The pharmaceutical industry has been in the spotlight during the past few years due to the pandemic as companies rushed to develop antiviral drugs and vaccines. Moreover, pharma stocks tend to be safe-haven investments during turbulent times.
So, I think it might be ideal to buy fundamentally robust Novo Nordisk A/S (NVO) and Novartis AG (NVS), which are poised to grow.
The pharmaceutical industry is growing, mainly driven by innovative drug development and increasing demand for healthcare, especially in emerging countries. Revenue in the pharmaceuticals market is expected to show a CAGR of 5.4%, resulting in a market volume of $1.44 billion by 2027.
Moreover, thanks to the inelastic demand for medicines, the pharmaceutical industry is known to weather turbulent times relatively well. With concerns of a recession looming large, investing in pharmaceutical stocks could offer a safe haven for investors.
According to an IQVIA Institute estimate, total spending and global demand for medicines are expected to reach $1.90 trillion over the next five years. Vaccines will boost the pharmaceutical market to $500 billion by 2027.
“COVID-19 continues to have an impact on pharmaceutical markets globally and is estimated to continue expanding the pharmaceutical market through 2027, largely due to vaccines,” said Murray Aitken, senior vice president and executive director of the IQVIA Institute for Human Data Science.
Take a look at the stocks mentioned above:
Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO researches, develops, manufactures, and markets pharmaceutical products worldwide. It operates in two segments, Diabetes, and Obesity care; and Rare Disease.
On April 12, 2023, NVO and Aspect Biosystems announced a collaboration, development, and licence agreement to develop bioprinted tissue therapeutics designed to replace, repair, or supplement biological functions inside the body with the aim of delivering a new class of truly disease-modifying treatments for diabetes and obesity.
Its trailing-12-month gross profit margin of 84.22% is 50.1% higher than the 56.12% industry average. Its trailing-12-month EBITDA margin of 46.13% is significantly higher than the 1.84% industry average.
NVO pays $2.36 annually as dividends which translates to a yield of 1.40% at the current price. Its 4-year average dividend yield is 1.74%. Its dividend has grown at a CAGR of 12.6% over the past three years.
NVO’s revenue grew at a CAGR of 14.2% over the past three years. In addition, its EBITDA grew at a CAGR of 13.7% over the past three years.
During the fiscal first quarter ended March 31, 2023, NVO’s net sales increased 27% year-over-year to DKK53.37 billion ($7.84 billion). Its net profit increased 39.4% year-over-year to DKK19.81 billion ($2.91 billion). Its earnings per share increased 41.2% year-over-year to DKK8.72.
NVO’s revenue is expected to increase 38.1% year-over-year to $7.79 billion for the fiscal second quarter ending June 2023. The company’s EPS for the same quarter is expected to increase 63% year-over-year to $1.31. Also, it has surpassed revenue estimates in three of the trailing four quarters, which is impressive.
Shares of NVO have gained 62.8% over the past year to close the last trading session at $168.99.
NVO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B in Growth, Stability, Sentiment, Momentum, and Value. It is ranked #3 out of 168 stocks in the Medical - Pharmaceuticals industry.
Beyond what is stated above, we’ve also rated NVO. Get all NVO ratings here.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products in Switzerland and internationally. The company operates through two segments: Innovative Medicines and Sandoz.
Its trailing-12-month gross profit ratio of 71.17% is 26.8% higher than the 56.12% industry average. Its trailing-12-month EBITDA margin of 35.60% is significantly higher than the 1.84% industry average.
NVS pays $3.50 annually as dividends which translates to a yield of 3.38% at the current price. Its 4-year average dividend yield is 3.60%. Its dividend has grown at a CAGR of 54.3% over the past three years.
NVS’ revenue grew at a CAGR of 1.5% over the past three years. In addition, its EBITDA grew at a CAGR of 3.1% over the past three years.
NVS’ net sales increased 3.4% year-over-year to $12.95 billion in the fiscal first quarter that ended March 31, 2023. Its net income increased 3.4% year-over-year to $2.29 billion, and earnings per share increased 9% year-over-year to $1.09.
NVS’s revenue is expected to increase 3.4% year-over-year to $13.22 billion for the fiscal second quarter ending June 2023. The company’s EPS for the same quarter is expected to increase 5.3% year-over-year to $1.64.
The stock has gained 23.1% over the past six months to close the last trading session at $103.42.
NVS’ robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
NVS has an A grade for Growth, Stability, and Quality and a B in Value and Sentiment. It is ranked first in the same industry.
Click here to see the additional POWR Ratings for NVS (Momentum).
What To Do Next?
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NVO shares rose $1.15 (+0.68%) in premarket trading Friday. Year-to-date, NVO has gained 26.40%, versus a 8.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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