Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Dennis Kneale. Pricey new drugs out there, and we might have to pay for them out of our own pockets?
Dennis Kneale, Managing Editor: Exactly. Forbes has a new cover story coming out looking at the next drug war. It’s going to pit employers and insurers against employees. Drug spending has doubled to almost $200 billion since 1996. It could double again by 2011. This is going to eat into the earnings growth at many companies and some industries. What’s going to happen is the company is going to say “You, the employee, are going to have to start paying more.” So in the new Forbes, we rate 32 drugs. Which ones are worth the money and which ones aren’t?
David Asman: Elizabeth, what do you think?
Elizabeth MacDonald, Senior Editor: There was this Columbia University study. These economists looked at drug costs, and they found out that every dollar spent on drugs adds to $3 in savings down the road from hospital care or lost work or time. I don’t know. I just think that spending on drugs, I mean if you could do that --
Dennis Kneale: When you zoom up on $7,000 on a treatment for a toenail fungus, you have a problem.
David Asman: Victoria Murphy, a telecom rebound? Tell us about it.
Victoria Murphy, Senior Reporter: I don’t know if we’re in store for a telecom rebound, but we have an item in the magazine talking about Ericsson (ERICY). Even though the stock is trading at $6 a share, which seems cheap relative to sales, certainly compared to other wireless equipment makers like Motorola (MOT) and Lucent (LU), it’s not as cheap as you might think. Executives are saying that they’re going to be profitable, but that’s going to be challenging and might not come true this year. So wait until the stock drops further, like 4.
David Asman: Dennis, do you think we have to sell it short?
Dennis Kneale: I’ve got to tell you. You can wait until it drops a buck or two, or you could just bet on the wireless revolution. This revolution is going to continue and Ericsson is going to be a survivor and a player. The fact that they’re still there after the worst downturn in telecom history, is reason to give them consideration.
David Asman: All right. Chana, let’s talk about grocery stores. Kroger (KR), has a whole chain of them.
Chana Schoenberger, Staff Writer: Yes. It’s a grocery chain. Now usually, conventional wisdom says when you go up against Wal-Mart (WMT), which has a big grocery operation, you’re in big trouble. But, Kroger has been doing well in this area. They’ve been gaining market share from smaller chains. Wal-Mart is still the big guy in this area, but it’s a pretty cheap stock right now.
David Asman: Victoria, what do you think about that?
Victoria Murphy: I’m negative here too. I think grocery chain stores have notoriously low margins and Kroger is no exception. In the past year they have been lowering prices and increasing promotions, which to me, seems like a step in the wrong direction for the long-term. So I’ll disagree.
Chana Schoenberger: You have to do that to compete with Wal-Mart. Everybody in groceries has a 1% margin. You can’t get away from that, sadly.
David Asman: Elizabeth MacDonald, Automatic Data Processing (ADP), what do they do?
Elizabeth MacDonald, Senior Editor: I love this stock. This stock is trading around $25-30. They’re a big payroll, tax-processing outfit, it’s very boring, but boring, sometimes is beautiful. They also do securities transaction processing. And yes, unemployment figures are up, and yes, the broker services industry is in trouble, but still, this is a time to buy this stock. If it goes to 25, I would buy it. Free cash flow is growing faster than revenue. It’s a hot stock.
Chana Schoenberger: Unemployment means lower payrolls, and lower payroll is bad for people in payroll processing.
Elizabeth MacDonald: Well, when the market turns around and the economy rebounds, forget it. This stock is going to soar.
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