A Beaten-Up Pharma With a Big Upside [The Medicines Company(NASDAQ:MDCO), Pfizer Inc.(NYSE:PFE), Merck & Co., Inc.(NYSE:MRK)]

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August 19, 2014 10:15am NYSE:IHE NYSE:PJP

biotechnologyThe Medicines Company(NASDAQ:MDCO) has had a really tough first half of 2014, and the stock price shows it. When one of its drugs did not receive approval from regulators and a court decision concerning one of its drugs going generic went against the company, the stock dropped


44%.

But based on a pipeline of eight more drugs and the recent approval of Orbactiv, a treatment for drug-resistant infections, analysts say this stock has 28% upside in just the next year.

Medicines Company is expecting 10% annual growth per year for the next five years, with revenues moving from $720 million to $3 billion by 2016.

A P/E of 18.5 for 2015 earnings does not make Medicines Company look like much of a bargain, but when you look at all the new drugs on the horizon and the huge numbers the company can generate, the bargain story begins to take shape.

Medicines Company: Take a look at this one.

FinanceBot 3000

The technology revolution we have been living through since the ‘90s has made it possible to not only live in your basement indefinitely on your game console, but never have to speak to anyone on the phone or in person, ever. Just text or email them.

You can buy anything from anywhere in the world, and you don’t have to have any contact with other people, or leave your home for that matter. Just go online.

And now it’s possible to eliminate people completely from the investing process.

Yes, robo-financial management.

This new form of money management allows you to fill out a form, online of course, that describes your risk tolerance and expected returns, and the computers do the rest.

Machines will buy your stocks and funds, and even rebalance your portfolio for you. No people are involved, ever!

It is supposed to take the emotion out of investing, which would be a good thing. But here are just a few of the problems I see with this new advance.

First, as long as the small investor can pull the trigger to get out, there will be emotion in the system. Buying high and selling low is the specialty of the little guy, and having a computer in the way will change nothing.

Next, this whole thing was developed not by professionals from the money business but by techies from Silicon Valley.

That’s like going to the hardware store for milk.

And, having worked with small investors for the better part of a quarter century, the one thing I know for certain is everyone overestimates their risk tolerance, especially in a bull market. The only thing that brings them back to Earth about how much risk there really is in stocks is a good sell-off.

So the younger among us may think less human contact is a positive, but, believe me, when it comes to your money, you better have the voice of experience directing you. I call it market wisdom, and computer designers, software engineers and computer repairmen don’t have it.

by Steve McDonald, Bond Strategist

Investment U provides cutting-edge research and strategic financial recommendations for all levels of investors through its morning publication Investment U Daily and its related publications.


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