Reasons Cramer likes JNJ
- Patent expirations are done
- Strong pipeline
- Not relying on one blockbuster drug
- 3.5% dividend
- Has raised dividend for 49 straight years
JNJ's recent troubles with recalls are concerning. Most recently, on January 27, JNJ announced a recall on Aveeno Baby Lotion. This recall adds to the long list of recent JNJ recalls including DePuy ASR devices, Tylenol, Risperdal, Prezista, Topamax, and many more. These recalls have had a real impact on earnings. In the most recent quarter, JNJ was forced to take a 3 billion dollar charge related to previous recalls. Despite the recall problems, JNJ remains a strong company. JNJ has over 12.5 billion in net cash. JNJ's dividend payout ratio is 65%, this means JNJ can easily continue to pay the dividend going forward. In the short term, JNJ remains a difficult buy because of the recall issues. However, over the long term JNJ is a good buy. CEO William C. Weldon said in an interview, "Our objective is to get back to beyond where we were, but that's not going to happen next week or next month it's going to take a lot of work but we're committed to doing that."
JNJ's chart is relatively bullish. JNJ is trading above both the 200 day moving average (orange) and the 50 day moving average (green.) However, JNJ has not broken out to new highs like many other pharma stocks have.
Reasons Cramer likes SNY
- Three biggest drugs are going generic, but this is already priced in.
- Investing in high growth prospects such as vaccines, diabetes, and genetics.
- 4.8% Dividend
SNY pays a high dividend, but odds of a dividend increase are relatively low. SNY has a payout ratio of 76%. This ratio is relatively high, thus SNY will have difficulty raising the dividend. SNY also has over 17.5 billion in net debt that could weigh on the company if things get tough. Another concern with SNY is that it does a lot of business in Europe. With the European economy entering a slowdown, business is likely to slow somewhat for the drug industry. Additioanlly, government austerity could effect healthcare coverage throughtout Europe. For this reason SNY is not my favorite pharma stock on Cramer's list.
SNY's chart is neutral. SNY is above both the 200 day moving average( orange) and the 50 day moving average (green.) However, the 50 day moving average is below the 200 day moving average. SNY has also failed to make new highs while many other drug stocks have been making new highs.
Reasons Cramer likes MRK
- Merck's new experimental cholesterol drug Anacetrapib.
- Recently released blockbusters for HIV and diabetes
- 4.3% dividend yield
MRK remains in a strong position to pay the dividend. MRK pays out just 43% of its free cash flow for the dividend. While positive news may lie ahead with Anacetrapib, investors can predict what the ultimate outcome will be. While the drug is in phase III development, things can still go wrong with Anacetrapib. The failure of this potential blockbuster drug would certainly be a negative for MRK. However, MRK trades at just 10 times forward earnings so a positive surprise has not been factored in.
MRK's chart is very bullish. MRK is trading above the 50 day moving average (green) which is above the 200 day moving average (orange.) This set up indicates strong momentum is building behind MRK. The stock is also trading at a new high which further proves the charts strength. For traders looking to play pharma MRK is the best short term trade.
Pfizer Inc (PFE
Reasons Cramer likes PFE
- Partnerhsip with Bristol-Meyers (NYSE:BMY) to develop Eliquis (phase III).
- 4.10% dividend
PFE's dividend looks sustainable as the payout ratio is 69% of earnings. PFE is a cheap stock trading at just 9 times forward earnings. This PE ratio makes PFE the cheapest pharma stock mentioned by Cramer. Another reason I like PFE is the strong pipeline. PFE has 95 drugs in the pipeline including 22 in phase III.
PFE's chart is very bullish. PFE is trading above the 50 day moving average (green) which is above the 200 day moving average (orange.) This indicates PFE has strong momentum. The bullish technicals are further supported by the fact that PFE is at a new high.
Biogen Idec Inc (NASDAQ:BIIB)
Reasons Cramer likes BIIB
- Excellent pipeline
- Exposure to multiple sclerosis
BIIB certainly has a strong pipeline, but the company is risky. BIIB's two multiple sclerosis drugs currently on the market account for 60% of BIIB's total business. The various issues that can occur with relatively new drugs mean that if something goes wrong for BIIB the stock will get killed. With a market cap of 29 billion, BIIB is not a small company. However, 29 billion is just small enough that a major drug company could buy BIIB. BIIB is the high-risk high-reward stock on Cramer's list.
BIIB's chart is very bullish. BIIB is trading above the 50 day moving average (green) which is trading above the 200 day moving average (orange.) This indicates that BIIB has strong momentum. BIIB is also trading at a new high which further indicates BIIB is doing well on a technical basis.
Investors looking for a long-term buy should consider JNJ as it muddles through a difficult period in the short term. Short-term traders looking to ride the momentum wave in pharma stocks should buy MRK or PFE. Speculators should look at BIIB as it offers both the most risk and reward. Investors could also consider the healthcare ETF (NYSEARCA:XLV)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.