Chronicle Journal: Finance

Warren Buffett is Buying These 4 Pharmaceutical Stocks, Should You?

The pharmaceutical industry is undoubtedly playing a vital role in battling the COVID-19 pandemic. Many pharma companies are delivering huge gains thanks to the heightened demand for their COVID-19-related products. And because the pandemic is nowhere near defeated, Warren Buffett is betting on major pharma stocks Pfizer (PFE), AbbVie (ABBV), Merck & Co. (MRK), and Bristol-Myers (BMY). So, let’s find out if it’s worth emulating the legendary investor.

Known as the “Oracle of Omaha,” Warren Buffett is one of the most successful investors ever, Buffett’s Berkshire Hathaway (BRK.A) recovered all of its pandemic-driven losses in the second quarter of 2021 to hit a record high. BRK.A’s operating income rose 21% year-over-year to $6.69 billion in the second quarter, while its equity investments rose 6.8% from the prior-year quarter to $28 billion. Shares of BRK.A have gained 36.4% over the past year and 25.5% year-to-date, outperforming the broader S&P 500 index’s 32.2% gains and 18.8% returns, respectively.

Buffett has a substantial stake in the pharmaceutical industry. He invested billions of dollars in big pharma stocks last year. The shares of pharma companies rallied powerfully last year on increased demand for therapeutic drugs, supplements, and other remedial needs for COVID-19. According to Statista, approximately $1.27 trillion was spent on medicines in 2020, up from just $887 billion in 2010.

As of September 2020, Berkshire Hathaway had invested $136 million in Pfizer Inc. (PFE) and more than $1.8 billion each in AbbVie Inc. (ABBV), Merck & Co., Inc. (MRK), and Bristol-Myers Squibb Company (BMY). And the  renowned investor’s long-term value investing strategy paid off because these stocks gained significantly. Considering their solid market position and sound financials, we think these four pharma stocks could still be worth buying.

Click here to checkout our Healthcare Sector Report for 2021

Pfizer Inc. (PFE)

PFE develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. In addition, the New York City-based company offers medicines and vaccines in various therapeutic areas.

On July 23, PFE and BioNTech SE (BNTX) announced that the U.S. government had purchased an additional 200 million doses of the Pfizer-BioNTech COVID-19 Vaccine. These doses are expected to be delivered from October 2021 through April 2022. This should allow the company to generate a continuous stream of revenues over the period.

On July 22, Arvinas, Inc. (ARVN) and PFE announced a global collaboration to develop and commercialize ARV-471, an investigational oral PROTAC® (PROteolysis TArgeting Chimera) estrogen receptor protein degrader. This partnership complements PFE’s robust research activities and should accelerate the development and potential commercialization of ARV-471.

PFE’s revenues increased 92% year-over-year to $18.98 billion in its  fiscal second quarter, ended July 4. Its income from continuing operations grew 113.7% from its year-ago value to $5.57 billion, while its net income improved 59% year-over-year to $5.56 billion. The company’s adjusted EPS improved 73% year-over-year to $1.07.

A  $22.24 billion consensus revenue estimate for the fiscal third quarter, ending September 2021 indicates an 83.3% improvement from the same period last year. In addition, analysts expect the company’s EPS to come in at $1.08 in the current quarter, indicating a 49.3% rise year-over-year. Furthermore,  PFE surpassed the Street’s EPS estimates in three of the trailing four quarters. Shares of PFE have gained 34.5% over the past six months and 25.8% year-to-date.

PFE has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

PFE has a B grade for Growth, Value, Quality, and Sentiment. Among the 217 stocks in the Medical - Pharmaceuticals industry, PFE is ranked #11.

Beyond what we’ve stated above, we have also rated PFE for Momentum and Stability. Click here to view all PFE ratings.

Note that PFE is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

AbbVie Inc. (ABBV)

ABBV is a research-based biopharmaceutical company. It researches and develops, manufactures, commercializes, and sells medicines and therapies. It is based in North Chicago, Ill.

On July 27, ABBV and Calico Life Sciences extended  their collaboration to discover, develop, and market new therapies for patients with age-related diseases, including neurodegeneration and cancer. This collaboration should enable the company to strengthen its position in the oncology and immuno-oncology space and enhance its transformative research capacity.

ABBV’s net revenues increased 33.9% year-over-year to $13.96 billion in its  fiscal second quarter, ended June 30. Its operating earnings grew 490.6% from their year-ago value to $4.44 billion. Its  net earnings came in at $766 million, representing  a 203.8% rise year-over-year. The company’s adjusted EPS increased 32.9% year-over-year to $3.11.

