If your portfolio is hurting from the latest downturn in the market, you're not alone in wishing for a secure place to park your money while riding out the chaos. The giant French drugmaker Sanofi (SNY 0.64%) isn't exactly an obvious candidate for a stock that's likely to beat the market, but its total return of around 8.5% this year is undoubtedly superior to the market's losses of more than 15.4%.
What's more, it's profitable, growing, and it pays a dividend to boot. Let's take a peek at Sanofi to appreciate why it could be a great pick for the more conservative portion of your holdings.
Steady as she goes
Sanofi sells Dupixent, which treats atopic dermatitis, asthma, and chronic rhinosinusitis with nasal polyposis. In the last three years, its trailing-12-month revenue grew by a modest 11.6%, reaching $46.8 billion, whereas its trailing-12-month net income rose by 87.4% in the same period, hitting $7.7 billion. While such a slow rate of revenue expansion isn't going to trick any investors into thinking that Sanofi is a growth stock, it's also important to note that its net income is a far more relevant metric for shareholders.
Right now, its forward dividend yield is near 3.4%, and the company currently disburses close to 60% of its earnings to investors. There's no expectation of the dividend rising over time, but management is content to raise and lower the dividend depending on earnings, and it sometimes issues special dividends after experiencing windfalls. That means there isn't much of a chance that the dividend becomes a threat to the company's financial health or the stock's value. It also means shareholders will need to be content with the performance of the business being prioritized over their short-term returns. And all of the above supports its status as a safer stock than many of the alternatives in biopharma.
The other major thing that makes it a relatively safe stock is that it has a huge number of critical medicines on the market and in development. Patients can't just stop taking the drugs it makes, and new therapies and vaccines are constantly in development. Sanofi's pipeline is a smorgasbord, featuring 28 programs in phase 3 clinical trials, six programs in registration, and dozens of earlier-stage clinical projects -- not to mention myriad preclinical programs. Many of its late-stage programs are in immunology, which is why management expects to grow its revenue from the segment by four times between now and 2030.
Plus, currently marketed drugs like Dupixent have a huge number of ongoing follow-on investigations, which could lead to years and years of ever-increasing sales revenue. By 2025, the company expects an additional 1.5 million patients to be regularly taking the drug, which is a big jump from the 430,000 who are currently enrolled in treatment.
The valuation is ripe
Apart from the safe revenue of recurring drug sales and its admittedly unpredictable dividend, Sanofi is valued at a bargain right now. Take a look at how its price-to-earnings (P/E) and price-to-sales (P/S) multiples compare to a handful of other leading pharmaceutical companies:
In a nutshell, investors don't need to pay as much for each dollar of revenue or earnings compared to major competitors like Johnson & Johnson, Eli Lilly, Roche AG, and Bristol Myers Squibb. The catch, once again, is that Sanofi's dividend doesn't have a history of growing each year even though other players' do. So, it isn't the best stock for dividend growth investors.
Assuming that doesn't scare you off, now's a great time to buy a few shares to anchor your portfolio's value, so long as you understand that they might not continue to beat the market once the ongoing turmoil resides. After all, Sanofi appears to be a bit of a safe harbor in the current storm, but big pharma companies aren't exactly known for rocketing growth under normal conditions.