Seven Pharmaceutical Stocks to Buy for Future Profitability

Paul Dykewicz

Health Care Stocks

Seven pharmaceutical stocks to buy in pursuit of future profitability range from established industry behemoths to a promising smaller company that is reaching for big growth while incurring heightened risk.

The seven pharmaceutical stocks to buy should only be helped by global spending on medicines projected to grow at a 3-6% compound annual growth rate (CAGR) through 2025 to reach about $1.6 trillion by 2025, excluding spending on COVID-19 vaccines, according to a recent report by the IQVIA Institute for Human Data Science (NYSE:IQV). The report, “The Global Spending and Usage of Medicines,” used invoice price levels to forecast total cumulative spending on COVID-19 vaccines through 2025 of $157 billion, largely focused on the initial wave of vaccinations to be completed by 2022.

In subsequent years, booster shots are expected to be required on a biannual basis as the durability of immunity and the continued emergence of viral variants warrant. Two therapy areas — oncology and immunology — are each forecast to grow at a 9-12% CAGR through 2025, boosted by significant increases in new treatments and medicine use, according to the institute.

Oncology Therapies Will Aid Growth of the Seven Pharmaceutical Stocks to Buy

Oncology specifically is expected to add 100 new treatments over five years, contributing to an increase in spending of more than $100 billion to a total of more than $260 billion in 2025. Immunology growth is projected to slow from the 17.3% CAGR over the past five years as lower-cost treatments offset growth from volume and drug launches. 

Plus, many new therapies are expected in neurology. Treatments are slated for novel migraine therapies, rare neurological diseases and Alzheimer’s and Parkinson’s.

Amgen Ranks Among Seven Pharmaceutical Stocks to Buy

Amgen, Inc. (NASDAQ:AMGN), of Thousand Oaks, California, received a price objective of $285 per share from BoA Global Research, providing the promise of an 18.8% increase from the closing price of $239.91 on June 22.  The investment firm calculated its valuation of AMGN by using a sum of the parts net present value (NPV) analysis.

Potential risks to BoA’s price objective are faster-than-expected revenue erosion from legacy brands, slower-than-expected growth of new drug launches and clinical trial failures. However, Amgen’s prospects are boosted by the U.S. Food and Drug Administration’s approval in late May for the company’s new pharmaceutical for lung cancer patients who have a specific gene mutation, known as KRAS, which causes the disease to worsen after treatment with chemotherapy or other medicines.

The drug, sotorasib, will be sold under the brand name Lumakras. The treatment shrank tumors with the KRAS mutation in around 36% of patients who participated in clinical trials.

Lumakras is positioned for a strong launch due to its proven clinical profile, increasing testing and past targeted oncology launches, according to BoA. Plus, Lumakras has the potential to gain approval as part of a combination therapy to treat colorectal cancer.

Chart courtesy of www.stockcharts.com

BoA Predicts ‘Strong Lumakras Launch’ for Amgen

After Amgen’s American Society of Clinical Oncology (ASCO) conference call, BoA concluded the company is well positioned to meet the investment firm’s projections. BoA affirmed its buy rating and $285 price objective.

Amgen presented data that bolstered the drug’s commercial viability. The drug demonstrated impressive overall response rates (ORR) of roughly 35%, regardless of the number of prior lines of therapy, mutation type or tumor mutation burden.

Most notably, advanced patients with prior PD-1 therapy — but no platinum-based chemo — saw an ORR of 69%, compared to the overall population achieving 37%. Patient reported outcomes (PROs) showed stable overall quality of life measures, including overall health and physical functioning from baseline, during Lumakras treatment. 

Relevant PRO measures of lung cancer symptoms, including cough, dyspnea and chest pain, remained stable or improved. When asked about how bothered they were by side effects of Lumakras, the vast majority, 85%, of recipients of the drug continued to be report that they were either “not at all” or only “a little bit” bothered.

Bristol-Myers Squibb Secures Place in Seven Pharmaceutical Stocks to Buy

New York-based Bristol-Myers Squibb Co. (NYSE:BMY) gained a buy recommendation from BoA and received a $78 price objective (PO), based on a 50/50 blended average of its risk-adjusted discounted cash flow (DCF) and price-to-earnings (P/E) multiple applied to 2021 estimated earnings per share (EPS). The outlook projects an 18.3% rise in the company’s stock, following its closing price of $65.94 per share on June 22.

The investment firm’s discounted cash flow (DCF) analysis indicated a 10x 2021 P/E multiple, given an impending “patent cliff” and risks associated with a later-stage pharmaceutical pipeline. Possible risks that could halt Bristol-Myers Squibb from reaching BoA’s price target include uninspiring readouts from late-stage trials, more rapid deceleration of Revlimid erosion than expected, negative results from the company’s later-stage pipeline assets in development, calls from critics for drug price limits and negative patent rulings.

