Nvidia (NASDAQ: NVDA) It’s been a great stock to own, and could continue to be so for long-term investors. The problem, however, is that it is trading at almost 40 times its forward earnings. At such a high valuation, it sets the bar high for the company and is actually pricing in a lot of future growth. It could make it difficult for the stock to continue generating high returns. Even if it does, at such a high valuation the risk of a potential sell-off is high if the company doesn’t meet analyst and investor expectations.
There are arguably better opportunities for investors than just buying Nvidia stock. There are great stocks to buy in other sectors, such as healthcare, that can provide investors with safer and better overall investment options. There is one stock that looks particularly attractive at the moment AbVie (NYSE: ABBV).
Why AbbVie’s recent numbers may look a little misleading
AbbVie hasn’t been nearly as popular as Nvidia, and for good reason: its growth rate has been disappointing. During the first three months of the year, the company’s revenue was $12.3 billion, up less than 1% year over year.
But a major reason for AbbVie’s disappointing figures is the loss of exclusivity of Humira, its best-selling drug. Sales of the rheumatoid arthritis drug fell nearly 36% in the period, to less than $2.3 billion. AbbVie avoided an overall decline in sales thanks to the strong performance of its new emerging drugs. Skyrizi and Rinvoq are two immunology drugs that AbbVie developed and marketed to offset Humira’s revenue loss, and that strategy has worked. Together, the two drugs generated $3.1 billion in sales last quarter, with Skyrizi growing 48%, while Rinvoq sales rose more than 59%.
The company has promising growth potential
AbbVie has also invested in capabilities to improve its long-term growth prospects. Earlier this year, it completed its $10 billion acquisition of ImmunoGen. The company makes antibody-drug conjugates that target cancer cells more effectively without damaging healthy cells – a common problem with chemotherapy. AbbVie also plans to buy Cerevel Therapeutics for $8.7 billion, in a move that would expand its neuroscience pipeline and strengthen that part of its business.
Management is working to strengthen the company, with AbbVie CEO Richard A. Gonzalez believing it won’t be long before investors see results from the company’s efforts. He expects “a return to robust growth in 2025 and a high single-digit CAGR through the end of the decade.”
While that growth rate may still be a bit low for growth-oriented investors, don’t forget that AbbVie is collecting plenty of free money, which could pave the way for even more acquisitions and opportunities in the future. Over the past three years, AbbVie has generated more than $68 billion in free cash flow.
AbbVie’s modest valuation could set investors up for strong gains
Year to date, AbbVie shares are up just 5%. But despite the lackluster gains, the healthcare stock has the potential to deliver a phenomenal long-term investment. The stock trades at just 15 times estimated forward earnings and with a price-to-earnings-growth ratio (PEG) of 0.4. This could prove to be a bargain for long-term investors. By comparison, Nvidia’s PEG ratio is around 1.3, suggesting the company may be a bit more expensive relative to its growth prospects.
And without a sky-high valuation, investors can buy shares of AbbVie while securing a fairly high dividend, which currently yields 3.8%. That’s more than double S&P500 average 1.4%.
AbbVie is a great stock to buy and hold
While the recent results may not look all that impressive, there’s reason to remain optimistic about AbbVie in the long term. While you can wait for the company to generate better numbers, there’s a good chance the stock will be trading higher by then. Add the stock to your portfolio for that happens can lead to much bigger profits.
Should You Invest $1,000 in AbbVie Now?
Consider the following before buying shares in AbbVie:
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends AbbVie. The Motley Fool has a disclosure policy.
Forget Nvidia, buy this wonderful healthcare stock instead. It was originally published by The Motley Fool
