Why Now Is The Time To Buy Drugs

OK, so I’m not saying that you should go out and buy illegal drugs. I am saying that now is the time to start investing in drug companies.

The pharmaceutical sector has a number of compelling stocks that have been beaten down by bearish sentiment. Drug stocks are good investments because they have tons of cash, great balance sheets, and are paying out hefty dividends.

Here are three drug stocks that offer growth potential and a great dividend.

(JNJ)

Johnson & Johnson

J&J is my favorite drug stock. Investors looking for safety should turn their attention to Johnson & Johnson. The stock trades at just under 11 times earnings and is the industry leader. The company has nearly $19 billion dollars in cash and $11 billion dollars in long term debt. The company is an earnings giant generating nearly $18 billion in free cash flow alone. That’s due to the company’s great product line which includes Listerine, Band Aids, Purell, Carefree, Stayfree, Splenda, Tylenol, Sudafed, Zyrtec, and Motrin. Don’t forget Johnson’s Baby lotion too. That doesn’t even include the company’s pharmaceutical products. With a 3.50% dividend yield and a share price of $60, Johnson & Johnson is the cash cow of the industry.

GlaxoSmithKline (GSK)

GlaxoSmithKline makes products to treat just about every physical ailment including asthma, cancer, diabetes, infections, and mental illness. The drug maker has recently had a number of drugs come off patent over the past few years. The company has been able to maintain its revenue base despite those losses. GlaxoSmithKline’s shares are currently yielding 4.60%. GlaxoSmithKiline has over $10 billion in cash on its balance sheet. GlaxoSmithKline makes Advair, Aquafresh, Boost, Nicoderm, Nicorette, Tums, and Zantax. The stock currently trades at 12 times earnings which is a bit high based on its modest rate of growth.

Bristol-Myers Squibb (BMY)

This is a stock that carries some risk. Investors soured on this pharmaceutical giant due to an accounting scandal a few years ago. It appears that Bristol Meyers has gotten its financial house in order since the ouster of its CEO. Bristol-Myers is attractive for its dividend. The stock may be forecasting anemic growth but the stock has a great dividend yield. Shares are currently yielding 4.70% .Bristol-Myers Squibb is trading at 13 times earnings and the company has several new promising drugs in its pipeline. Ipilimumab, Belatacept, Apixaban, Brivanib, and Dapagliflozin are just a few of the drugs that Bristol-Meyers is working on.

Investors can also take a look at Merck, Pfizer, and Eli Lilly. The pharmaceutical industry is full of great stocks that are trading at low valuations. These stocks are out of favor because of fears of the new healthcare laws. I think that these fears are unfounded. With millions of additional Americans obtaining health insurance, these companies will have an even larger pool of clients to serve.

Does anyone else think that pharmaceutical stocks are cheap? If so, what companies are you investing in?

Photo by ionushi.

Pfizer shares jump after strong quarterly profit, sales

 Pfizer shares jump after strong quarterly profit, sales
Pfizer shares jump after strong quarterly profit, sales

Pharmaceutical giant looks to lift dividend

Aug. 3, 2010, 2:48 p.m. EDT

Pharmaceutical giant looks to lift dividend

By Val Brickates Kennedy, MarketWatch

BOSTON (MarketWatch) -- Pfizer Inc. reported substantially higher second-quarter profit and sales Tuesday, as its performance was fueled by the 2009 takeover of rival drug maker Wyeth and a favorable foreign exchange rate.

Shares of Pfizer jumped 5% to $16.29 in afternoon trading.

New York-based Pfizer /quotes/comstock/13*!pfe/quotes/nls/pfe  (PFE  16.90, -0.28, -1.63%) said it earned $2.48 billion, or 31 cents a share, compared with $2.26 billion, or 34 cents a share, for the same period in 2009.

Pfizer's per-share results were impacted by the expansion of its stock float due to the Wyeth merger. Pfizer's float mushroomed to 8.07 billion shares in the 2010 quarter, up from 6.75 billion shares for the previous year's quarter.

The company also repurchased about $500 million of its stock, or about 31 million shares, during the second quarter.

Excluding various items mostly related to the Wyeth takeover, Pfizer would have reported earnings of 62 cents a share versus 48 cents.

Revenue at the world's largest pharmaceuticals maker jumped 58% to $17.3 billion, largely due to the inclusion of Wyeth product sales. The company added that the foreign exchange rate contributed about 5% to sales.

Pfizer's results handily beat Wall Street estimates. On average, analysts polled by FactSet Research expected the company to earn 52 cents a share on sales of $16.63 billion.

On a conference call with analysts Tuesday, Pfizer management said it is planning to raise its dividend ratio, which was cut in half last year to help fund the Wyeth deal.

They added that they expected the company's board to approve an increase in December.

"While the dividend level remains the decision of the board and continues to be evaluated in the context of future business performance, barring unforeseen events, we currently anticipate board approval of a dividend increase in December and we are now targeting a dividend payout ratio comparable to that of the current industry average of approximately 40% in about three years," said Pfizer Chief Financial Officer Frank D'Amelio.

Pfizer also reaffirmed its 2010 forecast of earnings of 95 cents to $1.10 a share, and adjusted earnings of $2.10 to $2.20 a share. Revenue should come in between $67 billion and $69 billion.

Sales of Pfizer's top-selling product, the blockbuster cholesterol drug Lipitor, rose 5% to $2.81 billion. The pain reliever Lyrica took in sales of $762 million, up 21%.

Late last year, Pfizer acquired rival Wyeth in a deal valued at about $68 billion.

In May, Pfizer said it plans to phase out operations at several of its facilities by the end of 2015 as part of its ongoing restructuring plan in the wake of the Wyeth merger. The phase-outs could result in the elimination of about 6,000 jobs over the next few years.

At the time of that announcement, Pfizer operated 78 plants around the globe. The company had about 113,800 employees worldwide at the end of the first quarter 2010.

Leerink Swann & Co. analyst Seamus Fernandez was upbeat about Pfizer's quarterly report.

"We'd view it as a high-quality result with upside across the P&L with better than expected sales, gross margins, and operating expense management," Fernandez said in emailed comments.

"The top line was bolstered by a better-than-expected foreign exchange contribution, but we estimate that incremental foreign exchange only contributed three cents of the upside versus our forecasts - it wasn't all of the upside," he said.

"All in all, it looks like Pfizer is making progress on the integration and we believe the business unit-based corporate structure is showing signs of improvement," Fernandez added.

Tim Anderson, who tracks Pfizer for Sanford C. Bernstein & Co., said that Pfizer's 2010 results will be helped by increased cost-cutting.

"Pfizer maintained its 2010 financial guidance but says it expects earnings per share to come in at the upper end of the $2.10 to $2.20 range, driven by expenses at the lower end of the guidance range," wrote Anderson in a note.

"If there is any disappointment in the results, it will be that Pfizer did not increase its share buyback or dividend - investors have been pushing for this," Anderson said.

Val Brickates Kennedy is a reporter for MarketWatch in Boston.

Pfizer Inc to Head Down for The Short Term

Date: October 2, 2010
Current Price: $16.90
Target Price: $15.70 and below
Period: Less than 3 months
Confident Level: 3 (1-5)

I believe over the short term Pfizer will consolidate and hit the support point of $15.70 and below. Both Stochastic and MACD indicators point to a negative results for this stock.
Pfizer may move down to fill the gap at $15.48.
This stock is a sell for the short term, however over the long term, this stock is worth investing.

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