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With tax inversions being one of the hottest topics in the merger and acquisition market these days, pharma stocks are in full focus.
The S&P 500 is up just 7% year to date, while the NYSE Arca Pharma Index is up over 10%.
The rapidly aging of populations across the world is one of the key growth avenues for drug companies after the tax inversion hype coold down. Older people will need more drugs.
But, for now, the tax inversion focus has led investors to focus on U.S. pharma companies and those that are in low tax rate countries in Europe.
However, there are a couple major international companies, and even one company that is finalizing its quest to tax invert, that appear to be very compelling investments.
These international headquartered drug companies are also much cheaper than their U.S. counterparts. Here are the top 3 must own drug dividends:
No. 1 Must Own Pharma Stock: GlaxoSmithKline PLC (NYSE: GSK)
As mentioned, one of the more enticing aspects to these international drug companies is there “cheapness” relative to U.S. pharma companies.
For example, the likes Johnson & Johnson, Merck, Bristol-Myers Squibb and Eli Lilly all trade at P/E (price-to-earnings) ratios based on next year’s earnings estimates of 16 and above.
Meanwhile, GlaxoSmithKline trades at a forward P/E of just 12. GlaxoSmithKline also offers a 5.3% dividend yield, which is well above what you’ll find U.S. pharma companies paying.
GlaxoSmithKline is the world’s second largest pharma company with more than 50 key prescriptions. Despite being a large company it’s still launching new products to help continue driving revenue growth. For example, it’s already launched Breo Ellipta, Tafinlar, Mekinist, Anoro and Tivicay so far this fiscal year.
No. 2 Must Own Pharma Stock: AbbVie (NYES: ABBV)
AbbVie is one of the latest pharma companies to take part in the tax inversion frenzy. Soon it’ll be a U.K. headquartered company. It’s dividend yield is the lowest of the three stocks listed at 3.2%. And with a forward P/E of 14, it trades at the highest valuation of the three.
However, the tax inversion is sure to boost the company’s earnings and ability to reward shareholders, thanks to the lower tax rate it’ll be paying. The company expects to lower its corporate tax rate from 22% to 13% by 2016.
AbbVie does get over 50% of its revenue from Humira, which is an anti-inflammatory product. But this isn’t as bad as it sounds, for three reasons. One, Humira has high barriers to entry for generics. Two, it has the potential to treat other diseases, where AbbVie is developing Humira for other indications. And three, the acquisition of Shire will help diversify its product revenues nicely.
No. 3 Must Own Pharma Stock: Sanofi SA (NYSE: SNY)
This France-based pharma company offers a 3.75% dividend yield, but it also sports one of the best balance sheets in the industry. Its debt to equity is a mere 25%. It’s also another fairly cheap pharma company, trading at a forward P/E that is 12.7.
It’s already launched a number of promising drugs over the past year or so, including Aubagio for multiple sclerosis, Kynamro for a rare type of high cholesterol and Zaltrap for colerectal cancer.
Sanofi has a stronghold in the vaccine market. Its vaccines cover influenza, meningitis and travel and endemic, as well as others. And it’s looking to up its presence in the world’s largest country, China. Its vaccine manufacturing facility in Shenzhen, China, was in the startup phase as of the end of last year.
Many of the major pharma companies offer solid dividend yields, but they aren’t all quite as cheap as the three above. These 3 must own drug dividends offer robust dividend yields at very attractive valuations. Their potential to reward shareholders with income and stock price appreciation make them great long-term investments.
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