Undervalued Teva Pharmaceutical Industries Ltd (ADR) (TEVA) Must Enter New Markets

A federal court also recently dismissed Mylan Inc. (NASDAQ:MYL)’s complaint against a decision to withhold the company’s generic version of Diovan. However, all of this is more than offset by FDA approvals for the generic versions of Maxalt to treat migraine headaches and for an ANDA for a partner’s contraception product. At 9.5 times forward earnings and 10.3% EPS growth forecasts, reward outweighs risk.

Hedge with Johnson & Johnson

Johnson & Johnson (NYSE:JNJ) ultimately remains one of the safest healthcare investments. With diversification in consumer goods and a 3.10% dividend yield, its investment returns are more predictable than Mylan’s or Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)‘s. It has risen 42% from its 52-week low and is more or less reasonably priced at 14.6 times forward earnings.

Assuming Johnson & Johnson (NYSE:JNJ) grows EPS by 6.3% over the next five years, 2018 EPS will come out to $7.40, which, at a multiple of 14x, translates to a future stock value of $103.60. When you factor in dividend distributions, the net result is an average annual return of 7.6%. While a 7.6% return may not be for high-growth investors, it is a nice stable hedge against uncertainty at Teva and Mylan.

Conclusion

Companies can and do run into mistakes. From failing to take the pressure off of patent cliffs to competitor lawsuits, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Mylan have erred. However, both have started to focus on growth and risk-mitigating product opportunities. The two trade below historical multiples even though their past mistakes are isolated and have no impact on the future. I, therefore, believe a market correction will be in order and, thus, encourage buying shares sooner rather than later.

The article Undervalued Teva Must Enter New Markets originally appeared on Fool.com and is written by David Gould.

David Gould has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. David is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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