The PPH (Pharma Holders ETF) weekly three-year chart below shows a consolidation around 75, from October 1st 2002 to September 30th 2005. PPH began a rally in the previous three Octobers, and didn't stay below 70 for long. However, the Stochastics (Full STO) may indicate PPH will fall to around 68 in October before beginning another rally, and rise to above 75 within six months.
PPH consists of 21 big pharma stocks. Three components PFE JNJ and MRK represent 55% of the fund, and the eight largest components (shown below) represent 87% of the fund:
PFE 24%
JNJ 17%
MRK 14%
LLY 8%
ABT 8%
WYE 7%
BMY 6%
SGP 3%
PFE and MRK fell sharply in late 2004 on questions and lawsuits about one of their most profitable drugs. Moreover, the regulatory environment has been less favorable for the drug industry. Nonetheless, PFE earnings are expected to rise about 10%, while MRK earnings are expected to fall about 4%, over the next year. Earnings growth for the pharma industry is expected to outperform most other industries. Consequently, PPH is becoming cheaper, and it's more likely to rise sharply than in previous years.
Charts courtesy of StockCharts.com |
