Pharmaceutical Stocks with Fantastic Valuations and Dividend Yield

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It’s no secret that the Federal Reserve is adamant about keeping interest rates right near 0% for as long as it takes for the economy to have a sustainable road to recovery and consistent growth. In fact, Chairman Ben Bernanke came out a few months back and said that rates will stay here for at least until the summer of 2013, which means savers and investors expecting income will be hard-pressed for the foreseeable future. However, these two pharmaceutical stocks not only have great valuations, but pay us to wait very well as the market finally prices them appropriately.

Pfizer Inc. (NYSE: PFE), a biopharmaceutical company, offers prescription medicines for humans and animals worldwide. This diversified, pharmaceutical giant has been in existence since 1849 and since that time has built itself into one of the largest organizations in the world. With Revenue at approximately $70 billion and net income exceeding $10 B this past year, it’s safe to say PFE is a juggernaut and thankfully, even near its highs here, looks cheap.

Trading at just a 15x trailing P/E, 9x forward P/E, 6.7x Enterprise Value/EBITDA, strong free-cash-flow this past year of approximately $10 billion,  and very safe 3.6% dividend yield makes PFE a safe buy. Moreover, with its promising pipeline, PFE looks poised to raise the dividend and continue its aggressive share buybacks which will further reward shareholders.

Merck & Co., Inc. (NYSE: MRK) provides various health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. This fellow Dow component was founded in 1891 and has grown to become an approximately $50 billion firm with a market capitalization at approximately $120 billion.

MRK is trading at an attractive forward P/E of just 10x, 6.3x enterprise value/EBITDA, strong free-cash-flow this past year of approximately $9 billion, and consistent 4.4% dividend yield making MRK a great buy for the income investor. Splitting your position between these two allow you to net an approximate 4% dividend yield and gain on the strong prospects of upside in 2012 and beyond.


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