A Few Ideas For Your Market Correction Buy List
The Dynamic Wealth Report
May 20, 2010
by Robert Morris, Editor
This past weekend I took my 13 and 9 year old daughters to Washington
D.C. It was their first visit to our nation’s capital. And I couldn’t
wait to show them all the sights.
We did it all.
We had a private tour of the Capitol. We visited all the monuments on
the Mall. And we even took a tour of the White House.
As you can imagine, we all had an amazing experience.
If you’ve never been to Washington D.C., I urge you to visit this
incredible city at least once during your lifetime. You won’t regret it.
The great history of the United States comes to life before your very
eyes. You really appreciate all of the sacrifices made by so many to
preserve democracy and freedom.
Which leads me to the point of this little story.
As we were walking on the Mall from monument to monument, I got to
thinking about the market correction. I remembered the panic I felt in
my chest as the Dow dropped 1,000 points in the blink of an eye.
Many of you probably felt the same way.
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But as I’m thinking of that horrible moment, I’m looking
straight at the World War II Memorial. Then I looked to my right and
there’s the Vietnam Veterans Memorial. And to my left is the Korean War
Veterans Memorial.
I immediately felt a sense of calm sweep over me.
Looking at these monuments put everything into perspective. I realized
through each of these wars the market survived. And afterward it went
significantly higher.
If the market can survive these kinds of events, it should have no
problem recovering from the current issues of the day.
So, with the market headed lower, it’s time to put a list together. I
call it my Market Correction Buy List. I want to be ready to scoop up
great bargains as soon as they appear.
Given the market’s volatility, I want stocks that offer stability,
growth, and income. I only see one sector offering all three qualities…
Big Pharma.
Companies like Johnson & Johnson (JNJ), Pfizer (PFE),
Merck (MRK), Eli
Lilly (LLY), and Bristol-Myers Squibb (BMY).
These stocks offer great stability. They’re huge companies with tons of
cash. And their stock prices haven’t doubled and tripled in the past
year like retail stocks and other cyclicals.
In other words, they don’t have as far to fall.
They’ve been held back for several reasons.
The potential impact of healthcare reform legislation. The large number
of top selling drugs going off patent. And the lack of new blockbuster
drugs coming to market.
However, these concerns are now old news in my opinion.
Big Pharma has been working hard to create a new growth cycle. A number
of mega-mergers and acquisitions have boosted product portfolios at
these firms.
Pfizer bought Wyeth. Merck merged with Schering Plough. Bristol- Myers
acquired Medarex. And Johnson and Johnson purchased Mentor.
What’s more, they’re constantly doing in-licensing deals with top
biotech companies.
This is a great way to gain control over the next generation of
blockbuster drugs. And they’re doing it without spending billions on
research and development.
Best of all, Big Pharma has the cash and resources to expand rapidly
into emerging markets. All of them are working round the clock to grab
big chunks of huge untapped markets in China, Brazil, and India to name
a few.
These emerging markets are the future of the industry.
While developed markets are growing at just 3% to 6% annually, emerging
markets are growing 14% to 17% a year. And China is growing at a
whopping 20% annual clip.
The growth boost from in-licensing and emerging markets should more than
offset any negative impact from healthcare reform.
Of course, it will take time for these trends to develop.
But you’ll get paid while you wait. Each of these companies pays a very
nice dividend. And their yields are growing rapidly as their stock
prices fall.
Take a look at these great yields.
LLY… 5.8%
BMY… 5.4%
MRK… 4.7%
PFE… 4.6%
JNJ… 3.4%
And I’m not the only one who thinks Big Pharma offers great value right
now.
Superstar hedge fund manager, David Tepper, just took big positions in
drug stocks during the first quarter. Tepper, who owns the Pittsburgh
Steelers, just bought $258 million worth of JNJ, MRK, and PFE for his
Appaloosa Management LP.
Appaloosa was one of the best performing hedge funds in 2009 with gains
of more than 117%.
Dig a little deeper into a few of the Big Pharma names. With the market
dropping, now’s the time to get your buy list ready. You may find now’s
the time to add one or more of these companies to your long-term
portfolio.
The market’s swings over the past couple of weeks are giving investors a
bad case of whiplash. One ETF though is posting huge gains thanks to all
the volatility. The iPath S&P 500 VIX Short-Term Futures ETN (VXX)
tracks the performance of futures on the CBOE Volatility Index. In times
of market turmoil, the Volatility Index usually soars. This time is no
different. VXX is up more than 90% in just the past few weeks!
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