Eli Lilly & Co. (LLY)

One of the laggards in the pharma group. If a company can’t do well in a good market, then it is time to move on. Prefers JNJ-N for pharma exposure.

Cheap on this year’s earnings, but not so cheap on next year’s. Part of the problem with this company is that one of their major drugs Cymbalta goes off patent at the end of 2013. In the 3^rd quarter this drug was over 20% of their revenues, so they are looking at a pretty significant drop in revenues in 2014 and a more significant drop in earnings. A more interesting one would be Pfizer (PFE-N) as there are catalysts for change as they are looking at breaking this company up into 3 different divisions starting in 3 years but will start reporting on those divisions individually next year. He holds no pharmaceuticals at this time.

Been undergoing struggles with patent expiry and competition. Massive R&D budget and it is hard to know when they will have the next block buster drug. A good blue chip name to own. JNJ might be a safer way to participate.

Has always traded at a lower valuation than some of the other pharmaceuticals. Has a fair number of patent expiry overhangs that it faces. There are only a few drugs that have been really able to keep their momentum going. On valuation, it always looks attractive, but with the problem of getting new drugs to market, there are other names that he would prefer such as Pfizer (PFE-N) or Johnson & Johnson (JNJ-N).

50% payout ratio. Drugs are coming off patent. You are buying for yield and low volatility. There are better names in the group but they are in the sweet spot in the market.

Had a very good run. Due for a consolidation period. If you are concerned, take half off the table.