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Battle The Bear: Big Pharma

Health care has been one of the best performing sectors in the S&P 500 this year. Are these stocks good for what ails you?

If you just look at all the cash available in the health care space you’d be hard pressed to remember that the US is in a recession.

On Monday Johnson & Johnson announced plans to buy breast implant maker Mentor Corp for $1.07 billion. J&J's tender offer includes a 92 percent premium to Mentor's closing price on Friday.

And J&J isn’t the only drug maker raking in the dough. Pfizer , Wyeth, and others are sitting on mountains of money leaving some to speculate that they too, may be looking to make an acquisition.

Sitting on Piles of Cash

Pfizer: $26 Bln
Wyeth: $11.1Bln
Bristol Myers: $7.2 Bln
Merck: $5.7 Bln
Eli Lilly: $4.35 Bln

What’s the trade in the space?

I think the trade is Pfizer, says Pete Najarian.

I own the Pharmaceutical HOLDRs and the iShares NASDAQ Biotechnology Index , reveals Karen Finerman.

You might want to look at Celgene, adds Guy Adami

All these stocks have been death, bristles Jeff Macke. Avoid them. They’re a safety group that have left most investors dead on arrival.

More on Merck

Of all these names, on Thursday most eyes will be on Merck which is going to give financial guidance going forward, explains CNBC’s Mike Huckman. Considering Merck shares are down 55% the guidance could move the market.

Merck, whose third-quarter profit plunged 28 percent due to falling demand for its cholesterol fighters and its vaccine to prevent cervical cancer, will provide the forecast ahead of a large meeting on December 9 with investors to review its lineup of experimental medicines.

The New Jersey-based drugmaker, which is also grappling with flat sales of its Singulair asthma drug, said in October it was cutting 7,200 positions, or 12 percent of its workforce. Those cuts follow 10,400 jobs that were slashed in an earlier restructuring meant to rein in operating costs.

It predicted annual earnings per share would grow in the mid-to-high single digits between 2005 and 2010, a pullback from the company's earlier projection of double-digit increases in profit.

"We expect few stock-moving surprises when Merck reveals its 2009 guidance" on Thursday, Leerink Swann analyst Seamus Fernandez said in a research note.

He speculated Merck would provide conservative 2009 predictions for product sales and company earnings, in view of recent poor sales trends for its big products and currency fluctuations that could dampen overseas demand for its array of medicines.

Merck's stock is trading at a depressed valuation of only 7.2 times expected 2009 per share earnings, said Fernandez. He predicted it would remain in the dumps until Merck is able to report surprising favorable news about an experimental drug or makes attractive purchases of other drugmakers or their medicines.

Deutsche Bank analyst Barbara Ryan predicted a stronger dollar would badly hurt Merck's overseas sales next year. Even so, Ryan on Wednesday stuck to her "Buy" rating on Merck, saying its management was skillfully cutting costs and moving to maximize sales in overseas markets.


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Trader disclosure: On Dec. 3rd, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MGM), (MSFT), (UUP), (WMT), (MCD); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman's Firm Owns (PM), (MO), (IBB), (PPH), (CSCO), (MSFT); Finerman's Firm Is Short (IYR), (IJR), (MDY), (IWM), (SPY), (BBT), (COF), (USO); Finerman's Firm Owns (DNA) And (DNA) Calls; Najarian Owns (NUE); Najarian Owns (UYG) Calls; Najarian Owns (SNDK) Calls

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