There are many pharmaceutical companies for investors to put their money in, but I suggest to choose for the big companies as you will be sure to get a stable dividend with the lowest risk profile. Smaller biotech companies are too speculative to invest in. I'll discuss the top 5 pharmaceutical companies (by revenue) in this article. These are Johnson and Johnson (JNJ), Pfizer (PFE), Roche (RHHBY.PK), GlaxoSmithKline (GSK) and Novartis (NVS).
When choosing companies in the large pharmaceutical sector, the P/E ratio is the most important. There is a difference between brand-name companies and generic drug companies. The generic drug companies (like TEVA or a division of Novartis) basically sell the same drug as brand-name companies, but at lower prices. Additionally, they don't have the problem of patent expiration. On chart 1 we can see that the P/E ratio for the pharmaceutical sector has been falling, bringing in nice valuations currently at a P/E of 16.6 for big pharma and a P/E of 18 for generic drug pharma.
|Chart 1: P/E Ratio Pharma|
|Table 1: P/E Ratio of Big Pharma|
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