Big Pharma’s Big Gains | Seeking Alpha

By Tim Knight

Many investors will look back upon 2022 as a disaster.

It was the worst market for bonds in over a century, and even the largest and best-known tech stocks lost about one-third of their value-with a few losing virtually all their market cap. Value plunged for cryptocurrencies, stocks in social media companies and yield-sensitive exchange-traded funds.

Yet “big pharma” remained a relatively safe haven and continued to produce life-changing profits for long-term holders. Plus, there’s no indication the bonanza will end anytime soon.

The United States healthcare system is famously expensive, and much of the revenue flows into the coffers of pharmaceutical companies.

Over the past half century, the absolutely gargantuan gains for four major firms have ranged from “only” about 12,000% to about twice that much. Those firms are Bristol-Myers Squibb (BMY), Eli Lilly and Co. (LLY), Merck & Co. (MRK) and Pfizer (PFE).

Fab Pfizer

Because of its popular and widely distributed COVID-19 vaccine, Pfizer has sparked more controversy than other stocks in its sector. It’s also fundamentally the least expensive, with a single-digit price-to-earnings ratio (P/E).

The “bull run” following its basing pattern in the 1970s lasted a full 20 years. The next basing pattern, which took nearly 15 years to complete, is relatively young-assuming a lengthy bull market in Pfizer is to follow. So, even at present prices, Pfizer might be the best opportunity among the stocks featured here.

Pictures of Lilly

Eli Lilly has been one of the most exceptionally profitable investments over the past half century. Shares are up about 24,000% since 1970. The ascent was especially swift since the bottom of the financial crisis of 2008. Over the past dozen years, the stock has gone from about $20 to nearly $400.

Large saucer patterns have preceded each ascent. The first spanned 1973 to 1984, the second occurred from 1990 to 1995 and the third (and largest) took place from 2000 to 2016.

With the rapidity of its ascent in recent years and a P/E ratio of about 54, Lilly is an exceptionally expensive stock right now. Long-term investors probably would want to wait for a potential smack-down before acquiring shares, given its tremendous distance from principal support.

Merck works

Merck has been another exceptional performer, providing long-term investors with returns of about 22,000%. Over the past five decades, it formed two major bullish bases: the first all through the 1970s and into the early 1980s, and the second from the late 1990s through 2015. Each was followed by a hearty bull run.

These stocks aren’t immune to severe bear markets or shifts in investor preference. For example, a person buying Merck in late 2000 would have seen nothing but losses for a full 14 years! That’s an exceptionally long time to hope a stock will turn around, although holding it eventually paid off handsomely.

Fundamentally, the stock isn’t particularly expensive with a P/E of 18. At the same time, it could fall nearly 50% and still not violate its ascending trendline. Much of the gain in pharmaceutical stocks in recent years has been driven by investors fleeing disasters, such as tech stocks, as well as by those seeking pandemic profits.

The Squibb game

Like all of the stocks in this article, Bristol-Myers Squibb has been a strong and steady performer, eventually. The prices tend to “base” in a saucer formation before breaking out, as shown from the late 1970s to the early 1990s, and in other more recent (and much larger) instances.

Naturally, even such a successful stock occasionally back-tracks. Indeed, it lost about two-thirds of its value during the bear market of 2000-2002.

As safe and reliable as a chart like this might appear, investors are at the mercy of timing. They might go into a seemingly safe stock such as this and see most of their investment wiped out before the stock stabilizes and turns around-which can take many years.

Over a period of decades, however, these pharma stocks have always recovered and pushed on to new highs.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.