Monday, April 23, 2007

Big Drug Stocks Shine last Week

From IBD:

On Friday, the 79 stocks in IBD's ethical drugs group rose to their highest level since November 2000. The group has been on a general uptrend since July, though increases have become sharper the last month.

Last week's surge was largely the result of better-than-expected quarterly results, even as many top players continue to grapple with sluggish growth, weak pipelines and regulatory risks.

"In general it was a huge quarter for U.S. pharma companies both internationally and in the U.S., where sales were stronger than expected," said Jon LeCroy, analyst at Natexis Bleichroeder.

Last Thursday I wrote an article that had the charts of the health care, utilities and consumer staples ETFs. These charts have done well during the post-China sell-off, indicating investors may be reallocating to more conservative areas of the marker.

This may be part of a flight to quality that seems to be happening in the market right now. Large drug companies are considered more conservative investments because their profits are a more immune to economic weakness -- people need certain types of drugs and will buy them in any economic environment.

Last week's performance by the big drug companies may further confirm this flight to quality.

Here's a five year chart of PPH -- the ETF for large drug stocks. While the average is in a rally, also notice that the average has been in a trading range for the better part of 5 years as commodity stocks have taken the lead in the market.

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