Ever since the novel coronavirus pandemic reared its ugly head earlier in the year, almost every sector of the U.S. economy has felt its impact. However, while a lot of stocks have lost considerable value, biotech stocks are experiencing a historic bull run. And it’s understandable why. Investors are hoping to make a fortune through betting on a company that can come up with a solution to end this crisis.
That said, the race for a Covid-19 vaccine is leading to explosive growth for several mid-cap companies. And although day traders are enjoying the bull run, investors focused on fundamentals may find the current landscape confusing. That’s why I am presenting five companies that offer a solid track record of returns.
Oh, and they are also working on a Coivd-19 vaccine.
- Pfizer (NYSE:PFE)
- Johnson & Johnson (NYSE:JNJ)
- Sanofi (NASDAQ:SNY)
- AstraZeneca (NYSE:AZN)
- Merck (NYSE:MRK)
So, with all of that in mind, let’s take a look at each name a bit closer.
Hot Biotech Stocks: Pfizer (PFE)
As one of the biggest biotech stocks in the world, Pfizer is both an exciting play and a reliable one. Tracing its roots to 1849, the global pharmaceutical company develops and distributes prescription drugs and vaccines. That said, the company is one of the leading lights in the fight against Covid-19.
Along with Moderna (NASDAQ:MRNA), Pfizer has entered the final phase of clinical trials for its Covid-19 vaccine. And while that is exciting news, several analysts may be wondering whether it’s too late to get on the gravy train.
Surprisingly, PFE stock remains heavily discounted despite this positive news — trading at 13.5 times its forward price-earnings ratio (P/E), a discount of about 43% to the sector median. With or without a COVID-19 vaccine, Pfizer remains a bellwether for the industry with strong returns and a dividend yield of 3.95%, which is north of most of its pharma peers. And at current rates, PFE stock is a growth play available at a heavily discounted price.
Johnson & Johnson (JNJ)
Johnson & Johnson is one of the largest and oldest pharmaceutical companies in the world. And, like Pfizer, is also in the race to develop a Covid-19 vaccine. The company is a bit more diversified as compared to other biotech firms, and that is where the security in its investment lies. Apart from Microsoft (NASDAQ:MSFT), Johnson & Johnson is the only company that has an AAA-rated balance sheet.
However, the one thing that is going against the company is premium pricing. In fact, shares are currently trading at a forward P/E ratio of 18.7 times.
Collectively, investors would be willing to pay for the premium considering the strong operational and dividend history. However, some may want to wait it out for a more attractive entry point — especially when there are other more affordable biotech stocks available.
Hot Biotech Stocks: Sanofi (SNY)
French pharmaceutical company Sanofi is working alongside Biomedical Advanced Research and Development Authority (BARDA) on a Covid-19 vaccine. However, the timeline is a bit off for the company, since a Phase 1 clinical trial is expected between March 2021 and August 2021.
On the non-Covid-19 related front, CEO Paul Hudson has initiated an aggressive business plan to increase the company’s competitiveness. The plan involves focusing on high profitability areas, such as cancer drugs, while abandoning areas that are not contributing as much, like diabetes and cardiovascular disease medicines.
That said, by all margins, SNY stock is a safe play in the space. The demands for its products stayed strong throughout the pandemic, with revenues growing by more than 7% and non-GAAP earnings per share increasing 16% year-over-year.
Moreover, shares trade at a forward P/E of 15.1 times, which is quite reasonable compared to peers. Meanwhile, the company is set to undergo a dramatic transformation in the forthcoming quarters. This is due to Hudson, who brings a considerable amount of experience to the fray.
With all of that in mind, consider Sanofi among other hot biotech stocks.
AstraZeneca is partnering with the University of Oxford on a Covid-19 vaccine, which is in final-stage testing. In fact, reports suggest that the U.K. could have its first batch as early as September.
Additionally, the U.S. has also given the company $1 billion for 400 million doses of the vaccine. And understandably, shares are skyrocketing as a result of these developments. However, there are other reasons to be bullish on AZN stock.
Both earnings and dividends are growing at a consistent pace over the last few years. And as a result, AZN stock is not as dependent on Covid-19 success as some other firms in play. Micro-cap stocks like iBio (NYSEAMERICAN:IBIO) are totally dependant on the success of a vaccine. So if anyone of these firms manages to deliver on a vaccine, then it will lead to massive returns. On the flip side, though, they will nosedive beyond anyone’s recognition.
Ultimately, one can play Russian Roulette in the markets. But, companies with a solid track record and astute management will make sure returns keep ticking northwards. In that respect, AZN stock is an excellent play among biotech stocks — with or without the vaccine.
Hot Biotech Stocks: Merck (MRK)
One of the largest pharmaceutical companies in the U.S., Merck is working on a Covid-19 solution with the Institute for Systems Biology and IAVI. The company intends to use the virus technology used in its Ebola vaccine to come up with a solution for Covid-19.
That said, panic induced selling led to shares dropping to $66.40 on March 23. However, since that time, MRK stock has made up for lost ground, and is now trading above $80. With that in mind, I believe there is still some upside left. Merck produces life-saving drugs that are demand inelastic. Hence, I do not think its revenues are going to take a substantial hit during this crisis. That’s why, unlike a lot of other companies, there is no danger for Merck to cut its dividend. And at the moment, the company has an excellent dividend yield of 3%.
Moreover, MRK stock trades at 15.1 times forward P/E ratio, which is a 46.3% discount to the sector median of 28.1 times. There is nothing operationally that leads to me to believe MRK stock should trade at these prices. Perhaps that has more to do with the potential of a win by former Vice President Joe Biden in November. Democrats have often advocated for drug price controls, and this will be a key talking point in the run-up to the election.
Still, however, I believe those fears are a bit unfounded since the American pharmaceutical industry is the largest in the world. The bottom line, though, is that MRK stock is trading at an attractive entry point at the moment. And that makes it a hot biotech stock too look at.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. As of this writing, he does not directly own the securities mentioned above.