Pharmaceutical stocks will be front and center in 2021, as investors look to the group to help deal with a global pandemic.
Raise your hand if you were eager to see the calendars flip from 2020 to 2021. A new year and a fresh start. I think most of us can agree that we were ready to see 2020 fade to the rearview mirror.
However, that doesn’t change the fact we’re still roiling in the worst of the novel coronavirus outbreak. More than 4,000 Americans recently died in a single day due to Covid-19. Globally, it has claimed almost 2 million lives despite numerous lockdowns and preventive measures.
The world has been waiting for a vaccine and impressively, they are now becoming available to the public. Now, we turn our attention to 2021 and focus on pharmaceutical stocks with some opportunity — and not just opportunity tied to Covid-19.
That said, these seven names are ones to keep an eye on:
- Pfizer (NYSE:PFE)
- Moderna (NASDAQ:MRNA)
- Johnson & Johnson (NYSE:JNJ)
- Bristol-Myers Squibb (NYSE:BMY)
- AbbVie (NYSE:ABBV)
- Jazz Pharmaceuticals (NASDAQ:JAZZ)
- Elanco Animal Health (NYSE:ELAN)
Now, let’s dive in and take a closer look at each one.
Pharmaceutical Stocks to Buy: Pfizer (PFE)
Pfizer has to be one of the top pharmaceutical stocks to start this list. With its $204 billion market capitalization, it’s one of the largest companies in the country.
For that fact alone, it can’t be ignored. But with its efforts on the Covid-19 vaccine, we must also take the stock into consideration. It is one of the two leading candidates with a viable vaccine available right now.
Because of its early-mover advantage, Pfizer stands to benefit as hundreds of millions of doses are rolled out over the ensuing months.
Throw in the fact that Pfizer boast a dividend yield of 4.2%, and income investors suddenly become interested as well. Analysts call for solid growth in 2021, predicting 9.2% sales growth and 7.7% earnings growth. Based on those numbers, shares trade at just 11 times 2021 earnings expectations.
We mentioned that Pfizer was one of the two leading candidates with a coronavirus vaccine. The other? Moderna.
This stock has been on fire over the past year, rallying hundreds of percent from its pre-coronavirus 2020 levels to its recent high on Dec. 1 at $178.50. Since then, though, shares have endured a painful slide, falling 26% at its recent low.
Some market participants feel that the decline is too far, too fast. With a leading vaccine rolling out, the selloff seems like an overreaction and speculation instead of fundamental assessment.
In fact, Moderna recently raised its outlook, saying its “increasing its base-case global production estimate from 500 to 600 million doses for 2021. Moderna said it is continuing to invest and add staff to build up to potentially 1 billion doses for 2021.”
Adding to that, Israel just gave the green light to Moderna on Jan. 4. That follows the U.S. from Dec. 18 and Canada on Dec. 23. The EU also agreed to give Moderna the go-ahead. Thus, things are looking good for 2021.
Pharmaceutical Stocks to Buy: Johnson & Johnson (JNJ)
Earlier I spoke about Pfizer’s size. While big, it’s small in comparison to Johnson & Johnson, which weighs in with a market cap of nearly $417 billion.
Even better, J&J stock continues to trade quite well, with the stock recently hitting a new all-time high. And it comes into the new year strong and poised for gains.
Covid-19 couldn’t knock the company’s business off track and that has investors thinking that virtually nothing can knock it off. Johnson & Johnson has a very stable business, in part because of its diversity and different business segments.
Moderna has come flying onto the radar, which is why its stock price has been so volatile yet so strong over the past 12 months. J&J on the other hand has become a longtime staple in the market, with investors comforted by its consistency.
When the pandemic first start raging, J&J calmly delivered a top- and bottom-line earnings beat and raised its dividend payout by 6.3%. Even though management had to trim its guidance, the reality is that Johnson & Johnson would be just fine.
