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What follows is a list of biotechnology companies that have attractive risk/reward. BioPharma is an attractive sector (see here for detail) to invest in due to the combination of high dividend yields, low betas, and significant catalysts. At the same time, I find that some of the major players are heavily discounted due to fears over patent cliffs and health disasters. In my view, the objective economic cost of these concerns are dwarfed by the upside.

Pfizer (NYSE:PFE)

Pfizer trades at a respective 20.8x and 9.7x past and forward earnings with a dividend yield of 3.9%. Consensus estimates for Pfizer's EPS forecast that it will decline by 2.2% to $2.26 in 2012 and then grow by 4% and 3.8% in the following two years. Assuming a multiple of 13x and a conservative 2013 EPS of $2.30, the stock would hit $29.90 for 30.7% upside.

The company recently agreed to sell its Nutrition business for $11.85B to Nestlé (OTCPK:NSRGY) unlocked value through streamlining corporate focus and injecting cash, hopefully, into R&D. The company faces admittedly concerning patent cliffs (particularly in regard to Lipitor's exclusivity loss) and is need of an improved pipeline to dissipate risk discounting. Pfizer recently exited its relationship with Amgen (NASDAQ:AMGN) and agreed to consolidate domestic field operations under the latter. Pfizer will soon begin marketing one of its main catalysts, tofacitinib, which will directly compete with Amgen's products.

Johnson & Johnson (NYSE:JNJ)

J&J trades at a respective 17.7x and 11.8x past and forward earnings with a dividend yield of 3.5%. Consensus estimates for J&J's EPS forecast that it will grow by 2.6% to $5.13 in 2012 and then by 6% and 8.1% in the following two years. Assuming a multiple of 13x and a conservative 2013 EPS of $5.45, the stock would hit $70.85 for 10% upside.

The company's reentry gained approval by the EU to purchase Synthes, a medical device producer, for $21.3B. J&J concessions included the divestment of its European trauma operations. This integration comes at just the right time, namely when the company announced that it beat consensus with EPS of $1.37. On the other hand, the exclusivity loss for Levaquin resulted in the top-line being below expectations. Global sales in oral care and Neutrogena nevertheless remain meaningful drivers of free cash flow.

Abbott Labs (NYSE:ABT)

Abbott trades at a respective 19.1x and 11.5x past and forward earnings with a dividend yield of 3.3%. Consensus estimates for Abbott's EPS forecast that it will grow by 7.9% to $5.03 in 2012 and then by 6.6% and 5.8% in the following two years. Assuming a multiple of 13x and a conservative 2013 EPS of $5.34, the stock would hit $69.42 for 12.7% upside.

Management is splitting its research business into an entity named Abbvie. By separating the medical products segment from the research business, Abbott shareholders will better be able to allocate risk when making investment decisions. Of the two businesses, I am more attracted to the medical device one, since it has an international focus that hedges against domestic stagnation and grows faster.

Source: 3 Safe Biotech Stocks With Double-Digit Upside