @katie_little.