Bristol-Myers Squibb presented full details from its phase 3 RELATIVITY-047 trial during the ongoing American Society of Clinical Oncology 2021 meeting. The data topped expectations, while arguably achieving a better safety profile with less treatment-related adverse events and discontinuations, according to BoA.

Chart courtesy of www.stockcharts.com

Pension Fund Chairman Recommends Bristol-Myers Squibb

Pharmaceutical stocks are attractive, since they trade at an historically low valuation to the S&P 500, said Bob Carlson, leader of the Retirement Watch investment newsletter. They sell at a 40% discount to the index, even though many pharmaceutical companies have improving drug pipelines and attractive growth prospects, Carlson added.

“The main drag on the sector is some uncertainty over drug-pricing legislation in Washington,” Carlson said. 

Some people want to let Medicare negotiate prices directly with the companies to reduce drug prices. Despite the risk, Carlson said he likes dividend-paying BMY well enough to recommend it. 

Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets, said Bristol-Myers Squibb is navigating the recent loss of patents and took on hefty debt last year to buy Celgene. The debt hurt Bristol-Myers Squibb’s share price and caused it to sell at a substantial discount to its value.

Income investors will appreciate that Bristol-Myers Squibb pays a “high dividend yield” of around 3.11% that looks to be safe, even after the debt payments from the Celgene deal are taken into account, Carlson said. 

Pension fund and Retirement Watch leader Bob Carlson answers questions from Paul Dykewicz.

One of the Seven Pharmaceutical Stocks to Buy Seeks to Improve Balance Sheet

Bristol-Myers Squibb has been selling assets and reducing expenses to increase cash flow, Carlson said. The company made deleveraging and improving its balance sheet a priority.

Carlson, who likes to invest in equities that pay dividends, said Bristol-Myers Squibb has a history of managing mergers and acquisitions well, so it is likely to attain the cost savings and benefits it projects from the Celgene deal. Plus, Bristol-Myers Squibb has a “good portfolio of profitable drugs and a solid pipeline” of others, Carlson added.

The company has at least maintained its dividend for more than 36 years and increased it each of the last 14 years. A risk to buying Bristol- Myers Squibb would be the possibility it would not execute its merger plan well and remain burdened with debt from the deal, Carlson cautioned.

“The risk has a low probability of being realized given the company’s history of successfully executing mergers,” Carlson said.

Collaboration on Cancer Drug Announced by One of the Seven Pharmaceutical Stocks to Buy

Bristol-Myers Squibb announced jointly with Tokyo-based Eisai Co., Ltd. on June 17 that they had entered into an exclusive global strategic collaboration agreement for the co-development and co-commercialization of MORAb-202, an antibody drug conjugate (ADC). MORAb-202 is Eisai’s first ADC and combines an anti-folate receptor alpha (FRα) antibody that it developed with its anticancer agent eribulin, using an “enzyme cleavable linker.”

“It is a potential best-in-class FRα ADC with a favorable pharmacology profile and demonstrated single agent activity in patients with advanced solid tumors,” the companies stated in a press release.

Fund Offers Alternative to Seven Pharmaceutical Stocks to Buy

In addition, investors should consider an exchange-traded fund (ETF) that’s diversified in the pharmaceutical sector, Carlson counseled. iShares US Pharmaceuticals (IHE) is among the oldest in the group and has had solid returns over the years, he added.

Chart courtesy of www.stockcharts.com

Top holdings in the fund recently were Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE), Merck & Co. Inc. (NYSE:MRK), Zoetis (NYSE:ZTS), and Bristol-Myers Squibb. The fund owns about 46 stocks and has 78% of the fund in the 10 largest positions.

Eli Lilly Earns Spot Among Seven Pharmaceutical Stocks to Buy

Eli Lilly and Company (LLY) received a buy rating and a $225 price objective from BoA based on its probability-adjusted net present value (NPV) analysis. The company’s key businesses and their valuations, according to BoA, include Neuroscience ($33/share), Oncology ($70/share), Immunology & Inflammation ($33/share), Diabetes ($89/share), and other pharmaceutical products and early pipeline assets ($15/share), as well as approximately -$15/share in net cash. 

Possible risks to BoA’s $225 price objective are better-than-expected launches of competing products, emerging clinical data for pipeline assets that do not confirm prior observations, failure to effectively commercialize approved products and potential drug pricing system restructuring in the United States. The company also received a subpoena In May 2021 from the U.S. Department of Justice requesting the production of certain documents relating to its manufacturing site in Branchburg, New Jersey.

Eli Lilly previously hired external counsel to conduct an independent investigation of certain allegations relating to its Branchburg manufacturing site. Eli Lilly, through its counsel, announced it is investigating the allegations thoroughly and cooperating fully with the investigation.

The negative news appeared to hurt the company’s stock price, but not substantially. Such events can provide investors who are interested in buying shares a chance to do so at a slight discount.

