As investors await the Federal Reserve’s upcoming two-day meeting, all eyes are on the first potential interest rate cut in over four years. While a rate cut is typically intended to stimulate economic growth, it also reflects deeper concerns about the broader economy’s health.
Given the uncertainty in the air, investors could consider investing in high-dividend pharmaceutical stocks like AbbVie Inc. (ABBV), Novartis AG (NVS), and Pfizer Inc. (PFE) that are trading at discounts. These blue-chip giants are known for their financial robustness and history of reliable returns to shareholders, making them excellent options for both seasoned and newer investors seeking stable growth.
Healthcare, unlike other sectors, remains resilient in the face of economic fluctuations due to the consistent demand for medicines and treatments. The Centers for Medicare & Medicaid Services (CMS) project U.S. healthcare spending to climb, with national expenditures expected to hit $7.7 trillion by 2032. This growing demand, paired with an aging population, ensures that companies in the healthcare and pharmaceutical sectors are well-positioned for long-term growth.
With that in mind, let’s examine the Medical – Pharmaceuticals industry picks in detail, beginning with the third choice:
Stock #3: Pfizer Inc. (PFE)
PFE is a global leader in biopharmaceuticals, offering a wide range of medicines and vaccines across several therapeutic areas. Its diverse portfolio spans treatments for cardiovascular conditions, metabolic issues, migraines, women’s health, and infectious diseases, including COVID-19 prevention and treatment.
On August 27, the company introduced PfizerForAll, a digital platform designed to make access to healthcare and managing health and wellness more seamless for Americans. The platform supports common illnesses like migraines, COVID-19, and flu, as well as adult vaccinations. It integrates with the existing healthcare system and partners to streamline access and address gaps in care.
On July 25, PFE received conditional marketing authorization from the European Commission for DURVEQTIX, a gene therapy for severe Hemophilia B in adults, promising a one-time dose to reduce or eliminate bleeding.
With 13 years of consecutive dividend growth, the company pays an annual dividend of $1.68 per share, which translates to a yield of 5.59% on the current share price. Its four-year average yield is 4.17%. PFE’s dividend payout has grown at a CAGR of 4.4% over the past five years.
In terms of forward non-GAAP P/E, PFE is trading at 11.39x, 47.1% lower than the industry average of 21.51x. Likewise, the stock’s forward EV/EBITDA and Price/Cash Flow multiples of 10.46 and 9.28 are 25.2% and 42.6% lower than the industry averages of 13.99x and 16.17x, respectively.
PFE’s revenues for the second quarter (ended June 30, 2024) increased 2.1% year-over-year to $13.28 billion. Its adjusted net income and adjusted EPS attributable stood at $3.40 billion and $0.60, respectively.
The company has updated its fiscal year 2024 financial guidance, increasing its revenue projection to a range of $59.50 billion to $62.50 billion from the previous estimate of $58.50 billion to $61.50 billion. Additionally, it has raised its adjusted EPS guidance to a new range of $2.45 to $2.65, higher than the prior forecast of $2.15 to $2.35.
Analysts expect PFE’s revenue for the fourth quarter (ending December 2024) to grow 26.3% year-over-year to $18 billion, while its EPS for the same period is expected to increase considerably from the prior year to $0.67. Also, it topped the EPS estimates in each of the trailing four quarters.
PFE shares have surged 12.9% over the past nine months to close the last trading session at $30.07.
PFE’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PFE also has a B grade for Growth and Value. It is ranked #48 out of 161 stocks in the Medical - Pharmaceuticals industry. Click here to see PFE’s ratings for Momentum, Stability, Sentiment, and Quality.
Stock #2: Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide through two segments: Innovative Medicines and Sandoz.
On August 28, the company’s subsidiary Novartis Pharma AG entered into a global licensing agreement with Lindy Biosciences to access its innovative microglassification technology for biologic drugs. This partnership grants NVS exclusive global rights across multiple biologic targets, focusing on developing high-concentration, self-administered treatments.
The collaboration aims to improve patient outcomes and compliance by enabling at-home treatments. Further, it strengthens the company’s position in innovative drug delivery and enhances its ability to offer patient-friendly solutions.
