It seems that politics is shaking up the healthcare sector. Several top healthcare stocks have taken a dip in recent weeks. The cause? It could be the recent appointment of Robert F. Kennedy Jr. as Secretary of Health and Human Services for the incoming Trump administration.
Throughout the election cycle, Kennedy has been vocal about his desire to make major changes at several agencies, including the Food & Drug Administration (FDA). This has introduced uncertainty for companies working with the agency, especially pharmaceutical companies.
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While it remains to be seen what will come of this, the fear has brought down a number of prominent dividend-paying healthcare companies at tasty valuations that long-term investors should take advantage of.
Here are three compelling buys to look at today:
Shares of pharmaceutical giant AbVie(NYSE: ABBV) are currently trading over 18% lower than their high. But it’s not just political fear driving stocks down; AbbVie paid $8.7 billion to acquire Cerevel last year, seeking to boost the company’s pipeline of psychiatric drugs. However, Cerevel’s schizophrenia drug emraclidine unexpectedly failed in clinical trials, raising serious doubts about whether AbbVie will make much of a return on that nearly $9 billion investment.
It’s not ideal that such a promising asset has fallen on its head. Still, AbbVie is a well-diversified pharmaceutical company with many growing products that have helped offset the losses of Humira, a mega-blockbuster product that lost its patent protection last year. It is striking that the share’s fantastic dividend is on a solid foundation. AbbVie currently yields 3.7%, and its dividend payout ratio is just 56% of estimated 2024 earnings. So emraclidine’s failure hurts, but it won’t make or break AbbVie.
The stock now trades at a price-to-earnings ratio of 15. Meanwhile, analysts estimate that AbbVie’s profits will grow at an average of 8% to 9% per year over the long term. This is an opportunity to buy a prime dividend stock with a PEG ratio of 1.7, a solid deal for AbbVie’s projected growth. Assuming valuations remain roughly the same, investors could see growth and dividends converge, delivering total returns averaging 11% to 13% per year over time.
The COVID-19 pandemic created a business boom Pfizer(NYSE:PFE)but that has dried up, and the combination of falling profits and sour sentiment in the sector has punished stocks. Shares now trade at less than 9 times earnings. Such a low valuation would imply that Pfizer, an industrial giant, is in trouble. The stock’s dividend yield of 6.7% is the highest ever outside the 2008-2009 financial crisis.
A high yield can indicate problems, but Pfizer is doing fine. The company’s dividend payout ratio is just 58% of 2024 earnings expectations. Additionally, Pfizer has focused its business on oncology, with a healthy pipeline and analysts calling for 10% to 11% annualized earnings growth over the next three up to five years.
Investors can buy well-financed, high-yield dividend stocks at a bargain price from Pfizer. Management has committed to supporting this and increasing the dividend. It looks like sentiment could turn in Pfizer’s favor once all this political noise dies down, making Pfizer a contrarian stock idea with plenty of upside potential.
Medical device and pharmaceutical conglomerate Johnson & Johnson(NYSE: JNJ) is another stock that has been steadily moving lower in recent weeks. The stock is now 18% below its high and at 15 times Johnson & Johnson’s 2024 earnings estimates. Additionally, the company is still trying to resolve its talcum powder disputes, which could ultimately cost billions of dollars. In that light, the sell-off makes sense.
The crucial takeaway from Johnson & Johnson, however, is that these challenges are unlikely to detract from the company’s fantastic fundamentals and thus the stock’s appeal to long-term investors. The company has more than $20 billion in cash on its balance sheet, and a large settlement would likely be paid out over many years anyway. Johnson & Johnson is a Dividend King with a perfect AAA credit rating Standard & Poor’s. The company’s coffers are not much deeper than those of Johnson & Johnson.
Johnson & Johnson continually innovates and acquires new assets to fuel steady growth. Analysts estimate that the company’s profits will grow at an average rate of 5% to 6% per year over the next three to five years. That alone should push the dividend higher, not to mention a fairly modest 50% payout ratio (based on 2024 earnings expectations). Johnson & Johnson is not a get-rich-quick stock, but it offers a generous 3.2% yield and a continuously growing dividend. That steady growth and rock-solid balance sheet look pretty good at just fifteen times earnings.
Consider the following before buying shares in AbbVie:
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends AbbVie, Pfizer and S&P Global. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
3 Dividend Stocks That Are Screaming Buys in November was originally published by The Motley Fool
