“These stocks … used to be safety-first situations. No longer,” he told investors. “These names are bouncing today, but the next time the market gets slammed, you don’t want to rely on a broken drug stock — or food stock, for that matter — to protect your portfolio.”
The toxicity has spread to the likes of Allergan, the “Mad Money” host said. In an unusual move, shares of the Botox maker plummeted after the company reported earnings above Wall Street estimates and raised its guidance on Tuesday.
“Allergan does have two huge … drugs in its pipeline, an acute migraine medication and a treatment for depression, but neither, I think, is going to be enough to help [in] 2019,” Cramer said. “If you bought Allergan[‘s stock] right after its supposedly good quarter when it was jumping up, you lost more than 20 points in the blink of an eye.”
“If this is how it behaves after a beat and raise, I say no thank you,” he added.
Also in the house of pain is the stock of drugmaker Gilead, a pioneer in hepatitis treatments. The stock has “been a falling knife for ages” as the company waffled on how to further monetize its leading medicines, Cramer said.
Gilead’s Hepatitic C cure “worked too well — when you cure a disease, you start running out of customers,” he said. “Now Gilead’s introducing its own generic version of this drug 10 years before it loses patent protection, and while that’s a very noble gesture, it sure seems like a terrible business strategy. While the stock bounced today, I can’t see it turning around long term.”
“The drug stocks … have long been viewed as a bastion of reliability, but lately a number of big pharma names have just been annihilated and that’s highly unusual,” he said. “Safety’s last with these guys now. These stocks are something like Donna Summer, ’cause when they’re bad, they’re so, so bad.”