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Will Teva Pharmaceutical Help You Retire Rich?

Tuesday - 3/26/2013, 10:40am  ET

Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. As part of an ongoing series, I'm looking today at 10 measures to show whether Teva Pharmaceutical makes a great retirement-oriented stock.

Teva stands out from its pharmaceutical peers because of its dual focus on both proprietary and generic drugs. In particular, its ability to make money when its rivals' drugs go off-patent has brought Teva impressive profits over the years. Below, we'll revisit how Teva Pharmaceutical does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at Teva Pharmaceutical.


What We Want to See


Pass or Fail?


Market cap > $10 billion

$34.3 billion



Revenue growth > 0% in at least four of past five years

5 years



Free cash flow growth > 0% in at least four of past five years

4 years


Stock stability

Beta < 0.9




Worst loss in past five years no greater than 20%




Normalized P/E < 18




Current yield > 2%




5-year dividend growth > 10%




Streak of dividend increases >= 10 years

13 years



Payout ratio < 75%




Total score


9 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Teva Pharmaceutical last year, the company has picked up a point, with its free cash flow having returned to its past growth trajectory. But the stock has languished, falling about 10% over the past year.

Teva has been in the sweet spot of the pharmaceutical industry for years. Its plentiful generic drugs provide low-cost alternatives to expensive branded drugs as soon as their patent protection ends, helping to keep health care costs down. Although Teva isn't the only company in the generics space, it's the major player and gains benefits from its size and geographical scope.

But on the proprietary drug front, Teva faces potential new competition for its blockbuster Copaxone drug to treat multiple sclerosis. The European Union's drug regulatory agency recommended Biogen Idec's Tecfidera drug last week for approval, and a final decision could come within the next couple of months. Meanwhile, in the U.S., Tecfidera is up for consideration before the FDA, and because it's a pill rather than an injected drug, many analysts expect the drug to take over the market, posing a big threat to Teva's position in treating MS.

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