The pharmaceutical sector delivers two benefits that appeal to investors: reasonable P/E ratios and growth catalysts. Many pharma stocks have suffered as of late. Some have key drugs facing patent expirations. Meanwhile, others have sold off as trade-related fears or regulatory hurdles both domestically and abroad increase uncertainty.
However, some of these companies have responded by developing new drugs. Others trade at attractive valuations due to the uncertainty. Moreover, they benefit from 10,000 baby boomers a day aging into Medicare. This demographic trend increases demand and provides Medicare recipients with a subsidy enabling the purchase of more drugs.
The following 3 pharma stocks appear particularly well-positioned to benefit from new drugs and demographic tailwinds in 2019:
Biogen (NASDAQ:BIIB) has become one of the biggest success stories for pharma stocks in recent years. BIIB stock traded below $1 per share as late as the mid-1990s. However, in 2003, a merger made BIIB the third largest biotech company in the world. A number of successful drugs have cemented BIIB as the large-cap pharma stock it is today.
Multiple sclerosis treatments have served as Biogen’s focus from the beginning. And that happens to be the focus of its current best-selling drug Tecfidera. However, most of the current growth surrounds a newer drug, Spinraza. Investors should note that the company produces treatments for other treatments such as leukemia, spinal muscular atrophy and hemophilia.
While its almost $330 per share price may show its meteoric rise over time, BIIB stock has fallen about 18% from its July high. As a result, it trades at less than 12.5 times consensus 2018 estimates.
Even though consensus profit growth will fall into the single digits next year, Wall Street predicts net income increases averaging just under 8% per year over the next five years. Given the low valuation and the growth coming from Spinraza and other drugs in the pipeline, BIIB stock should recover and resume its long-term march higher.
Celgene (NASDAQ:CELG) focuses on developing drugs for both cancer and immunological diseases. Otezla and Abraxane constitute some of its better-known drugs. However, Revlimid, a treatment for a type of blood cancer, currently drives the majority of the company’s revenues.
Unfortunately for shareholders, the U.S. patent on Revlimid expires in 2022. CELGENE continues to develop and release new treatments. However, last year they botched a regulatory filing, and investors have not trusted CELG stock since.
As a result, CELG trades at levels first seen in 2013. For the last 14 months, the stock has experienced a steady decline — from $147 to $71.
Despite the negative sentiment, the fundamentals may soon form their own positive catalyst. At a forward P/E ratio around 6.7, CELG stands as one of the cheapest pharma stocks. Analysts also believe profits will grow by 18.1% this year and 17.7% the next. Wall Street predicts these double-digit increases will continue through at least 2021.
Admittedly, losing Revlimid rightly creates high levels of uncertainty. But investors should remember that the company still has four years to replace this lost revenue source. Moreover, the fact that one can buy double-digit profit growth for less than seven times earnings creates a compelling value proposition.
Over the past six months, Pfizer (NYSE:PFE) stock price has done something it hadn’t done in years: move higher. PFE spent years mired in a trading range. Now it has finally broken out of that range, and it could finally deliver the growth which investors have long waited. PFE stock also appears positioned to return to the all-time high achieved 19 years ago.
The equity had suffered as it lost its Viagra patent and faces patent expiration on Lyrica. However, Eliquis, Ibrance, and other treatments appear poised to pick up the slack. As a result, PFE stock has seen its value rise.
That said, new buyers can still benefit. PFE stock trades at a forward P/E ratio of about 14.4. Analysts also expect profits to grow by 13.65% this year. Although that could slow next year, net income should see high-single-digit increases on average.
Pfizer has also built a reputation for its rising dividend. The current dividend yield stands at just over 3%. Moreover, its $1.36 per share annual dividend has increased every year since 2010. Hence, the streak has persisted long enough that investors can expect yearly dividend increases. Also, with new drugs selling well, certainty has returned, and PFE stock has finally begun to move higher. As a result, Pfizer has become one of the pharma stocks that delivers on both growth and income.