At a time where a global pandemic is ravaging the globe, investors and the public are increasingly turning their attention to the healthcare industry. They are looking for biotech and pharma companies to find a cure. As a result, pharmaceutical stocks have become a hot item, though not all are created equal.
Pharmaceutical stocks tend to bring many benefits to investors, particularly at this time.
Not only will they likely be the ones to solve the novel coronavirus pandemic, but they are the ones that will keep us running long after that.
Solving diseases and making life more comfortable is worth a pretty penny. These businesses often can be sustained whether we’re in a good economy or a bad one. This type of secular growth gives investors confidence in the companies’ long-term business.
Let’s look at a handful of quality pharmaceutical stocks that offer investors a solid investment:
- Pfizer (NYSE:PFE)
- Sanofi (NASDAQ:SNY)
- Regeneron (NASDAQ:REGN)
- Zoetis (NYSE:ZTS)
- Bristol-Myers Squibb (NYSE:BMY)
- Johnson & Johnson (NYSE:JNJ)
- SPDR S&P Pharmaceuticals ETF (NYSEARCA:XPH)
Pharmaceutical Stocks to Buy: Pfizer (PFE)
Let’s start with the “stock of the hour,” as Pfizer has spurred a massive rally on Wall Street. The Dow Jones jumped almost 2,000 points at the open on Nov. 9 thanks to vaccine news from Pfizer.
The company announced its Phase 3 trial for its Covid-19 vaccine has achieved a 90% effective rate. In other words, if successful, investors are looking at the world returning to normal earlier than expected. If that’s the case, then investors have every right to cheer and bid up stocks.
For Pfizer, it is propelling the shares to new annual highs. Investors will be looking for the stock to continue its run if it’s the favored vaccine.
Additionally, it’s a cheap stock with a big dividend yield. In 2021, Pfizer is forecast to earn $3.19 per share, up 10% from 2020. On the revenue front, estimates call for 7% growth. For this, investors are paying just 11.4 times next year’s earnings.
These estimates do not include Pfizer’s potential Covid-19 vaccine, either. With or without it though, the stock is not expensive and has decent growth, while paying out a 4.2% dividend yield.
Sanofi is another one of the pharmaceutical stocks to keep an eye on. With a market capitalization of $124 billion, it’s hardly one of the pharmaceutical stocks that fly under the radar.
The company has three main business units, consisting of specialty care, vaccines and general medicine. The company operates around the globe and is a juggernaut in the pharma space.
With 91 projects in development and 39 projects in Phase 3 testing or submitted for approval, investors know that Sanofi’s pipeline is deep. Obviously it’s unlikely all of its projects will progress through Phase 3 and make it to market, but knowing the backlog is so deep means Sanofi has years of business just waiting to be realized.
This company is an incredibly well-run operator in the pharmaceutical space. Speaking on CNBC in October, CEO Paul Hudson said, “We have been making vaccines for over 100 years … we feel pressure to get it right, to maintain the standards and to play a big part in helping people get back to normal.”
Hudson also spoke positively about the company’s development with Regeneron.
Speaking of Regeneron, just what is it doing with Sanofi?
Many would consider Regeneron more of a biopharmaceutical company rather than a traditional pharma business. So why is it on our list of pharmaceutical stocks?
It’s simply too high quality to ignore.
In working with Sanofi, the companies are developing a treatment called Dupixent. The treatment continues to do well in Phase 3 trialing of various ailments and already has certain applications. Dupixent is an anti-inflammatory drug, so it can be used in a broad spectrum of issues.
Currently, it can be used for asthma, atopic dermatitis and chronic rhinosinusitis with nasal polyposis.
Beyond this combination though, Regeneron has other positives as well. For instance, analysts expect 22% earnings growth this year and 20.5% growth next year. While estimates call for just 7.7% revenue growth in 2020, consensus expectations call for 20% growth next year.
This is solid growth from Regeneron, despite the stock trading at just 18.5 times this year’s earnings.
Lastly, it too may have a Covid-19 catalyst. Its treatment helped President Trump recover from the coronavirus and will likely be one that’s used going forward.
