Liftoff for Lipitor

Our Buy List is having a rotten day so far. No one stock is getting killed, but everything seems to be down about 1%. The only plus is that Medtronic (MDT) hit a new 52-week high.
The market is being thrown off balance today. The huge gainer is Pfizer (PFE) which is having its best day in 20 years. The company won its big Lipitor patent suit. This is a big, big victory for Pfizer. I’ve been very worried about the company lately. I had mentioned before that I was impressed by its big dividend increase. This is good news, but the stock still has a long way to go.
Pfizer’s news is also helping Merck (MRK). Both Merck and Pfizer are Dow components, so the Dow 30 is outpacing the Nasdaq and S&P 500 today. Even the entire health care is moving up thanks to Pfizer. That makes me even more discouraged that our health care stocks like Biomet (BMET), St. Jude (STJ) and Stryker (SYK) aren’t responding.
As I said, the market seems really off balance today. I can’t figure out what’s going on. For example, the three-month T-bill yield is trading higher while the 10- and 30-year bond yields are lower. That’s not so unusual but we haven’t seen anything like it recently. Due to the narrower yield curve, bank stocks are lagging the market. Health care stocks are leading the market higher and industrials and utilities are the poorest sectors. That’s a rather odd combo.
Here’s a random thought I’m throwing in: Home Depot (HD) seems unusually cheap right. I have to confess that I’m not a big fan of the stores. Whenever I go there, the stores always have that Saigon ’75 feel to them. It’s complete mayhem. The aisles are jammed and the hoards of folks are carrying off anything not bolted down. I guess that’s good for business. Still, I’m always tempted to grab my purchase and bolt to a chopper liftoff from the roof.
Wall Street currently expects HD to earn $3.03 a share next year (the fiscal year ends at the end of January ‘07). That’s just under 14 times earnings, which is fairly cheap. Last month, the stock had a great earnings report. HD earned 72 cents a share, four cents more than estimates. Lowe’s is probably the better company, but I’m skeptical that its P/E ratio should trade at a 25% premium to Home Depot’s.
Here’s a three-year chart on Home Depot. You can see that the trailing P/E looks pretty reasonable.

Posted by Eddy Elfenbein on December 19th, 2005 at 12:28 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.