The Street expects ABBV’s revenues to rise 11.3% year-over-year to $14.33 billion in the current quarter, ending September 2021. A $3.17 consensus EPS estimate for the current  quarter represents a 12.1% improvement year-over-year. In addition, ABBV surpassed the consensus EPS estimates in each of the trailing four quarters.

Over the past year, ABBV gained 22.7% to close yesterday’s trading session at $115.64. In addition, the stock has gained 9.6% over the past six months.

ABBV has an overall A rating,  which translates to Strong Buy in our POWR Ratings system. ABBV has a B grade  for Growth, Value, Sentiment, and Quality. It is ranked #7 in the  Medical - Pharmaceuticals industry.

To see additional POWR Ratings for Stability and Momentum, click here.

Note that ABBV is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

Merck & Co., Inc. (MRK)

MRK operates as a healthcare company worldwide. The Kenilworth, N.J.-based company operates through two segments: Pharmaceutical and Animal Health. 

On August 11, MRK announced  U.S. Food and Drug Administration (FDA) approval for the combination of KEYTRUDA, Merck’s anti-PD-1 therapy, plus LENVIMA, discovered by Eisai for the first-line treatment of adult patients with advanced renal cell carcinoma (RCC). In July, the FDA approved its VAXNEUVANCE™ (pneumococcal 15-valent conjugate vaccine) to prevent invasive pneumococcal disease. Again, this demonstrates the company’s dominance in the industry.

MRK’s sales increased 22% year-over-year to $11.40 billion in its  fiscal second quarter of 2021. Its non-GAAP net income improved 28% year-over-year to $3.32 billion. The company’s non-GAAP EPS increased 28% year-over-year to $1.31.

Analysts expect MRK’s EPS to increase 13.2% year-over-year to $1.49 in the next quarter, ending December 2021.

Shares of MRK have gained 1.1% intraday to close yesterday’s trading session at $76.04.

It is no surprise that MRK has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The stock also has a B grade for Value, Stability, and Quality. MRK is ranked #17 in the Medical - Pharmaceuticals industry.

To see additional MRK ratings for Growth, Sentiment, and Momentum, click here.

Bristol-Myers Squibb Company (BMY)

New York City’s BMY discovers, develops, licenses, manufactures, and markets biopharmaceutical products worldwide. The company offers products in hematology, oncology, cardiovascular, and immunology therapeutic classes.

On July 30, BMY announced European Commission (EC) approval for Opdivo (nivolumab) for the adjuvant treatment of adult patients with esophageal or gastroesophageal junction (GEJ) cancer. The company is the first to bring adjuvant therapy to patients in the EU with esophageal or gastroesophageal junction cancers who continue to face a high unmet need.

In June  the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) recommended granting Conditional Marketing Authorization for anti-BCMA CAR T cell therapy Abecma (idecabtagene vicleucel) for relapsed and refractory multiple myeloma. If given final approval, this should allow BMY to grow significantly in the near term.

BMY’s revenue increased 16% year-over-year to $11.70 billion in its  fiscal second quarter, ended June 30. Its gross profit stood at $9.25 billion, up 24.5% from the same period last year. Its net earnings grew 1,341.2% from its  year-ago value to $1.06 billion. The company’s non-GAAP EPS increased 18% year-over-year to $1.93.

A $11.55 billion  consensus revenue estimate for its  fiscal third quarter (ending September 2021) indicates a 9.6% increase year-over-year. The Street expects the company’s EPS to rise 18.8% from the prior-year quarter to $1.94 in the current quarter. BMY has an impressive earnings surprise history also; it beat the consensus EPS estimates in three  of the trailing four quarters.

BMY gained 11.5% over the past six months to close yesterday’s trading session at $66.95. The stock has gained 7.8% year-to-date.

BMY has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. In addition, it has an A  grade  for Value, and a B for Growth, Stability, Sentiment, and Quality. It is ranked #5 in the Medical - Pharmaceuticals industry.

Click here to view BMY rating for Momentum and additional details.

Note that BMY is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.

Click here to checkout our Healthcare Sector Report for 2021


PFE shares rose $0.12 (+0.25%) in after-hours trading Friday. Year-to-date, PFE has gained 35.67%, versus a 20.05% rise in the benchmark S&P 500 index during the same period.



About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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