• The U.S. Federal Reserve released its Beige Book yesterday (Wednesday), a look at the economic conditions in the central bank’s 12 regions. Overall economic activity was slower in April and May. “Three Districts described economic activity as softer, weaker, or lower, with an additional four Districts reporting slower, sluggish, or modest economic growth. The remaining five Districts of Philadelphia, Cleveland, Atlanta, St. Louis, and San Francisco described activity as stable or little changed in recent weeks,” the report read. While it is clear the economy is slowing, it has yet to experience a true contraction, clearing the way for the Fed to intensify its focus on inflation rather than recession.

• Japanese drugmaker Daiichi Sankyo Co. said it will buy a controlling stake (50.1%) of India’s biggest pharmaceutical company, Ranbaxy Laboratories Ltd., (OTC:RBXLY) for up to $4.6 billion, Bloomberg reported. The addition of the fast-growing generic-brand company reflects the shifting tides in the pharmaceutical industry, as brand-medicine providers are losing considerable market share to generic drug providers.

• As retail sales have soured in the past year, U.S. liquidator retailer Big Lots Inc.’s (BIG) Chief Executive Steve Fishman said the company is “highly motivated” to expand its stores by up to one-third, Reuters reported. The Columbus-based company currently has 1,353 in 47 states, and expansion is contingent on the real estate market cooling down for better location prices, Fishman said.

• U.S. corn futures climbed more than 4% to a record high for the fifth consecutive trading session yesterday (Wednesday) as flooding expanded in the Midwest, the Associated Press reported. July 2009 Corn contracts soared to a record $7.56-1/4, surpassing the record of $7.35 set in during Asian trading hours. By midday, U.S. corn for July 2008 delivery had hit $7.03-1/4 per bushel. Corn prices on the Chicago Board of Trade have surged 80 percent over the past year.

• Caterpillar Inc. (CAT) yesterday (Wednesday) declared a regular cash dividend of 42 cents per share, a 17% increase to its prior payout of 36 cents per share, The Associated Press reported. The dividend is payable Aug. 20 to stockholders of record on July 21.

• Four Russian billionaires who co-own the troubled joint venture TNK-BP will take legal action against their partner BP PLC (BP) in two separate cities – Stockholm and Moscow, Reuters reported. The decision comes in the wake of failed discussions concerning the fate of TNK-BP President Robert Dudley. The Russians said they decided to act after BP failed to agree to a set of specific demands by a Wednesday deadline. One of these was that the venture’s American manager should be fired.

• Shares of Martha Stewart Living Omnimedia Inc. (MSO) dropped 6% after President Chief Executive Officer Susan Lyne announced her resignation yesterday (Wednesday). Two high-level executives will replace her, MarketWatch reported. The stock lost 48 cents to close at $7.50.

• Office supply giant Staples Inc. (SPLS) has finally come to an agreement with Corporate Express NV (ADR: CXP) to purchase the Dutch firm for $4.8 billion. Corporate Express Chief Executive Officer Peter Ventress will become president of Staples International, a new position that will oversee Staples’ business outside of the United States and Canada. He will report to Ron Sargent, Staples’ president and CEO, The East Bay Business Times reported.

Source: Global Investing Roundups: Thursday, June 12th, 2008

Right now, it’s trading at a single-digit forward price-to-earnings ratio… Pfizer has been almost as cheap three times in history… and it always led to triple-digit gains.

Pfizer was almost this cheap at its bottom in 1979, and then it nearly doubled in two years. It was almost this cheap in 1984 as well… And once again, it nearly doubled in two years.

Last time, the stock got fairly cheap in 1989 (though not as quite cheap as ‘79 and ‘84) and it rose over tenfold during the 1990s. As the decade of the 1990s shows, when drug companies catch the public’s interest, they can go absolutely nuts.

I look for three things in an investment. I’d like the opportunity to be:

In the case of Pfizer, it is particularly cheap, based on any traditional measures of value. It is hated (or ignored)… the share price is down nearly 50% from 10 years ago.

But I don’t have the third leg of the stool… There’s no sign of an uptrend yet. Still, with the apparent value here and the poor performance over a decade, which has taken it off everyone’s radar screens, I thought it might be worth checking out. So I made a phone call to our medicine man…

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“Rob, as you know, I’m a medical nincompoop,” I started.

“But I’ve been running a lot of numbers this week, and it looks like the big drug companies – from pharma giant Pfizer to biotech giant Amgen – are the cheapest they’ve been in recorded history… They’re priced to basically never grow again, ever.”

Rob Fannon is half of our in-house medical investing team. Along with Dr. George Huang, Rob Fannon writes the S&A FDA Report and Phase 1 Investor.

This is how I typically work… I find an idea that might be appealing. And then I go out to my network of people and talk to someone who knows just about everything there is to know about that idea.

Since these drug stocks are so cheap, I hurled questions at Rob…

“Doesn’t Pfizer have some sort of legitimate moat? Doesn’t it have some advantages with distribution just due to its sheer size? And can’t it just sit back cherry-picking smaller companies that innovate and create new drugs? Ultimately, can it really NOT grow? Because that’s the way the shares are priced.”

Rob connected on every pitch…

“By law, Pfizer won’t be selling the same drugs 20 years from now – its patents will expire. So it must constantly ‘feed’ its drug pipeline. The problem is, its pipeline now is barren…

“And sure, it can buy smaller companies for their new drugs or technology… In fact, that’s the only way Pfizer has grown this decade… by acquisition. But the thing is, many other companies, including Amgen like you mentioned, are going after those same smaller companies.

“So can it NOT grow? Absolutely. Steve, Pfizer may appear cheap based on traditional measures as you say. But I wouldn’t buy the stock.“

Rob recommended taking the other side of the trade… looking for the smaller biotech companies that the Pfizers and Amgens will likely buy.

The new issue of my monthly newsletter, True Wealth, comes out later today. In it, Rob will share the best way to get exposure to the portion of the biotech sector he likes right now, in just one stock. Unlike Pfizer and Amgen, the uptrend is already underway… Time to buy!

Good investing,

Steve

Source: Big Drug Stocks: Cheaper Than They’ve Ever Been