The Big Drugs for 2006

The credit-rating and stock-picking arms of Standard & Poor's agree that Big Pharma should show some gains this year despite incessant battering by generic competition.

"Despite near-term uncertainties over pricing and patent expirations, we think pharmaceuticals remains one of the healthiest and widest-margin U.S. industries," says Herman Saftlas, an S&P senior equity analyst. Saftlas issued a recent research report in which he raised his outlook to positive from neutral on the big-drug sector.

"We see longer-term prospects enhanced by demographic growth in the elderly (accounting for about 33% of industry sales) and by a healthy number of products in the pipeline," says Saftlas, who adds that many big drugmakers offer "attractive" price-to-earnings ratios and dividend yields. ...