Defensive Stocks with Hope Against Alzheimer's
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s customary for portfolios to have some form of “defensive” stock, which typically offers a tasty yield to help cure any market malaise or even all-out meltdowns. Many investors often flock to popular pharmaceutical companies for shelter during Wall Street storms. In prior posts, I mentioned that during last year’s S&P pancake performance, I took a decent position with Bristol-Myers Squibb (NYSE: BMY), primarily for that succulent 4.3% dividend yield (which was 4.9% when I bought it), and it has worked well enough for me to take some profits this year. Bristol-Myers has shed over $3 per share since word broke that an executive with the company was arrested for insider trading nonsense. Bristol-Myers is bigger than this mess and the sell-off presents something of an opportunity for a decent long-term investment, in my mind. But I would like to discuss possible defensive pharmaceutical positions with regards to something that hits very close to home, Alzheimer’s disease.
Recently Johnson & Johnson (NYSE: JNJ), and Pfizer (NYSE: PFE), pulled out their collaborative efforts in their combat of the disease that affects more than 5 million, not including the countless families that suffer with them. The timing for J&J comes at a dubious moment, since it was announced that Warren Buffett sold 60% of his position with the company (although he still holds 10 million shares). Since the statement that the drug therapy showed no benefit after two late-stage studies, shares have dipped about 1%, but they are up around 3%, year-to-date. J&J pays loyal shareholders a respectable 3.6% dividend yield and currently trades relatively close to their 52-week ceiling ($61-$70). It’s possible Buffett is seeking value elsewhere, as the price-to-earnings ratio is the highest among those in this conversation, around 21.50. Pfizer has had a better run for the year, up over 8%, but the share price has slipped about 2% since canceling the study. Pfizer is also trading close to their 52-week high ($17-$24), and doles out 88-cents per share annually, yielding 3.7%.
One ongoing Alzheimer’s study, from Eli Lilly & Co. (NYSE: LLY), doesn’t present much promise, even if you ask company executives, expressing apprehensions that the likelihood for success from their 10-year, $1 billion endeavor with Solanezumab is a “long shot.” Lilly also trades close to the peak of their 52-week range ($35-$45), and gives investors a robust 4.6% dividend yield, paying $1.96 per share annually. With continued concerns surrounding the current study, coupled with the potential $7 billion loss in sales from two of their best-selling drugs in the coming years, courtesy of generic versions, Lilly is looking at a crossroads of feeding the annual dividend, rather than the pipeline. The company’s stock performance is about 1% up year-to-date.
One tiny, flickering bright spot in the fight against Alzheimer’s comes from a very small study sample conducted by Baxter International Inc. (NYSE: BAX). Actually, miniscule or microscopic might better define the size of the study, since only 4 patients were in the group, but results showed the company’s immune system therapy stabilized the disease in each patient over a three year span. The long grind for Alzheimer’s studies requires considerable capital, resulting in very little return due to less-than positive results. But the wide array of products and services the company provides affords protection for them and investors, by having eggs in several baskets. Much like the other companies discussed, Baxter is trading close to the top of their 52-week range ($48-$61), and has performed nicely this year, up 15%. They boast a respectable 3.1% dividend yield, paying $1.80 per share annually, thanks to a recent increase. To go along with the 34% payout boost, Baxter announced plans for a $2 billion share buyback, which won’t hurt long-term investment potential one iota. I will be keeping an eye on future studies next year, hopeful of positive results from a larger population.
Each of these companies provides a decent line of defense with their better-than-average quarterly payouts to dedicated shareholders. And the growing population of Alzheimer’s sufferers demands the continued research and development to help put an end to the dreaded disease. The negative outlook from Lilly’s management, combined with the potential poaching of sales from generics in the coming years has me considering Baxter as the best of this bunch.
Motley Fool blogger Kyle Metivier owns shares of Bristol-Myers Squibb and owns no shares of any other company mentioned. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.