The pharmaceutical sector is a rich hunting ground for defensive, cash-producing and recession-resistant businesses. And I’m a big fan of steady dividend income and growth potential. Meanwhile, over the past year, these two stocks haven’t been standing still.

Why I think they are two of the best shares to buy now

With its share price near 1,475p, GlaxoSmithKline is just over 14% below the level of a year ago. There’s been some disruption to operations because of the pandemic. But the company continued trading, including making a big effort in pursuit of a workable vaccine for Covid-19.

Last spring, the directors declared their intention to maintain shareholder dividend payments at a flat level for the year. And I think that move demonstrates the resilience of the business under stress conditions – exactly what’s needed from my defensive investments.  However, despite steady trading, the shares declined and bottomed at the end of October.

To me, the value looks compelling now. For example, the forward-looking earnings multiple for 2021 is around 12.5. And the anticipated dividend yield is about 5.4%. But those attractive numbers are from a company delivering a return on capital of almost 15% and an operating margin just over 25%. To me, the figures suggest both quality and value, so I’d be happy to buy the stock today.

Meanwhile, at 70p, generic medicines producer Beximco Pharmaceuticals has a stock price changing hands around 65% higher than it was a year ago. And some of the move has arisen because of an upwards valuation re-rating. It appears investors are beginning to appreciate the attractions of the highly-regulated business that’s based in Bangladesh.

The growth story is on track at Beximco

But the valuation remains fair. The forward-looking earnings multiple for the trading year to June 2021 is around 10 and the anticipated dividend yield is a little over 3% — and earnings should cover the payment more than three times. Meanwhile, the business has been delivering an operating margin of just under 22% and a return on capital of 15%.

I think Beximco’s quality and value metrics look similar to GlaxoSmithKline’s. However, Beximco’s market capitalisation at £284m is tiny compared to GlaxoSmithKline’s almost £74bn. But I’m comfortable with that situation because Beximco could have more room to grow its operations.

And today’s full-year results report demonstrates the company’s recent progress introducing new medicines to the Bangladesh home market and abroad. Indeed, there’s been expansion in the US, Europe and the rest of the world. Meanwhile, despite the pandemic, revenue increased by just over 12% year on year, and earnings per share rose by almost 16%.

The directors held the cash dividend flat for the year but declared a stock dividend of 10 new shares for every 100 held by shareholders. I reckon the way the firm is sharing its success with investors speaks volumes about the directors’ confidence in the outlook. I’d be pleased to buy some of the shares today and hold for the long haul.

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A modest valuation

One of the key attractions is the low-looking valuation. With the shares at 42p, the forward-looking earnings multiple runs close to six for the trading year to June 2020 and the anticipated dividend yield is above 4%. On top of that, the company has been putting in some decent annual advances in earnings and the stock is flying today on the release of the full-year results report, up around 7% as I write.

However, the valuation could be so low because the firm is based in Bangladesh. Some shareholders feel rather insecure about investing in firms based abroad. Indeed, the company reports in Bangladesh Taka (BDT), which could present some risk to shareholders if the BDT falls in value against the pound.

But the BDT has been remarkably stable and is close to the level it was 10 years ago, measured against the value of sterling. Meanwhile, fluctuations appear to have been no more extreme than those we’ve seen by comparing the pound against the US dollar, for example.

Impressive trading

Today’s figures are good. In the trading year to 30 June, overall sales increased by almost 29% compared to the year before. Making up that result, there was a more than 25% uplift in sales to the domestic market in Bangladesh and an increase of just over 69% in exported sales. The company managed to increase its earnings per share by just under 20% and the directors pushed up the total dividend for the year by 20% as well.

I can’t help thinking that if the company was based in Europe or the US it would likely be trading on a higher rating. And the business appears to have both quality and momentum.

During the year, the firm launched 20 new products and completed 77 registrations for 50 products in 23 countries. And business from the US market now accounts for 45% of all the export business, which strikes me as impressive progress in that attractive region.

