Pat McKeough responds to many personal questions on specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions.
This week, an Inner Circle member wanted Pat’s opinion on the one of the world’s largest drug stocks. The leading maker of generic drugs, this company is expanding into brand-name and non-prescription drugs. Still, it faces increasing competition in all of these industry segments.
Q: Hi Pat: What are your thoughts on Teva Pharmaceuticals?
A: Teva Pharmaceutical Industries Ltd. ADRs, (symbol TEVA on Nasdaq; www.tevapharm.com), is the world’s largest generic drug maker.
In 2011, Israel-based Teva got 56% of its sales by making and selling more than 500 generic drugs.
The company also develops and markets some of its own name-brand drugs, including Copaxone, the second-highest-selling multiple-sclerosis treatment, and Azilect, a Parkinson’s drug. Branded drugs supplied 35% of Teva’s 2011 sales. The remaining 9% of its sales mainly came from over-the-counter drugs.
The company has grown steadily by acquisition. Most recently, it paid $6.5 billion for U.S.-based Cephalon Inc., which makes several branded drugs, including Actiq (which relieves pain caused by cancer), Trisenox (for treating leukemia), Nuvigil (sleep disorders) and Gabitril (seizures).
As a member of my Inner Circle, you will get individual answers to your personal investment questions. And you will see my answers to questions other investors like you are asking. In fact, you will get virtually all the investment advice I have to give. You will have access to all of our advisories – The Successful Investor, Wall Street Stock Forecaster, Stock Pickers Digest and Canadian Wealth Advisor – and full access to the members-only, password-protected Inner Circle section of The Successful Investor Network website.
Although my team carefully researches all the stocks that members ask about, I personally review each and every recommendation. To ensure this close personal attention, only a limited number of members can be admitted to our Inner Circle. Under the pressure of world events, even more investors are asking for my personal investment advice. We are nearing our membership limit already. Click here to secure your membership in the Inner Circle right away.
Drug stocks: Teva in over-the-counter drug venture with Procter & Gamble
Teva is also expanding its non-prescription drug business. It recently formed a joint venture with Procter & Gamble Co. (New York symbol PG) that will make and sell over-the-counter drugs outside North America. Procter will own 51% of this new business, called PGT Consumer Healthcare, and Teva will own the other 49%.
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Thanks to the company’s recent acquisitions, its overall sales rose 13.6% in 2011, to $18.3 billion from $16.1 billion in 2010. Excluding one-time items, such as costs to integrate its purchases, earnings rose 7.4%, to $4.4 billion from $4.1 billion.
Earnings per ADR rose 9.5%, to $4.97 from $4.54, on fewer ADRs outstanding. (Each American Depositary Receipt represents one Teva common share.) The company spent $1.1 billion, or 6.0% of its sales, on research.
Drug stocks: Teva has 177 generic drug applications waiting for approval
Teva has 177 generic drug applications awaiting FDA approval. The company also has a number of late-stage drugs under development, including treatments for women’s health, respiratory conditions and wound care.
The company will probably earn $5.62 per ADR in 2012. The stock trades at 7.8 times that estimate. The company recently raised its dividend by 25.0%. The shares now yield 2.4%.
In his assessment of Teva Pharmaceuticals in the most recent Inner Circle Q&A, Pat notes that demographic trends favour generic drugs as the population ages and governments and medical insurance providers come under pressure to cut costs by using more generics. But he also considers the risk that enhanced competition may lower profit margins for all generic drug makers. And he assesses Teva’s chances of success in the competitive brand-name and non-prescription drug market. He concludes with his clear buy-hold-sell advice on the stock.
Inner Circle members see Pat’s analysis and recommendations on the stocks that other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this unique investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.
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