Life After Oil: The Next Hot Sector
by Dr. Steve Sjuggerud
September 27, 2006
To really make a fortune in your investments, you’ve got to buy what people have completely given up on – what’s been left for dead.
Oil’s been hot. But what’s not been hot? What sector have investors been ignoring?
I think one particularly ignored sector is biotech and drug stocks.
Biotechs and drug stocks have been dead money for at least six years now.
After six years of losses, investors have finally given up on drug stocks and biotechs. If we’re not already there, we’re getting very close to the time to buy these things…
WHY NOW?
The “hot” sector is always changing. At one time, it was drug stocks. The sales pitch for these stocks was simple. It went like this: “With an aging population, we’re going to need more drugs. And with advancements in computing power, drugs will be better, faster. You can’t go wrong in these things.” The story itself is still true – but people just bid drug stocks up to crazy heights.
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From 1994 to 1998, drug stocks as a group rose by 200%+. Shares of Pfizer rose by 500%.
And then the torch passed to biotechs… In just two years time (August 1998 to August 2000), the Biotech Index (BTK) rose by over 500%.
Since then, these sectors have been dead money for investors.
But that doesn’t mean that the companies haven’t been making any money… On the contrary, they’ve been growing fast, and making an absolute fortune.
Over the last ten years, Pfizer and Johnson & Johnson have averaged a profit margin of 17% per year! Combined, the worst profit margin in the last ten years was still double digits. For comparison, Wal-Mart’s BEST profit margin in any year in the last ten was a measly 3.6%.
With those kinds of profits, and very little action in the shares over the last six years, it’s no surprise that drug stocks are the cheapest they’ve been in an extremely long time…
Pfizer is currently trading at a forward P/E of 13.3x. At no time in the 1990s or the 2000s has Pfizer been this cheap – not even in 1994.
It’s not just Pfizer. The entire drug stock sector is cheap and hated, and has recently started an uptrend… just what I love to see.
Drug stocks such as Pfizer typically trade at a premium to the overall stock market. After all, these businesses make lots of money – almost like clockwork. That’s because – no matter how deep into a recession we may go – people will still take their heart medicine. So the profits of drug companies are reliable. Their profit margins AND growth rates are much higher, over a long period, than just about any other business. So drug companies deserve to be more expensive than the overall stock market. This is usually the case. But it is not the case right now.
I think you’ll make money in drug stocks. I gave my top drug stock recommendation in the latest issue of my newsletter True Wealth.
I think you could make even more money in biotechs in the coming years.
In my more exclusive newsletter, Sjuggerud Confidential, I shared with readers an extremely interesting way to play the potential in biotech… A way to get ALL of the upside of biotech over the next ten months, with NONE of the downside risk.
This unique investment is a real “no brainer.” But it’s relatively small, so I can only share it with a small number of subscribers – the readers of Sjuggerud Confidential.
Oil stocks have been underperforming lately. The bloom is coming off the rose.
What you should buy instead is something just about to bloom.
I think drug stocks and biotech stocks are one area that’s just about to bloom. In the past, when these sectors get hot, hundreds of percent gains can be made, in a short period of time – and that’s for the entire sector. If you’re in the right investments, you could do even better.
