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Pfizer: Top Pick in Pharma
06/02/2014 8:00 am EST
Although shares of big pharmaceutical companies have earned a reputation for resilience, recent developments suggest that some names offer investors an overlooked growth element, observes Yiannis Mostrous in Capitalist Times.
Investors have long regarded pharmaceuticals as a defensive play based on the assumption that consumers will continue to spend on medications and other health-related products when the economy weakens.
One new innovation is biological medical products, or biologics. These innovative treatments represent the cutting-edge of biomedical research, and eventually, may emerge as the most effective means to remedy a variety of medical illnesses and conditions for which no cures exist.
With their bulletproof balance sheets, the biggest pharmaceutical names remain best-positioned to commercialize biological products.
Big Pharma stocks have enjoyed quite a run in recent months. But the emergence of sophisticated new treatments suggests that the group could deliver more growth than expected, while providing the stability that investors prize during periods of market turbulence.
Our top pick in the sector is Pfizer (PFE). With annual sales of more than $50 billion, Pfizer is one of the world's largest pharmaceutical companies and stands to benefit from restructuring efforts and its promising oncology unit.
The company will split its commercial operations into three segments. One will house a wide range of treatments that boast patents that extend beyond 2015. The second will include Pfizer's vaccines, oncology, and consumer assets.
The third—the value segment—will include off-patent medicines and drugs whose patents will expire through 2015. Many analysts expect this reorganization to mark the first step in the potential spinoff of the value segment.
Meanwhile, Pfizer's oncology business generated $2 billion in revenue last year and should drive the company's future earnings growth, beginning with the launch of a promising breast cancer treatment in 2015.
The pharmaceutical giant has actively repurchased its stock over the past 12 months, reducing its float by more than 11%. We expect management to continue to follow this course while the company's shares trade at a discount to its peers.
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