The healthcare sector has historically been a resilient place for investors to park money. The companies that operate in this sector often provide life-saving medicines, devices, and solutions that consumers need, regardless of what happens to the domestic or global economy. That fact can make healthcare companies a wise addition to a well-diversified investment portfolio in a wide range of market environments.
Are you looking for healthcare stocks that are currently trading at very attractive valuations? Here are two names to put on your buy list.
1. AbbVie
AbbVie‘S (NYSE: ABBV) Growth has slowed since losing patent exclusivity for Humira last year. However, the company has positioned itself well to recover from the financial impact of the change. While AbbVie will likely still face a transition period in the coming quarters as the impact of declining Humira sales plays out, it has other blockbuster drugs in its portfolio and a promising pipeline that long-term investors would do well to factor into their buying decision.
Top-selling products include blood cancer drug Venclexta and immunology drugs Skyrizi (which treats plaque psoriasis, psoriatic arthritis and Crohn’s disease) and Rinvoq (which treats conditions such as eczema and rheumatoid arthritis). Year-over-year sales of these three drugs alone increased 11.5%, 44.8% and 55.8%, respectively, in the second quarter.
New entrants to AbbVie’s portfolio, including Vraylar (which treats schizophrenia, bipolar disorder and major depressive disorder) and migraine drugs Ubrelvy and Qulipta, delivered double-digit sales growth in the most recent quarter, growing 17.6%, 17.5% and 56.3% year-over-year, respectively. AbbVie’s total revenue rose more than 4% year-over-year to $14.5 billion in the second quarter of 2024, while net income totaled $1.4 billion.
In addition to developing alternative medicines, AbbVie has recently made several acquisitions, including Celsius Therapeutics and Cerevel Therapeutics. The acquisition of Celsius brought several new pharmaceutical candidates into the fold, including a potential first-in-class investigational antibody drug targeting inflammatory bowel disease. The acquisition of Cerevel Therapeutics strengthens AbbVie’s neuroscience pipeline and brings into the fold Emraclidine, a potential best-in-class next-generation antipsychotic still in clinical trials.
In addition to its underlying financial strength and business growth, another important reason for investors to consider AbbVie is its dividend, which it typically increases. Over the past five years, AbbVie’s dividend has increased by 45%. The company’s yield is currently around 3%, about double the average stock trading on the S&P 500. The lofty track record of dividend increases is the icing on the cake for a company that appears poised for future growth, all elements that could prompt investors to take a second look. The stock currently trades at a reasonable price-to-sales (P/S) ratio of 6.4.
2.Pfizer
Pfizer (NYSE: PFE) shares are currently trading at a price-to-sales (P/S) ratio of 3. After a serious rally during the pandemic thanks to record-breaking sales of the COVID-19 vaccine and antiviral treatment drug, growth has normalized on both revenue and earnings fronts.
But that doesn’t mean Pfizer isn’t working to keep growth going. The company used its record-breaking COVID-19-related profits to fund internal business development, along with multiple acquisitions. Pfizer recently completed a series of acquisitions, including the purchase of Biohaven Pharmaceuticals (best known for its migraine drug Nurtec), immuno-inflammatory drug maker Arena Pharmaceuticals and oncology drug giant Seagen.
That latest acquisition alone is expected to add as much as $10 billion in annual revenue to Pfizer’s balance sheet by 2030, adding about eight breakthrough oncology drugs to the company’s broad footprint in the cancer drugs sector.
The Seagen acquisition also doubled Pfizer’s pipeline, adding oncology drugs to the mix that have already been approved. One example is Padcev, which is estimated to have a sales potential of up to $2.5 billion per year as a first-line treatment for bladder cancer and a peak annual sales potential of $7 billion. Even with much lower COVID-19-related revenues, Pfizer still brought in more than $55 billion in revenue over the past 12 months. Operating cash flow was about $8 billion.
The stock hasn’t done well lately. However, the company remains committed to its dividend. The price drop means the dividend yield has risen to just under 6%, a nosebleed compared to the average S&P 500 stock trading at 1.5%. Pfizer’s payout has grown by about 17% over the past five years alone.
Pfizer is an incredibly well-established company, with some 175 years of operating history under its belt. It’s survived its fair share of economic cycles, and there’s no reason to think this transition period following the height of its pandemic success will be any different. Investors might want to consider getting a piece of the action while the stock is still trading at a lower-than-usual valuation.
Should You Invest $1,000 in AbbVie Now?
Before you buy AbbVie stock, you should consider the following:
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Rachel Warren has positions in AbbVie. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
2 Incredibly Cheap Healthcare Stocks to Buy Now was originally published by The Motley Fool
