Cramer Recommends Glaxo
Although stocks soared broadly across the board to finish near session highs Wednesday, with the Dow and S&P 500 to reaching new record levels, Jim Cramer stressed the importance of defensive stocks.
"We need to be prepared in case one of the many warnings from the endless legion of bears comes true … you need to own something that will hold up, and perhaps even go higher, if the wheels fall off this bull market," said Cramer on CNBC's "Mad Money." "In a diversified portfolio of five stocks, you need to have at least one defensive name with a big dividend to protect your wealth at all times, even in raging bull markets like this one where it might feel like that's a waste of money."
In turn, Cramer recommended investors consider GlaxoSmithKline, Britain's biggest drugmaker, which pays a juicy 5.8 percent dividend yield.
The pharmaceutical company's revenues have been declining lately, but Cramer thinks it could soon turn the corner. After all, it was able to reach a $150 million preliminary settlement with U.S. drug wholesalers who claimed the company improperly delayed entry to the market of generic alternatives to its nasal spray Flonase. Since the start of last year, it's also filed for regulatory approval for six new drugs, some of which could net billions of dollars. Over the next three years, Glaxo could launch 15 new drugs worldwide, possibly helping the company achieve an 8.4 percent compound annual earnings growth rate from this year through 2018.
As it stands, Glaxo now trades at just 13.6 times next year's earnings estimates. If management can execute on these new drugs while cutting costs, Cramer thinks it could trade up to 16 times earnings, which means its stock would be about 17 percent higher than current levels.
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