Many U.S. stocks, as well as many British American Depositary Receipts (ADRs) listed in U.S. exchanges, are cheaper than they were several months ago. This “discount” has given long-term investors relatively good entry points into many strong stocks to buy.
Despite competitive pressures from other big pharma and biotech companies, all three of these biopharma stocks to buy have strong balance sheets, proactive management and several important drugs in the pipeline that are likely to keep them ahead of the competition. Furthermore, all three companies offer healthy dividend yields that will provide strong support for their respective stock prices in the months ahead.
With all of that said, let’s take a closer look at these high-yield, discounted stocks to buy.
Of all three of the stocks to buy on this list, I am most bullish on GSK stock. When major indices come under stress, more than ever I look for companies that offer fundamental value and growth potential, as well as proven stability. Overall, GSK shares fit the criteria well.
Despite management’s efforts to boost the company’s financial strength, since 2014, the GlaxoSmithKline shares have not done much for investors. The lackluster performance was mostly because its pharmaceutical business lagged other big pharma rivals in offering blockbuster drugs.
However, GSK management has been focusing on developing strong assets for its pipeline. For example, “immune system,” which gives the company pricing power, is now getting a higher share of its R&D budget. The company is also a global leader in respiratory diseases.
Furthermore, I am excited about the recent merger announcement between GSK and Pfizer (NYSE:PFE), which will create a leader in over-the-counter (OTC) products. The two companies will spinoff their consumer healthcare brands in a new venture of which GSK will own 68% and contribute with its top brands, including Theraflu, Sensodyne and Voltaren. I expect this new company to be a winner for the investors.
Over the past two years, the political discourse in the U.K. on Brexit — the country’s decision to leave the European Union (E.U.) — has increased the volatility of British companies and their stock prices. Although a potential no-deal Brexit could affect GSK with a broader sell-off, I believe that in a few weeks we will witness a trade deal between the U.K. and the E.U. that will calm the nerves and offer visibility for businesses. Going forward, Brexit is not likely to have a major negative impact on GlaxoSmithKline’s business model or the GSK share price.
GSK’s latest earnings release on Oct. 31 showed a strong balance sheet and a positive outlook for 2019. Due to its rock-solid dividend, which stands at over 5%, and its solid growth potential, GlaxoSmithKline belongs in any balanced portfolio of healthcare stocks.
Through 2023, Illinois-based AbbVie owns the U.S. patent protection for Humira, the world’s bestselling drug that treats rheumatoid arthritis and Crohn’s disease. Many analysts on Wall Street have been concerned with the concentration risk on the high level of earnings from a single drug. But other analysts are optimistic that management will continue to grow earnings in double digits through different successful drugs in the pipeline, including Venclexta, Risankizumab and Orilissa.
ABBV’s earnings release on Nov. 2 showed robust top-line growth, a strong pipeline of existing and new drugs and gave a positive outlook for early 2019. Humira, as well as Imbruvica, another blockbuster drug in the lymphoma/leukemia segment, saw double-digit growth and exceeded revenue expectations.
AbbVie also offers investors a healthy dividend yield at about 5%. Since its spin-off from Abbott Laboratories (NYSE:ABT) in 2013, ABBV has increased dividends every year — a tend that is likely to continue. During early 2019, I expect ABBV stock to trade between $85 – $95.
Gilead Sciences (GILD)
The second half of 2018 has been difficult for GILD investors. However, as per the discussion by my InvestorPlace colleague Josh Enomoto, I also believe the GILD stock price has been punished for too long and that its best days are yet to come.
Under the leadership of the incoming CEO Daniel O’Day, I expect the company pipeline to expand considerably. For example, in recent weeks the company entered into an agreement with Scholar Rock Holding Corporation (NASDAQ:SRRK) for holding the option to license three fibrosis-inhibiting candidates. GILD management is determined to find a blockbuster non-alcoholic steatohepatitis (NASH) drug for the treatment of fibrotic diseases. NASH is a chronic, inflammatory and fibrotic disease of the liver, which can lead to liver cirrhosis and even to cancer. About 10% of the U.S. adult population suffers from NASH.
Therefore, GILD regards the treatment of NASH an extremely important area for the company. The deal with SRRK does not put Gilead Sciences into a lot of financial or R&D risk, yet gives it the option to develop and market a potential winner drug.
The healthcare stock is expected to report earnings on Feb. 5 after the close. Wall Street is looking for earnings-per-share to be $1.70 on revenues of $5.5 billion; its dividend yield stands at over 3.5%. If you are still worried about general market volatility and how the upcoming managerial guidance will be, you may want to wait to make an investment decision after GILD stock reports next month.
What Could Derail These Biopharma Stocks?
2019 started with the acquisition announcement of Celgene (NASDAQ:CELG) by Bristol-Myers Squibb (NYSE:BMY). I expect the sector to have more exciting news, both in terms of R & D, marketing of new drugs, and further M&A activity. As dividend and potential growth plays, GSK, ABBV and GILD stock deserve further due diligence from potential investors.
However, investment risk and return go together, and any of these stocks may suffer a setback in 2019, too. In addition to potential company-specific issues, one industry concern is that the U.S. government may increase its drug pricing regulations. Both President Trump and other politicians on both sides of the aisle have openly criticized healthcare companies for the ever growing prescription prices and the effect on Medicare budget.
Therefore, if the U.S. political discourse turns against the sector more, these stocks may experience further volatility. Nonetheless, at this point, I would be ready to invest in any of the three companies.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.