This British drug maker boasts a balanced, diversified portfolio of medications, a healthy pipeline, ultra-high profitability and a cheap stock. By Andrew Tanzer, Senior Associate Editor October 6, 2006 After several years in the sick ward, pharmaceutical stocks are perking up. The Amex Pharmaceuticals index of 15 big drug stocks has advanced 10% this year. As economic growth slows, several of the stocks in this classic defensive sector are looking attractive.David Herro, manager of Oakmark International, is a big fan of GlaxoSmithKline (symbol GSK), a former growth stock that he says now sells at value-stock prices. Glaxo closed on October 6 at $54.31 a share, just 15.5 times estimated 2006 earnings, and yields 3%. What the company hasn't lost is an almost obscenely high level of profitability -- net profit margins of 22% and an off-the-charts return on equity of 72%. What distinguishes Glaxo is its balanced, diversified portfolio of medications on the market and a robust pipeline of drugs in development. Half of sales are in the U.S. and half are foreign. The company, based in England, is a leader in vaccines and treatments for asthma (brands include Seretide and Advair), diabetes (Avandia) and HIV/Aids. In the works are vaccines for avian flu and cervical cancer and more medications to fight diabetes, a disease on the rise worldwide. Even if the economy is feeble next year, Glaxo is likely to still be a picture of good health. The company annually generates more than $9 billion of free cash flow (earnings plus non-cash charges, minus the capital expenditures needed to maintain the business), equivalent to 23% of revenues. Shareholders should see a chunk of that cash come back in the form of fatter dividends and share buybacks.