Buy Wyeth?

Merrill Lynch upgraded Wyeth Monday on the strength of the company’s drug pipeline, while Bear Stearns downgraded the stock for fear of generic competition. But both firms overlooked what Cramer said is the most important reason to buy or sell big pharma right now: recession.

Wyeth is a defensive, secular stock – the kind investors flock to in a recession because it delivers consistent earnings regardless of the economy. Even Johnson & Johnson, which Cramer called overvalued and without momentum, was up Monday. This is the time when drug companies have the wind at their backs, Cramer said.

With an Alzheimer’s drug entering Phase III testing, a strong vaccine business and stock trading at only 11 times earnings, Wyeth is a buy as far as Cramer is concerned. And the 2.5% yield and hefty buyback will provide some much-needed downside protection in this market.

The analysts were just playing that game they play, Cramer said. Even if every stock in pharma Bear Stearns or Merrill Lynch covered was a buy, they would still balance their buys, holds and sells across the sector. So because Merrill liked Wyeth marginally better than other pharma companies, WYE got an upgrade. Bear was vice versa.

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