The stocks of large pharmaceutical companies, including Bristol-Myers Squibb (BMY) and Merck & Co. (MRK), which I follow, have outperformed the market significantly so far this year. The pharmaceuticals sector, as measured by the NYSE Arca Pharmaceuticals Index ($DRG) shows a year-to-date gain of 5.2%, as of this post, much better than the S&P 500’s 6.5% decline.
The two pharmaceutical stocks that I follow, BMY and MRK, have outperformed both the $DRG and the S&P 500. Merck’s stock is up 12% year-to-date on price and 13% on a total return basis. Bristol-Meyers is up 23% on price and nearly 25% on a total return basis.
The strong relative performance of the pharmaceutical stocks reflects investors’ perceptions that they are a safe haven in a turbulent market. It is also possible that concerns about their ability to maintain prices have receded with the recent pick-up in inflation. The market may be in the process of revaluing the sector, giving it a higher earnings multiple relative to the broader market averages; but it is also possible that in the short-term at least, the stocks have run a little too far too fast and so may be ripe for a pullback.
As a result of these gains, both of these stocks have exceed my target prices – $85 for Merck and $74 for Bristol-Meyers – much faster than the 6-12 month time frame assumed in my performance outlook. Consequently, I have decided to reduce my performance ratings on both stocks from outperform to neutral for the time being. I will monitor their 22Q1 earnings reports, when they are released later this month and reassess my price targets at that time.
April 12, 2022
Stephen P. Percoco
16 West Elizabeth Avenue, #4
Linden, New Jersey 07036
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