Drugs, Banks, and Miners

Earlier this week I pulled the trigger on a couple of stocks that I have been eying for quite a while. I have very little exposure to the health-care sector, and have wanted to broaden that exposure. After looking at several drug makers, I settled on Eli Lilly (LLY). Year to date LLY is ahead of both Pfizer (PFE) and Bristol Myers Squibb (BMY). Its also ahead of Merk (MRK) and GlaxoSmithKline (GSK). When expanded out to a 1-yr chart, you see it is the lagger of the group, behind all four of the others.

I bought LLY based on two points, first the ~5.5% dividend, and second the fact that LLY has the lowest P/E ratio of the bunch. I think this means that the stock should pull back in with the other four. I think this is the reason that it is the strongest year to date, and I think that trend will continue. Since I bought LLY at the beginning of the week I am down 4.2%, which is about middle of the pack for the Pharma stocks in this off week. Time will tell if LLY is a lagger dog, or swinging back into the pack.

Worse than my timing on Eli Lilly was my timing on Banco Santander (STD). The Spanish bank is down 5.3% since I bought it. This was a play on several fronts; Brazil, where Banco Santander is a big player. The banking industry in general, which is coming out of a severe down cycle. Europe, which has been hit very hard by monetary problems in the Euro Zone (problems that are far from over by the way). And finally a sizable dividend, which is important because I expect this stock to have lots of pull backs on a very long very slow climb back to its 2007 levels. From 2005 - 2007 STD paid over 3% dividend annually while climbing from $11.75 a share to over $20 a share. I hope to see a move from today's levels (~$13.40) back to the +$15 a share by years end. If the recovery is slower than I expect I will count on the nearly 9% dividend STD pays to pad my time commitment.

Last on my list of buys at the beginning of the week was my purchase of Vale (VALE), the Brazilian based mining company. I was debating between Vale or BHP Billiton (BHP). BHP pays a dividend while VALE does not. Year to date VALE is up +11% while BHP is only even. Expanded out for a 1-yr chart you can see BHP up +47% compared to VALE +75%. Vale earns less per share than BHP, has a higher P/E ratio than BHP, and pays no dividend. BHP may be the logical safer play here, but Brazil is an extremely fast growing economy and Vale is reaping those rewards.