Big Pharma Good for your Health? Where is anomaly? $JNJ $PFE $BMY $NVS

Big pharma is like the beautiful mythic siren. Calling calling until you turn your boat and flounder on the rocks just below the waterline. Society gets sick and needs drugs. Great business model what could be better as a defensive play with excellent growth prospects.

As in any grouping there are winners and losers. Some stocks are better. The problem is they all face the same issues. Patents constantly expiring and then facing generic knock off price competition. What anomaly stands out and should we pay attention.

Dividend yields are very similar ranging from 2.91% to 3.4%

PE ratios range from 19.2 to 22.5

Short Interest Ratio as a % of outstanding float tells a different tale.

JNJ 2.64%

Pfizer 0.77%

Bristol-Myers Squibb 1.96%

Novartis 0.11%

Interestingly enough Novartis with the smallest short sale ratio has the highest dividend yield and lowest PE ratio. Dividends do prop up stock valuation. But consider it this way short selling is like a tide; goes in goes out goes in goes out. The higher the short position the more bullish because all shorts must eventually cover.

So Novartis has no bullish short position. Dividends are high and therefore will be increased aggressively. Management will try to conserve cash. The shorts do not smell a correction as yet but the higher dividend yield frequently identifies the stock with the higher propensity to move upward. The lowest PE ratio encourages investors to believe there is room to bid up the price. The shorts as yet are not betting against the story. But as the stock rises upwards the short position will increase. Counter-intuitive counter-cyclical. then when the stock taps out the momentum drops and shorts cash in.

So in the very near term the stock should be facing upward action. Just as an elevator goes up with counter pulleys and cables pulling in the opposite direction the stock will peak and start a descent warming the heart of the short selling community. Watch the short selling position and you’ll know the end is near.

George Gutowski writes from a caveat emptor perspective.

Chipotle Mexican Heart Burn. Litigation and Controversial Board $CMG $PFE $MCD

Image representing Jeffrey Kindler as depicted...

Image via CrunchBase

Chipotle Mexican Grill (NYSE:CMG) continues to attract problems and create questions.

Class Action problems continue to circle. On September 19, 2012, an Atlanta-based litigation boutique announced an investigation for potential breaches of fiduciary duty by officers and directors of Chipotle Mexican Grill, Inc. Just four days earlier, a different law firm announced a class action on behalf of shareholders who purchased stock in the company between February 1, 2012 and July 19, 2012. The lawsuits charge directors and management with issuing false and misleading statements which failed to express the effects that thinning demand and higher prices would have on Chipotle’s margins and financial results. More class actions have been announced from the Law Offices of Howard G. Smith and another from Glancy Binkow & Goldberg LLP.

You can say that is par for the course. But check out the weird management structure. They have a little used Co-CEO structure. So who is in charge? Who is responsible and accountable? Who makes the burritos.

Last but not least eyebrows have been raised over the appointment of Jeffrey Kindler, former CEO at Pfizer (NYSE:PFE), to Chipotle’s Board. Fortune Magazine published an article questioning if he belittled subordinates, micro managed the business and generally proved himself to be devoid of leadership and communication skills. Chipotle has not commented on why they think he was a good choice for director.

Influential hedge fund manager David Einhorn. Mr. Einhorn, who runs $7.7 billion fund Greenlight Capital, said in early October that “the restaurant chain will face significant competition and additional costs, making it an attractive ‘short.” Which means he already has taken the positions that he wants.

So David Einhorn was probably looking at a 30 PE on trailing earnings, no dividend in site, net money flow of 0.75 and a short interest of 11.53% of public float.

Wasn’t this stock once part of McDonald’s (NYSE:MCD) but was a forced spin out divestiture?

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti