Dessauer's Picks: Global R&D

11/28/2003 12:00 am EST


John Dessauer

President, John Dessauer Investments, Inc.

"Don't just buy any big pharmaceutical stock," says global expert John Dessauer, editor of Investor's World. "Not all have excellent management. Not all spend enough on R&D. You must be selective. I believe the drug stocks - both ADRs - are among the few that will attain profit growth and higher stock prices."

"Novartis (NVS NYSE) has been in a narrow trading range for what seems like forever. That is likely to change in the coming 12 months. Novartis continues to invest heavily in R&D and operations. For example, a $4 billion research center is being built in Cambridge, Massachusetts. Spending on R&D is at 17.5% of sales or higher. Our payday for all this investment is near. Novartis has more than 65 new drugs in clinical development. Most of their key drugs now on the market are doing well. The balance sheet is super-strong. There is very little risk here. At just 18 times estimated 2004 earnings, the stock is very attractive. My 12-month target is $55. Buy.

"Aventis (AVE NYSE) also has an attractive pipeline of new drugs. Sales of Allegra are expected to decline, but overall results will remain strong. Earnings for 2003 are estimated at $3.35 to $3.45, rising to $3.65 to $3.95 in 2004. The P/E has been as high as 48, but that was on much lower earnings and in an overly exuberant stock market. A better expectation is a P/E of 22 to 24. At the moment, Aventis is trading at 14 times median 2004 estimates. That makes the stock deeply undervalued. Wall Street looks for $67. I believe that the stock can trade up to $75 or $80 within 12 to 18 months. Buy."

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