Buy Drug Fears?

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As far as I'm concerned, it's officially value time. When the newspapers feature stylized medical capsule graphics and headlines suggesting that Americans can't trust any of their drugs, savvy investors should be starting to salivate.

I'm referring, of course, to the recent evidence of heart trouble linked to painkilling products: prescription Vioxx and Celebrex, and yesterday's victim, over-the-counter naproxen, best-known as Aleve. The three are produced by Income Investor pick Merck (NYSE: MRK), Pfizer (NYSE: PFE), and Bayer (NYSE: BAY), respectively.

As anyone who reads below the first paragraph (2% of the population?) might suspect, the evidence is much more complex than the hype suggests. Merck's troubles look the worst, since early evidence of heart problems was pushed aside, inviting lawsuits galore. Pfizer wisely decided to stop advertising Celebrex (why pour gas on the fire?) even though there doesn't appear to be evidence of increased cardiac risk at lower doses. The FDA's statement on naproxen is pretty vague and cautions patients to -- real shocker -- follow the instructions on the label.

I'm going to resist the urge to get too snarky about Americans' love-hate relationship with pharmaceuticals. One the one hand, we all want the easy answer, in pill form. On the other hand, we reserve the right to be outraged when we find out that nothing comes risk-free, especially when recommended doses are exceeded. (Would we have the same reaction if studies showed that my Chevette is a lot more likely to kill me when I take that 45 mph exit ramp at 90?)

Luckily for investors, conflicting cultural emotions provide opportunities, because it's often very profitable to run against the herd, especially when the herd gets scared. As the folks at Inside Value can tell you, that's usually the best time to buy stalwarts like Pfizer. In fact, if today's naproxen news might just convince a warning-wearing American culture that all their painkillers carry some degree of risk, the turnaround at Pfizer might come more quickly than we'd have thought a few days back.

If you're more of a Rule Breaker type, the current focus on drug trials and cardiac risk offers investment ideas as well. Small clinical data processors such as eResearch Technology (Nasdaq: ERES) and DatatrakInternational (Nasdaq: DATA) have been growing revenues at better than a 50% clip, and earnings even more quickly -- though they're priced accordingly. Nimble players like these may be perfectly placed to profit from increased pharmaceutical scrutiny.

For related Foolishness:

• See how guilt by association can creep into reality.
• Is Pfizer your pfriend?
• Should we be rethinking big pharma entirely?

Seth Jayson owns shares of eResearch Technology but has no positions in any other company mentioned. View his stock holdings and Fool profile here . Fool rules are here .