Pharmaceutical stocks may continue their slump in the near term. Last Thursday, President Trump sought to lower drug prices.
The President is targeting foreign countries that pay less for medication. The administration argued that foreign governments negotiated lower drug prices. Conversely, Americans ended up paying more. This puts pressure on drug companies and the foreign government.
Investors sold off their positions in big drug firms. This included GSK (GSK), Pfizer (PFE), Regeneron (REGN), Novo Nordisk (NVO), Merck (MRK), and Bristol Myers (BMY). Firms like Johnson & Johnson (JNJ) and Proctor & Gamble (PG) are in a trading range. However, they benefit from running a diversified business.
Risks
The attempt by the U.S. to influence foreign policy will hurt drug firms. Companies have a drug pricing plan that considers its affordability. Different countries have varying buying power. In return for lower costs, countries may offer research and development, manufacturing, and other benefits to American drug firms.
Investors are pricing in the risks of a disruption in the sales of global prescription drugs. REGN stock, for example, trades near a 52-week low. Similarly, Pfizer trades at a price-to-earnings ratio of around 17 times. Its dividend yielded over 7% as of last week.
Your Takeaway
Expect the drug sector to underperform. As valuations become more compelling, consider accumulating a position in this discounted sector.
