Pfizer near 10-year low

PFE is at 52-week low and at 10-year low. This is another major US corporation under severe pressure in the market. At a decade-low, there must be something critical is happening in the drug industry. Some of the critical reasons might be related to the following changes.

First, biological research has gradually replacing the chemical research methodologies in discovering new drugs. I do not know the detailed differences in the chemical and biological processes in discovering and making drugs. But I do know that the biological process deals directly with cells and DNA while the chemical process does not. In general, I believe the chemical changes are more advanced than physical changes. The biological changes are more advanced than chemical changes. Additionally, the societal changes are more advanced than the biological changes.

This major change reminds me of the telecom industry changes happened in the 1990s. Before IP networks (pioneered by Cisco Systems), the telecom equipment industry was maturing. Old line companies such as Lucent, Alcatel, and Nortel were too big to adapt to the new IP changes. So the telecom equipment companies evolved into the current status, which is dominated by Cisco while the old line companies are still struggling for the new changes.

So the question is weather the traditional drug companies like Pfizer and Merck can adapt to the new biological technologies fast enough before they are engulfed by the biotech companies such as Genentech or Amgen. If the two lines of drug makers can fuse into each others smoothly, then the worries about the traditional drug makers would be over-blown.

Second, the political environment is maturing for the nationwide medical insurance program like the Canadian system. The medical insurance premiums have been increasing at twice the rate of inflation for more than a decade. People have the desires for a new system which can hinder the fast-increase of medical costs. It is totally another problem if the new system can do better than the current one.

However, I personally do not think the drug companies are the only problems for the current mess in the medical industries. Somehow, the medical cost is a social-political problem. One thing is clear that as a society, we cannot say we are not going to treat patients with available resources we have. As human beings, we have not advanced to the level to treat life and death as a pure economical question.

So whatever changes the up-coming presidents and the congress will bring in the coming years, the real changes to curtain the medical costs will be proved very minimal since the medical industries can not be judged entirely by economical matrices. The medical cost is becoming a luxury burden of an advanced society.

Third, the current consumer slowdown might be another reason. But this is very temporary. Consumers will resume their propensity to consume when they have access to credits.

So overall, I feel the current decade lows in stock prices in drug companies like PFE will be a history in the coming years. To recover their full potency for the drug companies may take another decade to do. So the drug companies are only for the patient investors.

PCA

Powershares recently launched a new class of ETFs. One of them is PCA (PowerShares Autonomic Balanced NFA Global Asset Portfolio). I feel this might be an interesting start for a new set of ETFs to come to the market.

First autonomic is word derived from autonomy (meaning self-government). So the rebalance is driven entirely by self-control.

Second, NFA stands for New Frontier Advisors, which is a Boston-based institutional research and investment advisory firm. The firm started by Richard Michaud who wrote a book in 1998 “Efficient Asset Management: A Practical Guide to Stock Portfolio Optimization and Asset Allocation.”

The ETF carries a management fee of 0.25% above the average management fees of 0.5% for the underline ETFs included in this ETF. So the total management fee is about 0.75%, which is comparable with most balanced mutual funds.

PCA holdings are 30% US equity, 32% international equity, 40% fixed income, and 3% currency and commodity. There are about 27 ETFs in this ETF. Most of the ETFs are Powershares ETFs.

The trading volume is very thin now.

GE near 10-year low

GE reached its 52-week low today at $31.55 per share. This price was first crossed in 1998, almost 10 years ago. It seems that anything GE does no longer make any difference. Has the time for GE passed already? Or is it time for GE to regenerate itself to make another run on the global industrialization process?

If I were the leader of GE, I would make GE an infrastructure company, more or less like General Engineering. I would also purchase a few engineering companies like Bechtel or Fluor to help GE execute well large scale infrastructure projects. Selling engines or wind blades is the business of the past.

I much admire IBM or HP in their pursuit of their complete ecosystem approach for their business. IBM started on making typewriters while HP started on printers. Their products backgrounds did not stop them becoming the global IT companies of choices.

GE leaders lack the global vision of technology evolution. Their retreats to the financial services industry (the GE Capital) will ultimate deplete this once great technology company.

However, the current market is well below its underline value. I believe that GE stock price has very strong potentials to rebound back to its historical highs around $57 per share in the next five years.