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Pharmaceutical stocks are among the “safe haven” plays being touted in today’s uncertain market. Pharmaceutical stocks with low betas may be even safer places to put your money, especially if they have a history of growth. “An asset has a beta of zero if its returns change independently of changes in the market’s returns” (Wikipedia). Theoretically, if the market goes down, as many are thinking it will soon, a stock with a zero beta will not follow it unless it has its own fundamental reasons for going down.

The following three stocks have betas near zero:

  1. Teva Pharmaceutical Industries (NYSE:TEVA) (beta = +0.18)
  2. Questor Pharmaceuticals, Inc. (NASDAQ:QCOR) (beta = 0.7)
  3. Emergent Biosolutions, Inc. (NYSE:EBS) (beta = -0.36)

Brief descriptions of each company are below.

TEVA is a global pharmaceutical company specializing in the development, production, and marketing of generic and proprietary branded pharmaceuticals. It is among the largest generic pharmaceutical companies in the world. It’s branded products include Copaxone to treat multiple sclerosis, Azilect to treat Parkinson’s disease, ProAir to treat bronchial spasms, and Qvar to treat chronic bronchial asthma. The complete list is quite long.

In its Q1 conference call TEVA said its Q1 results, which were in line, did not compare well to Q1 2010 due to the absence or diminishment of sales of strong Q1 2010 products Mirapex, Eloxatin, Protonix, Adderall XR, and Lotrel. Additionally, quality issues in Irvine and Jerusalem led to a loss of approximately $100M of sales versus 2010. TEVA has resumed production in Irvine. TEVA released its first lot of Vincasar recently. TEVA expects to follow it shortly with a release of Zanosar. TEVA expects growth to accelerate for the rest of 2011.

Further a lot of patented drugs are becoming available for generic manufacture in the next several years. This should mean that TEVA growth will continue to be good for many years. The chart below shows the longer term growth pattern of TEVA. Admittedly it is bigger and slower now, but the growth still promises to be good for the next few years.

click to enlarge images

QCOR is a pharmaceutical company that provides prescription drugs for central nervous system and inflammatory disorders. Its primary drug is H.P. Acthar Gel, which is approved for the treatment of such disorders as MS, infantile spasms, opsoclonus myoclonus syndrome, and nephrotic syndrome. The company also markets Doral, which is used to treat insomnia.

The company is actively supporting numerous research and development projects focusing on serious, difficult to treat medical conditions. Notably QCOR received FDA approval for the designation for Infantile Spasms for Acthar in October 2010.. This means Acthar will have 7 years of orphan drug exclusivity for the Infantile Spasms use. It means this new product launch will help to accelerate sales for the near future.

The company is preparing to conduct a phase IV study for the use of Acthar for nephrotic syndrome. The company has been expanding its sales force with positive results. Growth prospects look good. The 5 year chart below shows the recent growth pattern for QCOR.

EBS is a biopharmaceutical company that focuses on the development, manufacture, and commercialization of vaccines and antibody therapeutics. The company operates in two segments, BioDefense and BioSciences. For BioDefense it offers products to combat terrorist weapons such as anthrax. The BioSciences segment offers vaccines for tuberculosis, typhoid, pandemic influenza, rheumatoid arthritis, Systemic lupus erythematosus, Chronic lymphocytic leukemia, and non-Hodgkin’s lymphoma disease.

It lost more money than expected in Q1 2011, but it kept its full year EPS estimate in place. The 5 year chart of EBS below shows its relatively consistent growth from its October 2008 low.

The table below contains a lot of fundamental information about the above companies. It is from Yahoo Finance and TDameritrade.

Stock

TEVA

QCOR

EBS

Price

$49.87

$21.98

$21.83

1yr . Analysts’ Price Target

$63.33

$26.83

$27.38

PE

13.41

37.25

26.33

FPE

8.86

18.95

17.19

Avg. Analysts’ Recommendation

1.6

1.7

1.3

Price/Book

1.95

11.04

2.21

Price/Cash Flow

11.13

34.14

27.04

5yr EPS Growth Estimate per annum

10.90%

29.00%

10.00%

Market Cap

$44.53B

$1.37B

$775.12M

Enterprise Value

$50.85B

$1.25B

$688.39M

Beta

0.18

0.70

-0.36

Short Interest as a % of Float

0.74%

18.50%

4.40%

Total Cash per Share

$0.84

$1.96

$4.04

Total Debt/Total Capital (mrq)

22.60%

0.00%

11.49%

Quick Ratio (mrq)

0.88

3.86

2.74

Interest Coverage (mrq)

22.82

--

--

Return on Equity (ttm)

15.82%

36.58%

9.24%

EPS Growth (mrq)

7.32%

38.99%

-857.73%

EPS Growth (ttm)

48.25%

43.99%

19.31%

Revenue Growth (mrq)

11.69%

40.35%

-60.40%

Revenue Growth (ttm)

14.88%

37.75%

18.81%

Annual Dividend Rate

$0.822

--

--

Gross Profit Margin (ttm)

55.84%

93.73%

84.23%

Operating Profit Margin (ttm)

23.59%

46.29%

13.52%

Net Profit Margin (ttm)

20.67%

30.58%

8.57%

From this data (and the most recent news), TEVA looks like the most solid stock. Its performance lately has not been good. However, management is optimistic about the future. The fundamental news backs this up. Recent sideways action seems likely to be a prelude to a good move upward. I note that no one is shorting this stock.

Each of the other two stocks look like good investments. However, both QCOR and EBS are much smaller companies. They may be more subject to the vagaries of market psychology. QCOR has an excellent 5 year EPS growth estimate per annum of 29.00%. However, it also has high short interest of 18.50%.

Given this, almost anything could happen. It could see short squeezes to the upside, or it could move down significantly. Both QCOR and EBS trade at much higher multiples than TEVA. I would select TEVA, which does have a significant dividend, if you are thinking primarily of safety. The Money Flow Indices in the charts above indicate that TEVA and QCOR have been showing more investor interest of late. If you don't want to worry too much about short term market moves, it may be best to average in to any or all of the above stocks.

Source: 3 Low Beta Pharma Growth Stocks for Uncertain Times