Zoetis is an interesting and unique pick in this space. That’s because it’s technically one of our pharmaceutical stocks — but for animals. From the company: “Building on more than 65 years of experience, we deliver quality medicines, vaccines and diagnostic products, complemented by biodevices, genetic tests and precision livestock farming.”
Previously a division within Pfizer, the company was spun off to create value for shareholders. Given how strong the secular growth has been in the pet space, we know that it makes for a worthwhile investment.
Pets are increasingly becoming a more important part of our families. That means we’ll increasingly spend more money on our pets and their health. Their well-being and comfort mean a lot to us and keeping them healthy is a big part of that.
Plus, Covid-19 is helping drive demand for pets.
For Zoetis, the Q1 and Q2 disruption did throw a wrench into the business. However, not enough to erase its growth. Analysts expect 2.5% earnings growth on 4.6% revenue growth this year. However, next year earnings and revenue growth estimates accelerate to 13.1% and 8%, respectively.
Bristol-Myers Squibb (BMY)
If you’re looking for a combination of low valuation and growth, Bristol-Myers Squibb could be your pick.
Bristol-Myers was a great operator before it turned to M&A. Last year it closed on its acquisition of Celgene, a cash and stock deal that merged two great companies. Now Bristol-Myers Squibb stacks up with double-digit growth, a low valuation and a tasty dividend.
Forecast to earn $6.31 per share this year, shares trade at just under 10 times this year’s estimates. In 2021, analysts expect revenue and earnings to grow 8.6% and 17.7%, respectively.
That’s very solid growth given the valuation. The stock has undergone a quick 13% rally amid a recent earnings report. Even with the rally, the stock pays out a 2.8% dividend yield.
With dozens of treatments in play and more on the way in the ensuing year, BMY appears to be a solid long-term bet.
Johnson & Johnson (JNJ)
It’s hard to talk about pharma and not mention Johnson & Johnson.
This is one of the country’s largest companies, commanding a market cap of $390 billion. As a result, investors can’t expect J&J to be just a pharmaceutical company.
To me, that’s a good thing. It helps diversify the business with various units all contributing to the top and bottom line.
For instance, J&J makes medical devices, pharmaceutical treatments and has a consumer packaged goods unit. The first unit includes more than a dozen medical devices. Regarding the consumer, everything from Band-Aid to Johnson’s Baby Products to Neutrogena are owned by J&J.
On the pharma front, Johnson & Johnson works on six main categories: Cardiovascular & Metabolism, Immunology, Infectious Diseases & Vaccines, Neuroscience, Oncology and Pulmonary Hypertension.
In April, the company raised its dividend by 6.3%. More important than its 2.8% dividend yield is the fact that J&J raised its payout for its 58th consecutive year. Not just paid, but raised. Talk about dependable.
SPDR S&P Pharmaceuticals ETF (XPH)
Finally, if you can’t nail down a name off the pharmaceutical stocks list, consider the SPDR S&P Pharmaceuticals ETF.
Sometimes using an exchange-traded fund is an ideal way to gain exposure to a group of stocks. In its top-10 holdings, it has some familiar names like those we have discussed above. That includes Bristol-Myers Squibb, Pfizer and Zoetis.
Its top holding is MyoKardia (NASDAQ:MYOK), but that is largely due to the stock’s big rally this year. Shares ripped more than 58% in a single day in May, followed by another 57% rally in October on news that Bristol-Myers would acquire the company.
That provided a big return for one of the ETF’s larger holdings. Let’s see if it can build on that return moving forward.
The XPH has climbed more than 23% in the past year, outpacing the S&P 500’s return of almost 15%. The ETF also pays out a 0.7% dividend yield. That was comparable to the 10-year Treasury yield, before it jumped almost 17% on Nov. 9 to 96 basis points.
Other stocks in its top holdings list include: Reata Pharmaceuticals (NASDAQ:RETA), Elanco Animal Health (NYSE:ELAN) and Jazz Pharmaceuticals (NASDAQ:JAZZ), among others.