Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

Europe has been a scary place for investors for quite a while now. But Sanofi has a business with global scope, and with international diversification, it isn't quite as exposed to struggling European economies as some of its more inwardly focused peers. Still, can Sanofi really thrive in such a tough environment? Below, we'll revisit how Sanofi does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.


Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at Sanofi.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$123 billion

Pass

Consistency

Revenue growth > 0% in at least four of past five years

4 years

Pass

 

Free cash flow growth > 0% in at least four of past five years

3 years

Fail

Stock stability

Beta < 0.9

0.37

Pass

 

Worst loss in past five years no greater than 20%

(27.9%)

Fail

Valuation

Normalized P/E < 18

16.85

Pass

Dividends

Current yield > 2%

3.7%

Pass

 

5-year dividend growth > 10%

8.9%

Fail

 

Streak of dividend increases >= 10 years

13 years

Pass

 

Payout ratio < 75%

57.7%

Pass

       
 

Total score

 

7 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Sanofi last year, the company dropped a point, as dividend growth fell below the key 10% level. But shareholders haven't been too disappointed, as the stock has soared by more than 30% over the past year.

Sanofi has been quite successful over the years, with a partnership with Bristol-Myers Squibb having produced blockbusters including Plavix, Avalide, and Avapro. With those drugs now all seeing generic competition, the two companies decided to change their arrangement, with Bristol giving up its worldwide rights to the drugs in 2013 while retaining U.S. and Puerto Rican rights to Plavix.

But Sanofi has a reasonably strong pipeline to help it replace sales lost to generics. In October, its Gaucher disease drug eliglustat tartrate had good results in a phase 3 trial, adding to its coverage for the disease through its Cerezyme treatment. As an oral treatment, eliglustat tartrate would give Sanofi a huge advantage over injected drugs.

Drug costs have been a hot-button political issue lately, and Sanofi has had to take drastic measures to stamp out complaints. Last month, Sanofi cut the price of colorectal cancer drug Zaltrap, which it developed with Regeneron , in half. The move was necessary to make the price comparable to Roche's similar drug Avastin, but Sanofi's willingness to bow to market pressures could bode ill for Dendreon and other companies that have needed to charge extremely high prices in order to recoup expensive development costs.

Sanofi has also embarked on some novel projects. It partnered with Coca-Cola to launch beauty drinks, which are designed to promote wellness generally and skin health in particular.

For retirees and other conservative investors, Sanofi's dividend is reasonably strong. But with valuations fairly high, investors may prefer to wait for a pullback from its recent sharp advance before looking closely at adding Sanofi to retirement portfolios.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

Sanofi's need to cut prices on Zaltrap may bode ill for Dendreon's Provenge, which has an even higher price tag and has had trouble ramping up sales. Find out whether Dendreon is a buy in our in-depth premium report on the stock from health-care analyst David Williamson. Inside, he details every key issue facing the company and outlines just how Dendreon intends to regain its former glory. The report also comes with a full year of analyst updates, so claim your copy of this exclusive report today by clicking here now.

Add Sanofi to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

The article Will Sanofi Help You Retire Rich? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool owns shares of Dendreon. Motley Fool newsletter services recommend Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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