As a result of the legal issues big-name companies like Pfizer (PFE) and Merck (MRK) have been dealing with, the pharmaceutical sector is among the worst performing sectors so far in 2008.
Several ETFs provide exposure to this sector, but the two that see most of the trading volume are the Pharmaceutical HOLDRs Trust (PPH) and the Select Healthcare Spyder (XLV). The performance of these two ETFs has been abysmal over the past year, with the PPH down 17.24 percent and the XLV down 11.13 percent. During this same time period, the S&P 500 was down only 6.54 percent. So you can see how the pharmaceutical sector has been lagging behind the rest of the market.
Is it time to start looking at pharma as a value play and buy some shares? I don’t think so. The legal issues are still piling up for these companies, and it could be a while before they are in the clear.
Another thing that will have a huge impact on this sector is the November presidential election. If a Democrat is elected, you can look for a healthcare reform push – which will certainly affect the drug companies. They may lose control over what they can charge for their products.
My advice is to steer clear of the pharmaceutical sector for the remainder of the year. Once the election is settled, you can reevaluate to see if pharmaceutical companies are a bargain then.
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