Drug Stocks Offer Big Yields, Long-Term Investment Opportunities

by: David Hunkar

In a recent article, I wrote that U.S. public healthcare spending is projected to exceed private spending by 2012. U.S. healthcare expenditures was estimated to reach about 17.3% of the GDP in 2009. One of the beneficiaries of all this spending are the companies in the healthcare industry such as drug makers, health insurers, etc. They may all perform well in the coming years as a result.

The table below lists the major drug stocks trading on the NYSE:

S.No. Name Ticker
1 Abbott Laboratories ABT
2 AstraZeneca plc (ADR) AZN
3 Bristol Myers Squibb Co. BMY
4 GlaxoSmithKline plc (ADR) GSK
5 Johnson & Johnson JNJ
6 Eli Lilly & Co. LLY
7 Merck & Co., Inc. MRK
8 Novartis AG (ADR) NVS
9 Pfizer Inc. PFE
10 Prestige Brands Holdings, Inc. PBH
11 Tongjitang Chinese Medicines Co. (ADR) TCM
12 Simcere Pharmaceutical Group SCR

AstraZeneca plc, GlaxoSmithKline plc, Novartis AG and Tongjitang Chinese Medicines Co. are the four foreign drug companies on the list. U.K-based AstraZeneca (NYSE:AZN) is the owner of many top selling drugs including the “purple pill”, Nexium, which is used for the treatment of Gastroesophageal reflux disease (GERD). Currently AZN offers a 7.75% dividend yield. GlaxoSmithKline (NYSE:GSK) is another British giant whose products are sold in over 150 countries. GSK pays a 6.02% dividend. Switzerland-based Novartis (NYSE:NVS) had sales of over $45B last year. Tongjitang Chinese Medicines Co (NYSE:TCM) is a specialty drug company that is engaged in the manufacture of modernized traditional Chinese medicine.

Among the U.S. companies, Johnson and Johnson (NYSE:JNJ) is by far the largest maker of a wide range of healthcare products. JNJ was founded in 1886. The stock is a high quality long-term consistent performer. From JNJ’s investor site:

Our consistent performance has enabled us to deliver an exceptional track record of growth that few, if any, companies can claim: 76 consecutive years of sales increases; 25 consecutive years of adjusted earnings increases; and 47 consecutive years of dividend increases. Over the last 10 years, Johnson & Johnson stock generated a 5.6 percent total return for investors compared to a -1.4 percent total return for the S&P 500.”