Cramer’s Picks & Pans in Pharmaceuticals

Stock Tickers: MRK, PFE, JNJ, GSK, SGP, LLY, WYE, NVS, NVO

On tonight’s MAD MONEY on CNBC, Jim Cramer said he keeps getting asked about Big Pharma drug stocks.  He’d rather focus on farms, but Cramer said he doesn’t like Big Pharma.  He’s reviewing names he wants to sell, keep, or buy.

Drug companies have lost their growth and haven’t produced any blockbusters.  Most big drug companies face an earnings gap down the road that will have earnings pressure from patent expiration.  The biotech companies are the only ones making new big drugs.  He also hates that the Democrats have Big Pharma under attack because of prices.

Here are his two avoid stocks in drugs: Pfizer (PFE) and J&J (JNJ).  Pfizer (PFE) is one you should avoid because they have many patent expirations coming up. Lipitor and NORVASC are already under generic pressure.  The one worse than Pfizer is Johnson & Johnson (JNJ).  They have patent expirations on major drugs and thinks Warren Buffett was wrong investing in it. He expects J&J to lose money for holders.  He didn’t give these as his two ‘avoid stocks’ but Cramer was cautious on Merck (MRK) and GlaxoSmithkline (GSK).  Merck’s GARDISIL is good, but not good enough to make him like the stock.  GlaxoSmithkline (GSK) showed how at-risk it was after AVANDIA crushed the stock because of heart attack side effects.

Cramer did say that if you must own a big drug company, he does have a couple less bad ones.  Two names he doesn’t mind are Eli Lilly (LLY) and Schering-Plough (SGP).  Eli Lilly (LLY) is one that has setbacks on patent expirations and negative developments, but it has a blockbuster in its pipeline and he can live with you owning this one.  One that he thinks you can buy is Schering-Plough (SGP) despite its patents expiring and somewhat limited pipeline.

While he is still negative on the whole sector, he has a couple of picks that he says are actual buys that he blesses: his second favorite is Wyeth (WYE) because it is mostly immune from generics right now even though it has some problems.  Novartis (NVS) is his favorite pick with little exposure to generics in the near future.  He would push Roche (RHBBY) except it is only a pink shot.

If you care for any personal favorites outside of what Jimbo thinks, my own personal favorite drug pick as a "defensive stock" that you can almost always own is Novo Nordisk (NVO).  Novo Nordisk the ultimate diabetes play, and should do well as long as America stays fat and as long as the rest of the world keeps adding pounds.  It is thinly traded here in the US because it is really based in Denmark, so because of the currency floating you need to look at the ticker "NVO" on the Copenhagen Stock Exchange to get the true chart read. 

Jon C. Ogg
June 12, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.