The healthcare sector has dominated headlines this year thanks to promises from the GOP and the Trump administration related to repealing and replacing Obamacare. With the Senate currently working on a reform bill that was passed by the House, healthcare is sure to remain in the news for some time.While investors might think that the uncertainty of this reform would bring volatility into the sector, we’ve actually seen healthcare stocks have a pretty decent year so far. In fact, our overall “Medical” sector is up about 11.2% year-to-date, which outpaces the gains of the S&P 500.
Within this broad sector, one of the better performing industries has been what we call “Large Cap Pharmaceuticals.” This industry includes some of the world’s largest and most recognizable drug making companies.
You can check out the full industry data at the industry page here, but it’s certainly worth noting that this group of businesses currently sit in the top 10% of the Zacks Industry Rank and has returned nearly 13% on the year.
We know that our best stocks are going to come from the best industries, so it’s clear that investors should be considering Large Cap Pharma stocks right now. But which companies are standing out?
Let’s take a closer look.
H. Lundbeck A/S- ADR (HLUYY)
H. Lundbeck A/S- ADR (OTCMKTS:HLUYY) is an international pharmaceutical company engaged in the research, development, and sale of pharmaceuticals around the world. The company currently has products that target disorders like depression and anxiety, schizophrenia, insomnia, Huntington’s, epilepsies, Alzheimer’s and Parkinson’s diseases.
Lundbeck is a great example of a large cap stock with solid, consistent growth. Based on our current consensus estimates, we expect sales growth of 8.6% and EPS growth of 30% this year. Next-year estimates call for sales to increase 4.5% and earnings to expand by 9.3%. This growth outpaces many of its large cap rivals, but the stock is also fundamentally sound. Indeed, its “B” grade for VGM underscores this fact and pairs well with its Zacks Rank #1 (Strong Buy) position.
Bayer AG (ADR) (BAYRY)
Best known for its flagship product, Bayer Aspirin, Bayer AG (ADR)(OTCMKTS:BAYRY) is one of the world’s largest manufacturers of healthcare products. From consumer health products like Aspirin and Aleve to pharmaceuticals and animal health treatments, this German giant does a little bit of everything.
With sales and EPS growth both expected to be around 9% this fiscal year, Bayer is posting the same type of consistent expansion that one desire from a blue chip company. But this stock is also a value investor’s dream. With a solid P/E ratio of 14.97, as well as better-than-industry-average P/B, P/CF, and Earnings Yield figures, this stock has clearly earned its “A” for Value in our Style Scores system.
Sanofi SA (ADR) (SNY)
Sanofi SA (ADR) (NYSE:SNI) is a French pharmaceutical company with a focus on the prescription market and a smaller batch of over-the-counter options. This European drug giant operated in seven therapeutic areas, including cardiovascular, central nervous system, diabetes, and other major treatments.
With a “B” grade for Value, Sanofi may not be as great of a value pick as Bayer, but it’s certainly not weak in this regard. And the company is growing consistently too, as our current consensus revenue projections call for sales growth 6% and 4% in the current and next fiscal year, respectively. What’s interesting is that Sanofi also has an “A” grade for Momentum, which is not a category we typically look at with these large cap stocks.
However, SNY stock has pulled back over the past two weeks, and that could provide us a small window of opportunity to buy on the dip.
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