There’s an old adage among currency traders that the “Swissy never lies.” What this means is that the Swiss franc’s movements are seen to have the uncanny power to follow all of the world’s ups and downs. Unfortunately, a move this month by the Swiss National Bank to peg the Swiss franc to the euro at a rate of 1.2-to-1 could place in jeopardy the Swissy’s status as a currency with the utmost veracity.
Perhaps more than just a loss of its reputation, the move by the Swiss bank also sparked a huge bout of selling in Swiss equities. Moreover, fund managers who previously had sought the ultimate safety of the Swiss franc now find themselves highly exposed to the future direction of the euro. Now, as anyone who has been following the financial headlines of late knows, being associated with the euro isn’t exactly a bullish proposition. So, it should come as no surprise that there was a lot of selling in Swiss stocks.
One Swiss stock that has taken a big haircut of late is Swiss drug-maker Roche Holding Ltd. (NASDAQ:RHHBY). The company, whose medical products are indispensable to the world, currently is selling about 13% below where it was at the beginning of September. I think this selloff is a major overreaction to the Swiss National Bank’s move, and given Roche’s position within the pharmaceutical industry, I think the currency-inspired selloff represents a great buying opportunity.
Roche is hugely profitable, and following the acquisition of San Francisco-based Genetech in 2010, the company is positioned to pile on the profits. Roche offers a vast array of therapies and diagnostic products that target inflammatory diseases, cancer, autoimmune diseases and metabolic disorders, and the company has made big strides in developing drugs that combat Alzheimer’s disease.
Unlike many legacy pharmaceutical companies like Pfizer (NYSE:PFE), Bristol-Myers Squibb (NYSE:BMY) and Eli Lilly (NYSE:LLY), where patent expirations of major drugs loom large, Roche has a rich pipeline of cancer-fighting drugs, like Avastin for breast cancer, and Zelboraf, which was approved by the FDA in August to treat metastatic melanoma. Patients taking the drug saw their risk of death decrease by 64%, and the treatment offers a brand new alternative to chemotherapy in fighting melanoma. Sales of this drug alone could easily top $1 billion.
Recent earnings metrics for Roche are outstanding. For 2011, the company is expected to see revenues rise by 7.3%, to $54 billion, and see earnings per share increase by 16%, to $3.97 per share. At its current price of just under $40, the stock is trading with a P/E of about 10. That’s very cheap for such a promising blue chip. Roche also pays a healthy annual dividend of $1.72 per share, which translates into a nice yield of 4.2%.
I believe the move by the Swiss National Bank to devalue the franc will only juice earnings further to the upside, which in turn will propel the shares higher. And that makes this Swiss pharma stock a tasty treat for investors.
Disclosure: Bryan Perry recommends Roche Holding Ltd. in his Cash Machine advisory service.
