Will Drugmaker Endo Become a Penny Stock by the End of the Year?

Drugmaker Endo International (ENDP) - Get Report  has been tanking, intensifying a period of wealth destruction as its stock cratered to about $14 apiece from more than $80 last summer.

This is a dangerous stock that is weighing on its overall sector and looks like it could slip to penny stock territory by the end of the year.

The U.S. Attorney's Office in New York's Southern District has its eye on Endo and has been looking into its and other companies such Johnson & Johnson's relationships with pharmacy benefits managers.

Specifically, Endo's Frova migraine drug is in the spotlight.

Fraudulent pharmacy tactics have laid ValeantPharmaceuticals to waste, turning a Wall Street darling into a terrible investment. Is Endo headed in the same direction?

Typically, a drugmaker found in violation of federal law will face financial penalties. There is also the possibility of a settlement, as well.

Another problem for Endo is that its management has slashed 2016 adjusted earnings per share and revenue projections by 23% and 11%, respectively.

In addition, the loss of exclusivity for anti-inflammatory medicine Voltaren Gel and rising competition in the generic-drug industry are spoiling Endo's chances for recovery or survival.

Many were surprised by the extent of the guidance cut. There are a number of questions floating around, including how did management get the estimates so wrong in the first place, is something bigger on the horizon and are the revised estimates a half-measure or the true picture?

Analysts from Leerink Swann, Mizuho, Piper Jaffray and RBC Capital have downgraded the stock and sharply cut their price targets in some cases, too.

Although some investors may feel Endo is attractive after a steep stock price correction, the stock looks more like a fundamentally flawed investment that is in danger of slipping precipitously.

Investors should look at other opportunities instead.

In the generics sector, Teva Pharmaceutical Industries (TEVA) - Get Report ,the world's biggest generics maker, is a superb long-term investment that is trading at a bargain level.

The company has reiterated a 5% growth estimate for generic sales this year. Over the next five years, Teva is expected to deliver 6% earnings-per-share growth per year. 

Teva pays a forward yield of 2.7%. The company also is moving ahead with its $40.5 billion acquisition of Allergan's generic-drug portfolio.

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Analysts have a median 12-month price target of $74.50 on Teva, which would represent a nearly 50% increase.

Among big pharma companies, Pfizer (PFE) - Get Reportis among the best in the industry. The company boasts an estimated $51 billion to $53 billion in 2016 sales, a strong product portfolio, superlative cash generation and a track record of paying a cash dividend for more than 300 quarters.

Going forward, Pfizer can monetize value by selling its established products unit or splitting the company into two. The company's financial muscle is apparent from its bids to merge with Allergan and AstraZeneca.

Pfizer is also on the prowl again and is eyeing cancer drugmaker Medivation, which is already being wooed by Sanofi. With analysts projecting an 11%-plus stock increase in the next 12 months and a 3.62% forward dividend yield, Pfizer is a surefire and safe bet.

Instead of placing risky bets on dicey plays such as Endo, go for solid businesses with good yields, such as Teva and Pfizer.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.