Johnson & Johnson
We asked our Motley Fool CAPS community to nominate two health-care peers that are likely to outperform Johnson & Johnson.
And the nominees are …
Our 165,000-member CAPS community views Novartis
I don't recommend a lot of large caps in CAPs since that world is already well covered by talented analysts, but Novartis looks attractive to me on both a fundamental and technical basis at current price. Company is a dividend generating machine showing regular increases since the late 1990's... Company has gone from 5th to 3rd place in pharma sales over last few years (granted some of this is by staying in place while others lagged) and has a very active pipeline... Strong companies with secular growth and secure, competitive dividends experiencing near-term multiple compression usually represent good value. There are no "no brainers" in the investment world, but this appears to a "low brainer" for more conservative types.
Both Johnson & Johnson and Novartis look relatively cheap, with price-to-earnings ratios of 12.7 and 12, respectively. J&J's dividend yield is a little more attractive than Novartis' 3.3%. No doubt the CAPS community is reacting favorably to strong first-quarter results from Novartis, as well as to recent FDA approval for its organ rejection drug Zortress and enthusiastic FDA panel support for multiple sclerosis treatment, Gilenia. On the other hand, some investors are wary of Novartis' messy acquisition of eye-care company Alcon
Now if you're looking for a small cap that may grow up to become the next pharmaceutical superpower, then the CAPS community points us toward Simcere Pharmaceutical Group
They are buying up their suppliers, vertically integrating to reduce their costs, which have been increasing and are the cause of declining profits.
Simcere is poised to benefit from the rapid growth of the industry in China and has introduced a generic anti-stroke medication under the brand name Bicun and an anti-cancer medication under the brand name Endu -- and has approval from the China State Food and Drug Administration (SFDA) to manufacture and sell more than 210 other products. As noted above, the Chinese pharmaceutical market is highly fragmented and inefficient. If Simcere can expand its share of the Chinese market (where it is competing with Novartis and Johnson & Johnson), then it will benefit as China increasingly claims more of a share of the global drug market. China has 20% of the world's population but only a 1.5% share of the global market.
Make your vote count
Do you agree that Novartis and Simcere may be better buys than Johnson & Johnson? Click over to CAPS and let the rest of the community know what you think.
A previous version of this article had mistakes on the dividend yields and PE ratios of the companies mentioned. These have been corrected, and the Fool regrets the error.