Topic: How To Invest

If you’re looking for the best drug stocks to buy, one key is to learn what influence the FDA will have on your picks

We think that the best drug company stocks to buy could offer you the same strong appeal that we see for gold stocks. Here’s why we like both.

When looking for the best drug company stocks to buy you’ll need to factor in how key the FDA is to the whole drug-approval process.

Milton Friedman, the renowned U.S. economist who won the 1976 Nobel Prize for his work, pointed out that the regulatory process gave the FDA an incentive to take a hard line on new drug approvals. He blamed this on the agency’s conflict of interest. When a useful drug gets delayed or banned by regulators, nobody knows how many lives it might have helped or saved. But when an FDA-approved drug turns out to cause health problems, the media trumpets the damage and looks for scapegoats in the FDA.

Professor Friedman pointed out that this gives the FDA an incentive to take the action that will expose it to the least risk of public condemnation, regardless of the health consequences for those the drug aimed to help.

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This criticism acquired a larger following during the early years of the HIV/AIDS epidemic of the 1980s. HIV/AIDS activist organizations accused the FDA of unnecessarily delaying the approval of drugs to fight this immune system-suppressing disease, and the opportunistic infections associated with it. Street protests against the FDA grew to a size that was reminiscent of 1960s anti-war protests.

In 1990, a presidential advisory panel on FDA drug approval estimated that thousands of people died every year due to delays in the approval process for drugs targeting cancer and AIDS. By then, the FDA had already begun to loosen up the approval process for drugs that tackle life-threatening diseases with limited treatment options. This helped HIV/AIDS sufferers. However, the pressure for the reform died down after the FDA approved new drugs that made HIV/AIDS treatable, rather than a death sentence.

Meanwhile, the standard FDA drug-approval process kept getting longer. Prior to the 1962 passage of Kefauver-Harris, the average time to win FDA approval for a new drug was 7 months. By 1998, it was up to 7.3 years.

The best drug company stocks to buy may give your portfolio the same boost that gold did in the 1980s

I’m as excited about drug-stock investment opportunities now as I was (and continue to be) about opportunities in gold this decade.

Our July 2019 client letter focused on the origins of the 1970s gold boom. We described it as part of an ongoing series of events, starting in the early 1900s, that we’ve referred to as “the great monetary experiment.” By that we mean the rise of central banking, and the global attempt to permanently replace the gold standard with fiat money—or, in other words, replace gold bullion with government IOUs.

As part of this experiment, the U.S. banned private gold ownership between 1933 and 1974. A lot of pent-up gold demand built up in that period. When gold became legal to own, gold-starved Americans rushed to buy, and they bid up the price aggressively. Gold reached a peak of $850 U.S. per ounce in 1980, up around 20-fold from 1971, when public pressure to make gold ownership legal first became widespread.

Something analogous to the gold story may happen with drug stocks in the 2020s. In both cases, governments took action with perhaps noble goals, but little regard for unintended consequences. Gold soared after legalization because it had a lot of catching up to do.

In the past several decades, rigid FDA regulation no doubt led researchers to drop an unknown number of promising paths of inquiry. If so, there may be pent-up drug discoveries waiting to be made with the help of regulatory reform at the FDA and more advanced technology.

Use our three-part Successful Investor approach to help you discover the best stocks to buy—including the drug company stocks to buy

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

Drug company success is a result of the pharmaceuticals it produces. Do you feel more confident investing in proven drug companies or promising startups?

What are your thoughts on investing in drug companies? Do the regulations make you wary of putting money into the stocks?


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