Dividends & Value: Pharma Stocks Soaring Ahead
There are plenty of reasons to choose pharma stocks for your long-term portfolio. First off, they've got a low beta, meaning they're less sensitive to economic ups and downs, which helps reduce the volatility of your over-allocated growth stock portfolio.
And at the same time, solid, mature pharma companies have stable cash flows, allowing them to consistently create value through dividends. If you add a little undervaluation to that, it's the perfect combo for pharma stocks to outperform indices in the long run.
1. $Pfizer(PFE)$
With COVID-19 vaccine sales slipping and a looming patent cliff, Pfizer shares are now at their peak of pessimism, with the gap between the stock's valuation and intrinsic value widening. But hey, those negatives are already priced into this stock.
Over the past 12 months, this biopharma stock has corrected nearly 30%, and it's currently trading at a forward P/E ratio of 11.8. Plus, it offers a dividend yield of 6%. Even more importantly, the company has 113 molecular entities in its pipeline, 37 candidates in phase III, and 3 products in the registration phase.
And Pfizer hasn't been sitting idle. It's made several acquisitions in the past 12-18 months, including the December 2023 acquisition of $Seagen(SGEN)$ , which makes the company a leader in oncology.
2. $Merck(MRK)$
Merck shares have gained 18% in the past 12 months, but the valuation still remains attractive, along with a dividend yield of 2.36%. Driven by its oncology and vaccine businesses, the company reported Q1 2024 sales growth of 9% to $15.8 billion in 2024, of which oncology sales are expected to reach $20 billion by the mid-2030s.
Merck currently has 80 projects in phase II, 30 in phase III, and 10 under review. The company reported Q1 R&D expenses of $4 billion.
3. $AstraZeneca PLC(AZN)$
AstraZeneca shares have gained 17% this year, but this pharma stock is still undervalued, with a dividend yield of 2.5%. The biopharma company reported 2023 revenues of $45.8 billion in 2023 and a revenue target of $80 billion by 2030, with operating margins also rising to about 35%.
AstraZeneca has 182 projects in its pipeline, 19 new molecular entities in the late stages, so its guidance of launching 20 new molecular entities by 2030 is quite feasible.
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