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number cruncher

What are we looking for?

The pharmaceutical industry is historically a defensive sector, and increasing demands from an aging population should keep sales climbing. Add in decent dividends and U.S. health-care reform and this is a business you may want to own.

The screen

My colleague Rob Belanger and I started with global pharmaceutical companies larger than $50-billion (U.S.) in market capitalization and sorted them from the largest to the smallest.

The price earnings ratio (P/E) is the current share price divided by the per-share earnings and is forward looking over the next 12 months based on analysts' consensus earnings estimates. Generally, a low number is preferred.

The price to free cash flow (P/FCF) is a valuation metric that compares a company's market price with its free cash flow. "Free cash flow" is cash flow minus the capital expenditures. A low number indicates better value.

We are showing sales growth over the past 12 months.

The operating profit margin (OPM) indicates how much profit a company makes after paying for the costs of production, and is indicated as a percentage of sales. A higher number indicates a more efficient company.

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Only companies with an ROA greater than 5 per cent are included.

Return on equity (ROE) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Companies had to have an ROE greater than 10 per cent.

To make our screen the dividend yield had to be greater than 1.25 per cent.

What did we find?

Headquartered in Denmark and with offices in 75 countries, Novo Nordisk has been an innovator and leader in diabetes research for more than 90 years. The company scores the best in sales growth, OPM, ROA and the American depositary receipts (ADRs) trade on the New York Stock Exchange.

Pfizer is a diversified global health care company and developer of more than 30 different drugs, including Lipitor, the cholesterol-lowering medicine. The company leads our screen in P/E and P/FCF.

Contact an investment professional or conduct further research before buying any of the companies listed here.

Michael Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.

Global pharmaceutical companies