Income From 5 Healthcare Stocks

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 |  Includes: ABT, FRX, JNJ, MRK, PFE
by: Investment Underground

The healthcare sector for 2012 looks promising, as it will experience a combination of strategies, new techniques, and adaption of new methodologies. Companies within the healthcare sector will react in tandem with the upward trends in the sector, such as breakthrough treatments and an aging "baby boomer" population. However, it is pertinent for investors to make the right selection of stocks in this dynamic, quickly changing sector. Following are some stocks from the healthcare sector which can be purchased with a medium to long term perspective.

Johnson & Johnson (NYSE:JNJ): The company has a price earnings ratio of $18.50, while its earnings per share are around $3.49. Over the past decade, Johnson & Johnson has demonstrated a stable return on equity ranging between approximately 25% and 29%. As a catalyst for revenue generation for the company, the 'Synthes' acquisition is expected to be completed in the first half of 2012. Also known as the most consistent dividend paying corporate giant, Johnson & Johnson has paid increased dividends to its investors for 49 consecutive years since 1944. Johnson & Johnson has a dividend yield of approximately 3.50, while its dividend rate is a stable 2.28. Since 2002, the company's dividend payout has increased by 13% per year, which means a doubling of the dividend payment approximately every five years. The market price of its stock is approximately 14 times its earnings. I would recommend Johnson & Johnson to be bought at its current market price with a long term perspective.

Pfizer (NYSE:PFE): The company is now planning to streamline its pipeline activities as well as planning to revisit its research and development spending. On a more positive note, its acquisition of Wyeth is certain to render long-term benefits to the company coupled with its agreement with GlaxoSmithKline for development on the treatment of HIV. The company is one of the best dividend payers, depicting a dividend yield of approximately 4.20%, while its stability in price per share is depicted in its beta of 0.7. Keeping earnings per share estimate of around $2.20 per share, Pfizer can reach a price target of $27 in a year's time. If one buys Pfizer at the current market price, coupled with the dividend income from the company, a return of approximately 25% is attainable. In my opinion, Pfizer should be bought at its current levels.

Abbott Laboratories (NYSE:ABT): This company has price earnings of around $18.30 and earnings per share of approximately $3. Its dividend yield is around 3.5%, with its dividend payout having been consistently increased for a period of 38 years. A number of acquisition deals along with appropriate licensing contracts have assured Abbott Laboratories to garner a string of promising drugs in its portfolio. Likewise, the acquisition of Kos has improved Abbott's range of products, in rendering lipid management better. Also, the approval of TRICOR will aid the company in synergizing new formulation drugs within its portfolio. Moreover, as the company's pharmaceutical division accounts for approximately 50% of sales, it remains one of the attractive candidates for a takeover post spin off. In my opinion, purchasing stock of Abbott Laboratories at its current market rate is a good investment decision, with a long term perspective. At year end, it will render the investor equities of two companies if he or she invests in Abbott laboratories as of today.

Merck & Co Inc. (NYSE:MRK): Merck is currently trading closer to its 52-week highs of $39.43. The company has earnings per share of approximately $2, while its price earnings are around $19. The company's earnings rose by 11% in the fourth quarter of 2011 depicting approximately $3 billion. In 2011, an overall increase of 10% posted the earnings to around $3.77 versus $3.42 earnings of 2010. With many complementary products in the pipeline of getting patented, Merck & Co Inc. has certainly acquired a strong array of products with its Schering acquisition. Moreover, the company benefits from flexibility in utilizing its finances, due to its strong cash balance. However, the expiry of its Cozaar and Hyzaar patents, with a prospective expiry of Singulair patent in 2012 would prove a set back to the company's cash in-flows. In my opinion, Merck & Co Inc. could be optimally purchased at around $30, with a medium term perspective.

Forest Laboratories, Inc. (NYSE:FRX): This company has earnings per share of around $3.96, and price earnings of around $8. Forest Laboratories has depicted strong returns on equity over the last decade, averaging around 23%. The company has performed well enough over a decade to garner 60% return on invested capital. However, the company is just trading at a mere 1.6 multiples of its book value. Forest Laboratories has benefited its investors by mode of stock repurchases, so as to render free cash flow to them. The major catalyst for company's positive outlook comes from its acquisition in Clinical Data Inc ("CDI") for $1.3 billion net cash. Also, the approval of Viibryd, Clinical Data's major product, just less than a month before acquisition was certainly a definite plus for Forest Laboratories. In my opinion, Forest Laboratories,could be purchased at its current level, with a medium term perspective.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.