Phase Two

My thesis in entering my pharmaceutical trade was that pharmaceutical stocks would make a move in two phases. The first phase would come with the closing of the Pfizer/Wyeth and Merck/Schering Plough mergers. I believed that would lead to an initial move higher. More than 6% of pharma's market cap disappeared when those mergers closed and indeed it did lead to a move higher in the group.

Pharmaceuticals have underperformed for a decade and managers are underweight the group. The second phase would come from these managers starting to chase pharma as it outperforms. While I was very confident that phase one would materialize, phase two was more of a leap of faith. It appears that phase two is now materializing.

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