2 pharma stocks that could make you a fortune by retirement

Royston Wild looks at two brilliant pharma selections that could make you a fortune.

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Smith & Nephew (LSE: SN) may well be going through a sticky patch right now, but I remain convinced the artificial limb maker has what it takes to deliver stunning shareholder returns in the years ahead.

Right now the FTSE 100 business is relying on favourable currency effects to drive the top line as demand in its developed territories stagnates. Indeed, foreign exchange movements were responsible for the entire 5% turnover improvement at the company between January and March, as “softer market conditions” caused underlying revenues in its Established Markets to fall 2%.

These troubles are expected to produce a 3% profits reversal in 2018. But analysts are optimistic over its earnings outlook further out, and it is expected to get firing again from next year — an 8% rise is currently expected. While hardly anything to get excited about, I am confident this should prove the bedrock for bulky profits growth down the line.

I am particularly excited by the explosive profits opportunities created by Smith & Nephew’s not-insignificant exposure to emerging markets.

Sales here again rose by double-digit percentages in the first quarter of 2018 and, as the rising economic might in these regions drives investment in regional healthcare, I am expecting sales rates to continue impressing.

Right now Smith & Nephew deals on a forward P/E ratio of 18.9 times. I reckon this is a steal given the company’s position at the coalface of artificial body part development, not to mention its growing role in the medical robotics segment.

Another great selection

Alliance Pharma (LSE: APH) is another medical mammoth that could make you a packet to retire on.

Last time I covered the business — which acquires, licences and distributes medical and healthcare products the world over — I mentioned its thirst for acquisitions that promises to keep earnings on a northward path. Since then Alliance has been at it again, the firm picking up the exclusive marketing rights to Nizoral, a medicated anti-dandruff shampoo, for £60m from Johnson & Johnson.

Alliance has the rights to market the shampoo across 15 products in the fast-growing Asia Pacific region and it becomes the firm’s fourth so-called International Star brand alongside Kelo-cote, MacuShield, and Vamousse. The vast success that the AIM-quoted company has enjoyed with these products leads me to believe Nizoral is another very exciting buy.

While Alliance is expected to endure a rare 12% earnings slide in 2018, the positive contribution of Nizoral and its other hot properties should help the company bounce back with a 14% improvement next year, or so say City analysts. And as the rollout of its blockbuster labels continues, and healthcare spending steadily climbs all over the globe, I fully expect the business to deliver brilliant profits growth.

In addition, the rate at which dividends are expected to continue rising should also be of interest to investors today. In 2018 the total payout is anticipated to rise to 1.4p per share, up from 1.33p last year and yielding 1.4%. Next year the readout moves to 1.6% too, thanks to an anticipated 1.6p dividend.

In my opinion Alliance Pharma fully deserves its elevated forward P/E ratio of 20.7 times.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Alliance Pharma. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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