Tuesday’s big downward move reminded everybody that while things look encouraging for the stock market long term, momentum stocks tend to get absolutely eviscerated when a big volatility jump helps to move the stock market down. A new research report from SunTrust Robinson Humphrey is very positive on pharmaceuticals, and the analysts expect the sector to outperform this year.
The SunTrust team specifically mention a strong new product cycle, an attractive five-year growth rate, the fact that the sector is underowned as a percentage of the S&P, and favorable anticipated performance in what should begin to be a rising interest rate world. The sector is already outperforming the overall S&P year-to-date, and the positive total return potential makes very good sense for long-term investors.
The four top pharmaceutical stocks to buy now are Bristol-Myers Squibb Co. (NYSE: BMY), Eli Lilly & Co. (NYSE: LLY), Merck & Co. Inc. (NYSE: MRK) and Shire PLC (NASDAQ: SHPG).
This is a top large cap stock preferred at SunTrust. In late December, the U.S. Food and Drug Administration (FDA) granted accelerated approval to Opdivo (nivolumab), a new treatment for patients with unresectable (cannot be removed by surgery) or metastatic (advanced) melanoma who no longer respond to other drugs. Many analysts are bullish on the drug and look for more updates and launch information to be forthcoming soon. With a host of additional pipeline candidates, the stock makes good sense at current levels.
Bristol-Myers investors are paid a 2.25% dividend. The SunTrust price target for the stock is $70. The Thomson/First Call consensus target is much lower at $64.67. Shares closed trading Tuesday at $65.53.
Facing some of the more negative stock coverage from Wall Street, and some analysts who have overfocused on patent expirations on key products, has kept enthusiasm muted on this 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 2 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 2.9% dividend. The SunTrust has an $80 price target. The consensus target is lower at $75.06. Shares closed Tuesday at $68.78.
Because Merck has been hit hard since printing a high in late January, it may be offering new investors a very good entry point. It also remains a leading health care company that is on the focus lists of many of the top firms we cover. The company’s numerous prescription medicines, vaccines, biologic therapies and consumer care and animal health products are provided to customers in more than 140 countries.
Many Wall Street analysts feel that company’s purchase of Idenix this past summer for $3.85 billion to acquire its hepatitis C (HCV) pipeline could pay off huge for investors in the future. With many potential catalyst this year, a rebound is a distinct possibility.
The pharmaceutical giant pays shareholders a very solid 3.16% dividend. The SunTrust price target is $72, while the consensus target is $63.85. Merck closed Tuesday at $56.58 a share.
Shire is one of SunTrust’s top picks in specialty pharma. The stock was absolutely destroyed back in the fall when AbbVie made it clear with tax inversion benefits gone that it wanted out of the planned acquisition of the company. Shire had repositioned its business two years ago, undertaking a realignment program with strategic focus on rare diseases and greater operational discipline. Shire has drugs for ulcerative colitis and hereditary angioedema in its portfolio. The company also has the top-selling Adderall XR for the treatment of ADHD.
Disappointed arbitrage accounts blew the stock out at a furious pace back in the fall, and the stock dropped at one point over $100. Shire remains a quality pharmaceutical holding, and it may very well once again become an acquisition candidate. With a host of clinical trials that could prove positive for the company, and a net cash balance sheet, the stock makes good sense for 2015.
The SunTrust price target is $262. The consensus target is posted at $254.71. Shares closed trading Tuesday at $237.88.
Obviously if the stock market has a big correction, pharmaceutical stocks could go down as well. However, the defensive nature of the sector and the strong dividend yields make them appropriate for almost every investor’s account.