Of 25 stocks identified by Barron’s as being “Like Money in the Bank,” only two are pharma companies — Merck and Pfizer. That should comes as a disappointment to the business, which has traditionally regarded itself as a sort of cash-rich safety play for stock holders.
The list* is also interesting for who is not on it — Eli Lilly, Roche and Bristol-Myers Squibb.
The paper attempted to identify safe havens for investors looking to weather the Wall Street insanity. It did so by targeting companies that generate lots of cash, have low debt loads, and high profit margins. In theory such companies should not care whether a half-dozen investment banks go belly up — they’re self-financing.
Pfizer is cited for its famous 6.8 percent dividend, which Barron’s says makes the company “worth the wait” for its post-Lipitor pipeline to turn around.
Merck makes the list because it has $7 billion (!) in cash sitting on its books and nearly in $18 billion (!!) in cash-like assets. It generates $1 billion in cashflow and $1.7 billion in net income per quarter.
But what of Eli Lilly, BMS and Roche? Aren’t they just the type of companies who should be in Barron’s 25? Well, Lilly just blew $6.5 billion and took on $3 billion in new debt to pay for ImClone. Roche is attempting (and conspicuously failing, thus far) to pay $44 billion for Genentech. One could also argue that BMS, with its $4 billion in cash, $1.6 billion cashflow and $764 million in net income per quarter should also be on there, especially as Lilly just handed the company another $1 billion for its stake in ImClone.
But that would be quibbling.
Disclosure: This article was written by a friend of mine, Dimitra Defotis. To add to the incestuousness, it also quotes a former professor of mine, Columbia’s Bruce Greenwald (he gave me an A-).
