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5 Pharmaceutical Stocks to Buy, 1 to Avoid

Some of the stock market's best-performing stocks this year have been pharmaceutical stocks. This article will focus on six pharmaceutical companies. Two of these companies are relatively safe large cap companies and four are more speculative mid-sized companies. Perhaps you will find that one or more of these stocks could be a good fit for your portfolio.

Alexion Pharmaceutical Inc. (ALXN) ALXN has a market cap of $11.75 billion with a price to earnings ratio of 78.72. The stock traded in a 52 week range between $37.52 and $70.42. The stock is currently trading around $65.11. The company reported third quarter revenues of $204 million compared to revenues of $141 million in the second quarter of 2010. Third quarter net income was $65 million compared to net income of $28 million in the third quarter of 2010.

One of ALXN’s competitors is Abbott Laboratories (ABT). ABT is currently trading around $27 with a market cap of $84.54 billion and a price to earnings ratio of 84.54. ABT pays a dividend which yields 3.5% versus ALXN which does not pay a dividend.

ALXN develops and markets, biologic therapeutic products for severely ill patients. In recent quarters, ALXN has shown excellent earnings growth. The company has increased revenues and net income in each of the last three quarters. The company’s year-over-year third quarter revenues grew by 44% and its net income grew by 32%. One of the results of the company’s growing revenues is that the stock price has exploded. The stock is up by 66.5% over the last 52 weeks and 295% over the last three years. The company’s future earnings potential recently got a big boost, when it got FDA approval for a medication called Solirius which treats a rare autoimmune disease named aHUS. ALXN has done a terrific job of increasing earnings, and the stock price has performed well. The stock is expensive, but if the company continues to grow earnings the stock still has an upside.

Bristol Meyer-Squibb (BMY) BMY has a market cap of $56.22 billion with a price to earnings ratio of 17.11. The stock has traded in a 52 week range between $24.97 and $33.72. The stock is currently trading near the top of its 52 week range at around $33. The company reported third quarter revenues of $5.3 billion compared to revenues of $4.8 billion in the third quarter of 2010. Third quarter net income was $969 million compared to net income of $949 million in the third quarter of 2010.

One of BMY’s competitors is Astra Zeneca Plc. (AZN). AZN is currently trading around $46 with a market cap of $60.61 billion and a price to earnings ratio of 6.28. AZN pays a dividend which yields 3.7% versus BMY whose dividend yields 4.1%.

BMY develops and markets pharmaceutical products world-wide. The company is not a fast growing company, but it has increased its revenues and operating income in each of the last three years. In the third quarter, the company increased its year-over-year third quarter revenues by 10% and its net income by 2%. The company’s stock price is up by 25% over the last 52 weeks and 71% over the last three years. BMY has paid quarterly dividends since 1977 and has increased its dividend three times by 17.8% over the last five years. BMY is not likely to provide its investors with explosive stock appreciation or the biggest dividend. However, BMY will provide its investors with safe earnings, some capital appreciation and a generous dividend.

Biogen Idec Inc. (BIIB) BIIB has a market cap of $26.28 billion with a price to earnings ratio of 22.99. The stock has traded in a 52 week range between $64.28 and $120.66. The stock is currently trading around $110.39. The company reported third quarter revenues of $1.3 billion compared to revenues of $1.1 billion in the third quarter of 2010. Third quarter net income was $352 million compared to net income of $254 million in the third quarter of 2010.

One of BIIB’s competitors is Pfizer Inc. (PFE) PFE is currently trading around $20 with a market cap of $156.74 billion and a price to earnings ratio of 14.16. PFE pays a dividend which yields 3.9% versus BIIB which does not pay a dividend.

BIIB primarily engages in the development and marketing of medicines that treat neurological disorders. The company has been profitable in each of the last seven years. In the third quarter, the company increased year-over-year revenues by 18% and its net income by 38%. The stock has performed well and is up by 67.9% over the last 52 weeks and 135% over the last three years. BIIB’s stock has now settled into a base and even after the stock's big run up, its valuations are not very high. BIIB does not pay a dividend and is somewhat speculative, but could be a good buy for those who are willing to take a risk.