With its consumer segment, pharma segment (it too is working on a Covid-19 vaccine) and medical devices unit, investors can count on J&J for the long haul.
Bristol-Myers Squibb (BMY)
I really like Bristol-Myers Squibb, and that reasoning is multifold. First, this is a well-run company.
That may seem like a lame assessment, but do we really want to be buying low-quality stocks? Of course not. Bristol-Myers has a long track record of doing well and its decision to scoop up Celgene on the cheap — although the deal was for a lot of money, at $74 billion — will make it even better in 2021.
Additionally, analysts expect 9% revenue growth and roughly 17% earnings growth in fiscal 2021. For that, investors are paying just 8.2 times next year’s estimates.
In other words, we have double-digit earnings growth and a low valuation. That’s made all the better by the company’s decision to pick up Celgene when it was under pressure and needing some help on the execution front.
The company’s 3% dividend yield is just icing on the cake.
Pharmaceutical Stocks to Buy: AbbVie (ABBV)
If you want to talk about dividend yields, look no further than AbbVie. The company, which commands a whopping market cap of $199 billion, dishes out a juicy 4.7% dividend yield.
That’s quite attractive for obvious reasons. But if the stock gains some momentum, that dividend will just be a big bonus to investors. That’s been the case lately, with shares up 40% since reporting earnings in late October.
However, the worry here is the company’s debt. That’s a result of AbbVie scooping up Allergan in what was a large deal at $63 billion.
However, like Bristol-Myers, the mega deal is what will allow the combined company to create long-term value for shareholders. Obviously we are looking for appreciation in 2021, but the long-term counts for something too.
After a solid 2020, analysts expect 2021 revenue and earnings growth of 18% and 16%, respectively. For this and that juicy dividend, investors are paying just 9 times next year’s earnings.
So, if the company can continue to use its free cash flow pay down debt, AbbVie will be a winner.
Jazz Pharmaceuticals (JAZZ)
Investors who are looking for pharmaceutical stocks can’t forget about Jazz Pharmaceuticals.
This stock isn’t like some of the others we have above. With a market cap of just under $9 billion and no dividend, Jazz lacks some of the other attributes that its peers on this list boast.
However, it’s smaller size gives the company more flexibility and could make it a target in the future.
One advantage of its smaller size tends to be growth. Analysts expect 8.7% revenue growth in 2021 and 33.8% growth in earnings. If the latter comes to fruition, Jazz will earn almost $17 per share.
At that price, we’re talking about less than 10 times earnings, which is fairly attractive. Some may point to Jazz being near its 52-week high as a negative because they’re not getting a deal. However, others prefer to buy near the top of this range, as it shows that Jazz has momentum working in its favor.
Pharmaceutical Stocks to Buy: Elanco Animal Health (ELAN)
Elanco Animal Health is one of our pharmaceutical stocks to watch in 2021. However, it’s not the human-focused company that many on this list are. As you may have assumed from its name, the company’s focus is on our furry friends.
Elanco sells its products in 90 countries and has more than 200 brands to its name. Furthermore, it’s one of the top sellers in all of the major markets that it services. Its acquisition of Bayer Animal Health helped create a strong portfolio and increase its reach.
The great thing about Elanco is that it’s situated in the animal space, where there has been sustainable and secular growth.
That said, this is set to continue in 2021 as well. Analysts expect 43% revenue growth this year to $4.56 billion, along with a 100% growth in earnings to 89 cents per share. In the company’s most recent earnings release, management said:
“We closed the industry’s largest acquisition and moved with speed and decisiveness to integrate the Bayer Animal Health business and announce at least $100 million in actions toward our synergy target.
Our IPP strategy is working through a combined portfolio and greater access to the world’s animals, a pipeline that is progressing, and a productivity agenda that continues to support gross margin expansion. We closed the quarter as a stronger enterprise, driving sustainable, long term value creation for shareholders and society.”
On the date of publication, Bret Kenwell held a long position in MRNA and ABBV.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.