NVS pays an annual dividend of $3.74 per share, translating to a yield of 3.20% at the current price level, while its four-year average yield is 3.49%. Its dividend payouts have increased at a 7.3% CAGR over the past three years and a 6.9% CAGR over the past five years.
In terms of forward non-GAAP P/E, NVS is trading at 15.68x, which is 27.1% lower than the industry average of 21.51x. Also, its forward EV/EBIT ratio of 13.79x is 18.4% below the industry average of 16.90x.
In the fiscal second quarter that ended June 30, 2024, NVS’ net sales increased 9.4% year-over-year to $12.51 billion. Its operating income from continuing operations grew 43% from the year-ago value to $4.01 billion. The company’s net income and EPS came in at $3.25 billion and $1.60, representing a 40.1% and 44.1% year-over-year improvement, respectively. In addition, its free cash flow stood at $4.62 billion, up 40.9% year-over-year.
The consensus EPS estimate of $1.96 for the fiscal third quarter (ending September 2024) represents a 12.5% improvement year-over-year. The consensus revenue estimate of $12.52 billion for the ongoing quarter represents a 6.3% increase from last year. The company has an impressive surprise history; it surpassed the consensus revenue estimates in three of the trailing four quarters.
Shares of NVS have gained 20.1% over the past nine months and 15.8% year-to-date to close the last trading session at $116.95.
It is no surprise that NVS has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, Stability, and Quality. Within the same industry, it is ranked #3.
In addition to the POWR Rating grades I’ve just highlighted, you can see NVS’ Momentum and Sentiment ratings here.
Stock #1: AbbVie Inc. (ABBV)
ABBV is a global diversified research-based biopharmaceutical company engaged in manufacturing and selling medications and therapies. It offers a comprehensive product portfolio across Immunology, Oncology, Neuroscience, Eye Care, Aesthetics, and Other Specialties.
On September 06, the company declared a quarterly dividend of $1.55 per share, payable to its shareholders on November 15, 2024. Its forward annual dividend of $6.20 translates to a 3.17% yield on current prices. ABBV’s four-year average dividend yield is 4.01%.
Its dividends have grown at 6.5% and 8% CAGRs over the past three and five years, respectively. Also, it has a record of 10 years of consecutive dividend growth.
On August 01, ABBV announced the acquisition of Cerevel Therapeutics (CERE) to strengthen its position in neuroscience and expand its portfolio in psychiatry, migraine, and Parkinson’s disease, bolstering its existing pipeline and market presence.
In terms of forward non-GAAP P/E, ABBV is trading at 17.98x, 16.4% lower than the industry average of 21.51x. Likewise, the stock’s forward EV/EBIT multiple of 16.25 is below its industry average of 16.90 by 3.9%.
For the six-month period that ended on June 30, 2024, ABBV’s net revenue increased 2.6% year-over-year to $26.77 billion, while the company’s Neuroscience segment reported net revenue of $4.13 billion, indicating a 15.3% growth from the prior-year quarter. ABBV’s attributable net income came in at $2.74 billion, up 21% year-over-year, while its earnings per share attributable grew 21.4% from the year-ago value to $1.53.
Looking ahead, ABBV forecasts full-year 2024 and raises its adjusted EPS to range between $10.71 and $10.91, from the prior forecast of $10.61 and $10.81.
Street expects ABBV’s revenue and EPS for the fiscal fourth quarter (ending December 2024) to increase 2.4% and 5.7% year-over-year to $14.64 billion and $2.95, respectively. Moreover, it beat the revenue estimates in each of the trailing four quarters, which is promising.
Over the past year, the stock has gained 28.7%, closing the last trading session at $195.73.
ABBV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, Sentiment, and Quality. Out of 161 stocks in the Medical - Pharmaceuticals industry, ABBV is ranked #2. Click here to see ABBV’s rating for Momentum.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ABBV shares were trading at $192.84 per share on Tuesday afternoon, down $2.89 (-1.48%). Year-to-date, ABBV has gained 27.96%, versus a 19.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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