It's Not Just Rates Favoring Pharma, Med Plays

by Stuart Chaussee

It's no mystery that pharmaceutical stocks tend to do better in a rising interest rate environment. TheStreet.com Staff Reporter Gregg Greenberg gave details of the outperformance in his article, "The Case for Drug Stocks." One extreme example of outperformance he cited was in 1994, "when the Fed aggressively raised overnight lending rates from 3% to 6% in about a year's time. During that period the pharma index rose over 25% compared to a mere 2% gain for the S&P 500." Few economists, I imagine, would make a case that the Fed will raise rates aggressively over the coming year, but most now predict rates rising at some point in 2004. Whether or not interest rates rise significantly from here will little affect my attraction to both large-cap drug and medical-supply stocks. As a value investor, both of these industries appeal to me. They offer above-average dividend yields and...

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