Notwithstanding presidential candidate Hillary Clinton’s recent vow to fight the high costs of specialty pharmaceutical stocks (if she’s elected), investors would be wise to start looking at the group as oversold and ripe for a rebound rather than seeing them as being stuck in a downtrend and in jeopardy.
A lot of these pharmaceutical stocks are dirt-cheap, having priced in the worst-case scenario, and then some.
With that as the backdrop, a handful of these names truly stand out as stocks to by while they’re beaten down.
In no particular order, here’s a closer look at the top ten pharmaceutical names bargain-hunting investors may want to mull.
Cheap Pharmaceutical Stocks to Buy: United Therapeutics (UTHR)
Even with the stock’s 25% slide since June, United Therapeutics (UTHR) shares aren’t priced at bargain levels … on a trailing basis. Yet UTHR is worthy of deeming one of the market’s top cheap pharma stocks to buy.
That’s because the past isn’t an indication of the future.
Many investors don’t yet realize it, but the mid-2014 launch of hypertension drug Orenitram is still picking up steam. United Therapeutics drove $25.8 million in sales of the drug last quarter, which isn’t bad at all for a new drug in a fairly crowded market. In the meantime, Unituxin has been approved by the EU for pediatric neuroblastoma.
Point being, the company is getting drugs on the market.
Although the portfolio is all nickels and dimes, those nickels and dimes are adding up fast. Analysts are calling for solid double-digit growth next year, establishing a very affordable forward-looking price-to-earnings ratio of 14.9 based on the next four quarters.
Cheap Pharmaceutical Stocks to Buy: Merck (MRK)
It’s a predictable name to find on a list of pharma stocks to buy, almost to the point of being cliche.
But if the shoe fits …
And just for the record, Merck is in the habit of topping estimates, meaning that projected valuation still might not be optimistic enough.
The clincher/catalyst is the recent update on a phase 3 trial of pembrolizumab; you may know it better Keytruda. It was the United States’ first-ever FDA-approved anti-PD-1 (programmed death receptor 1) cancer treatment, approved for melanoma. However, Merck is trying the impressive drug in nine other cancer trials, and plans on updating the market on those trials’ progress this weekend.
Cheap Pharmaceutical Stocks to Buy: Taro Pharmaceutical Industries (TARO)
Not every worthy pharmaceutical stock has to be a household name. Take Taro Pharmaceutical Industries (TARO), for instance. Most investors have never even heard of it … but they are missing out on some incredible growth as a result.
For perspective, the company’s top line grew from $671 million in 2012 to $759 million in 2013 to $863 million in 2014 … an average revenue growth rate of more than 13%. This year and 2016 should see sales growth at the same pace.
What’s most amazing and compelling about TARO, however, isn’t necessarily its growth rate. It’s the fact that it has more than 200 marketable product contributing to the top and bottom line. That’s about as much diversity as any pharmaceutical company could hope for.
The biggest reason Taro Pharmaceutical has earned a spot on a list of undervalued stocks to buy, however, is a forward-looking P/E of 11.
Cheap Pharmaceutical Stocks to Buy: Rockwell Medical (RMTI)
With a market cap of only $484 million, Rockwell Medical (RMTI) doesn’t turn a lot of heads.
But maybe this will: Thanks to a 50% pullback since its peak from mid-July, RMTI shares are back to a very palatable forward-looking P/E ratio of 11.8.
Rockwell Medical specializes in kidney disease and anemia. It offers dialysis products and a vitamin D injectable, but its claim to fame is a drug called Triferic, which has been approved by the FDA as an iron replacement product but not yet brought to the market.
It’s on the way, though. In fact, that’s the core reason RMTI deserves a spot on a short list of pharmaceutical stocks to buy now — the new drug is expected to do well, and moreover, it is expected to help push Rockwell Medical into the black by next year.
Cheap Pharmaceutical Stocks to Buy: Teva Pharmaceutical Industries (TEVA)
Yes, sales growth for Teva Pharmaceutical Industries (TEVA) has stagnated since 2012, and yes, Teva may have overpaid for the generic drug business of Allergan (AGN) after Teva failed to make Mylan (MYL) shareholders an offer they liked well enough to have no choice but to take.
So what makes Teva one of the top pharmaceutical stocks to buy at this point in time?
The 15% pullback TEVA shares have suffered since peaking at $72.31 in late July has more than priced all that downside into the stock.
It’s tough to see on the surface, but it’s likely that Teva will do more with Allergan’s generic business — Actavis — than Allergan was able to do with it; the two organizations complement and contrast better than any other acquisition target could have put in its sights. As Migdal Capital Markets biomedical analyst Steven Tepper explained:
“Teva was probably the best-placed company in the world to buy Allergan. The high purchase price is justified by the potentially huge savings it can make through the merger.”
