Chronicle Journal: Finance

3 Pharmaceutical Stocks to Buy & Hold for the Rest of the Year

As COVID cases exceed 7.5 million in the US and most states seeing an increase, fears of the second wave are rising. The demand for treatment or a vaccine is higher than ever. That fear and an aging population have pharmaceutical stocks such as Abbott Laboratories (ABT), Novo Nordisk (NVO), and Zoetis Inc. (ZTS) poised for long-term gains.

The pharmaceutical industry has been seeing impressive growth amid the rising global demand for COVID-19 vaccine and/or antiviral therapies. In addition, an aging population in the United States has resulted in growing expenditures on medicines. The latest projection by the Center for Medicare and Medicaid Services (CMS) indicates that the overall medical expenditure in the United States would rise at an average rate of 5.5% over the next decade. Plus, the emergence of rare diseases and a climb in the overall per capita income in the United States would primarily contribute to the expansion of the sector.

The pharmaceutical industry includes companies involved in drug research and development, as well as the promotion and sales of their products. Being defensive in nature due to an almost inelastic demand for drugs, these stocks are appealing to investors amid rising volatility.

 

In addition to market volatility, which makes pharmaceutical stocks attractive now, the industry’s recent price performance looks enticing as well. The VanEck Vectors Pharmaceutical ETF (PPH), which represents companies involved in the pharmaceuticals sector, returned close to 50% since hitting its low in mid-March, versus the S&P 500’s 30.3% gain.

Therefore, it would be a smart move to consider investing in Abbott Laboratories (ABT), Novo Nordisk A/S (NVO), and Zoetis, Inc. (ZTS). Each of these stocks has a strong business model and is poised for fundamental growth.

Abbott Laboratories, Inc. (ABT)

ABT is a diversified healthcare company that is involved in the research and development of branded generic pharmaceuticals and diagnostic services. The other innovative areas of focus for the company are medical devices and nutrition science. Besides the Americas, ABT has expanded its operations across Europe, Asia Pacific, Greater China, Middle East, and South Africa.

ABT is betting big time on the coronavirus diagnostic market. Over the past few months, ABT has launched six COVID-19 tests. Each of them is different from the other as the company is continuously implementing new research findings regarding the deadly virus. Out of these tests, a $5 COVID-19 test, BinaxNOW, declares the result in 15 minutes. This rapid antigen test has also been approved by the FDA.

In the second quarter that ended June 2020, ABT saw an 8.2% year-over-year decline in revenue. However, out of the $7.3 billion revenue, COVID-19 diagnostic testing sales contributed $615 million. The COVID-19 related products were the major growth drivers for the quarter. ABT’s rapid diagnostic revenue climbed 9.6%, while its Molecular diagnostic segment revenue surged 233.6% year-over-year.

ABT’s EPS for the second quarter stood at $0.57, which is 30.5% lower than that of the previous period. However, EPS surpassed the consensus estimate by 36%. Street estimates the EPS for the third quarter to be $0.89, which indicates a year-over-year increase of 7.1%. Meanwhile, the revenue is expected to increase 5.2% to $8.49 billion, on the back of increased sales from COVID-19 diagnostic tests.

The stock has gained 26.2% year-to-date to close Friday’s session at $109.65. Rising demand for rapid and accurate diagnostic tests as well as the COVID-19 vaccine are fueling growth. The stock has climbed over 27% in the last six months.

How does ABT stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

B for Industry Rank

A for Overall POWR Rating

The stock is also ranked #1 out of 239 stocks in the Medical - Pharmaceuticals industry.

Novo Nordisk A/S (NVO)

NVO is a Denmark-based pharmaceutical company that primarily focuses on the treatment of diabetes. It also specializes in the medical care of obesity, endocrine disorders, as well as rare blood-related diseases such as hemophilia. The company, which has operations across eight countries, has entered into partnerships with various companies and institutions to develop a treatment for Parkinson's disease, dyslipidemia, and other genetic diseases.

NVO raised its full-year 2020 revenue growth outlook to 5%-8%, compared to the previous growth outlook of 3%-6%. For the third quarter of 2020, the company’s revenue climbed 7% year-over-year on the back of inventory changes at the wholesale level in the United States. NVO’s operating profit also rose 7%. Overall, the upbeat results highlight the rising market demand and the minimal adverse impact of the COVID-19 on its business. The company’s full disclosure is expected on October 30th.

In the first half of 2020, NVO posted a 7% year-over-year rise in its sales to DKK 63.8 million, fueled by GLP-1, Obesity treatment, and Biopharmaceuticals. The company’s international operations surged 12% during the first six months. The street expects the EPS for the quarter that ended in September to grow 10.9% year-over-year.

NVO closed Friday’s trading session at $72.07, gaining 24.5% year-to-date. Having the leading position in hemophilia, diabetes, and obesity care has contributed to the momentum of the stock. According to industry reports, the global Insulin API market is set to reach $2.12 billion by 2024 at a CAGR of 4.2%, wherein NVO is one of the dominant players. The stock is up more than 20% in the last six months and is trading 0.33% below its 52-week high of $72.31.

NVO’s POWR Ratings reflect this strong momentum. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade. Its Industry Rank has a grade of “B”. Among the 239 stocks in the Medical - Pharmaceuticals industry, it’s ranked #2.

Zoetis Inc. (ZTS)

ZTS is a leading pharmaceutical company dedicated to animal healthcare. The company is involved in discovering, manufacturing as well as marketing vaccines, medicines, as well as diagnostic services for animals. ZTS also offers precision farming for livestock, as well as genetic tests. The company caters to the medical and vaccination needs of farm and companion animals in 100 countries across the world.

ZTS focusses its growth on new product launches. Since the end of the June quarter, the company has been introducing many new products in the market. Its Vanguard® B Oral vaccine for preventing kennel cough in dogs received approval in Brazil. At the same time, its Fostera® Gold PCV MH vaccine for reducing symptoms associated with porcine circovirus (PCV2) and Mycoplasma hyopneumoniae (M. hyo) in pigs, was also approved in Australia.

Revenue for the second quarter remained flat at $1.5 billion compared to the prior-year period. The US segment revenue of ZTS climbed 6%, wherein the sales of companion animal products increased 19% fueled by the Simparica® franchise. The impact of COVID-19 has been mixed on ZTS. The demand for beef and dairy declined, but there was a rise in preference for poultry as consumers chose less expensive protein.

EPS stood at $0.79, up 3% year-over-year. For the third quarter, the consensus revenue estimate of $1.62 billion indicates a 2.6% increase year-over-year, while EPS is expected to decline 3.2% to $0.91. ZTS declared a fourth quarter 2020 dividend payable to holders of the company’s common stock of $0.20 per share. The dividend will be paid on December 1st, 2020.

The stock has gained nearly 25% year-to-date to close Friday’s trading session at $165.43. The stock has increased by more than 28% in the past six months. ZTS stock has seen strong momentum since July, after it acquired Fish Vet Group, a company specializing in diagnostics and vaccination for aquaculture.

ZTS’s promising outlook is reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” in Trade Grade, Buy & Hold Grade, and Peer Grade, and a “B” in Industry Rank. Within the Medical - Pharmaceuticals industry, it’s ranked #3 out of 239 stocks.

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ABT shares were trading at $110.82 per share on Monday afternoon, up $1.17 (+1.07%). Year-to-date, ABT has gained 29.17%, versus a 11.47% rise in the benchmark S&P 500 index during the same period.



About the Author: Namrata Sen Chanda

Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education.

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