Pharmaceutical stocks have been red hot this year, propelled by expectations for a vaccine and other therapies to treat Covid-19. The Spider S&P Pharmaceuticals Exchange Trade Fund (NYSEARCA:XPH) is up about 50% since its March low when shutdowns accelerated in the U.S. Investors are banking on an upsurge in pharmaceutical stocks once various vaccines and other therapies gain commercial approval from the U.S. Food and Drug Administration (FDA).
A number of pharmaceutical companies are now in late stage clinical trials with Covid-19 treatments. A number of vaccines and therapeutics are expected to become widely available within the first half of 2021.
Here we look at seven highly rated pharmaceutical stocks that investors may want to take a position in during the fourth quarter of 2020, before the share prices move sharply higher over the next six-to-nine months.
- Eli Lilly and Company (NYSE:LLY)
- Pfizer (NYSE:PFE)
- Merck & Co. (NYSE:MRK)
- Johnson & Johnson (NYSE:JNJ)
- Moderna (NASDAQ:MRNA)
- Regeneron Pharmaceuticals (NASDAQ:REGN)
- Gilead Sciences (NASDAQ:GILD)
Pharmaceutical Stocks: Eli Lilly and Company (LLY)
Eli Lilly recently released positive interim clinical trial data for its Covid-19 treatment and said it submitted an initial request with the FDA for emergency use authorization of the drug. The news sent LLY stock sharply higher.
The drug, called LY-CoV555 monotherapy, is used to treat high risk patients who have been diagnosed with mild-to-moderate Covid-19. Eli Lilly also said it plans to submit a broader request with the FDA for a combination medication that also treats Covid-19. Company executives have said they are talking with global regulators to have the drug approved in other jurisdictions around the world.
The Indianapolis-based company says it should be able to supply one million doses of its Covid-19 drug, in 700 milligram doses, in the fourth quarter of this year. That includes 100,000 doses in October alone. For the combination therapy, Lilly said it could have 50,000 doses available within the fourth quarter. All this news has helped lift LLY stock. The share price is up 14% year-to-date (YTD). Analysts have a media price target on the stock of $176 a share.
Covid-19 aside, Pfizer is one of the largest and most profitable pharmaceutical companies in the world. It makes many of the most in-demand medications, and netting more than $49 billion in 2019 revenues. Pfizer also has $11 billion of cash on hand and a robust pipeline of potential new medications. On top of the positive financials, Pfizer is a leader in the race to bring a Covid-19 vaccine to market.
Pfizer has partnered with BioNTech (NASDAQ:BNTX) on a Covid-19 vaccine that is now in final phase 3 clinical trials. Called “BNT162b2,” the drug is a booster shot for their vaccine and is given 21 days after an initial dose. This is a faster dose than many competing Covid-19 treatments.
The fact that Pfizer’s Covid-19 vaccine is close to completing clinical trials and could be approved as soon as December has helped to buoy PFE stock, which is up 2.3% over the past month. The median price target that analysts have on the stock is $41.50, suggesting a further 12.5% upside.
Merck & Co. (MRK)
Merck is one of the biggest pharmaceutical companies in the area of cancer research. Its biggest drug invention to date is KEYTRUDA, which is used in multiple cancer treatments.
Merck has used its expertise in cancer drugs and applied it to the hunt for a vaccine against Covid-19. Though the company is currently behind competitors such as Pfizer, it is pursuing a different strategy in that it is working on developing a one-shot solution to Covid-19, i.e., one vaccine to protect people from the disease for good.
Also, Merck currently has two Covid-19 vaccines in its development pipeline — V590 and V591 — and the company is expected to commence clinical trials for both by the end of 2020. Merck has said that it plans to have its cure-all vaccine against Covid-19 on the market by April 2022.
Analysts think the share price has more room to run. The median price target of analysts is for Merck’s stock to rise to $95 a share within the next 12 months.
Johnson & Johnson (JNJ)
Johnson & Johnson initiated a global phase 3 clinical trial of its Covid-19 vaccine on Sept. 23. Many analysts forecast that Johnson & Johnson will have one of if not the most successful Covid-19 vaccines in the long run. That’s because unlike most of the other leading COVID-19 vaccine candidates, Johnson & Johnson’s vaccine requires only one dose. This fact could give Johnson & Johnson a leg up if its late-stage trials go according to plan. Before the trial ends, the company has started to ramp up its manufacturing capacity with the goal of producing one billion doses of the vaccine annually.
In addition to the potential of its Covid-19 treatment, another great reason to own JNJ stock is the fact that it pays a great dividend. In fact, the stock is a dividend aristocrat with 58 consecutive years of annual increases. Johnson and Johnson’s dividend currently yields 2.7%.
Year-to-date, JNJ stock is about about 2%. Analysts have a median 12-month price target of $170 on Johnson & Johnson stock.
To a large degree, the future of pharmaceutical stocks like Moderna is tied to a successful Covid-19 vaccine. The company is currently in late stage clinical trials with its vaccine that uses messenger ribonucleic acid (mRNA) to treat the disease. mRNA has proven to be effective in preventing other infectious diseases. The company is heavily invested in treatments against influenza and cystic fibrosis.
While Moderna’s Covid-19 vaccine is not approved for commercial use yet, it is one of the treatments that is furthest along in development. Speculation that Moderna will hit a home run with its Coivd-19 vaccine has helped to send MRNA stock up 300% this year.
The company has several other vaccines and medications in development that could also boost the company’s revenue and shareholder value in coming years. Analysts are bullish with a median 12-month price target on the stock of $91.50 a share.
Regeneron’s stock has been on a tear ever since the company’s antibody cocktail was used to treat U.S. President Donald Trump after he contracted Covid-19. Regeneron was quick to capitalize on the positive attention, filing for emergency use authorization of its Covid-19 treatment, called REGN-COV2. REGN stock popped 7% on news that its antibodies had been used to treat President Trump. The stock has risen 61% year-to-date, largely on the development of its Covid-19 treatment.
However, the stock did encounter a speed bump recently after it was revealed that Regeneron board members and executive sold more than $1 million of stock after President Trump publicly claimed the company’s treatment cured him of Covid-19. The company explained the insider trading as the exercising of vested stock options, but the moves have raised the eyebrows of some investors.
Regardless, Regeneron’s Covid-19 cocktail shows tremendous promise and could be a big money maker for the company moving forward. Analysts have a median price target on REGN stock of $679.50.
Gilead Sciences (GILD)
Gilead’s stock has been more up-and-down than many of the other pharmaceutical stocks on this list. But it has still appreciated as much as 30% this year on the strength of its in-development Covid-19 treatment.
Gilead has brought several successful drugs and vaccines to market already, including treatments against cancer and inflammation. It has a strong record of commercializing medications and bringing them to market — a track record that has led to an $80 billion market capitalization for the company.
With Covid-19, Gilead’s Remdesivir medication has been used to treat COVID-19 for months. However, new data from a “gold standard” trial paints a clear picture of the medications benefit for people afflicted with the respiratory illness. The drug was found to improve recovery times, reduce chances of patients progressing to more severe stages of the disease, and significantly cut the risk of death in people who have Covid-19.
These findings have helped to lift GILD stock to its current share price of $64.55. The median price target that analysts have on the stock is $77 a share.
On the date of publication, Joel Baglole held shares of MRNA.