5 Pharmaceutical Stocks With Major Exposure to Emerging Markets
The world economy is on two different tracks.
On one track, the developed world is experiencing economic contraction and stagnating growth. Countries throughout Europe have stumbled into recession due to austerity measures. Japan persists on its decade-long path of lackluster growth. And the U.S. economy, while rebounding, continues to underperform its potential, recording growth of only 2.2% in the first quarter of 2012.
On the other track, the developing world is recording robust economic growth. Spurred by the twin tailwinds of easy external financing and a dramatic uptick in commodity prices, output from Latin America grew by 6.5% in 2010 and 4.5% last year. And the emerging markets in Asia continue their dramatic upward ascent, led by China and India, which are expected to record growth rates this year of 8.2% and 6.9%, respectively.
The corporate poster child of this two-track system is Yum! Brands, the U.S.-based proprietor of Pizza Hut, Taco Bell, and KFC. In 2011, the company's same-store sales declined by 1% in the United States but grew by 19% in China. More than 70% of its operating profit is now generated abroad. And its shares have outperformed those of its principal competitor -- McDonald's, which derives a full 40% of its revenues from Europe -- by a staggering 28 percentage points over the last five years.
With this in mind, I've created two different series of articles. The first identified stocks with significant exposure to Europe's ailing economy. I looked at popular stocks, Dow stocks, tech stocks, consumer-goods stocks, and pharmaceutical stocks. The second, and current, series uncovers stocks with major exposure to the fast growth of Asia and other emerging markets. So far, I've looked at popular stocks, Dow stocks, tech stocks, and consumer-goods stocks. Below is my list of pharmaceutical stocks.
Asia and Emerging Market Exposure (percent of net sales)
Market Cap (billions)
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Abbott Laboratories (NYS: ABT)
Johnson & Johnson (NYS: JNJ)
Merck (NYS: MRK)
Pfizer (NYS: PFE)
Bristol-Myers Squibb (NYS: BMY)
All geographic sales figures are the author's estimates of exposure to Asia and the emerging markets based on data in the companies' quarterly and annual filings. Market cap data is from Yahoo! Finance. Some, like Merck and Abbott Laboratories, also include sales from "other" countries.
While none of these companies has the same level of exposure to Asia and the emerging markets as, say, most tech companies do, it's clear the region is a prominent part of their growth strategies.
Just this week, Abbott Laboratories said it's looking to have a fully integrated business model to grow its nutrition business in India. According to a senior executive: "India is a growth area for us. We have research now. To be fully integrated [there], we will have everything from research to manufacturing to sales."
Last year, Johnson & Johnson announced the opening of an "innovation center" in China where it will design products specifically for Asia's emerging markets.
Merck has committed to investing $1.5 billion in Asia-based research and development, including the construction of a new R&D headquarters in Beijing.
Both Pfizer and Bristol-Myers Squibb are making similar inroads in the growing region.
Foolish bottom line
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At the time this article was published Fool contributor John Maxfield does not have a financial position in any of the companies mentioned above. The Motley Fool owns shares of Johnson & Johnson and Abbott Laboratories.Motley Fool newsletter serviceshave recommended buying shares of Johnson & Johnson, Pfizer, Yum! Brands, and McDonald's.Motley Fool newsletter serviceshave recommended creating a diagonal call position in Johnson & Johnson. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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