For reference, Gilead Sciences, Inc. (NASDAQ:GILD) spent $1.1 billion on research and development last quarter versus a net income of $3.3 billion.
The bottom line with Gilead is that its revenues and profits will continue to decline at an accelerating rate if it cannot find a way to move beyond its existing drugs. We’re not saying Gilead won’t be successful (and its forward price-to-earnings ratio is very compelling relative to peers at only 6.9x). However, there are no guarantees Gilead will find success, and there are safer alternatives that are also trading at discounted prices given the recent declines in the sector. For example, here are three attractive alternatives worth considering…
Three Attractive Alternatives Worth Considering:
Pfizer Inc. (NYSE:PFE) – Honorable Mention:
Pfizer Inc. (NYSE:PFE) is an attractive, research-based, global biopharmaceutical company. It did not make our “top 3” list, but it’s worth mentioning and considering because it has a higher dividend yield (4.0%) than Gilead, better growth prospects (its 5-year EPS growth estimate is 6.8%), and its forward PEG ratio (price-to-earnings/growth) is attractive at only 2.0x (Gilead’s forward PEG is meaningless given it negative expected growth rate). We would have added Pfizer Inc. (NYSE:PFE) to our top 3 if it hadn’t already rebounded significantly (+8.0%) since the election. Last spring, the Obama administration put the kybosh on Pfizer’s efforts to lower its taxes by merging with Ireland-based Allergan, but apparently the market believes the incoming administration may be more helpful in making US tax rates more competitive globally.
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Amgen, Inc. (NASDAQ:AMGN)
Rather than the high uncertainty (and negative growth) of Gilead, contrarian, value-focused investors that like dividends may want to consider Amgen. Amgen, Inc. (NASDAQ:AMGN) is a biotechnology company with a higher dividend yield (3.2%), a low dividend payout ratio (37.5%), an attractive growth rate (the 5-year EPS growth estimate is 7.3%), and its PEG ratio is only 1.7x. Amgen has a variety of products that are growing (as shown in the following table), and it has been enjoying recent success in improving margins with cost cutting and operational efficiencies.
Amgen, Inc. (NASDAQ:AMGN) still spends heavily on research and development at $990 million last quarter versus net income of $2 billion. Additionally, Amgen shares have declined 7.6% this year as health care (and biotechnology, in particular) has sold off, making for a more attractive opportunity for contrarian investors.
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Eli Lilly and Co (NYSE:LLY)
Eli Lilly and Co (NYSE:LLY) is engaged in drug manufacturing business, and unlike Gilead it is growing not shrinking. For example, the five year EPS growth estimate is a strong 9.8%, and the following table shows the company’s expected growth from 2016 to 2017.
