first: We own no drug stocks. What few we had got sold by Berko while I was away. And there is not an ounce of recrimination from me for that move.
What happened to the drug stocks, which have been my fave for so long?
They are the casualty of the worldwide recovery. There is just so much nonindex money out there buying stocks, and that money has to sell something to buy other things. The something in this case is the drugs. I cannot emphasize enough how important this "source of funds" type of thinking is. These days, the only way big mutual funds can beat the market is to sell a large
sector that they think may underperform and buy sectors they think will do better than the index. The drugs are a natural underperformer in a world where the economy is improving, not getting worse or in crisis.
Can you bet against this new consensus? I don't think it's worth it to second-guess such a rotation. There are lots of secular reasons why the drugs make sense to sell. The federal government is sick of paying high prices for drugs. The competition among the drug companies has never been as intense (for the longest time, only
seemed like class acts, but now everybody seems like one, even the
, which means there is too much competition).
These are weak-dollar stocks, and the dollar is getting stronger, not weaker, especially vs. the euro. And if you can buy drugs on the Net, soon the buying power will go to the Net buyers (
, etc.) vs. the cozy drug oligopoly. (We saw this happen once before, when
and its compadres used to pit the drug companies against each other. But then the drug companies bought these mail-order competitors and wiped out the competition.)
Don't underestimate the power of Bezos & Co. to dictate pricing on the chronically prescribed drugs. It will happen. Of course, some of the drug stocks will get to be too cheap and will be good for a trade. But it will be for a trade only as far as I am concerned.
What would change things for me? Not much. Pfizer and Merck both had not-so-hot quarters. They won't report new quarters for three months. That might be a good time to look again. No Y2K worries and a summer slowdown in tech might make them seem terrific.
Talk to me in July.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in the stocks mentioned, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at
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