Mr. Bowman is a portfolio manager at Wickham Investment Counsel Inc. michael@wickhaminvestments.com
What are we looking for?
Companies spending heavily on research and development. Even during times when the economy is struggling, businesses understand that a good R&D strategy is vital to their success. My colleague Allan Meyer put together this screen showing international companies that spend considerable portions of their revenue on R&D to see whether their stock prices have performed better than the market.
The screen
We searched for international companies that spend more than $100-million (U.S.) a year on R&D, and whose expenditures in this area were greater than their sales.
What did we find?
Our full list included 380 companies. Many companies you may not have heard of clustered around the top. Tesla Motors, for instance, spent more than $258.5-million on R&D, which was 102.3 per cent of its sales.
On the other hand, Apple, which you might have expected to be high in the ranking, finished way down at No. 348, spending only 2.2 per cent of net sales on R&D. The top Canadian company was Research In Motion, at No. 205. It spent 8.5 per cent of sales on R&D.
If there’s a lesson here, it’s that research does appear to pay off, although it’s no guarantee of success. The top 20 companies on the screen (shown) have averaged over 44.5 per cent return year to date. (Merrimack has only been around since April.)
Next time you are screening for stocks, consider looking at each company’s R&D costs as a percentage of net sales. Those companies that are able to keep customers happy with innovations and new ideas often find they have a leg up on the competition.
Companies spending heavily on R&D
| Company | Symbol | R&D exp. 1 yr. ($ mil.) | R&D/net sales % |
|---|---|---|---|
| Theravance | THRX-Q | 123.1 | 422.5 |
| Ariad Pharma. | ARIA-Q | 112.6 | 307.3 |
| Merrimack Pharma. | MACK-Q | 111.9 | 294.1 |
| Incyte Corp. | INCY-Q | 197.0 | 189.2 |
| Nektar Therapeut | NKTR-Q | 132.6 | 177.3 |
| Seattle Genetics | SGEN-Q | 162.6 | 172.4 |
| Isis Pharma. | ISIS-Q | 166.3 | 158.8 |
| Ironwood Pharma. | IRWD-Q | 108.9 | 130.7 |
| Regeneron Pharma. | REGN-Q | 543.2 | 118.8 |
| Infinity Pharma. | INFI-Q | 116.4 | 117.0 |
Source: Wickham Investment Counsel, Bloomberg
| Company | Symbol | R&D exp. 1 yr. ($ mil.) | R&D/net sales % | Market cap. ($ mil.) | Price $ | Total return YTD |
|---|---|---|---|---|---|---|
| Theravance | THRX-Q | 123.1 | 422.5 | 2,472 | 25.90 | 17.19 |
| Ariad Pharma. | ARIA-Q | 112.6 | 307.3 | 3,954 | 23.50 | 91.84 |
| Merrimack Pharma. | MACK-Q | 111.9 | 294.1 | 870 | 9.55 | n/a |
| Incyte Corp. | INCY-Q | 197.0 | 189.2 | 2,354 | 17.77 | 18.39 |
| Nektar Therapeut | NKTR-Q | 132.6 | 177.3 | 1,232 | 10.78 | 92.67 |
| Seattle Genetics | SGEN-Q | 162.6 | 172.4 | 3,164 | 26.66 | 59.50 |
| Isis Pharma. | ISIS-Q | 166.3 | 158.8 | 1,433 | 14.38 | 99.45 |
| Ironwood Pharma. | IRWD-Q | 108.9 | 130.7 | 1,392 | 13.34 | 11.45 |
| Regeneron Pharma. | REGN-Q | 543.2 | 118.8 | 14,479 | 151.20 | 172.78 |
| Infinity Pharma. | INFI-Q | 116.4 | 117.0 | 771 | 23.29 | 163.46 |
| Tesla Motors | TSLA-Q | 258.5 | 102.3 | 3,311 | 28.49 | -0.25 |
| Galapagos NV | GLPG | 104.6 | 88.1 | 556 | 20.96 | 55.63 |
| Applied Micro Circ. | AMCC-Q | 182.1 | 76.1 | 326 | 5.16 | -23.21 |
| Zynga Inc. | ZNGA-Q | 917.7 | 63.8 | 2,171 | 2.84 | -69.82 |
| Onyx Pharma. | ONXX-Q | 299.5 | 59.9 | 5,493 | 84.64 | 92.58 |
| Exelixis Inc. | EXEL-Q | 133.9 | 54.1 | 877 | 4.91 | 3.70 |
| Gameloft | GFT | 123.7 | 54.1 | 530 | 6.60 | 5.26 |
| Vertex Pharma. | VRTX-Q | 768.4 | 50.2 | 12,128 | 55.66 | 67.60 |
| Biomarin Pharma. | BMRN-Q | 268.1 | 48.6 | 4,974 | 40.20 | 16.93 |
| Tivo Inc. | TIVO-Q | 117.3 | 46.3 | 1,283 | 10.32 | 15.05 |
Companies spending heavily on R&D
- THRX-Q
- ARIA-Q
- MACK-Q
- INCY-Q
- NKTR-Q
- SGEN-Q
- ISIS-Q
- IRWD-Q
- REGN-Q
- INFI-Q
- TSLA-Q
- AMCC-Q
- ZNGA-Q
- ONXX-Q
- EXEL-Q
- VRTX-Q
- BMRN-Q
- TIVO-Q