Cubist Pharmaceutical Inc (CBST) CBST has a market cap of $2.29 billion with a price to earnings ratio of 64.48. The stock has traded in a 52 week range between $20.95 and $40.49. The stock is currently trading around 37. The company reported third quarter revenues of $201 million compared to revenues of $162 million in the third quarter of 2010. Third quarter net income was $24 million compared to net income of $31 million in the third quarter of 2010.

One of CBST’s competitors is Teva Pharmaceuticals Industries Ltd. (TEVA). TEVA is currently trading around $40 with a market cap of $35.98 billion and a price to earnings ratio of 12.10. TEVA pays a dividend which yields 1.7% versus CBST which does not pay a dividend.

CBST develops and markets pharmaceutical products for rare medical conditions. In the third quarter, the company increased revenues by 24% but saw its net income decrease by 29%. In the last 52 weeks, the stock price has increased by 69%. The company has a few chemicals in its pipeline that have the potential to be big sellers. Also, the company recently purchased the Adolor Corporation (ADLR), which also has experimental drugs with good potential. As a result of the recent increase in CBST’s stock price the stock is now overpriced. While the company has the potential for strong future growth, I do not believe that its earnings history justifies such high valuations.

Spectrum Pharmaceuticals Inc. (SPPI) SPPI has a market cap of $824.37 million with a price to earnings ratio of 18.13. The stock has traded in a 52-week range between $5.60 and $15.09. The stock is currently trading around 14. The company reported third quarter revenues of $51 million compared to revenues of $16.7 million in the third quarter of 2010. Third quarter net income was $20 million compared to net income of $-4.5 million in the third quarter of 2010.

One of SPPI’s competitors is GlaxoSmithKline Plc. (GSK). GSK is currently trading around $45 with a market cap of $225.48 million and a price to earnings ratio of 44.66. GSK pays a dividend which yields 4.9% versus SPPI which does not pay a dividend.

SPPI is a biopharmaceutical company that develops and markets various cancer therapies. The company has lost money in each of the last ten years calendar years but has turned a profit in each of the last four quarters. In the third quarter, the company increased its year-over-year revenues by 205% and its net income by 250%. The company is on track to make a profit for the 2011 calendar year. The reason that earnings have increased is because of the sale of Fusilev a drug that is used to treat colon cancer. Traditionally doctors have prescribed Leucovorin to colon cancer patients because it is as effective as Fusilev, and 10 times less expensive. However, over the last year, there has been a shortage of Leucovorin and patients have been forced to use SPPI’s higher-priced Fusilev. Soon or a later, supplies of Leucovorin will increase and SPPI will lose its cash cow. SPPI will probably be able to maintain its earnings growth for another couple of quarters, but its long-term outlook is unclear. I rate SPPI as a buy with the caveat that investors should keep close track for any news concerning the company.

Jazz Pharmaceutical Inc. (JAZZ) JAZZ has a market cap of $1.53 billion with a price to earnings ratio of 14.88. The stock has traded in a 52 week range between $17.48 and $47.88. The stock is currently trading around $36. The company reported third quarter revenues of $ 73 million compared to revenues of 44 million in the third quarter of 2010. Third quarter net income was $32 million compared to net income of $13 million in the third quarter of 2010.

One of JAZZ’s competitors is the Hi Tech Pharmaceutical Company Inc. (HITK). HITK is currently trading around $39 with a market cap of $509.56 million and a price to earnings ratio of 10.2. Neither HITK nor JAZZ pays a dividend.

JAZZ develops and markets pharmaceutical products. The company has done an admirable job of increasing earnings, and it increased its year-over-year third-quarter revenues by 65% and net income by 146%. JAZZ has made a fortune for some fortunate investors, as the stock price has increased by 98.3% over the last 52 weeks and 2,772% over the last three years. JAZZ stock price has slipped by 20% over the last two months. JAZZ products include Xyren and Luvox which are narcolepsy drugs that do not have any competition. In addition, the company has two other potential blockbuster drugs that have already completed Phase II clinical trials. I think that JAZZ is in a good position to continue growing earnings. Also the stock valuation (price to earnings ratio 14.88) is relatively cheap for a fast-growing pharmaceutical company. I believe that JAZZ has a lot of potential to move up.

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Comments

cheechny
Cheechny - 2 years ago
Good overall list of good pharma, but there is an error. ABT trades at around $54.

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