Sunday, August 29, 2010

Some Think Merck A Safe Bet In (An Admittedly Unlikely) Deflationary Scenario


The Personal Finance section of Sunday's Wall Street Journal is suggesting that -- should a period of sustained price deflation materialize in the United States -- large-cap multinational pharmaceutial manufacturers with high dividend yields might become a bettors' "safe-haven".

While I think the probability of a sustained deflationary scenario is remote, I do think that in such an unusual environment, large pharma would be a pretty safe bet. I think especially-highly of Pfizer, on that score -- with its 4.5 percent current dividend yield (and its very cheap $16 per share price, recently, on the NYSE) -- but the article mentions Merck, with its 4.4 percent yield:

. . . .Some big investors are adding companies in safer businesses and avoiding those relying on discretionary spending, such as automobile, funiture and real-estate companies. "Stocks with a high degree of pricing power should do well, like health care, tobacco, utilities," says Jack Ablin, chief investment officer of Harris Private Bank in Chicago.

Mr. Gross of Pimco cites P&G and J&J as examples of stocks with sizable dividends that also claim dependable cash flows.

Mike O'Rourke, chief market strategist at investment trading firm BTIG, says investors nervous about deflation should focus on pharmaceutical companies that "provide defensive qualities that pay you while you wait for a full economic recovery." Merck, for example, has a dividend yield of 4.4%. . . .

I might bet on either Johnson & Johnson, or Pfizer, before Merck. But that's just my preference for being with No. 1, as opposed to No. 2 -- in a tough market, talkin' there.

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