Don't Ignore These European Healthcare Stocks
Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Healthcare stocks have rallied over the past couple years, and for good reason. Not only is the global economy gaining traction, but the demographic trends, particularly in the United States, are extremely favorable. It’s a cliché by now, but it’s still true, that America is an aging society. The Baby Boomer generation is rapidly approaching retirement, and in turn will require a great deal of healthcare services.
As a result, when many investors view healthcare stocks, they tend to focus on the U.S. pharmaceutical giants. While those companies are certainly worthy of investment consideration, there happen to be foreign companies with significant exposure to the U.S. economy that are equally worthy of your investment dollars.
Profits from across the pond
You may not know these international pharmaceutical giants, but they have the same characteristics that make their American counterparts so attractive: namely, steady fundamentals and hefty dividend yields.
In some cases, these healthcare giants may actually provide more in terms of yield than their U.S. peers. For example, AstraZeneca PLC (NYSE: AZN) carries one of the biggest yields among the publicly-traded big pharma stocks.
Based in the United Kingdom, AstraZeneca might not sound familiar to many investors, but many of its key products probably ring a bell. Among the company’s better known drugs are Crestor, Nexium, and Atacand.
As previously mentioned, perhaps the best feature of owning AstraZeneca is its massive dividend. The company pays a semi-annual dividend, which yields close to 6% annualized.
Furthermore, AstraZeneca isn’t expensively valued. Whereas many U.S. pharmaceutical giants trade close to 20 times trailing earnings, AstraZeneca changes hands for a much more attractive 10 times trailing EPS.
Novartis is based in Switzerland and has a long history, founded all the way back in 1895. The company holds a $173 billion market capitalization.
Novartis reported mixed full-year 2012 results. Sales were flat on a constant currency basis, but core earnings per share dropped 3% versus the prior year. However, Novartis was pleased with its performance amid the challenging 2012 economy and provided investors with the 16th consecutive annual dividend increase. The company’s current payout yields 3.5% at recent prices.
Like Novartis, France-based Sanofi performed admirably last year, which proved difficult due to the struggling European economy, in addition to patent expiration. Total sales grew half of one percent, even though the company lost more than 1.3 billion euros due to generic competition.
Going forward, management expects the company’s difficulties to continue this year. Sanofi projects 2013 earnings per share to be flat to down 5% for the full year, due primarily to residual impacts from the company’s loss of Plavix and Avapro exclusivity in the United States.
That being said, the company’s troubles certainly aren’t being reflected in the stock price. Sanofi has skyrocketed 43% over the past 52 weeks and currently sits near all-time highs, and that doesn’t even include the hefty 3.3% dividend.
The Foolish bottom line
For investors looking for international competitors of the familiar healthcare giants in the United States, these companies are a good place to start. These stocks offer reasonable valuations and huge dividend yields that are greater than the broader market as well as most industry peers.
It’s worth noting that these companies are based in Europe, and as a result, have significant exposure to the shaky European economy. That being said, these multi-nationals performed admirably in a tough 2012 environment, indicative of their strong product pipelines and global reach.
At the same time, investors are being paid handsomely to wait for the global economy to return to more solid footing. Should the European economy in particular finally show some strength, these companies may be set up very well going forward. As a result, income investors will want to keep these names on your watch list going forward.
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Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!