One thing that crept on the radar screen last week is that after eight years of a bull market, five of which are of the secular variety, after the S&P 500 broke through the 1,500 level in 2013 for a clear breakout to new highs, volatility finally is creeping back in. With interest rates once again dropping as the geopolitical worries ratchet up, investors are concerned about owning good stocks and receiving dependable dividends. One place that looks very good now is pharmaceuticals.
After being under fire for some time, many investors are starting to look at big cap pharmaceutical stocks as almost a safe haven, and with the potential for any big changes to drug pricing at least in the near-future very limited, the sector offers some of the best value.
A new Jefferies report highlights top global picks, and here we focus on those and other domestic stocks that are rated Buy.
This stock is one of the top pharmaceutical stocks picks across Wall Street and is the number one global pick at Jefferies. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.
One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. Last year, the patent board instituted Coherus BioSciences’ Inter Partes Review against the Humira ‘135 patent. The problem with Humira is that biosimilars and generics are itching to enter the market. The Jefferies report said this:
Consensus models almost a “worst case” scenario of a 2018/19 biosimilar entry in the US, where we assume 2022. We see $2 to $4 downside on a discounted cash basis for a worst case mid-2018 launch. We see up to $15 upside if biosimilars are delayed until 2022. The ‘135 dosing patent is not the only barrier to US biosimilars, as many other blocking patents are currently in force. However, if upheld, it implies we are unlikely to see US biosimilars prior to the second half of 2022.
AbbVie shareholders receive a 4% dividend. The Jefferies price target for the stock is a whopping $90, while the Wall Street consensus target is at $71. Shares closed most recently at $64.13.
This top pharmaceutical stock has very solid growth potential and income, and the shares are down over 5% since early March. Abbott Laboratories (NYSE: ABT) is a leading diversified global health care company that develops, manufactures and markets branded generics, medical devices, nutritional products and diagnostic solutions. It offers a diversified large cap play as earnings are split between five well-positioned business segments: Nutritionals (31% of revenues), Vascular (13%), Generic Pharmaceuticals (20%) and Diagnostics (25.5%) and Diabetes (10.5%).
The company announced last Friday it has agreed to buy Alere at a lower price than it had previously offered, after raising concerns about the accuracy of various representations, warranties and covenants made by Alere in the earlier agreement. Abbott will now pay $51 per share, compared with its earlier offer of $56.
Abbott investors receive a 2.48% dividend. Jefferies has a $50 price target, and the consensus target is $47.23. Shares closed most recently at $42.40. The stock goes ex-dividend on April 11.