If any proverbial baby has been tossed out with the stock market bath water this year, it’s been the large cap pharmaceuticals. A combination of hot political rhetoric, opportunistic event-driven hedge funds shorting, and specialty pharmaceutical stocks taking a beating has led to one of the safest sectors on Wall Street getting treated like a pariah.
While it’s entirely possible that the political rhetoric on drug pricing could last through the entire election cycle, the fact is the top companies in the sector continue to grow their businesses organically, and they may look to acquisitions to add pipeline and products.
We screened the Merrill Lynch research universe for pharmaceutical stocks paying solid dividends that are rated Buy, and found four outstanding companies.
This top pharmaceutical stock has very solid growth potential. 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 recently agreed to acquire the equity in Minnesota-based Tendyne Holdings that it does not already own for $250 million plus future payments tied to regulatory milestones. Merrill Lynch likes the purchase and the way the company is putting its substantial balance sheet to work.
The company also 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%), Diagnostics (25.5%) and Diabetes (10.5%).
Abbot posted solid third-quarter earnings and the emerging market sales growth continues to impress. Merrill Lynch has advised investors since the August sell-off to stay with the company.
Abbot Labs investors are paid a 2.26% dividend. The Merrill Lynch price target for the stock is $53, and the Thomson/First Call consensus target is $52.12. Shares closed Thursday at $43.50.
This stock is high on the global pharmaceutical lists at many top Wall Street firms, and it is on the Merrill Lynch US1 list. Eli Lilly and Co. (NYSE: LLY) is a global health care company with numerous core products in a number of primary-care pharmaceutical markets. The company generates revenues from its pharmaceutical product and animal health segments.
The product portfolio includes Zyprexa (for schizophrenia and bipolar disorder), Gemzar (pancreatic cancer), Evista (osteoporosis), Cymbalta (depression), Cialis (erectile dysfunction), Strattera (attention deficit hyperactivity disorder, or ADHD), Erbitux (cancer) and Alimta (chemotherapy). Eli Lilly also has a strong presence in the diabetes market.
Third-quarter earnings were above the consensus estimates, but revenues fell a bit short, reflecting some potential generic competition for Cymbalta and Evista in the United States, as well as some negative currency movement. Trajenta, Strattera, Forteo and the animal health business should all help to offset the impact of genericization of former top-selling drugs.
Its new cancer drug Cyramza won FDA approval for label expansion recently, the fourth Cyramza approval in a one-year period. Cyramza has so far generated sales of $67.5 million.
The Merrill Lynch team and other analysts on Wall Street love the company’s product pipeline and point to its solanezumab drug for Alzheimer’s Phase 3 data, which had positive clinical results reported in late July, and Jardiance, the company’s drug for diabetes, CV data, which recently posted very positive clinical results. The recent Phase 3 data on evacetrapib was very solid and just another positive for the company
Shareholders receive a solid 2.61% dividend. The Merrill Lynch price target $104, and the consensus target is $96. Shares closed Thursday at $76.98.
Sponsored: Tips for Investing
A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.