The potential for growth in the US strikes me as huge, and the fact Beximco has gained some approvals for the highly-regulated market across the pond is encouraging to me. Meanwhile, the company’s record of revenue, earnings and dividend growth has been steady, and it’s possible the valuation could gradually re-rate upwards as the firm gains traction in mature markets such as America.

I’m certainly tempted to buy a few of the shares to see what happens while collecting income from the dividend while I’m waiting.

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Beximco Pharmaceuticals (LSE: BXP) is based in Bangladesh. Many investors automatically rule out such overseas stocks, but this one has a long and solid track record.

Established in 1976, the company specialises in making generic medicines. It also performs contract manufacturing for other pharmaceutical firms. Since 2011, sales have grown by an average of 25% per year, while profits have risen by an average of 23% per year.

But perhaps the most convincing proof of Beximco’s quality is that over the last year, it’s gained approval to sell several medicines in the United States, where regulatory barriers to entry are high.

The latest addition to the group’s long list of export markets is Canada, where the company has just launched an eye allergy treatment, Olopatadine. Other countries to which Beximco already exports medicines include Australia, Latin America, many African and Asian countries, Germany and Austria.

On sale at a discount

Beximco’s operating margin has averaged 23% since 2011, and has not varied by more than 2% during that time. But despite its consistently high profit margins, the group’s shares are cheaper than most of its sector rivals.

The stock currently trades on a forecast P/E of about 12.5, with a prospective yield of 2.3%. I believe these shares could deliver attractive long-term gains.

Is Boohoo unstoppable?

When the founders of a hot growth stock start selling their shares, I’d usually say it was time to think about selling. But in this case I’m not sure.

Although Boohoo.Com joint chief executive Mahmud Kamani and his family cashed in £80m of shares in June, their remaining 38.57% stake in the company is still worth £1.1bn at current prices.

I don’t think there’s any sign that Mr Kamani or his co-chief executive Carol Kane are lessening their commitment to the firm. Nor is there any sign that growth is slowing.

During the three months to 31 May, the group’s like-for-like sales were 78% higher than during the same period last year. This growth came from two main areas.

The first was the Boohoo website, where revenue rose by 48% to £86.4m and customer numbers rose by 24% to 5.2m.

But the second big area of growth was even more exciting. The firm’s second major brand, PrettyLittleThing, delivered like-for-like sales growth of 305%. Sales rose from £7.6m during the first quarter of last year to £30.7m this year. Customer numbers rose by 146% to 1.6m.

If PrettyLittleThing can maintain this rate of growth, it could soon become as big as the Boohoo brand.

Management guidance for 2017/18 is for full-year sales growth of 60% and stable profit margins. The consensus view of City analysts is that this will result in earnings of 2.94p per share, putting the stock on a forecast P/E of 86.

Although I’d usually steer clear of such ambitious valuations, I think there’s a chance that Boohoo.Com is the real deal and could merit such a high price tag. I’m not sure I could bring myself to buy at current levels, but if I was a shareholder I would probably continue to hold.

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Operating out of Bangladesh, Beximco designs, manufactures and supplies generic versions of drugs that have come off patent. The company is extremely good at this. Between 2011 and the end of the company’s 2016 financial year, sales grew at an average rate of 25.3% per annum, and net profit expanded at an average annual rate of 23% over the same period. 

Despite this growth, investors have avoided Beximco for much of the past five years. Over the five years to the end of 2015, shares in the company fell by 40%, as the market seemingly gave up on Beximco. However, this year the market has regained confidence. Shares in Beximco have gained close to 100% year-to-date and there could be further gains to come. 

Further growth ahead

Beximco is one of the world’s fastest growing pharma companies and it’s also Bangladesh’s most successful business. This year it has become the first Bangladeshi firm to ship medicine to the United States, the first Bangladeshi company to receive approval for the sale of its products within Canada, and the first Bangladeshi company to enter the Gulf market. All of these approvals are a testament to its goal of providing high-quality treatments at affordable prices. The company produces more than 500 products in different dosage forms covering broad therapeutic categories with many more under development. 

