By Andrew Leckey
Q. We have held shares of Eli Lilly & Co. for years. Are they still a good investment for the future? - P.J., via the Internet
A. The innovative pharmaceutical company is known for its strong product pipeline, but it faces industrywide pressures of recession, cheaper generics and the push by government and insurers to hold down costs.
Worldwide sales of pharmaceuticals are projected to increase at a 2.5 percent to 3.5 percent rate this year, the lowest growth rate in 25 years, according to data from IMS Health Inc.
That report also indicated the new anti-clotting drug prasugrel from Eli Lilly and Daiichi Sankyo Co. could turn out to be a blockbuster. Though recommended for approval by a Food and Drug Administration committee, the drug's potential risks have been noted by consumer health advocates who have asked the FDA to halt its review.
Lately, the sales of Lilly's biggest drug, the antipsychotic Zyprexa, have been flat, while antidepressant Cymbalta and oncology treatment Alimta have posted solid sales gains.
Lilly (LLY) shares are down 11 percent this year following last year's 25 percent decline. First-quarter net income rose 23 percent as a stronger U.S. dollar boosted revenue by revaluing international drug inventories. The firm was also able to raise prices on a number of drugs.
Since Lilly's Zyprexa, Cymbalta and osteoporosis drug Evista all lose patent protection between 2011 and 2013, the company needs to replace profits taken away by generics.
Activist investor Carl Icahn, who agitated for the $6.5 billion sale of ImClone Systems Inc. to Lilly last year, lately has been pushing hard for the sale of Amylin Pharmaceuticals Inc. to Lilly. Amylin and Lilly are partners in the diabetes treatment Byetta, and Icahn's group recently won two seats on Amylin's board.
The consensus analyst recommendation on Lilly shares is a "hold," according to Thomson Reuters, consisting of one "strong buy," one "buy," 13 "holds" and three "underperforms."
Lilly Chief Executive John Lechleiter said he will consider deals for businesses costing between $5 billion and $15 billion but sees no advantage in a combination with another giant drug company.
He said he wants to expand the firm's animal-health business and is also considering biotechnology but is not interested in non-drug areas such as medical devices or diagnostic companies.
Earnings are expected to increase 5 percent this year compared with the 1 percent decline projected for the major drug manufacturers industry. Next year's forecast is for 7 percent versus 11 percent industrywide. The five-year annualized return is expected to be 5 percent compared to 6 percent forecast for its peers.
Q. I am disappointed by the results of Janus Overseas Fund and would like your opinion. - B.K., via the Internet
A. It is big, but not nearly as big as it used to be.
Following a flood of investor redemptions last year, the foreign large-cap-growth fund that once had $11 billion in assets was reopened to new investors in December after being closed for a year.
Janus Overseas Fund (JAOSX) now has assets of $4.7 billion. It posted a decline of 29 percent over the past 12 months and had a three-year annualized gain of 4 percent. Both returns rank in the top 2 percent of all foreign large-growth funds.
"One thing investors might not realize is that portfolio manager Brent Lynn looks at 'overseas' in terms of where a company generates its income rather than where it is located," said Andrew Gogerty, analyst with Morningstar Inc. in Chicago. "So you will see some U.S. companies in its portfolio."
Lynn, top manager since 2001, looks for fast-growing companies around the world and often takes large stakes in selected sectors or emerging markets. Sometimes the prices he pays for stocks are on the high side, and Janus analysts are known for doing best in growth-oriented markets.
"The portfolio's exposures are really just a function of where Lynn is finding value," said Gogerty, who believes that over time the fund will consistently be one of the category's top performers. "We recommend Janus Overseas because we have confidence in Lynn and believe the fund could serve as one of the bigger holdings in an individual's portfolio."
Hong Kong, India, Brazil, the U.S. and Canada represent its largest exposures. One-fourth of the portfolio is in financial services and one-fifth in industrial materials.
Largest holdings include, from Hong Kong, the stocks of Li & Fung Ltd., China Overseas Land & Investment Ltd. and Hang Lung Properties Ltd.; from India, Reliance Industries Ltd.; from Brazil, Brazilian Petroleum Corp.; from the Netherlands, ASML Holding NV; from Canada, Research In Motion Ltd.; from Singapore, CapitaLand Ltd.; and from the United Kingdom, ARM Holdings PLC.
The "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has am annual expense ratio of 0.89 percent.
Q. Looks like I can get a better rate from a brokered certificate of deposit than from a CD from my bank. What's the catch? - C.H., via the Internet
A. Brokered CDs, which are CDs that a broker buys from a bank on your behalf, can offer higher yields because the broker shops daily from among the vast number of CDs offered around the country.
Make sure the CD you buy is from a bank insured by the Federal Deposit Insurance Corp., that the broker is reputable and that the purchase fee is reasonable.
"A downside is that, for early withdrawal, you can't just go to the bank and say you need your money early and forfeit some interest," said Greg McBride, financial analyst with Bankrate.com in North Palm Beach, Fla. "Brokered CDs are sold on the secondary market, so for early withdrawal you'll get whatever another investor is willing to pay for it."
That means if interest rates have moved against you, you can suffer a significant loss for early withdrawal, McBride said. In addition, in the event of a bank failure, there can be delay in getting brokered CD money back because of the increased red tape in the process due to the intermediary.
Editor's Note: Andrew Leckey answers questions for Bull & Bear readers only through the column. Address inquiries to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, AZ 85004-1248, or by e-mail at andrewinv@aol.com.
