This Number Leads to the Most Innovative Companies in the World
Great companies know that the key to future success lies in the steps you take today.
The strategy was the cornerstone for Microsoft (Nasdaq: MSFT) in the 1980s, Cisco Systems (Nasdaq: CSCO) in the 1990s and Apple (Nasdaq: AAPL) in the most recent decade.
Merck (NYSE: MRK), Eli Lilly (NYSE: LLY), Bristol-Myers Squibb (NYSE: BMY) and Amgen (Nasdaq: AMGN) spent a collective $22 billion on R&D last year. Each firm aims to find the next blockbuster drug that can help to reverse the trend of anemic sales growth in recent years.
Pfizer (NYSE: PFE) set the industry tone. The drug company routinely generated more than $10 billion in sales for its cholesterol drug Lipitor (before it recently lost patent protection), and the drug has generated more than $60 billion in cumulative sales for the company, well ahead of the reported $3 billion it took to develop it. Of course, for every Lipitor, Pfizer also pursued dozens of drugs that never even made it to market.
Looking for a clear example of where R&D investments tangible benefits? Check out Analog Devices (NYSE: ADI), which makes a wide range of chips that go into cars, communications networks, industrial systems and a host of emerging technologies such as clean energy.
The company routinely spends nearly $500 million every year on R&D and now boasts amazing growth. Sales rose 37% in fiscal (October) 2010 and are expected to rise at another double-digit clip this year as well. When the global economy turns up, look for this company's strong investments in R&D to even more fruit.
Similarly aggressive investments in R&D are being made at chip maker Advanced Micro Devices (NYSE: AMD), which has badly lagged behind rival Intel (Nasdaq: INTC) in terms of hot new products. As I noted in a column on StreetAuthority.com, AMD's big R&D push appears to finally be paying off.
Future-focused investors should also check out biotech firm Celgene (Nasdaq: CELG). That firm raised many eyebrows in 2010 by predicting that sales would hit $8 billion and earnings per share would hit $8 by 2015. After all, the company generated just $3.6 billion in sales and earned $2.80 per share in 2010.
What is the company's strategic weapon? Spending a hefty 30% of 2010 sales on R&D to strengthen the company's pipeline of immune-suppression drugs.
#-ad_banner_2-# The Investing Answer: Despite the impressive commitment to future-oriented investments by these companies, they have been tarred and feathered along with many other stocks in this recent stock market pullback. This may be a good time to buy their shares.
For example, shares of Analog Devices have fallen more than 20% in the last three months on concerns that the weak economy will crimp near-term growth. That may be the case, but Analog Devices' long-term outlook has never been brighter.
In a similar vein, shares of Celgene are actually a bit lower than they were a year ago, even though the company's revenue base and profits have grown roughly 25% since then.
The key is to lock on to these long-term big spenders when their shares are being pressured by short-term concerns.