Looking for a Hot Sector? Try Pharmaceutical Stocks

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pharmacist in pharmacyThe pharmaceutical industry is quite predictable. Due to the fact that patent protection expires, pharmaceutical companies are always looking to either acquire patent portfolios or simply buy up whole companies. This is particularly true of giant pharmaceutical companies like Pfizer (NYSE:PFE). It appears that, once a company reaches a certain size, it can either research its way into new product lines so that its growth can be preserved, or it can just buy that growth.

If you look back at the recent history of large pharmaceutical companies, ranging from Glaxo (NYSE:GSK) to Pfizer and other large companies, you would see one recurring pattern: they acquire smaller companies with newer patents, so they can hit their growth targets. Well, it looks like Pfizer is on the hunt for companies to acquire.

Companies the size of Pfizer need to grow by a certain rate every single year, to justify its market price. Otherwise, stocks will get hit, or it may be removed from portfolio listings of large funds. There is a lot at stake for pharmaceutical giants to keep acquiring new patents through in-house research, or by simply buying smaller companies. Another strategy they often employ is to buy companies that may not have new drug portfolios, but have solid revenue performance histories. This is especially true of generics makers.
If you are looking for a sector that is ripe for takeovers or acquisitions and mergers, you might want to pay attention to pharmaceuticals. There are some biotech stocks that may be worth your research time. These biotech stocks are long on patents, but short on marketing and sales resources. Regardless, the market factors are there for a continued consolidation and acquisition in the pharmaceutical space. The valuations are quite attractive. So if you were to get into a biotech stock at a low enough price, the returns can be quite lucrative.
Of course, it all turns on timing. Biotech stocks are often cheap before the drug gets approved. The earlier they are in trials and drug development, the cheaper they are. Of course, you are still rolling the dice, because it is not a slam dunk that the drug they are working on will actually get approved. Regardless, once a small biotech stock has enough approved drugs, it pretty much automatically gets on the radar of bigger pharmaceutical companies that might want to acquire it for its patent.

Jacob Maslow is our Editor, and has extensive experience with writing about global financial matters. He also runs a successful SEO consulting business, Mekomi Marketing