European Healthcare Pick: Novartis AG
- As U.S. markets hover at all time highs European stocks look cheap and are an area of opportunity.
- Novartis has a great drug pipeline and has a quality balance sheet for it to make acquisitions.
- Although the healthcare industry has been put through meat grinder, Novartis has an attractive valuation plus a good dividend yield.
Novartis AG(NVS) develops, manufactures, and markets healthcare products. It operates through the following segments: Pharmaceuticals, Alcon, Sandoz, and Corporate Activities. The Pharmaceuticals segment provides patent-protected prescription medicines. The Alcon segment offers surgical, ophthalmic pharmaceuticals, and vision care products. The Sandoz segment supplies generic pharmaceuticals. Novartis is based in Switzerland and it is one of the European based stocks that has caught my eye. Novartis had a 2016 to forget about as the stock went from $85.75/share to $72.44/share (Yahoo Finance). This is a decline of 15% during 2016 and this decline was well deserved as sales declined. However, Novartis’ pipeline is about to get better.
Their new drug Zykadia just got fast tracked by the FDA and this is a great boost as Novartis rebuilds its pipeline. Novartis also had successful positive data with its Consentyx drug as if was effective in clearing skin in psoriasis patients following its earlier setbacks. The results were presented at the 2017 American Academy of Dermatology Annual Meeting in Orlando, FL (Seeking Alpha). The Swiss pharmaceutical giant has great balance sheet strength to also acquire other players in its space. Unlike its rivals, Novartis is taking advantage of a Synergy-based business model by not spinning off its generic divisions. This has resulted in a $10 billion income stream, which is stable and growing according Fahad Saleem(Library for Smart Investors). Novartis is one of the cited potential suitors for Bristol Myers Squibb (a company that faces activist investors). Carl Icahn, a prominent activist recently acquired a stake in the company. Novartis has already started moving with its M&A strategy as they move for smaller players.
Novartis’ stock also got a recently got downgrade by BNP Paribas but the stock has been resilient as it seems to have found the bottom. Right now as U.S. stocks notch all time high after all time high I am looking to overseas assets as I move my profits. European Assets look cheap because of the weak euro and the economy there seems to be improving. The stock has a dividend of 3.70% which is a healthy dividend. A cushion as I wait for growth. Also looking at the technicals of the stock they seem to be showing positive indications. The relative strength index (RSI) which has been trending down has started trending up which is positive stock price action for Novartis. With all these factors coming to play I have initiated a position in Novartis’ stock.
Disclosure: Cresco Investment Fund has initiated a long position in Novartis AG.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.