While technology has dominated as the leading sector in the S&P 500 this year, currently up more than 20%, investors may be surprised to learn that pharmaceuticals have shown solid returns as well, up 11% year-to-date and outperforming the overall index. Most of that gain was posted in the first half of the year, as the sector has gained only 0.65% this quarter. With the stock market spiraling ever higher, investors may want to shift some capital to this far more defensive area.
A new report from the pharmaceutical team at Credit Suisse highlights four top stocks to buy for the remaining one-third of 2014. With a market trading at record highs, Credit Suisse analyst Vamil Divan sees the four top stocks rated Outperform at the firm offering investors very favorable risk/reward at current levels.
AbbVie Inc. (NYSE: ABBV) has finally completed its exhaustive pursuit of Shire and reported much better-than-expected growth and sales in Humira, one of its top-selling drugs. Plus, the company has also thrown its hat in the ring in the race of oral interferon-free combination therapies for hepatitis C, and this could be a huge catalyst for the company in the next few years. AbbVie has finished up its Phase 3 clinical-trial program for its all-oral hepatitis C drug cocktail. Its drugs only have to be taken for 12 weeks in most cases and don’t require peginterferon.
Investors are paid a very solid 3.2% dividend. The Credit Suisse price target is $63. The Thomson/First Call consensus figure is higher at $67.13. Shares closed trading on Tuesday at $55.07.
Alkermes PLC (NASDAQ: ALKS) is a top name in health care that many on Wall Street for years have thought to be an acquisition target. The company recently announced the completion of the enrollment of the second Phase 2 study of ALKS 3831, a novel, oral, broad-spectrum antipsychotic medicine in development for schizophrenia. The randomized, double-blind, active-controlled study will assess ALKS 3831’s efficacy, safety and tolerability in treating schizophrenia in patients with co-occurring alcohol use disorder, compared to olanzapine, an approved and widely used atypical antipsychotic medicine.
The Credit Suisse price target for the stock is $56. The consensus estimate is at $50.92. Alkermes closed Tuesday at $44.07 a share.
Bristol-Myers Squibb Co. (NYSE: BMY) announced earlier this summer that its new drug nivolumab plus Yervoy will move to a Phase 3 trial in non-small cell lung cancer by year’s end. Wall Street thinks that is a key data point and the drug could have $500 million in sales in 2016 and $5 billion by 2020. The company is believed to be most advanced in immune oncology given that it has multiple Phase 3 studies underway and is pursuing more combinations than competitors, and mainly with its own assets. Many on Wall Street feel that the probability of success is in the 60% to 70% range. Should the data prove successful, the stock could move nicely higher.
The company pays shareholders a 2.9% dividend. The Credit Suisse price target is $59, and the consensus target for the stock is $53. Bristol-Myers closed Tuesday at $50.58.
ZS Pharma Inc. (NASDAQ: ZSPH) is a stock that may be somewhat unknown to investors, but it ranks high on the Credit Suisse list. ZS Pharma is a specialty pharmaceutical company with a lead therapeutic candidate, ZS-9, used as an investigational treatment for hyperkalemia. The drug is being evaluated in late-stage clinical trials to demonstrate its ability to safely and effectively remove excess potassium from the blood and maintain normal potassium levels. ZS Pharma is also pursuing the discovery of additional drug candidates that utilize its novel selective ion-trap technology for the treatment of kidney and liver diseases.
The Credit Suisse price target for the stock is $54, and the Wall Street consensus target is at $52.50. The stock closed Tuesday at $38.28.
Investors with solid gains from the outstanding market action of the past two years may want to scan their holdings and see if it might be time to take some long-term capital gains. Rotating capital out of higher volatility stocks to the more defensive pharmaceutical sector may make good sense now.