That’s what my Safe Money subscribers are hitting with one of my favorite stocks in one of my favorite sectors. I’m talking about a sector that offers an outstanding combination of …
- Generous dividends — often double or triple what you can get on short-to-medium-term Treasuries. And unlike Treasury coupon payments, those dividend payouts can increase over time.
- Shareholder-friendly actions — massive corporate buybacks, smart cost-cutting moves, smart investments in new products that will bolster revenue and earnings growth down the line. You get all that and more here!
- A massive wave of deal-making — mergers and acquisitions are alive and well in this sector, unlocking value for both the buying and selling companies. In fact, I haven’t seen such a wave of reported or rumored transactions of the recent size in any sector in years.
What sector am I talking about? Pharmaceuticals! It’s one of a handful of sectors I’ve been pounding the table on for more than a year … and it’s one that’s delivering handsome returns to investors.
|With the population aging in the developed world, spending on consumer pharmaceuticals should continue to rise over the next several years.|
Start with the yields you can get in the sector. Many of the leading domestic companies offer yields that easily beat what you can get on a 5-year or 10-year Treasury, and those payouts have been rising consistently. If you’re willing to go outside our borders, you can easily find yields of 4 percent, 5 percent or more.
Then there are the shareholder-friendly steps company managements are taking. Two examples: Merck (MRK) launched a $15 share buyback last spring, while Eli Lilly (LLY) said it would repurchase $5 billion of its outstanding shares a few months ago.
And what about these deals? Reports surfaced this week that Pfizer (PFE) had considered acquiring AstraZeneca (AZN) for more than $100 billion not too long ago! (That brings to mind the glory days of Big Pharma deal-making, such as when Pfizer bought Warner-Lambert for $87 billion way back in 2000.)
Then just a day later, we learned about a massive three-way transaction between Novartis (NVS), Lilly, and GlaxoSmithKline (GSK). Novartis is spending up to $16 billion to get some of Glaxo’s cancer drugs, while Glaxo is going to get Novartis’ vaccines business for around $7.1 billion. Lilly will end up absorbing Novartis’ animal health business at a cost of $5.4 billion.
Novartis and Glaxo are also launching a joint venture to sell consumer health care products. Those products are expected to generate almost $11 billion in annual revenue. With the population aging in the U.S. and elsewhere in the developed world, spending on consumer healthcare and pharmaceuticals should also continue to rise over the next several years, putting these companies in the sweet spot of demographically driven demand.
Bottom line: I’ve warned against hiding out in longer-term bonds for two years now. I believe they’re still overvalued — andnext to worthless when it comes to generating decent yields you can actually live on. Instead, I have advocated buying select, highly rated stocks in key sectors wrapped up in their own private bull markets — domestic energy, aerospace, pharmaceuticals/healthcare, and so on.
Anyone who heeded that advice has fared very well. In fact, I identified one of the stocks mentioned earlier as a key potential winner last May. Then this March, I recommended doubling the size of the position in the model portfolio. My subscribers should be very happy now given the very generous yield and value-unlocking transactions this firm is wrapped up in.
If you’d like to join them, all you have to do is click here. You’ll find all the details on my favorite pharma name, not to mention those in domestic energy, aerospace, and other promising sectors that are spinning off nice gains.
Until next time,