By Daniel Jennings
Novartis AG (NVS) recently made a significant breakthrough in the domain of cancer treatment, making it one of the stocks to seriously watch. With some recent news about other breakthroughs, Novartis is poised to not only increase in this quarter, but for quarters to come. The stock is right in the middle of its 52-week high, though it's dropped off in 2012. Most of this drop is attributed to fears from the patent expiration of its drug Diovan, but there's now evidence that we will be seeing Novartis moving up sooner than later.
Of course, Novartis has never had a problem attracting investors. Even with fears over the expiration, investors were still drawn in by a dividend yield near 4.5%. Of course, healthcare stocks are no stranger to offering enticing dividend yields. Competitor AstraZeneca Group plc (AZN) has a dividend yield of 6.13%. GlaxoSmithKline (GSK) generates a 4.95% dividend yield, which helps keep investors interested, as the stock can often be among the most volatile in the industry. Pfizer Inc. (PFE) and Johnson & Johnson (JNJ) both generate dividend yields of nearly 4%, so the industry is certainly stocked with attractive buys.
So what keeps Novartis ahead of these competitors? Novartis' recent breakthroughs could bring in a whole new lot of investors, especially if it can keep making headway in cancer treatment—a big ticket factor for obvious reasons.
Recently, Novartis' Afinitor (everolimus) tablet received a positive report from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA). In addition, it has recommended that the European Commission approve the drug. The drug has been developed for the treatment of breast cancer, and so far, it seems that the results have been successful.
Any company that makes a breakthrough in the cancer domain is, in my opinion, going to be a leader in the pharmaceutical industry. It will certainly be remembered for longer and by more people. The drug has to be used in conjunction with exemestane in order to be effective, but it is a significant breakthrough for the company nonetheless. In fact, it is considered to be a milestone in the treatment of breast cancer, and Novartis is the company at the head of this innovation.
I feel that in the very near future, we can expect to see a rise in Novartis stock as a result of this positive news. The only thing standing in the drug's way is the approval of the European Commission, which at this point, is still pending. The drug is, however, the first innovation in the treatment of this particular form of breast cancer in 15 years, so unless there are severe and serious side effects (which would have been picked up by CHMP anyway), I see no reason why the EC will not approve the drug shortly.
This is not the only breakthrough in the pharmaceutical business that Novartis has had recently. In addition to Afinitor, a panel recently suggested that Seebri Breezhaler be approved as a treatment for chronic obstructive pulmonary disease. The company will file in a few years for the approval of the drug. When you look at a pharmaceutical company, what you want to see is innovation.
You want to see many new drugs that have a high success rate and that are approved quickly. In addition, these drugs should represent breakthroughs in the treatment of serious conditions. Novartis is one of the few companies that is able to meet all of these criteria. We can therefore conclude that this is the best horse to back in the pharmaceutical industry over both short and long term, based on the projected future success of the drugs currently in the pipeline in the next few years.
Novartis is certainly a smart buy for its dividend offerings. But so are most of its competitors. In fact, analysts who target stocks with high dividend yields often hint at Novartis, but list off a half dozen of its competitors in the same sentence. The industry helps here, not the company. But Novartis is working toward becoming a valuable stock in its own right.
Some analysts believe this summer will be the time for Novartis. Some are suggesting a $4 value increase in the coming months, which would represent near 10% growth. I don't know if it will jump quite that high. But I believe Novartis will continue to improve upon its P/E ratio of 15.72, as well as move closer to its 52-week high ($63.17).
If it can continue on with its increasing attractive drug ventures, Novartis will gain the confidence of market insiders and buyers and its value will no doubt increase. Also, don't forget that it was recently in a bidding war for Amylin Pharmaceuticals, and though it did not win, it reminded us that Novartis has enough cash to always compete in the industry. And though its market cap is below Johnson & Johnson and Pfizer, it still keeps a fat wallet. Why do I bring this up? Only to show that if Novartis can keep up success in the treatment of breast cancer, it will have the pockets to provide commercial backing for such treatment. The mix would be unstoppable and the stock would shoot up.
That may be a while. But that's not a reason to wait. Novartis selling for anything less then $57, to me, suggests a value to be had. I urge investors to buy now and see just how well Novartis can ride out its short- and long-term successes.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.