The most exciting part of Beximco’s investment case is the company’s growth potential. For much of its life, it has been a domestic pharmaceutical company, producing treatments for its home market in Bangladesh. Back in 2014, just 6% of Beximco’s sales were to the export market. 

Today, management is concentrating on driving export growth. Since 2014 the company has been granted the rights to sell its products in Europe and the US, as well as other smaller regions. This export drive has supercharged the group’s growth. For the three months ended September 30, Beximco reported year-on-year revenue growth of 12%, pre-tax profit up 24%, and earnings per share up 22%.

However, despite this growth the shares are trading at an astonishingly low forward P/E of just 9.3. 

Under the radar 

Beximco seems to fly under the radar of most investors, which is why the shares trade at an attractive valuation. The pharmaceutical sector average P/E is 14.3, making Beximco one of the sector’s cheapest opportunities. 

Now the company is exporting outside of Bangladesh, this discount doesn’t make much sense. Indeed, if the group’s sales continue to grow at their current rate (and as the company starts to conquer the rest of the world there’s no reason why they can’t) Beximco could quickly become one of the world’s premier drug manufacturers taking on the likes of GlaxoSmithKline. 

Even though Beximco is a tiddler compared to Glaxo today, global expansion could quickly change that. 

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FDA approval

That’s what awaited Beximco Pharmaceuticals (LSE: BXP) shareholders this morning, with their shares up 20% in early trading to 55p. But that’s only part of the growth story — Beximco shares are up 175% over the past 12 months, and have risen nearly fivefold in the past five years.

So what’s behind it — some revolutionary new discoveries? Actually, no, the Bangladesh-based company does something simpler but profitable — it manufactures generic pharmaceuticals products, which sell in great quantity and at much lower prices than their branded counterparts, and are a boon to much of the developing world.

It’s what happens to a lot of pioneering products invented by the likes of GlaxoSmithKline and AstraZeneca when their patents expire, which is something both giants have been suffering from in recent years, and the drugs end up being made by companies like Beximco and sold cheaply.

Today’s big share price gain is a result of the company receiving a second product approval from America’s FDA, this time for Sotalol Hydrochloride, a generic version of the cardiovascular drug Betapace — and cardiovascular medicine is big business in overfed Western countries. The product should launch in early 2017.

There are no forecasts for Beximco, but even after today’s rise they’re still only on a trailing P/E of 11 based on December 2015 figures. And with a maiden dividend last year yielding 3.9%, we could be looking at one of tomorrow’s cash cows.

A growth star

Back in 2011, speciality drugs and pharmaceutical services firm Clinigen (LSE: CLIN) was top of the Sunday Times Fast Track 100 list, which ranks the country’s fastest growing privately held companies. Clinigen went on to float on the London Stock Exchange in 2012 and since then its track record has been stellar, with a quadrupling of the share price to 742p.

Today the company announced an extension of its partnership with healthcare company BTG, with a new agreement “to manage BTG’s critical care portfolio across the whole of Europe and now into new territories in Asia.“

Chief commercial officer Steve Glass enthused that the deal “demonstrates the value of our unique, synergistic businesses, which enables us to provide safe and ethical access to a medicine throughout its lifecycle – from development to approval, to launch and beyond.“

But after their meteoric rise, are Clinigen shares still worth buying? Since that maiden set of results in 2012, we’ve seen earnings per share soar by 160%, and there’s a further 18% currently being forecast for the year to June 2017. If anything, that seems conservative to me, especially in the light of 2016 results released last month.

Revenue for the year rose by 84%, with adjusted EBITDA up 73%. There was plenty of cash coming in too, with cash flow up 213%, and that fed through to a dividend rise of 18%. Dividend yields are still modest at under 1%, but a progressive policy is lifting them well ahead of inflation every year. There’s a further 19% hike on the cards for the current year, and I see terrific potential for long-term dividend growth here.

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