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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
If You'd Put $1,000 Into UnitedHealth Group Stock 20 Years Ago, Here's What You'd Have TodayUNH stock was a massive market beater for ages — until it wasn't.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for a Fall Interest Rate Cut by the FedA lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
