NEW YORK (CNN/MONEY) - In retrospect, it seems inevitable that Merck's problems with Vioxx would eventually raise serious questions about Pfizer's Celebrex, another painkiller of the COX-2 inhibitor type.

After a clinical trial found that Celebrex appears to increase the risk of heart trouble among those who take large doses over long periods of time, Pfizer announced that it would stop advertising the drug to consumers. Pfizer will still allow doctors to prescribe Celebrex for certain patients.

These problems raises a number of serious questions about drug stocks. For starters, why is the industry running into so much trouble nowadays? Just a few years ago, pharmaceuticals were considered one of America's top growth areas, yet now the sector's compound earnings growth is projected at less than 10 percent annually over the next five years.

The main problem is that the industry is dependent on a relatively small number of billion-dollar drugs. Blockbusters produce big profits, but they also require huge investments in research. In addition, companies that rely on such high-cost products face enormous liabilities if something goes wrong.

The pharma giants have immense financial resources and are likely to recover after such setbacks. But it may take months or even years before the extent of the damage becomes clear enough to permit a rebound.

A few value investors and special situations analysts have begun to recommend Merck as a long-term value. But nearly three months have passed since the company pulled Vioxx from the market after a test showed that the drug caused an increase in cardiovascular risk among patients who took it for more than 18 months.

A 17-part series on how to achieve maximum returns for the right amount of risk. See all the lessons.

In the meantime, Merck has developed and vigorously publicized its post-Vioxx growth plan. The company has new products up for approval, it has outlined its legal defense against Vioxx class-action suits and it plans cost-cutting measures as well as stock buybacks.

Given that Merck's share price is down 67 percent from its 2001 high, some bargain hunters think the risk-reward ratio looks worthwhile.

Making any such decision about Pfizer seems premature. The company is still holding out hope that test results raising questions about Celebrex will turn out to be less serious than they first appeared. The increase in cardiovascular risk, although significant in percentage terms, is still low in absolute terms. And the patients affected in the test took the drug for longer than two years.

It's conceivable that Pfizer might be able to save the drug, at least for limited use, which would mean relatively low liability. If so, then Pfizer stock is already oversold.

On the other hand, Pfizer is taking a gamble by keeping Celebrex on the market, if it later emerges that the risks of the drug are greater than current data indicate. In addition, if evidence emerges that Pfizer had internal knowledge of any additional risks, the legal liability could be far greater than what the stock's decline to date has allowed for.

Quite frankly, it's impossible for investors to analyze this situation. Pfizer (Research) is not as cheap as Merck (Research), and the Celebrex situation is more complex than that of Vioxx.

Given that Merck needed almost three months for the dust to settle, there's no rush to look at Pfizer until next spring (investors who already own the stock, of course, may want to hang on until something more concrete is known).

Recently in Sivy on Stocks The Sivy Seventy

In fact, it's the uncertainty about the drug industry that is most striking. For a decade, stocks like Merck and Pfizer were considered totally safe choices with foolproof long-term growth potential. But as is now evident, there's no such thing as total safety in investing.

I suspect that the drug industry's long-term growth prospects are a lot better than 10 percent a year compounded. Biotech is advancing at a stunning rate and the enormous numbers of baby boomers are aging into their pill-taking years. Whether pharma giants develop drugs themselves or market boutique products, there's going to be a lot of business.

Nonetheless, the Merck and Pfizer nosedives serve as reminders that the real risks to your portfolio are usually impossible to anticipate. In addition, stocks that seem all the way down always seem to find a way to go lower.

The only protection is the fullest diversification possible. That doesn't only mean spreading the risk of high-flying stocks. It also means including deeply depressed industries that are likely to come back into favor at some point in the future. But as far as big pharma goes, you still have plenty of time to add Merck and Pfizer to your bargain bin. And for Pfizer in particular, it makes sense to wait three months or longer to see whether there's any further fallout.

Michael Sivy is an editor-at-large for MONEY magazine. Click here to receive Sivy on Stocks via e-mail every Monday.