Pharmaceutical stocks have been sizzling hot this year. The defensive nature has gotten a boost, propelled by expectations for a vaccine and other therapies to treat the novel coronavirus. Pharmaceutical giant Pfizer (PFE Stock Report) announced on Friday it would seek emergency authorization use from regulators in the U.S. in a few weeks’ time, assuming positive results from its vaccine candidate jointly developed with BioNTech (BNTX Stock Report). For this reason, the global stock markets made gains worldwide today amid a coronavirus vaccine breakthrough this year.
“A vaccine will be broadly available from the second quarter of next year, with markets moving to price in the economic benefits well ahead of that,” said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management.
Of course, fresh stimulus hopes were also one of the reasons why US stocks were trading higher during the pre-market today. This comes after President Donald Trump said he wanted a bigger stimulus package for the general public. On top of that, investors across the Pacific also took comfort in China’s economic recovery in the third quarter as consumers shook off their caution. While the rebound wasn’t as strong as many would have hoped, it was still a decent 4.9% year over year. The worst of the pandemic seems to be over pretty soon.Why Invest In Pharmaceutical Stocks?
Pharmaceutical stocks have been all over investors’ minds for obvious reasons. This investment thesis centered around potential vaccines, treatments, and testing kits related to COVID-19. Despite a reputation of being high risk, top pharmaceutical stocks can be compelling for long term investors. Since its 2006 inception, the SPDR S&P Pharmaceuticals ETF (XPH Stock Report), an exchange-traded fund that focuses on the pharmaceutical industry, has delivered a significantly higher total return than the S&P 500 index.
But determining which pharma stock is a good investment over another can be tricky. So how should investors evaluate opportunities in an industry dependent on outcomes as unpredictable as drug approvals? The top pharmaceutical stocks to watch continue to create major headlines, with potential treatments and vaccines for COVID-19. According to industry experts, a number of vaccines and therapeutics are expected to become widely available within the first half of 2021. Now that we are just over two months away from 2021, should investors be looking for the best pharmaceutical stocks to buy right now?
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Biogen (BIIB Stock Report) is slated to report its quarterly earnings on October 21 before the opening bells. The company’s focus is to treat neurological disorders, like Parkinson’s disease and multiple sclerosis. You could say that the company hasn’t had a good year after facing some generic competition in some of its drugs and an ongoing legal battle over the validity of its patent protection. Despite all the setbacks, investors could breathe a sigh of relief knowing that the stock price could already reflect these risk factors.
Biogen expects to generate up to $14.2 billion in revenue and $34 in EPS for the whole of 2020. That is about the same amount as the $14.4 billion in revenue and $31.42 in EPS it achieved last year. When you consider the fact that the company’s market cap is only $45.4 billion, that means Biogen has a P/S ratio of 3.4 times and a P/E of 8.4 times. Good value indeed.
Even if we assume the generic competition will cost Biogen’s revenue and earnings by one-third, the company’s price multiples will only increase to 5.1 times sales and 12.6 times earnings. It appears that the valuation is reasonable even in a worst case scenario. It seems to me that the negative news has already been reflected in the share price. So perhaps there is no need to sweat over it. Besides, Biogen has a stellar balance sheet with $5.3 billion in cash and marketable securities. That is more than sufficient to cushion any unforeseen expenses. Furthermore, a panel of specialists from the FDA will be reviewing Biogen’s aducanumab in November. That is Biogen’s drug candidate to treat Alzheimer’s disease. If there is positive news, BIIB stock will be in position for take off.Top Pharmaceutical Stocks To Watch: Vaxart
Some people may consider Vaxart (VXRT Stock Report) a biotech stock instead of a pharmaceutical stock. But let’s not get bogged down by semantics. VXRT stock outperformed the S&P 500 in September. In fact, the company’s vaccine has something that other leading candidates don’t; the vaccine comes in oral form. Now, vaccine shots are typically most effective because of faster absorption because muscles have a greater blood supply and can hold a greater volume of medication. Yet, the pain and discomfort of injections cause fear in many people. Which is why there may be a role for an oral vaccine. Investors looking for stocks with high potential growth may want to include VXRT stock on their watchlist.
The other advantages of oral vaccines are the ease of storage and transportation. The importance of these factors can’t be overstated when we are in a pandemic. After all, it is crucial to distribute the vaccine as fast as possible. All these points in favor of Vaxart’s COVID-19 vaccine candidate. On September 14, the company said that the FDA had allowed it to begin a phase 1 clinical study for its candidate. The news drove Vaxart’s stock up.
For investors looking for a short-term flip, VXRT stock appears to be a good one to bet on. That’s due to its significantly smaller market cap compared to other vaccine candidates. This is in addition to several potential catalysts, which include the efficacy data from a study of its experimental coronavirus vaccine candidate on hamsters. There’s a great chance where investors could bid up VXRT stocks in the short-term. However, that is not without risks. Certainly, any positive news could serve as a catalyst to Vaxart. But anything which smells even slightly negative will send VXRT stock tumbling. With that in mind, would VXRT stock be a top pharmaceutical stock to watch?Top Pharmaceutical Stocks To Watch: Bristol Myers Squibb
Major drugmakers Bristol Myers Squibb (BMY Stock Report) is another pharmaceutical stock to watch for amazing growth opportunities. The company is getting a big boost from several products it gained with the acquisition of Celgene. These include blockbuster cancer drugs Revlimid, Pomalyst/Imnovid, and Abraxane, plus newer market entrants such as multiple sclerosis drug Zeposia and anemia drug Reblozyl.
The drugmaker has many newer drugs and late-stage pipeline candidates. And the value creation milestones with the pipeline make BMY stock one of the best pharmaceutical stocks to watch. Potential blockbusters in the near future include multiple sclerosis drug Zeposia. The company is also eyeing for potential quick approval for CAR-T cell therapies ide-cel after the U.S. FDA accepted the Biologics License under priority review. Meanwhile, liso-cel has faced delays. The new PDUFA date is Nov. 16. Under CVR terms, liso-cel must be approved by Dec. 31. Should both drugs be approved, investors could expect the company to generate annual sales of $2 billion or more.
All in all, Bristol Myers Squibb seems like a good long-term value stock with an attractive dividend, cheap valuation, and has room for plenty of upside down the road. What’s more, Bristol Myers Squibb offers a dividend yield of just over 2.9%, not a bad deal at all. The company has been consistent with paying dividends. BMY stock also appears to trade at a reasonable valuation. At a time when some stocks trade at triple-digit earnings multiple, Bristol Myers Squibb trades at just eight times expected earnings. Is BMY stock a steal at this price?