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
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
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.
-
Stocks Close Down as Gold, Silver Spiral: Stock Market TodayA "long-overdue correction" temporarily halted a massive rally in gold and silver, while the Dow took a hit from negative reactions to blue-chip earnings.
-
Pay-As-You-Go vs. Monthly Plans: Which Saves More for Light Phone Users?Light phone users may be paying for data they never use. Here's how pay-as-you-go and low-cost monthly plans really compare.
-
Trump Nominates Kevin Warsh to Fed Chair. How Will This Impact Savers?Here's a look at how Warsh could influence future Fed policy if he's confirmed.
-
If You'd Put $1,000 Into AMD Stock 20 Years Ago, Here's What You'd Have TodayAdvanced Micro Devices stock is soaring thanks to AI, but as a buy-and-hold bet, it's been a market laggard.
-
If You'd Put $1,000 Into UPS Stock 20 Years Ago, Here's What You'd Have TodayUnited Parcel Service stock has been a massive long-term laggard.
-
How the Stock Market Performed in the First Year of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
If You'd Put $1,000 Into 3M Stock 20 Years Ago, Here's What You'd Have TodayMMM stock has been a pit of despair for truly long-term shareholders.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
-
If You Put $1,000 into Qualcomm Stock 20 Years Ago, Here's What You Would Have TodayQualcomm stock has been a big disappointment for truly long-term investors.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
