Novartis Stock: RX for Your Portfolio

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Heath care isn’t just a sector — it’s a cash-generating juggernaut that pervades all aspects of our economy and personal lives.

novartisIf you’ve ever wondered why cable television pundits are constantly flapping their gums about health care spending, consider the most recent statistics from the U.S. Centers for Disease Control and Prevention: U.S. health care generates total annual expenditures of $2.7 trillion, accounting for 17.9% of U.S. gross domestic product (GDP). Nearly 10% of that annual health spending is for prescription drugs.

For a coterie of large cap companies, these conditions add up to huge profits as far as the eye can see. One such player that looks particularly promising now is Switzerland-based drug giant Novartis AG (ADR) (NVN).

With a whopping market cap of $221.6 billion, Novartis has the resources to compete in an increasingly ruthless drug industry, where payers are pushing down costs and the price tag for research and development keeps rising.

Novartis holds a global portfolio of more than 50 marketed pharmaceutical products. Among Novartis’ biggest sellers are Diovan for hypertension and Gleevec for leukemia. Since 2013, the company has received roughly 13 regulatory approvals in the U.S., Europe and Japan.

On Dec. 16, Novartis won approval from the U.S. Food and Drug Administration for its drug Signifor LAR to treat patients with acromegaly, a rare and life-threatening hormonal disorder. Approvals for any drug company are rare, expensive and time-consuming, involving billions of dollars and a maze of bureaucracy.

On Dec. 12, Novartis announced that its new antibody drug Cosentyx showed superiority in clinical tests over its rival Stelara from Johnson & Johnson (JNJ) in clearing skin blemishes for the treatment of psoriasis.

It was a watershed announcement about a potential blockbuster drug, but Novartis stock is a solid long-term growth proposition regardless. Cosentyx would just be icing on the cake.

Novartis also continues to bring new ophthalmology treatments to market, where demand is on track for multiyear growth. An aging and sicker population combined with the continuing expansion of coverage under the Patient Protection and Affordable Care Act (Obamacare) will propel Novartis stock higher in 2015 and long afterwards.

During the next decade, the graying of populations around the globe will boost the number of cataract and glaucoma patients, all prospective customers of Novartis’ eye care unit, Alcon.

Moreover, Obamacare will extend eye care coverage to millions of Americans who previously endured eye ailments without insurance.

Obamacare is in the headlines (yet again), as the Supreme Court weighs another constitutional issue concerning a technicality over state-level responsibilities. But however the case turns out, objective investors know that the massive health care law is here to stay.

Obamacare was pushed through a reluctant Congress in 2010 with the vigorous lobbying of large drug companies that will amass substantial profits from the legislation’s expansion of drug coverage to an estimated 32 million Americans. These cash-rich drug companies — Novartis among them — have a vested interest in the law’s eventual success.

NVS: Full-Bodied Results

Novartis’ third-quarter revenue hit $14.7 billion, a year-over-year increase of 4%, while earnings per share (EPS) increased 10% to $1.37, beating analysts’ expectations of revenue of $14.5 billion and EPS of $1.31. Third-quarter earnings leaped 45% to $3.2 billion.

Novartis recently announced a two-year, $5 billion stock buyback plan. At the same time, NVS is expanding into fast-growing areas of health care such as dermatology, heart failure, respiratory illnesses and cell therapy.

Positioned to benefit from Obamacare as well as global demographic trends, Novartis stock is a good bet on the inexorable rise of the money-making medical machine.

As of this writing, John Persinos did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/novartis-stock-nvs-rx-portfolio/.

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