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Cramer’s Beating Himself Over Plough’s Shares

Never underestimate Wall Street’s capacity to be irrational. Cramer relearned that lesson the hard way with Schering-Plough.

An expert panel at a March cardiology conference virtually trashed the drug company’s cholesterol blockbuster Vytorin, part of a joint venture with Merck, sending SGP shares tumbling 26% that Monday. The problem is the panel never said anything people didn’t already know. Study findings that Vytorin might not be as effective as some older treatments were common knowledge by then. But that wasn’t enough to put a floor under Schering-Plough’s sharp descent.

Cramer looked deeper than what seemed like the sensationalist coverage of that conference. Schering actually has some great things going for it. Most importantly, a buyout of Organon that filled SGP’s pipeline with new drugs, diversifying the company away from Vytorin, and allowed for $500 million in cost savings.

Wall Street, though, didn’t notice. Downgrade after downgrade sent the stock lower and lower. Even the New York Times got in on the party, writing a story that helped to sink this once-$32 stock to a low of $14. Nothing seemed to stop the sell-off.

Of course, maybe greed had something to do with Cramer’s gaffe. And he’ll be the first to admit it. When SGP was in the $30s, he should have been taking profits (his charitable trust owns some Schering shares). Instead, he thought CEO Fred Hassan would continue to take this stock higher. He was wrong.

The silver lining here is that the hype has passed, that new drug pipeline is still there and an additional $1 billion in cost cuts Hassan set in motion to deal with the Vytorin fallout should be a big help to Schering. For these reasons, Cramer thinks SGP is now a buy.

Jim's charitable trust owns Schering-Plough.

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