Second, though cash flow counts more than ever, since finding a new blockbuster drug is more expensive and seems harder and riskier than a decade ago, the competitive advantage provided by Pfizer's industry-leading sales force has slipped behind the advantage it would have if it ran the industry's best research-and-development lab.
The key test facing any drug company for the next decade is developing (and/or buying) enough drugs to:
- Make up for any patents expiring.
- Keep the sales force busy.
- Push up revenue and earnings by the kind of 10% growth that investors in drug stocks still look for.
Four More DropsThe same kind of analysis is behind my four other drops this year:
- Duke Energy (DUK - Get Report). The competitive advantage in the utility industry has shifted to companies with big unregulated power-generation businesses that emphasize nuclear and alternative technologies, such as wind power.
- FedEx (FDX - Get Report). Global competitors such as United Parcel Service (UPS) have caught up with FedEx, and smaller niche competitors have taken a leaf from the company's book by adding technology to match its logistics capacity.
- Southwest Airlines (LUV - Get Report). The low-cost, short-haul model that Southwest pioneered has been adopted so widely that it's not enough of a competitive advantage to justify keeping the stock in this portfolio.
- Walgreen (WAG). In response to fierce competition, the company has moved away from its core competency of running the best drugstores in the best locations to pursue a strategy built on acquisitions in the pharmacy-services sector.
Five to AddTo balance these five drops, I'm adding Gilead Sciences, as noted above, and:
- Accor, the leader in the international budget-hotel segment.
- EMC (EMC - Get Report), the best in the storage industry at integrating hardware and software.
- FPL Group (FPL), the leader in the unregulated business of generating electricity from wind in the U.S.
- Nvidia (NVDA - Get Report), the last independent graphics-processor company standing.
|Procter & Gamble
|Johnson & Johnson