Tag Archives: NYSE:PFE

Should You Buy AbbVie Inc. For Income and Growth?

AbbVie Inc. (NYSE:ABBV) is one of my top eight U.S. stock picks for February available through my premium service. AbbVie offers a high dividend yield and above-average dividend growth.

Among the eight top picks, there are two high, safe yield ideas, three high-growth ideas, and two value ideas. Seven other great companies were also considered but didn’t make the list; I briefly talked about them in the premium service including their growth prospects and entry points.

drugs

Here’s Morningstar’s business overview on AbbVie:

“AbbVie is a pharmaceutical company with a strong exposure to immunology and oncology. The company’s top drug, Humira, represents over half of the firm’s current profits. The company was spun off from Abbott in early 2013.”

AbbVie offers a nice yield of 4.1%. However, it is a riskier stock because of its reliance on Humira. Moreover, it is highly leveraged.

I’ll compare AbbVie with a safer company like Pfizer (NYSE:PFE) as an example.

In the latest quarter, AbbVie had a financial leverage of 10.3 while Pfizer’s was 2.82. So, AbbVie has higher debt levels in an attempt to drive higher growth.

Indeed, AbbVie has posted high returns on equity since 2013.

2013 2014 2015
ABBV 105% 57% 181%
PFE 28% 12% 10%

Source: Morningstar

Because AbbVie has relatively high debt levels, it makes it all the more important that it has strong liquidity ratios. Indeed, its liquidity ratios look alright. In the latest quarter, its current ratio was 1.79 and its quick ratio was 1.42. Comparatively, Pfizer had lower ratios of 1.11 and 0.78, respectively, as it has lower leverage.

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Top 10 Health Care Stocks: Which To Buy? Part 3

Year to date, the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) has outperformed Health Care ETF (NYSEARCA:XLV). The SPY has risen 6.6%, while the XLV has appreciated 4.1%. However, over the 5-year and 10-year periods, the XLV has outperformed the SPY. So, now that the Health Care sector as a whole underperforms the market in the short term, it may be time to consider investing new money in the sector.

Out of the three major drug manufacturers, Johnson & Johnson (NYSE:JNJ) is the highest quality and provides the steadiest growth and returns. However, it’s also the most expensive. To get a better value, consider Pfizer Inc. (NYSE:PFE) and Merck & Co., Inc. (NYSE:MRK) which trade at lower multiples with higher dividend yields to start.

To get more value and to maintain high quality, consider Amgen Inc (NASDAQ:AMGN) which trades at a reasonable multiple with an estimated growth of north of 7% per year and pays a safe and growing dividend.

UnitedHealth Group Inc (NYSE:UNH), Allergan plc (NYSE:AGN), and AbbVie Inc (NYSE:ABBV) are expected to deliver above average growth rates of more than 13% and they’re priced at reasonable valuations. However, investors should note AbbVie’s above-average debt levels and Allergan’s below average credit rating of BBB-.

Bristol-Myers Squibb Co (NYSE:BMY) and Gilead Sciences Inc (NASDAQ:GILD) are opposites. The former trades at more than 30x earnings with a growth rate of 20%. The latter trades at 7x earnings with a growth rate of 3%. Bristol-Myers is a growth play and Gilead Sciences is a value play.

The above is an excerpt from my Seeking Alpha article. So, to learn more about earnings estimates and dividend information of each company, check out the article here: Top 10 Health Care Stocks: Which To Buy? Part 3

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Disclosure: At the time of writing, I own shares in AMGN, ABBV, and GILD.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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