When dabbling into the stock market, most people are wary of taking risks. They want a stock that is a consistent performer-no really high peaks and a tumble down. They also want good dividends and performance.
Over two years ago I invested in Martha Stewart Living Omnimedia. My investment was minimal, three shares at the time. I thought it was a great idea. Stewart was leaving prison and I had purchased the stock at a very low price. I had read she had a couple of deals going with NBC Universal, one was The Apprentice, the other a daily talk show to show the more “human” side of her. In my mind, there was no question that the price of this stock would skyrocket.
Okay, maybe I wasn’t completely right.
Over 52 weeks, here’s a snapshot of what MSO did:
52 Week High: 28.31
52 Week Low: 14.76
That’s a pretty big fluctuation. I hadn’t returned nearly the dividends that I had expected.
So what to do? I’ve taken a look at pharmaceutical stocks. Here are some great reasons why you should diversify your portfolio with some of these. The pharmaceutical sector is booming, and it’s time to take notice!
Let’s not lie, the American population is getting older. With the babyboomers retiring and the maintenance medications becoming more popular, drug companies are a sure bet! As people get older, their personal needs for medications increases whether it is osteoarthritis medications to heart and blood pressure pills, there will always be a profit!
Drugs are a necessity to everyday life. Though the thought may sound horrible, betting on human health is profitable. People will always be sick! Americans spend $200 billion annually on prescriptions, which continually increases by at least 13 % each year.
Drugs also are much cheaper than a visit to a hospital. Any insurance company will tell you, that they would much rather shell out hundreds of dollars instead of thousands upon thousands of dollars on a hospital stay. It’s simple math.
The Food and Drug Administration has also learned a thing or two about pharmaceuticals. They have begun to realize that with all the bureaucratic red tape, they have been unable to effectively and consistently help people. Now, the FDA has accepted new standards, pushing generics of certain highly expensive drugs (like HIV/AIDS treatments) to the public. This allows for drug companies to make both the brand and generic of the drug. This in turn makes them more profitable.
Along with the changes with the patent program for the FDA, there have been so many advances in science over the past decade. There is an onslaught of biotech companies who have produced some great HIV and Cancer treatment drugs. When these drugs are announced to the public, the price of the company stock usually increases steadily.
There are so many great reasons to go with pharmaceutical stock, but it would be unfair to note that you still have to proceed with caution. Why? Here are some examples:
Claritin, before Plan B, was the first major prescription to hit over the counter shelves in years. The manufacturer of Claritin, knowing that it was the number one prescribed allergy medication, raised the price of the drug fourteen times over less than five years. This means an increase of 50 % in the price. Inflation doesn’t even come close to that! Once Claritin hit OTC and generic versions came out, the stock plummeted, and Schering-Plough quickly introduced Clarinex, basically the same drug, to counter the loss. The stock fell mightily.
Also, drug companies have this “like what they see approach.” When each company saw the success of Lipitor (a statin for high cholesterol), suddenly 25 different statins hit the market. Though it may look diversified, it really isn’t.
Pharmaceutical stocks are a great way to diversify your portfolio, but talk to your broker first or do your research before making any kind of investment.