With the stock market hitting all-time highs, many investors are starting to wonder which sectors still hold value. Although seeming rich, the market continues climbing a wall of worry to print these record highs, and many Wall Street strategists are loath to sell here or start shorting stock. One area that makes sense for growth investors is the large cap pharmaceuticals, and in a new report from Jefferies, one top U.S. company moves to number one on the firm’s top picks list.
While the red-hot market has not left the pharmaceutical sector behind, it hasn’t scored the gains some other areas have. This leaves room for growth investors with capital to put to work, a sector that still may have some strong upside remaining.
Here are some the top pharmaceutical stocks to buy now at Jefferies. We screened for stocks trading in U.S. dollars.
AbbVie Inc. (NYSE: ABBV) jumps to the top of the Jefferies list to become the new number one pick. The company was at the center of the issues that hit Gilead, and it was sold-off extremely hard, which the Jefferies analysts feel gives investors a perfect entry point to buy the stock. Pharmacy managers are taking sides on which hepatitis C drugs they will be offering to patients based on the discounts provided by the companies making the drug. In effect, it becomes somewhat of a price war, and price wars ultimately can evaporate earnings. The Jefferies team is very positive on the stock, citing numerous drivers, which they dub an “iceberg” of positive catalysts for the stock in 2015 and beyond, especially after the sell-off.
AbbVie investors are paid a very solid 3.2% dividend. The Jefferies price target for the stock is a whopping $80. The Thomson/First Call consensus price target is $68.64. AbbVie closed Friday at $61.30, up almost 4%.
Eli Lilly & Co. (NYSE: LLY) has faced some of the more negative stock coverage from Wall Street, and some analysts may have overfocused on patent expirations on key products, which has kept enthusiasm muted on the stock. Eli Lilly and partner Boehringer Ingelheim recently received FDA approval for Glyxambi (Jardiance/Tradjenta) tablets for use as an adjunct to diet and exercise to improve glycemic control in adults with type II diabetes. The FDA approval of Glyxambi helps to make up for the loss of revenues from the genericization of drugs like Cymbalta and Evista, which hurt fourth-quarter earnings.
Investors are paid a 2.8% dividend. The Jefferies price objective is raised to $87. The consensus is lower at $75.06. Eli Lilly closed Friday at $71.88 a share.
Pfizer Inc. (NYSE: PFE) now moves down to the number two slot on the top picks list at Jefferies. The company rocked Wall Street recently by announcing a gigantic $15.2 billion purchase of Hospira. Hospira shareholders will be paid $90 a share. Hospira is a top provider of sterile injectable drugs, including those used for acute care and cancer treatment, as well as infusion technologies and biosimilars, which are subsequent versions of drugs with patents that have expired. In other recent solid news for Pfizer, the company’s drug Ibrance was approved for advanced breast cancer by U.S. regulators more than two months ahead of schedule, letting the drug maker proceed with one of its most promising new blockbusters, a turn-of-events the Jefferies team likes.
Pfizer investors are paid a solid 3.2% dividend. The Jefferies price target is raised to $42, and the consensus target is posted at $35.83. Pfizer closed Friday at $34.56.
Zoetis Inc. (NYSE: ZTS) focuses on the discovery, development, manufacture and commercialization of animal health medicines and vaccines for livestock and companion animals worldwide. The company has a top initial public offering two years ago and essentially traded sideways until breaking out back in November of last year. At the end of the year, it was one of the largest holdings in activist investor Bill Ackman’s Pershing Square hedge fund. The fund upped its stake in the company by 36.03 million shares to 41.57 million shares. Recently, the company announced that it completed the acquisition of the animal health assets of Abbott Laboratories.
Zoetis investors are paid a small 0.7% dividend. The Jefferies price target is $53, and the consensus price objective is $48.83. Shares ended the trading day on Friday at $45.60.
For investors looking for ideas, the pharmaceutical stocks may hold better upside potential now. Plus, should the inevitable sell-off come, they should hold their own better than momentum growth.