In 2024, the healthcare sector is expected to rebound as pandemic-related headwinds ease and pharmaceutical companies recover from de-stocking issues. The pharmaceutical industry is known for its stability during economic uncertainties, as the need for medical treatments remains consistent regardless of economic conditions.
Amid this backdrop, investors could consider buying fundamentally strong pharma stocks: Pfizer Inc. (PFE), Johnson & Johnson (JNJ), and AbbVie Inc. (ABBV), for defensive investing this month.
The growth of the healthcare sector is shaped by advancements in biomedical science and smart, accessible technology. The sector remains strong and adaptable as healthcare moves to homes and virtual settings, supported by technology and cost management. Innovations in drug development and lower interest rates also make healthcare investments more attractive.
Meanwhile, global medicine spending at list prices has surged by 35% over the past five years and is expected to rise by 38% by 2028. In response, pharmaceutical companies are quickly embracing AI to improve drug manufacturing. Moreover, machine learning, AR, and VR impact the discovery of new drugs, boosting growth in the pharmaceutical sector.
On top of it, emerging diseases, existing health issues, and an aging population drive the need for continuous drug development and new treatments. This creates stable demand, even during economic downturns. As a result, global pharmaceutical revenues are set to hit $1.16 trillion this year and grow to $1.47 trillion by 2028.
Considering these conducive trends, let’s take a look at the fundamentals of the three Medical - Pharmaceuticals stock picks, beginning with the third choice.
Stock #1: Pfizer Inc. (PFE)
PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products in the U.S., Europe, and internationally.
On July 25, 2024, the European Commission granted conditional marketing authorization to PFE’s DURVEQTIX (fidanacogene elaparvovec) for treating severe hemophilia B. This one-time gene therapy significantly reduced bleeding rates, offering a potential alternative to regular infusions of factor IX.
In terms of the trailing-12-month EBIT margin, PFE’s 5.92% is 173.9% higher than the 2.16% industry average. Likewise, its 6.31% trailing-12-month levered FCF margin is 499.8% higher than the 1.05% industry average. Furthermore, its 60.16% trailing-12-month gross profit margin is 5.40% higher than the 57.08% industry average.
PFE’s total revenues for the fiscal second quarter, which ended June 30, 2024, rose 2.1% year-over-year to $13.28 billion. Likewise, its Biopharma revenues were $12.99 billion, up 2.4% from the prior-year quarter. Moreover, its adjusted income and adjusted EPS stood at $3.40 billion and $0.67, respectively.
Street expects PFE’s revenue for the quarter ending September 30, 2024, to increase 12.7% year-over-year to $14.92 billion. Its EPS for the quarter ending December 31, 2024, is expected to grow 573.6% year-over-year to $0.67. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock gained 7.4% to close the last trading session at $29.55.
PFE’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #50 out of 152 stocks in the Medical – Pharmaceuticals industry. It has a B grade for Growth and Sentiment. Click here to see PFE’s Value, Momentum, Stability, and Quality ratings.
Stock #2: Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates through two segments: Innovative Medicine, and MedTech.
On July 30, 2024, JNJ announced that the FDA approved DARZALEX FASPRO in a quadruplet regimen for newly diagnosed, transplant-eligible multiple myeloma patients. The regimen, combining DARZALEX FASPRO with bortezomib, lenalidomide, and dexamethasone, showed a 60% reduction in disease progression or death.
On July 11, 2024, JNJ announced the acquisition of Yellow Jersey Therapeutics for $1.25 billion, gaining the rights to NM26, a Phase 2-ready bispecific antibody for atopic dermatitis. NM26 targets two key pathways in the disease, aiming to enhance treatment options.
In terms of the trailing-12-month EBITDA margin, JNJ’s 35.85% is 483.7% higher than the 6.14% industry average. Likewise, its 69.43% trailing-12-month gross profit margin is 21.63% higher than the 57.08% industry average. Additionally, its 27.90% trailing-12-month EBIT margin is considerably higher than the 2.16% industry average.
During the second quarter that ended June 30, 2024, JNJ’s reported sales increased 4.3% year-over-year to $22.45 billion. Similarly, its gross profit increased 3.5% from the year-ago value to $15.58 billion. Moreover, the company’s adjusted net earnings rose 1.6% and 10.2% from the prior year’s quarter to $6.84 billion and $2.82 per share, respectively.
For the quarter ending September 30, 2024, JNJ’s revenue is expected to increase 3.7% year-over-year to $22.14 billion. Its EPS for the quarter ending December 31, 2024, is expected to increase 1.2% year-over-year to $2.32. It surpassed consensus EPS estimates in each of the trailing four quarters. JNJ’s stock has gained 9.1% over the past month to close the last trading session at $159.45.
JNJ’s POWR Ratings reflect a robust outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Quality. It is ranked #19 in the same industry. To see JNJ’s additional grades for Growth, Momentum, and Sentiment, click here.
Stock #1: AbbVie Inc. (ABBV)
ABBV discovers, develops, manufactures, and sells pharmaceuticals worldwide. It offers a diverse range of pharmaceutical products, including treatments for autoimmune diseases, dermatology, rheumatology, oncology, neuroscience, eye care, gastroenterology, and endocrinology. Some of the products in its portfolio are HUMIRA, SKYRIZI, and RINVOQ.
In terms of the trailing-12-month gross profit margin, ABBV’s 69.52% is 21.8% higher than the 57.08% industry average. Likewise, its 43.40% trailing-12-month asset turnover ratio is significantly higher than the 1.05x industry average. Additionally, its 32.35% trailing-12-month EBIT margin is considerably higher than the 2.16% industry average.
ABBV’s net revenues for the fiscal second quarter ending June 30, 2024, increased 4.3% year-over-year to $14.46 billion. Its operating earnings for the period were $4 billion, and its adjusted earnings after tax were $4.71 billion. Additionally, its adjusted EPS was $2.65.
Analysts expect ABBV’s revenue for the quarter ending September 30, 2024, to increase 2.4% year-over-year to $14.27 billion. Its EPS for the quarter ending December 31, 2024, is expected to grow 5.7% year-over-year to $2.95. Over the past nine months, ABBV’s stock has gained 33% to close the last trading session at $187.83.
It’s no surprise that ABBV has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system.
It has a B grade for Growth, Value, Stability, and Quality. It is ranked #6 in the Medical – Pharmaceuticals industry. Beyond what we stated above, we also have given ABBV grades for Momentum and Sentiment. Get all the ABBV’s ratings here.
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JNJ shares were trading at $159.05 per share on Wednesday afternoon, up $0.08 (+0.05%). Year-to-date, JNJ has gained 3.07%, versus a 10.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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