Pharmaceuticals make a comeback

Angus Rigby, Chief Executive Officer, TD Waterhouse comments: "Traditionally, pharmaceuticals are seen as robust and defensive stocks in a bear market, thanks to their relative resilience to capital market volatility. So, after many weeks of absence from our top ten tables, a renewed interest in GlaxoSmithKline (GSK) might indicate that TD Waterhouse customers have harked back to safer investment strategies. Some say ever-tumbling share prices in the financial sector have made risk-aversion a sign of the times. But a closer look at recent activity in the pharmaceuticals industry suggests our customers might not just be looking for a cure to the market downturn, but a bargain too.

"Investor interest in GSK may stem from the current wave of consolidation sweeping through the sector. Pharma giant Merck's £29.8bn buyout of Schering-Plough sent GSK's share price down by 3% on Monday and speculation increased that GSK has its sights on rival AstraZeneca. GSK denies any plans of a merger, but rumours that it feels threatened by the formation of a triple-barreled giant - Merck-Schering-Plough - have been spreading contagiously across the markets. However, GSK urges that its attentions are focused inward not outward. Last Thursday the company announced a radical review of the pay packages of its senior employees, with plans to introduce a "clawback" mechanism enabling GSK to take some pay back from top employees in ‘adverse' conditions.

"Rio Tinto's sale of its Jacob Ranch coal mine in Wyoming to US group Arch Coal for $761m in cash has contributed to a selling frenzy in this week's top ten tables with Rio and rival mining giants BHP Billiton and Xstrata entering the sells table at ninth, eighth and tenth positions, respectively. But despite this surge in sales of mining stocks, overall trades are dominated by buys, with the top ten buys outnumbering sells by a ratio of three to one. Perhaps this is the result of a rebound in banking share prices at the beginning of this week.

"Barclays and Lloyds have swapped positions in our top ten buys at first and second places, respectively. After watching Barclays' share price tumble ever lower, despite its £7bn recapitalization by Middle Eastern investors back in November, our savvy customers may have been trying to turn a profit as the markets rallied on the back of a rebound in bank share prices on Tuesday. Indeed, Barclays' shares jumped 17% as the market assessed its chances of following in Lloyds' footsteps and also taking part in the Government's asset protection scheme. As Barclays still has until the end of March to mull over whether to formally apply to join the UK asset protection scheme before the deadline expires, it is yet to be seen which way our customers will place their bets."