Pharmaceutical stocks can be quite enticing, especially those with promising drug pipelines. However, some of these stocks can be expensive and come with the risk of setbacks. So, instead of placing all your bets on one company, why not consider investing in a few cheap ones?
The Upside and Downside
Let’s take a look at Eli Lilly (ticker: LLY). This company has seen a remarkable 41% rally in the past year and is trading at a hefty 49 times expected earnings per share for the next 12 months. While sales for its Type 2 diabetes treatment, Mounjaro, are projected to skyrocket to $20 billion in 2027, the company’s Alzheimer’s treatment, donanemab, is still going through the trial process. Any disappointment in these endeavors could have a significant impact on the stock.
The Better Bet: Cheap Pharma Stocks
On the other hand, cheap pharmaceutical stocks offer a more attractive option. These companies may have experienced declines in sales due to expiring patents and competition from generics. However, if their new drug candidates receive approval from the Food and Drug Administration, investors can expect higher earnings and, subsequently, stock market gains. Of course, there is always the risk that these candidates may not receive approval. To mitigate this risk, it is wise to diversify your portfolio by investing in multiple cheap companies.
A Basket of Opportunities
Here are four low-cost pharma stocks that trade at forward price/earnings multiples below the median of just under 13 times of the largest nine pharma companies, according to FactSet market-cap data:
- [Company A]: Expected growth potential.
- [Company B]: Exciting pipeline of new drugs.
- [Company C]: Strong prospects for FDA approval.
- [Company D]: Investing in innovation.
By investing in this diversified basket of cheap pharma stocks, you increase your chances of offsetting any potential disappointments while maximizing your gains.
Remember, investing in the pharmaceutical industry requires careful consideration. Evaluate each company’s financials, development pipeline, and potential risks before making any investment decisions.
Bristol Myers Squibb: A Promising Outlook
Bristol Myers Squibb (BMY) has caught the attention of investors as it currently trades at just under eight times earnings. However, concerns about the company’s annual earnings per share (EPS) of just over $8 potentially stagnating or declining have arisen. This worry stems from the impending expiration of patents for several drugs, which currently contribute to an estimated revenue of $46.6 billion this year.
Despite these concerns, there is optimism surrounding Bristol Myers Squibb. The pharmaceutical giant has at least eight new drugs currently undergoing trial results. If successful, these drugs could generate over $30 billion in annual revenue. Jefferies analyst Akash Tewar predicts a potential upside of 32%, with a top price target of $85 for the stock.
One particularly promising drug in development is milvexian, which shows potential as a stroke prevention treatment. This and other robust new product cycles provide a strong foundation for the company’s future success. William Blair analyst Matt Phipps shares this sentiment, stating that Bristol Myers Squibb’s lower valuation compared to its peers makes it an attractive investment opportunity. Phipps rates the stock as a Buy.
Pfizer: Transforming in a Post-Covid World
Pfizer (PFE) currently trades at just under 11 times earnings, with its stock priced at $36 per share. As the Covid-19 pandemic recedes, Pfizer has indicated that its annual vaccine sales will decrease by more than half to just under $14 billion this year out of a total revenue of $67.8 billion.
Despite this decrease, Pfizer remains optimistic about its future prospects. The pharmaceutical giant boasts a pipeline of new drugs, including a promising meningitis treatment. Furthermore, Pfizer is exploring the possibility of combining flu and Covid vaccines to revive its vaccine business. The company estimates that by 2026, more than 130 million Americans could potentially receive this combined vaccine, compared to the 79 million who have received the Covid vaccine alone this year.
While challenges lie ahead for Pfizer, its commitment to innovation and adaptation in a post-Covid world suggests a company poised for growth. Investors may find valuable opportunities in Pfizer’s transformation and potential for future success.
Amgen: A Promising Investment Opportunity
Amgen (AMGN), currently priced at $222, offers a compelling investment opportunity as it trades at just under 12 times earnings. While some of its drugs may experience sales declines, the company is actively working to boost its already impressive $27 billion annual revenue stream. AMG133 and AMG786, two obesity drugs currently in trial phases, have the potential to tap into a market worth over $30 billion annually. Moreover, Amgen’s recent agreement to acquire Horizon Therapeutics (HZNP) for $27 billion is expected to contribute more than $5 to the company’s $18 in annual earnings per share (EPS). Despite the Federal Trade Commission’s attempt to block the deal, Amgen retains the flexibility to pursue other acquisitions or implement stock buyback strategies.
According to Jason Ware, Chief Investment Officer at Albion Financial Group, which holds Amgen stock, there is significant upside potential for the company.
Gilead Science: A Growing Cancer Treatment
Gilead Sciences (GILD) is another attractive investment option, with its current trading price of $76 and a price-to-earnings ratio of under 11. While the company does face challenges with several products experiencing declines, the introduction of Trodelvy, a cancer treatment, is expected to drive substantial growth. FactSet estimates suggest that Trodelvy’s sales could grow from approximately $1 billion this year to $2.7 billion by 2028, leading to an overall increase in sales from below $27 billion to above $30 billion over the same period. Additionally, Gilead Science’s EPS is projected to experience an annual growth rate of about 6%, potentially reaching almost $9 by 2028.