Almost every portfolio needs a few anchor stocks that tend to grow consistently over time, regardless of the mood of the market or the state of the economy. Thanks to the must-buy nature of life-saving medicines and the regular launch of new and improved drugs, pharmaceutical stocks are a good place to look for the anchors that might be right for you.
In that sense, there are three rock-solid pharmaceutical stocks in particular that are strong enough to buy today and hold long enough, and that will generate growth all the time. Let’s take a look at them to understand why they can be great additions to your portfolio.
1. Abbott Laboratories
Abbott Laboratories (NYSE: ABT) offers the diversification and stability that most pharmaceutical investors expect but often struggle to find. In the second quarter, the pharmaceutical portfolio brought in nearly $1.3 billion, up 8.1% year-over-year.
But pharmaceuticals aren’t the only business. The company also makes diagnostics, medical nutritionals, medical devices, and medical supplies like heart stents. Hospitals need their goods to stay in business, even if they’re not trying to do anything special, which makes the revenue highly recurring and helps protect the top line from the impact of recessions. That’s why Abbott is a company that’s not going away anytime soon.
Over the past five years, normalized diluted earnings per share (EPS) increased by 66.4% over the past 12 months to $3.17. Thanks to the successful ongoing rollout of the new Freestyle Libre continuous glucose monitor (CGM) products, Wall Street analysts estimate that EPS will increase even further to $5.13 in the next fiscal year.
Its Dividend King status makes it particularly attractive to hold. While the forward yield of around 2% won’t make you rich, if you hold the stock for 10 years, assuming it performs similarly to the last 10 years, you could see the annual dividend grow by 150%, making the proposition a lot more attractive.
2. AbbVie
AbbVie (NYSE: ABBV) is another pharmaceutical mainstay that was effectively spun off from Abbott Labs in 2013 so that Abbott’s primary pharmaceutical development activities would not be burdened by its other segments. In a nutshell, this means that the company is exposed to more downside risk from the potential for its clinical trials to fall short of their goals, but also more upside risk from the premium that comes with uncertainty.
In 2025 alone, the company expects to receive regulatory approval for at least five of its pipeline programs across indications ranging from migraine prevention to myelodysplastic syndrome (MDS). Over the same period, it plans to file four more petitions with regulators for approval, setting itself up for the same number of new approvals in the following year. As a result, analysts see its normalized diluted EPS skyrocketing from $3.58 in the last four quarters to an annual total of $13.47 in the two fiscal years from now.
Some of the key drivers of that growth are great illustrations of one of AbbVie’s key advantages: its ability to generate increasing revenue from its marketed drugs by pursuing further research and development (R&D) to get them approved to treat additional conditions. The drugs, Skyrizi and Rinvoq, are expected to generate a combined $16 billion in revenue in 2024. By 2027, however, management expects the pair to generate more than $27 billion as a result of diligent, ongoing R&D efforts.
With such a proven ability to continually expand into the markets it targets (an ability that management no doubt anticipates well in advance), AbbVie could deliver strong returns to shareholders over time, even if it launches only a few completely new products.
3. Vertex Pharmaceuticals
Vertex Pharmaceuticals (NASDAQ: VRTX) is a strong investment because it is a mix of market control and diversification. Its core business, developing therapies for cystic fibrosis (CF), is booming, with a new drug up for approval in early 2025 if regulators give their nod. Outside of CF, it is also awaiting news on its acute pain candidate, which regulators are due to decide on in late January.
In the last five years alone, Vertex’s quarterly revenue increased by 178.5%, or $934.9 million. Even more impressive, quarterly revenue increased by 814%, to over $2.6 billion.
The strategy is simple. Because it is the only drug developer with products that can treat the root causes of CF rather than just the symptoms, it has no competition in its market. It continually develops and packages its already approved CF therapies into new combinations, delivering incremental improvements in efficacy along the way. It then channels some of the proceeds into diversification into new programs in other verticals, fueling its potential for faster growth.
It will undoubtedly one day attempt to develop a drug for CF. That will likely happen after it has diversified its portfolio sufficiently to treat other diseases. And, as the recent launch of the Casgevy cell therapy for sickle cell disease (SCD) and beta-thalassemia shows, it is not afraid to take a disruptive approach wherever it competes. In biopharma, it is hard to do better for long-term growth potential than Vertex.
Should You Invest $1,000 in Abbott Laboratories Now?
Before you buy Abbott Laboratories stock, you should consider the following:
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
3 Rock-Solid Pharma Stocks to Buy Now and Hold Forever was originally published by The Motley Fool
