J.P. Morgan Says Buy Specialty and Big Pharmaceuticals Now

While not predicting an end to the selling, in a new research report the J.P. Morgan team says investors should at least start to scale some capital in these top names, in which none of their basic thesis have changed.

Bristol-Myers Squibb Co. (NYSE: BMY) is an Overweight-rated stock at J.P. Morgan. The company announced that its new drug nivolumab plus Yervoy will move to a Phase III trial in non-small cell lung cancer by year end. Wall Street thinks that is a key data point and the drug could have $500 million in sales in 2016 and $5 billion by 2020. The company is believed to be most advanced in immune oncology, given that it has multiple Phase III studies underway and is pursuing more combinations than competitors and mainly with its own assets. The company pays shareholders a 2.8% dividend. J.P. Morgan has a $60 price target on the stock. The Thomson/First Call price target is $55.12. Bristol-Myers closed Tuesday at $51.04.

Endo Health Solutions Inc. (NASDAQ: ENDP) announced last year that it was buying Canada-based Paladin Labs for $1.5 billion. The stock reacted favorably as Wall Street loved the deal, which looks to be accretive to earnings in the first year. The company’s top line has been under pressure over the past few quarters due to declining sales of its key drugs. J.P. Morgan has an Overweight rating and an $85 target. The consensus price target is $69.94. The stock closed Tuesday at $67.90 a share.

Merck & Co. Inc. (NYSE: MRK) is a company that many on Wall Street believe is ready to sell or spin off its animal health business. This could provide the company with needed capital for other areas and may make for a top initial public offering (IPO) at some point later this year or in 2015. Merck is also the big pharma partner with Endocyte, which recently received good news on its cancer drug vintafolide, doubling the stock in a day. Merck pays shareholders a very solid 3.2% dividend. J.P. Morgan has a $60 price target and an Overweight rating. The consensus price target is $56.78. Merck closed Tuesday at $55.19, up more than 2.5%.

Mylan Inc. (NASDAQ: MYL) offers a growing portfolio of more than 1,300 generic pharmaceuticals and several brand medications. In addition, it offers a wide range of antiretroviral therapies, upon which approximately 40% of HIV/AIDS patients in developing countries depend. The company also operates one of the largest active pharmaceutical ingredient manufacturers and currently market products in approximately 140 countries and territories. The J.P. Morgan price objective is $65, and the consensus is at $59.80. Mylan closed Tuesday at $50.71.

Perrigo Co. PLC (NYSE: PRGO) develops, manufactures and distributes over-the-counter (OTC) and generic prescription pharmaceuticals, nutritional products and active pharmaceutical ingredients, and it receives royalties from multiple sclerosis drug Tysabri. The company is the world’s largest manufacturer of OTC health care products for the store brand market and an industry leader in pharmaceutical technologies. Investors receive a tiny 0.4% dividend. J.P. Morgan has a $190 price target, while the consensus price target is $174.79. Perrigo closed Tuesday at $158.05.

Pfizer Inc. (NYSE: PFE) trades at a low 14 times earnings and is also Overweight rated at J.P. Morgan. The company updated investors and physicians at the conference on the Phase II trial results on palbociclib for advanced breast cancer. The doctors on the breast cancer panel at the conference were much more optimistic than previously about the possibility of palbociclib being filed and approved on Phase II data in first line advanced breast cancer. Preliminary/interim overall survival data will be presented at AACR on April 6. Investors are paid a 3.2% dividend. The J.P. Morgan price target is $35, and the consensus price target is $34.09. Pfizer closed Tuesday at $31.82.

Valeant Pharmaceuticals International Inc.‘s (NYSE: VRX) acquisition of Medicis last year made it a leader in dermatology in the United States, with segment sales approaching $2 billion. Valeant expanded its acne franchise via the Medicis purchase, with the addition of Solodyn, a once daily oral antibiotic (minocycline) launched in 2006, and Ziana, a combination clindamycin/tretinoin topical gel introduced in 2007. J.P. Morgan has put a $170 price target on the stock, and the consensus price target for this fast growing company is posted at $52, which must be incorrect. The stock closed Tuesday at $131.53.

With the quarter ending, and a volatile three months close to an end, it is pretty clear that portfolio managers were more than willing to take profits. Like we have also mentioned, event-driven hedge funds love politicians stirring the pot, as it gives them the perfect storm to short stocks after a long rally. For investors, quality specialty and big pharmaceuticals names hardly go out of style. Scaling some funds in here may be a good idea.