Five Buy-Rated Drug Stocks to Watch

To paraphrase Mark Twain, reports of the death of the drug industry are greatly exaggerated.

The pharmaceutical industry still lives, despite the potential for regulation by a new president and a left-leaning Congress committed to health-care reform. And it's likely to keep growing as Baby Boomers age.

TheStreet.com Ratings has assigned high grades to Johnson & Johnson (JNJ Quote), Novartis (NVS Quote), Abbott Laboratories (ABT Quote), Wyeth (WYE Quote) and Bristol-Myers Squibb (BMY Quote). These grades equate to "buy" recommendations.

Each company's shares are attractively priced at less than 14 times analysts' estimates for 2010 earnings, with Bristol-Myers Squibb recently changing hands at a tempting 9.8 times. They're forecast to increase profits next year, and their cash flow and balance sheets are healthy. Some industry observers expect the "big pharma" players to take advantage of the weak market by acquiring high-growth biotechnology firms.

As investors wait to see how the government shake-up affects major drug makers, they can enjoy dividend yields of 2.6% to 5.7%.

Big Pharma Is Still Healthy Companies Johnson & Johnson Novartis Abbott Laboratories Wyeth Bristol Myers Squibb Ticker JNJ NVS ABT WYE BMY Reward grade A-    B+    A-    A-    A-    Risk grade C     C-    B+    C     C     Overall grade B     B-    B+    B-    B     Recommendation Buy Buy Buy Buy Buy Recent price 57.10 42.73 54.94 43.42 21.75 Market cap ($Mil.) 158,427.8 112,962.0 85,243.9 57,815.0 43,059.4 Total assets ($Mil.) 80,954.0 78,299.0 39,713.9 42,717.3 26,172.0 Total debt ($Mil.) 9,537.0 7,364.0 12,213.7 11,804.5 6,272.0 Latest fisc. yr. revenue ($Mil.) 61,035.0 41,459.0 25,914.2 22,399.8 19,348.0 Earnings before interest & taxes ($Mil.) 15,153.0 8,706.0 5,523.5 6,349.0 3,533.0 Cash flow from operations ($Mil.) 15,249.0 9,532.0 5,183.8 5,875.7 3,153.0 3-Yr. EPS Ann'l Growth Rate (%) 27.9 36.5 15.3 N/A -18.7 EPS - latest avail. 12 Mos. 4.57 3.56 3.03 3.27 1.59 EPS - curr. year consensus 4.50 3.71 3.69 3.63 1.93 EPS - next yr. consensus 4.89 4.27 4.13 3.50 2.21 Price/book ratio N/A 1.9x N/A N/A N/A Ret'n on equity (%) 28.3 16.1 24.5 22.4 24.4 P/E - Current year 12.7x 11.5x 14.9x 12.0x 11.3x P/E - Next year 11.7x 10.0x 13.3x 12.4x 9.8x Dividend yield (%) 3.22 3.60 2.62 2.76 5.70 Source: TheStreet.com Ratings (Data as of 2/13/2009). For an explanation of our ratings, click here