This study show the growing interest of investors to invest in Indonesia’s capital market as emerging market. Before investing, it was very important for investor to consider the risk and rate of return factors. One method used to analyze the relationship between return and risk in stock investment is the Capital Asset Pricing Model (CAPM). This study aims to analyze the CAPM method to describe the risk and stock returns, and investment options to determine the best stock in the pharmaceutical company that listed in the Indonesian Stock Exchange (IDX) period 1/1/2009-31/12/2012.The study used 8 samples of pharmaceutical companies listed in the Indonesian Stock Exchange (IDX) period 1/1/2009-31/12/2012. The sample selection was purposive sampling technique with some criteria of research necessity. Results showed there were 5 pharmaceutical companies listed in Indonesian Stock Exchange (IDX) has a beta greater than 1 (β> 1) with the highest expected rate of return, and 3 pharmaceutical company has a beta less than 1 (β <1) with the lowest expected rate of return . Furthermore, the results of the analysis of stock investment decisions that used the Capital Asset Pricing Model (CAPM) were 7 companies from 8 companies were classified as undervalued stocks, it was recommended to buy the stock, and 1 company classified as overvalued, it was recommended to sell the stock.
Keywords: CAPM, Return, beta, stock investment decision
