wearmanyhats

There is one sector that I hate to invest in and that is the drug companies.  But there’s not doubt that whenever there is a correction and then the sector turns around, you can sometimes hop on the coat tails of one of them and go for a good ride.  Such is the case of GlaxoSmithKline (GSK), which seems to be on the upswing.  This is a great time to jump in, then pull the gains off of the table when you feel the ride is over.

Why GSK and why now?  Well, the health sector is truly on the move upward, and has been for a little while.  GSK’s turn around seems solid.  The economy has relaxed since  the short term drop in oil prices, and this gives other sectors a chance to rise as well.  GSK’s net income seems to do nothing but go up.  Its P/E is a respectable 14 and the overall financial health of the company seems fairly strong. Schwab listed its profitability at 34%, a number I have not been able to verify elsewhere. But one thing was certain, the other companies that I compared them to did not have nearly that profitablity margin.

  While it would be better to see insiders buying like crazy, they aren’t really doing anything in the way of selling, either, so this would be a case of riding a short term bull in healthcare. If you can buy in under $47, then place a sell at $56, that might be what you can get out of it. You might have to sell out earlier at $54, but I’ll keep an eye on it, too.  Place a stop loss of five dollars under your enty price, then move it as the stock goes up five dollars.  This should protect your portfolio against any sudden weird foreign events which might spook investors and drop the market expedentially.

So why do I hate buying drug companies?  Because if there’s anything that will go wrong with a product, a whole slew of people sue and cost the company their profitability. There is also never a good time to buy in, truly.  For example, if you could have bought in on JNJ when there was Tylenol scare, that would have been great, perhaps.   But what about other drug companies where they have had to pay out for the damage their drugs caused?  Their share prices suffered terribly. The biggest hope for a drug company investor is that while their money is in the stock, no one gets sick off of the drug.

It’s a bit like chicken racing.  If you don’t do it very often, you might get lucky and win once.  If you do it often, you’re bound to get creamed. This is a get in and out situation, not a buy and hold.  Be sure to put enough into it to cover more than your commissions!  And good luck!

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