Glaxo-Smith-Kline and Swine Flu

With swine flu in the news, my brother suggested purchasing either Glaxo-Smith-Kline or Roche. Each have antiviral medications to shorten the illness and perhaps protect people against contracting the influenza. GSK has Relenza and Roche has Tamiflu. Relenza is reputed to be the more efficacious against this strain.

As expected the growing concern caused both stocks to pop today. GSK was up 7.6% and Roche was up 4.3%. In truth, their anti-viral medications are only a small part of their businesses so surely emotions played a big part in the action.

I did take a look at GSK in particular and took a position. At the open, GSK had gapped up more than 5% before I could place a buy. For the day my position was up 2.3%.

Independent of the swine flu factor, GSK seemed attractive on a valuation basis. It is trading at PE of 12.2% (ttm) and sports a 5.6% dividend. But its revenue growth has been stagnant/down. It had been recently beaten down over concerns of patent expiration of some of its key products as well as concerns over its pipeline. And I suppose that there is the general over hang of concerns with Obama's yet to be revealed health initiative.

As insurance, I'll put a stop loss on it and let it play out for a while.

If one had been more prescient a smarter move would have been to buy some of the smaller players in this field as soon as the flu started to appear. Today's pops for Novavax, Biocryst and Biota were in the range of 80-125%. See HERE.

I suppose one could argue that this is like buying gold. That is, playing off of fears and bad news. The reality is I hope that the need for these medications does not come to pass. In which case I will instead rely on the valuation and overall strength of the company.