Those savings should be on the order of $1.4 billion per year.
Cheap Pharmaceutical Stocks to Buy: Shire PLC (SHPG)
Don’t misinterpret that as lack of interest from suitors, however. There was far more to the deal than a mere tax break.
And there still is.
Shire is the developer and marketer of a multitude of small-scale specialty drugs. While none of them could be considered blockbusters, that’s the point. Much like Taro Pharmaceutical, SHPG enjoys the fact that few other companies are even attempting to wiggle their way into markets it serves since there’s not enough room for another player, and Shire dominates several key arenas.
The end result — and the reason SHPG is one of only a handful of undervalued pharmaceutical stocks to buy here and now — is an impressive growth trend. The pros are looking for top-line growth of 6% this year and 11% growth next year, with earnings growth in the cards that’s even stronger.
Better still, if Shire PLC manages to nab Baxalta (BXLT) at a fair price, it might surprise a lot of investors how much synergy can be mustered, and how quickly it could materialize.
Cheap Pharmaceutical Stocks to Buy: Mylan (MYL)
Down 40% since April, Mylan (MYL) is one of the worst-performing stocks of the year. That steep selloff, however, has thrust MYL into our list of the market’s more compelling pharmaceutical stocks to buy here.
The pullback, of course, was the result of an ill-fated love triangle between it, Perrigo (PRGO) and Teva Pharmaceutical that ended in a shambles for… well, at least for Perrigo and Mylan.
What’s been obscured by all the headlines regarding who-bought-who and who-didn’t-buy-who is the fact that Mylan is still high-growth stock and a reliable earner.
And to boot, MYL is trading at a plausible forward-looking P/E ratio of 9.5.
Cheap Pharmaceutical Stocks to Buy: Lannett Company (LCI)
Most investors haven’t heard of Lannett Company (LCI). Most investors have, however, probably heard of oxycodone, levothyroxine, butalbital, or hydromorphone (aka Dilaudid).
Lannett Company makes all of them, and more.
They’re all generics now, and as such, aren’t particularly sexy on the surface. All these drugs are cash cows, however, and highly marketable.
More important to current or would-be owners of LCI, however: Lannett growing its business like crazy, selling more and more of what it’s got on the menu, and simultaneously adding new products. Case in point: Earlier this month, Lannett spent $1.2 billion to acquire Kremers Urban Pharmaceuticals, which not only brings a stable of 18 existing drugs to the table, but also another 11 drugs being considered by the FDA right now.
Some have complained that LCI is paying too much for new drugs, but the numbers don’t lie. Next fiscal year, per-share profits are expected to grow nearly 18% on a 26% increase in sales.
The biggest reason of all that Lannett is one of only a handful of drugmaker stocks to buy, however, is its very affordable trailing P/E multiple of 13.1.
Cheap Pharmaceutical Stocks to Buy: AbbVie (ABBV)
One of the risks of owning a stake in AbbVie (ABBV) is the company’s lack of diversity. More than half of the pharmaceutical maker’s revenue is driven by one drug — arthritis drug Humira. Broadly speaking, the best stocks to buy within the pharma arena have at least a little more product diversity than that.
The risk of a lopsided portfolio was underscored with last quarter’s results from AbbVie. For the first time in six quarters, ABBV fell short of sales estimates, largely thanks to a surprising 7.6% dip in Humira’s sales.
While it’s cause for concern, it might not be as bad as the market suspects. CFO Bill Chase spoke to brokers earlier this week, and he made it clear that the company believes Humira will see strong growth in overseas markets, with no biosimilars expected until 2020.
Cheap Pharmaceutical Stocks to Buy: GlaxoSmithKline (GSK)
Last but not least, GlaxoSmithKline (GSK) is arguably the one pharmaceutical stock the market has loved to hate for the longest stretch. GSK shares have been falling since May of last year, and are down a whopping 30%-plus since that peak more than a year ago.
Enough is enough.
To be fair, GlaxoSmithKline is dealing with a sizable dose of portfolio problems, including the recent failure of an inhaled respiratory drug that was in many ways positioning to be one of the mainstays of a turnaround effort from the company. There’s a lot more in the pipeline, though — certainly a lot more than most investors realize.
It’s not a trade for the faint of heart, nor for someone who can’t hold out for a few years as the pipeline matures and the recent acquisition of Novartis’ (NVS) vaccine business starts to pay off. But, with 40 new drugs and vaccines in phase 2 or phase 3 trials right now, the GlaxoSmithKline of 2020 could look nothing at all like the Glaxo of 2015.
In that light, GSK is one of the market’s better-looking pharma stocks to buy at this time.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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