As an investor, think of it as shopping at the Dollar Tree . When the investment crowd beats down the stock of a global "blue chip" over unwarranted fears, it's your chance to pounce for a deep discount.
Now in the bargain bin is Novartis AG (NVS) - Get Report , which has gotten clobbered lately. The concerns are two-fold (and overblown): Some of the company's best-selling drugs soon face patent expiration, and politicians running for president are clamoring for lower drug prices.
Novartis stock is down 6.81% year to date, compared to a 3% gain YTD for the S&P 500. But Novartis over the long haul has been a moneymaking machine for investors, racking up a five-year gain of roughly 27%. The dividend yield of 3.48% is icing on the cake.
Switzerland-based Novartis is a drug industry behemoth boasting inherent strengths that will make it a solid long-term wealth generator into the foreseeable future.
To be sure, Novartis is grappling with declining revenues and earnings over the short term, as some patents expire. The company reported first quarter earnings per share (EPS) of $1.17, missing Wall Street's expectations by a penny and down 12% from the same quarter a year ago.
However, Novartis continues to funnel substantial resources into developing new product lines. The company plans to spend $9 billion on research and development in 2016, or about 16% of revenue, making it one of the biggest R&D spenders in the biotech sector.
Novartis operates through three segments that provide diversity to the company's revenue stream: Pharmaceuticals (patented prescription medicines), Alcon (eye care products), and Sandoz (generic drugs). Novartis' research operation enjoyed a banner year in 2015, winning FDA approval for heart failure therapy Entresto and psoriasis treatment Cosentyx, both of which are expected to be blockbusters.
The company also is accumulating a war chest for future acquisitions. The company owns a $14 billion stake in rival Roche Holding and Novartis confirmed this week that it's looking to sell Roche, to raise cash for future acquisitions that would provide a better return on investment.
With a trailing 12-month price-to-earnings (P/E) ratio of about 28, Novartis is in line with the drug industry's average trailing P/E of 27 and cheaper than major peers such as Merck (35) and Bristol-Meyers Squibb (77).
Novartis stock now trades at about $80. The one-year median analyst price projection is $87, for a gain of nearly 9%. But the share price has been on the rise, so perhaps it can reach analysts' high-end projection of $115.
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John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.