Top 5 Undervalued Stocks: Pharmaceuticals
Pharmaceutical companies are considered quite stable during a recession, especially in the long run. People still require medical care for illnesses and emergencies regardless of economic conditions. I give recommendations on some of the most undervalued stocks from pharmaceutical industry at the moment (September 2023).
This year certain pharmaceutical giants like Novo Nordisk and Eli Lilly managed to be exceptionally profitable, thanks to their anti-obesity and diabetes drugs. The market capitalization of Novo Nordisk has soared beyond $400 billion, surpassing Denmark’s yearly GDP. While the growth of other pharmaceutical companies from my list may not be as rapid growing at the moment, they remain a good long-term investment to consider and a good way to diversify your portfolio. However, it’s important to carefully make your own decisions, especially given the growing concerns about a potential recession.
5. Moderna, Inc. (MRNA)
Moderna, Inc. is a biotech and pharmaceutical firm headquartered in Cambridge, Massachusetts. Its primary focus revolves around RNA therapeutics, particularly mRNA vaccines. It is mostly famous for its COVID vaccines, however they have much more to offer. Moderna generated total revenues of some 19.3 billion U.S. dollars in 2022, a massive increase compared to only two years before when it was only 803 million. This year they lost 18.6% of the stock price. The earnings ratio of 32.8x is still more than the 1-year average PE ratio for the Pharma industry of 23.1x. But I still consider this company to be undervalued. Their anti-COVID vaccines have demonstrated the effectiveness of this technology and the expertise of their specialists. The substantial profits generated from these vaccines will keep increasing the budget for new research projects, enabling the development of new drugs and vaccines (including anti-cancer ones) at a faster pace and potentially generating even more income.
4. Bristol-Myers Squibb (BMY)
Bristol Myers Squibb, is a multinational pharmaceutical company based in Princeton, New Jersey. It is consistently included in the Fortune 500 list of the largest corporations in the United States. This year they lost 16.5% of the stock price and they have a high level of debt, but I don’t consider that to be a big burden for them. The earnings ratio of 15.4x is less than the 1-year average PE ratio for the Pharma industry. Their dividend yield stands out at an impressive rate of 3.9%. The company plans to double the number of drugs in registrational trials over the next 18 months. Additionally, Samsung Biologics recently announced an expanded strategic agreement with Bristol Myers Squibb to manufacture an antibody cancer drug substance. So in my opinion they have great potential!
3. Sanofi (SAN)
Sanofi S.A., a multinational pharmaceutical and healthcare company, is based in Paris, France. It is involved in the research, development, manufacturing, and marketing of pharmaceutical products, primarily in the prescription market. However, the company also develops and sells over-the-counter medications. The earnings ratio is 14.8x. Their dividend yield is 3.5%. The company aims to achieve annual vaccine sales exceeding €10 billion by 2030. It plans to initiate at least five Phase 3 vaccine programs by 2025.
2. Biogen (BIIB )
Biogen Inc., a multinational biotechnology company headquartered in Cambridge, Massachusetts, focuses on the research, development, and distribution of therapies for neurological diseases worldwide. The earnings ratio is 13.8x. According to NASDAQ, the company’s stocks recently reached oversold levels, with an RSI reading of 28.6, and traded as low as $252.62 per share. In comparison, the current RSI reading of the S&P 500 ETF (SPY) is 46.3. Their main “star” is the Alzheimer’s drug Leqembi was granted full FDA approval. According to WHO more than 55 million people have dementia and every year, there are nearly 10 million new cases. That means, that very soon Biogen’s cost can grow much higher.
1. Pfizer (PFE)
Pfizer is probably not only the most undervalued pharmaceutical stock, but perhaps one of the most undervalued on the whole market as well. Over the past year, it has lost about 26% of its value. The earnings ratio is 9.8x, which is significantly less compared to other companies from this list. Additionally, their dividend yield is 4.9%! Like Moderna, Pfizer had huge net income thanks to vaccines and COVID drugs like Paxlovid. They are now reinvesting their profits into new drugs and vaccines. Although the recent financial results were not very impressive, Pfizer remains one of the main pharmaceutical companies in the world, and it seems that nothing can change that. However, one should keep in mind that Pfizer spent more than 43 billion dollars on acquiring Seagen, a company focused on cancer treatment. This move can entail both risks and potential long-term additional profits. The company’s quarterly Corporate Performance is scheduled for October 31, 2023
0. iShares U.S. Pharmaceuticals ETF (IHE)
If you’re still unsure about which stock to choose or if you don’t have much money, consider trying an ETF like iShares U.S. Pharmaceuticals ETF (IHE). IHE is designed to mirror the performance of the Dow Jones U.S. Select Pharmaceuticals Index, which consists of U.S. pharmaceutical companies. This ETF, which is weighted based on market capitalization, provides exposure to U.S. companies involved in the manufacturing of prescription drugs, over-the-counter drugs, and vaccines. The three largest holdings in IHE are Johnson & Johnson, Pfizer, and Royalty Pharma Plc Class A (RPRX), which is the leading purchaser of biopharmaceutical royalties in the United States.
In conclusion please keep in mind that while the healthcare sector is generally considered more stable during economic downturns, no sector is completely recession-proof. Factors like changing healthcare policies, shifts in consumer behaviour, and overall economic severity can still impact the stability of the healthcare sector during a recession. Investors should conduct thorough research, diversify their portfolios, and consider their risk tolerance and investment goals before making decisions. Consulting a financial advisor is advisable for tailored advice based on individual circumstances.
My website: rafaelbi.pro
