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Stock Strategist Industry Reports

Play It Safe with Drug Distributors

Pharma wholesalers are insulated from both the economy and health-care reform.

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We see a rare buying opportunity among pharmaceutical distributors, who have suffered battered stock prices along with the rest of the market despite the fact that business fundamentals have held up relatively well. Like many health-care companies, pharma distributors are relatively insulated from the overall economy. However, distributors also have the advantage of being mostly insulated from even the most extreme health-care reform proposals. While we see some long-term competitive threats, we think now is a fine time to pick up these safe, high-quality names at a discount. Our top pick in the sector is  AmerisourceBergen (ABC).

What Do Distributors Do?
Pharmaceutical distributors, or wholesalers, are the middlemen in the pharmaceutical supply chain. They connect dozens of pharmaceutical manufacturers with thousands of pharmacies, simplifying interactions between the two groups, collecting data, consolidating purchasing power, warehousing and repackaging drugs, managing inventories, and handling distribution to the end customer. For their efforts, distributors are generally rewarded with a fixed fee or markup from both the supplier and the customer.

Matthew Coffina has a position in the following securities mentioned above: ESRX. Find out about Morningstar’s editorial policies.