One of the downsides to a market that seems to go up every day is knowing what stocks to own or sell as the market chugs higher. One strategy for investors to consider is keep a weighting of defensive stocks to buy in their portfolios. The large cap pharmaceutical sector fits the bill perfectly with a blend of growth and dividends. Merrill Lynch has highlighted the strengths of the major pharmaceutical stocks and analyzed their prospects going forward.
In a close examination of their stocks to buy, Merrill Lynch analysts sought to (1) point out possible product launches and (2) highlight important milestones, including potential threats for the companies in their coverage universe. The firm also summarized quarterly growth and margin trends and provided a valuation snapshot for each company. Here are the stocks to buy from Merrill Lynch.
AbbVie Inc. (NYSE: ABBV) seems to be on the radar at most major Wall Street firms, despite the fact that 50% of all revenues are from one drug (Humira). Merrill Lynch is bullish on the stock given its attractive valuation, above-average dividend yield, and the potential for the pipeline to deliver a blockbuster hepatitis C (HCV) franchise over the medium term. Their price target for the stock is $49. The Thomson/First Call consensus target is $45.50. Investors are paid a 3.60% dividend.
Bristol-Myers Squibb Co. (NYSE: BMY) is a stock to buy. Merrill Lynch analysts do have some concern over the pipeline of future products. They believe that pipeline setbacks could pressure the stock, but a solid dividend yield should limit downside risk. The Merrill Lynch price objective for the stock is $45. The consensus target is much lower at $38. Investors receive a 3.50% dividend.
Eli Lilly & Co. (NYSE: LLY) is considered a “sum-of-the parts” stock to buy. Continued strong cash flow generation, a focus on shareholder return through a stable dividend, expense control and potential for positive pipeline news could improve sentiment over time and lead to multiple expansion. The Merrill Lynch price target is $65. The consensus is, again, much lower at $57. Shareholders are paid a 3.60% dividend.
Merck & Co. Inc. (NYSE: MRK) is a stock to buy with characteristics similar to the Eli Lilly story. Merrill Lynch analysts are looking for continued strong cash flow generation, focus on shareholder return through a stable dividend (with potential for growth) and share buybacks, and potential for positive pipeline news could improve sentiment over time and lead to multiple expansion. The Merrill Lynch price target for the stock is $53, while the consensus is at $51. Investors are paid a 3.80% dividend.
Pfizer Inc. (NYSE: PFE) rounds out the list of large cap stocks to buy. With a solid current revenue base and a growing pipeline, Pfizer may have the most potential of the stocks to buy. The Merrill Lynch price target is $33. The consensus is $32. Shareholder are paid a 3.30% dividend.
While the Merrill Lynch report did not assess macro issues, which can play an important role in driving stock performance, it was very helpful for company-specific analysis. Combining strong growth potential with consistent and possibly rising dividends, make large cap pharmaceutical stocks a good bet for any portfolio.