Do pharma shares make a good stock option plan?

Despite the reticence in making stock recommendations, specialists say the pharmaceutical stocks should always be an essential component in each investor’s basket.

“If someone decides to invest at the stock market in these downtimes, the pharmaceutical sector should be their no1 investment avenue choice, and as we saw in the latest reports, turnovers have scarcely been impacted by the crisis. Unfortunately, the profitability of companies has been dented by the regulations imposed by the Ministry of Health and by the dwindling local currency”, said Mirela Maxim.

Paul Brendea, however doesn’t recommend investing, except to speculators. “They can benefit from the wide-bandwidth volatility of the market. To investor, though, I recommend the waiting mode”, he said.

As for the pharma sector, there are two opposite approaches, he noted.

“There is the approach of defensive stocks that leverages buyers, and at the opposite side, is the general approach on Romania and Eastern Europe that is profitable for vendors. Then, there are differences between companies: Biofarm – that poses the higher risk due to its exposure to FICs, Antibiotice – somewhere stuck in the middle, facing problems with accounts receivable recovery and Zentiva who has to confirm the improvements in first nine months of 2008”, explained the analyst at Prime Transaction.

In last year’s fall, analysts were recommending as defensive stocks – companies whose products feature a low resilience toward consumers’ incomes.

“The pharma sector or the utility sector is deemed as “defensive”, which means that when the economy is showing signs of weakness, they provide a way to hedge the overall portfolio risk. Even if the business environment worsens, the demand for pharmaceutical companies or utilities is less resilient”, Andreea Gheorghe with Intercapital Invest told Wall-Street.

Pharmaceutical, food industry and utilities are deemed as defensive stocks.

“I don’t know how much this criterion applies now, same as other criteria applicable in the fundamental or technical analyses, when all actions taken in the stock markets across the world are made on fear”, said Paul Brendea.

As Mirela Maxim notes, the pharmaceutical shares are still considered defensive, the drug demand being expected to remain constant, despite crisis.