Chart courtesy of www.stockcharts.com

A Second ETF Offers Investors a Chance to Gain Pharmaceutical Exposure, Woods Says

“One of the best ways to get exposure to the entire pharmaceutical space is via the outstanding exchange-traded fund (ETF), VanEck Pharmaceutical ETF (PPH),” said Jim Woods, editor of Intelligence Report and Successful Investing

Woods recommends PPH as a tactical holding in both of his newsletters and he said his subscribers are up nearly 17% in the position thus far.

Paul Dykewicz interviews Jim Woods about top stocks.

The diversification in PPH includes exposure to the biggest and arguably best pharmaceutical firms in the world today, including AstraZeneca PLC ADR (NASDAQ:AZN), Sanofi (NASDAQ:SNY), Pfizer, Novo Nordisk (NYSE:NVO), Bristol-Myers Squibb and Johnson & Johnson, Woods said. For investors who want big pharmaceutical company exposure, and particularly vaccine-producer exposure, PPH is the “best way” to obtain it, he added.

Chart courtesy of www.stockcharts.com

Money Manager Kramer Picks Four of the Seven Pharmaceutical Stocks to Buy

“There are really two drug industries and the ones you buy should depend on the role they’ll play in your portfolio,” said Hilary Kramer, who heads the GameChangers and Value Authority advisory services

For investors who are looking for a fairly “stable income source,” consider large pharmaceutical companies that offer dividend yields of at least 3%, Kramer said. Those companies do not typically develop “world-shaking blockbuster drugs” because all the major names ensure they get their share of attractive programs coming up from the smaller-stage developers to replace expiring patents, she added.

“The sum of the parts can shift as individual drugs win or lose market share, but the long-term landscape doesn’t change much from month to month,” Kramer counseled. On that basis, she highlighted Pfizer Inc. (NYSE:PFE), GlaxoSmithKline plc (NYSE:GSK) and Sanofi SA (NYSE:SNY). All have robust vaccine businesses alongside other pharmaceutical operations and currently pay more than 3% a year in dividends.

“Accumulate on the dips,” Kramer said.

Chart courtesy of www.stockcharts.com

Chart courtesy of www.stockcharts.com

Chart courtesy of www.stockcharts.com

When other big pharmaceutical companies grow their way to higher yields, accumulate them, too, Kramer continued.

Paul Dykewicz conducts a pre-COVID-19 interview with Hilary Kramer, whose premium advisory services include IPO Edge, 2-Day Trader, Turbo Trader and Inner Circle.

Investors who are hunting for blockbuster drugs would need to invest in smaller pharmaceutical companies, Kramer counseled. Large pharmaceutical manufacturers are so big that even adding a $1 billion drug to the portfolio isn’t going to move the overall needle much farther than normal, she added.

Iovance Biotherapeutics Gains Place With Seven Pharmaceutical Stocks to Buy

“To get the real benefit of discovery, you need to go small,” Kramer said. “My current favorite name on that end is Iovance Biotherapeutics Inc. (NASDAQ:IOVA).”

Chart courtesy of www.stockcharts.com

The stock was upgraded to “market outperform” from “market perform” on June 10 by JMP Securities. The investment firm’s analyst Reni Benjami set a price target of $32 per share, roughly a 55% upside from the closing price of $24 per share on June 22.

Analysts have an average price target of $41 per share on the stock, according to FactSet. However, the analysts who cover the stock have a wide range of opinions about the company’s prospective value, with a low of $18 and a high of $83.

The company currently produces zero revenue, but it could have a cancer-fighting therapy past the Food and Drug Administration in 2023, assuming it isn’t bought out first, Kramer said. The stock can rise to $50 under the right conditions, Kramer added, while predicting the “fair value” could be double that price in the long haul.

Seven Pharmaceutical Stocks to Buy Dodge Worst of COVID-19 Crisis

Progress in the COVID-19 vaccination process lifts hope that new cases and deaths will keep dropping. So far, 177,342,954 people, or 54% of the U.S. population, have received at least one dose. Those who have been fully vaccinated number 150,046,006 people, or 46%, of the U.S. population.

In addition, the Food and Drug Administration (FDA) recently approved a third COVID-19 vaccine, manufactured by Johnson & Johnson (NYSE:JNJ), which requires only one dose rather than two, as with the first two vaccine providers: Pfizer and Moderna (NASDAQ:MRNA).

COVID-19 cases worldwide have hit 179,112,729 and caused 3,881,150 deaths, as of June 23, according to Johns Hopkins University. Also as of June 23, U.S. COVID-19 cases totaled 33,565,289 and have led to 602,462 deaths. America has the dubious distinction as the nation with the most COVID-19 cases and deaths.

The seven pharmaceutical stocks to buy give investors choices to a key industry that will sustain demand for its products. Increased COVID-19 vaccine availability, an improving economy and a recent $1.9 trillion federal stimulus package should help to support the valuations of the seven pharmaceutical stocks to buy.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special Father’s Day gift pricing!

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