A Dose of Growth for Your Portfolio

Drug distributors, a new entry in this week's Relative Strength rankings, are poised for healthy profit gains

By Sam Stovall

Listed below are the sub-industries within the S&P Super 1500 that posted six-month (26-week) price performances that were in the top 10% of all 115 sub-industries through July 20, 2001. Each carries the highest S&P Relative Strength Ranking (RSR) of "5." (Click here to learn more about the RSRs.)

Last week, the Reinsurance and Steel industries dropped down to a six-month RSR of "4", replaced by Gold and Health Care Distributors & Services. The latter group is showing consistency across the board with an RSR of 5 during the past three, six and 12 months. And Rob Gold, S&P's Health Care Facilities, Services and Medical Devices analyst, is positive on the group's prospects.

Why? "Drug distributors are likely to benefit from the continued introduction of a steady stream of higher-priced new drugs," notes Gold. He also cites a decline in drug chain consolidations. As a result of these factors, Gold believes the industry index is likely to outperform the market over the next year.

As for the drug wholesalers, they "should be propelled by strong underlying industry fundamentals," according to the analyst. Gold thinks that sales should continue to grow at a better than 10% rate, due to good consumption trends, higher priced new drugs, an aging population and continued drug price inflation -- which has historically averaged twice the rise in the consumer price index (CPI). Given that a typical wholesaler's prescription drug sales account for more than 85% of its total sales, "new drug developments should help the industry continue its strong top-line growth trends," he adds.

Gold thinks the wholesalers should get a boost from rapid consolidation over the past few years, enabling the resultant companies to increase cost efficiencies and improve purchasing power.

Sub-Industry Company S&P STARS Rank
Auto Parts & Equipment Superior Industries (SUP)
Construction Materials Texas Industries (TXI)
Environmental Svcs. Waste Management (WMI)
Gold Barrick Gold (ABX)
Health Care Distrs. & Svcs. Lincare Holdings (LNCR)
Health Care Facilities HEALTHSOUTH (HRC)
Homebuilding Lennar Corp. (LEN)
Leisure Products SCP Pool (POOL)
Metal & Glass Containers Pactiv Corp.(PTV)
Oil & Gas Refining/Mktg Sunoco Inc.(SUN)
Trading Cos. & Distributors Fastenal Co. (FAST)

Stovall is Senior Sector Strategist for Standard & Poor's

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