Kraft Foods Group Inc (KRFT), AbbVie Inc (ABBV): Should We Follow Dodge & Cox’s Two New Buys?

Nice yield and new drug pipeline potential

AbbVie Inc (NYSE:ABBV) made it to the portfolio of Dodge & Cox in the first quarter of 2013, with nearly more than 37,800 shares. AbbVie Inc (NYSE:ABBV), spun off from Abbott Laboratories (NYSE:ABT), is a research-based pharmaceutical company developing therapies to treat complex diseases such as Parkinson, HIV, and low testosterone. The business has relied heavily on HUMIRA, which generated nearly $9.30 billion, or more than 50% of its total revenue in 2012.

Its three biggest wholesale distributors, Cardinal Health, Inc. (NYSE:CAH), AmerisourceBergen Corp. (NYSE:ABC), and McKesson Corporation (NYSE:MCK), each accounted for more than 25% of its total 2012 revenue. Its new products for hepatitis C seem to be quite promising. According to the recent ongoing trials that are sponsored by the company, around 88% of hepatitis C patients could be cured successfully after eight weeks by taking the company’s five oral drugs. Eight weeks could be seen as a substantial improvement, as the current treatment for hepatitis C could take 24 to 48 weeks.

Investors might be a bit worried about its leveraged balance sheet. As of March 2013, AbbVie had nearly $3 billion in equity, $7.5 billion in cash and short-term investments, and more than $14.6 billion in long-term debt and lease obligations. AbbVie Inc (NYSE:ABBV) is trading at around $44.50 per share with a total market cap of $70.2 billion. AbbVie Inc (NYSE:ABBV) is valued at nearly 10 times EV/EBITDA on the market. What might further attract investors is its decent dividend yield at 3.60% while the payout ratio is quite conservative, at only 10%.

My Foolish take

As mentioned above, growth investors might prefer Mondelez International Inc (NASDAQ:MDLZ) with its market leading positions in the emerging markets. Income investors might prefer both Kraft Foods Group Inc (NASDAQ:KRFT) and AbbVie for their decent dividend yields. AbbVie Inc (NYSE:ABBV) might also give investors a good upside potential with its promising hepatitis C drug pipeline.

The article Should We Follow Dodge & Cox’s 2 New Buys? originally appeared on Fool.com is written by Anh HOANG.

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