A Tale Of Two Industries

10/22/2012


This week we're analyzing the two biggest U.S. industry groups based on stock-market value, both of which are populated with household names: pharmaceuticals and integrated oil & gas.

Let's start with a quick quiz: Which industry features eight U.S.-traded stocks with market values above $100 billion? This industry's future growth depends heavily on the economic and political empowerment of consumers overseas. Need another hint? Companies in this industry must spend hugely to find new revenue sources, as the earning power of their assets diminishes over time.

We are, of course, talking about integrated oil & gas . . . and about pharmaceuticals.

However, while the two venerable industries are alike in the ways just mentioned, the similarities end there. Here are just a few differences:

Returns: The S&P 1500 Pharmaceutical Industry Index rose 24% over the last 10 years, versus 190% for the Integrated Oil & Gas Industry Index. But over the last year, drug stocks (up 27%) have substantially outperformed integrated energy stocks (up 15%).

Valuation: Drug stocks in the S&P 1500 average Quadrix® Value scores of 47 and P/E ratios of 16, versus 82 and 10, respectively, for integrated energy.

Investment appeal: The index's drug stocks average Overall scores of 59, versus 82 for integrated energy.


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