A blue-chip stock is a large company that has a stable source of revenues in good times or bad, and whose business outlook is fairly predictable over the long run. Since people get sick and need to be treated with drugs during recessions and economic booms alike, few businesses have more predictable sources of income than pharmaceutical companies.

Unfortunately, sales at many of the large-cap pharmas have begun to stagnate, as blockbuster drugs go off patent with a lack of new drugs in development to pick up the slack. GlaxoSmithKline (NYSE:GSK), though, is under relatively little generic attack, yet sports a more enticing valuation than its slower-growing peers. Here's how Glaxo stacks up against its closest pharmaceutical rivals, Pfizer (NYSE:PFE) and Johnson & Johnson (NYSE:JNJ).

Rev. Growth*

Operating Margins*

Price/
Sales*

Fwd. P/E**

Div. Yield

GSK

8.5%

32%

3.4

14

3.4%

PFE

4.9%

31%

3.7

12

3.6%

JNJ

3.2%

26%

3.8

17

2.2%
*Trailing-12-month numbers.
**Analyst estimates.

With a much better P/E and dividend yield than JNJ, plus better sales and operating margins than both Pfizer and JNJ, it's tough to argue that Glaxo isn't the cheapest among these big three blue-chip pharma stocks.

Room to grow
Notice the incredible trailing-12-month 32% operating margins from Glaxo? Those are better than the numbers at Wyeth (NYSE:WYE) and should get closer over time to the 35% margins Glaxo had in the most recent quarter, thanks to a reduction in legal costs that will continue going forward.

There is some risk associated with Glaxo in the short term, since a few of its blockbusters accounting for more than 12% of sales may be losing patent protection soon. But the company has several other drugs in development, including the recently approved Coreg CR, cancer therapy Tykerb, and human papillomavirus vaccine Cervarix. Those should more than make up for the lost sales in a few years. Furthermore, Glaxo pays that smart 3.4% dividend to tide investors over until this value stock returns to a period of rapid sales growth.

Speaking of growth, Glaxo shares one trait with JNJ -- its stable consumer health-care division. Sales from consumer health-care products accounted for 13% of Glaxo's revenues this quarter, but have grown a paltry 6% this year, compared with 10% growth in pharmaceuticals this year. This division will become a more important aspect of overall sales, though, with the recent purchase of CNS, which Glaxo should be able to wring synergies out of and hopefully return the division to a period of growth.

The final word
Glaxo is expected to sport double-digit earnings-per-share growth for 2006, has several blockbusters about to be introduced, and boasts a cheaper valuation than its peers. Given all of these positive ingredients, I can think of no better prescription for a blue-chip investment, which is why I have Glaxo rated as an outperform for the next several years in the Motley Fool's CAPS stock-rating service. Come on over to CAPS (it's free), rate Glaxo yourself, and say whether you agree or disagree with this blue chip's ability to outperform the S&P 500.

To read about the rest of our blue-chip candidates, click here.

GlaxoSmithKline and Johnson & Johnson areMotley Fool Income Investorpicks. Pfizer and Coca-Cola areInside Valueselections. Try out these or any of our other investing newsletter services free for 30 days.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has adisclosure policy.