PFE & ABBV: Potential to Outperform SPX Over the Next Decade

As the $.SPX(.SPX)$ approaches its all-time high, some undervalued components like $Pfizer(PFE)$ $AbbVie(ABBV)$ are flying under the radar. Both of these healthcare stocks boast dividend yields over 3% and are poised for further increases, making them likely candidates to outperform the S&P 500 in the next decade.

1. $Pfizer(PFE)$

Last December, Pfizer raised its dividend for the 15th consecutive year, with a current yield of 5.8%. Even without additional hikes, this stock can provide substantial passive income. With many new patented drugs in the pipeline, investors can reasonably expect steady quarterly dividend increases for at least the next ten years.

In 2023, Pfizer acquired Seagen for approximately $43 billion, bringing four cancer therapies into its portfolio. At the time of acquisition, these therapies had annual sales of $2.6 billion, which have since risen to $3.3 billion.

Management projects Seagen’s therapy sales could exceed $10 billion by 2030, fueled by even more growth drivers. In 2023, the FDA approved nine new drugs for Pfizer, and as of July 30, the company had 65 experimental drugs in clinical trials.

Currently, Pfizer's dynamic P/E ratio is just 11, while its extensive R&D pipeline remains undervalued compared to its substantial growth potential.

2. $AbbVie(ABBV)$

AbbVie’s current dividend yield is 3.2%, slightly lower than Pfizer's, but the company expects rapid growth in quarterly dividends over the next decade. At first glance, AbbVie’s adjusted earnings fell 9% year-over-year in Q2, which might seem alarming, but a deeper analysis reveals that the best days are still ahead.

The decline in performance is primarily due to the loss of patent protection for its blockbuster drug, Humira, in the U.S., causing sales to drop from $21.2 billion in 2022 to an annualized $11.3 billion in Q2. While Humira continues to affect overall profits, the worst is over. The company is wisely reinvesting past profits into new product development, resulting in a 4.3% year-over-year total revenue growth in Q2.

AbbVie’s new leading drug, Skyrizi, is compensating for the loss of Humira. Launched in 2019, this psoriasis treatment has achieved annualized sales of $10.9 billion. In the same year, AbbVie introduced Rinvoq, a rheumatoid arthritis drug, which saw Q2 sales surge 55% to an annualized $5.7 billion. AbbVie expects combined sales for these two drugs to exceed $27 billion by 2027. Additionally, its Botox product is gaining popularity for both cosmetic and therapeutic uses.

AbbVie’s dynamic P/E ratio stands at around 17.9. While this is higher than most pharmaceutical companies, its growth potential justifies the premium.