Opening Teva Position

By Travis Johnson, Stock Gumshoe, July 28, 2011

Those of you who’ve been reading my stuff for a while probably know that I admire Teva Pharmaceuticals (TEVA) and the global generic drugs business and unparalleled drug manufacturing capabilities — and today, after a quarterly report that was mixed but still more or less hit analyst estimates and proved that their increasingly diversified business is more stable than investors give them credit for, I’m buying some shares. I picked up a partial position today and, on the off chance that economic weakness drops the shares further, I have a limit order in for more shares if they drop by another 15% or so.

Teva is reliant to a substantial degree to their one blockbuster branded drug and is in the middle of a big acquisitions, which scares off some investors, but they have such a massive pipeline of both new branded drugs and potentially huge-volume generic drugs as big pharma’s blockbusters hit their patent cliffs, and they are in such a global sweet spot in terms of fiscal priorities and demographics that I think owning the leading generic drug maker is a great deal at this price. Which is just about eight times next year’s expected earnings. They also have a very manageable amount of debt and pay a dividend, which is tiny compared to the high-yielding big pharma names but has grown substantially (though not consistently) over the past decade and will probably continue to grow (yield right now is 1.7% on the trailing 12 months, I expect the yield to be about 2% for the coming year).

I last wrote about Teva for a teaser here if you’re curious — if other thoughts on this dominant Israeli company come to me, or if I change my position, I’ll share them.

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