The pharma industry is growing significantly due to consistent research and development efforts, increasing demand for novel drugs, rising healthcare spending, and an aging population.
Therefore, investors could consider buying fundamentally robust pharma stocks Bristol-Myers Squibb Company (BMY), Johnson & Johnson (JNJ), Novartis AG (NVS), and Merck & Co., Inc. (MRK) now.
The global use of medicines rose by 14% over the past five years, and a 12% rise is projected through 2028, bringing annual usage to 3.80 trillion defined daily doses. The growing prevalence of chronic diseases and rising demand for medical care amid the increasing aging population have contributed to the pharmaceutical market’s resilience in the future.
In 2023, the FDA approved almost 50% more novel drugs compared to 2022, restoring approval rates to historical levels. Therefore, the pharmaceutical manufacturing market is projected to reach $967.12 billion by 2029, growing at a 12.1% CAGR.
Moreover, with the incorporation of AI in drug discovery, clinical trials are accelerating and supply chain efficiency is boosting, which is ultimately fostering innovation. Collaborations between pharmaceutical companies and AI specialists amplify research and showcase AI's strength in drug development, ultimately benefiting the pharmaceutical sector.
Given the industry tailwinds, it's time to examine the fundamentals of the four stocks to buy in the Medical - Pharmaceuticals industry, beginning with the fourth choice.
Stock #4: Bristol-Myers Squibb Company (BMY)
BMY discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers products for hematology, oncology, cardiovascular, immunology, fibrotic, and neuroscience diseases.
On March 15, BMY and 2seventy bio, Inc. received a positive opinion from the U.S. Food and Drug Administration (FDA) Oncologic Drugs Advisory Committee (ODAC) for Abecma (idecabtagene vicleucel), demonstrating a favorable benefit/risk profile for patients with triple-class exposed relapsed or refractory multiple myeloma based on results from the pivotal Phase 3 KarMMa-3 study, including the key secondary endpoint of overall survival.
The recommendation from the ODAC will be considered by the FDA during its ongoing review of the supplemental Biologics License Application (sBLA) for Abecma for the patient population.
In March, BMY announced that the U.S. FDA granted accelerated approval of Breyanzi, a CD19-directed chimeric antigen receptor (CAR) T cell therapy, for the treatment of adult patients with relapsed or refractory chronic lymphocytic leukemia (CLL) or small lymphocytic lymphoma (SLL) who have received at least two prior lines of therapy. This should bode well for the pharma giant.
BMY pays an annual dividend of $2.40 per share, which translates to a dividend yield of 4.59% on the current share price. Its four-year average yield is 3.20%. BMY’s dividend payments have grown at CAGRs of 7.9% and 7.5% over the past three and five years, respectively.
BMY’s trailing-12-month cash per share of $5.67 is 344% higher than the industry average of $1.28. Its trailing-12-month EBIT and levered FCF margins of 19.22% and 30.62% are significantly higher than the industry averages of 0.75% and 0.78%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, BMY’s total revenues increased marginally year-over-year to $11.48 billion, while non-GAAP gross profit stood at $8.77 billion. Moreover, its non-GAAP earnings before income taxes stood at $4.07 billion.
For the same quarter, its non-GAAP net earnings attributable to BMY used for EPS calculation and non-GAAP earnings per share stood at $3.47 billion and $1.70, respectively.
Street expects BMY’s revenue for the fiscal first quarter ending March 2024 to increase marginally year-over-year to $11.44 billion. Its EPS is expected to be $1.62 for the same quarter. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 5.9% over the past month to close the last trading session at $52.34. Over the past three months, it has gained 2.9%.
BMY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value and a B for Quality. Within the Medical - Pharmaceuticals industry, it is ranked #14 out of 165 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, Stability, and Sentiment. Get all ratings of BMY here.
Stock #3: Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates through two segments: Innovative Medicine and MedTech.
On March 7, JNJ acquired Ambrx Biopharma, Inc., a clinical-stage biopharma company with a proprietary synthetic biology technology platform to design and develop next-generation antibody drug conjugates, for a total equity value of approximately $2 billion, or $1.90 billion net of estimated cash acquired. The acquisition presents a distinct opportunity for JNJ to design, develop and commercialize targeted oncology therapeutics.
JNJ pays an annual dividend of $4.76 per share, which translates to a dividend yield of 3.01% on the current share price. Its four-year average yield is 2.66%. JNJ’s dividend payments have grown at CAGRs of 5.6% and 5.8% over the past three and five years, respectively.
JNJ’s trailing-12-month cash per share of $9.08 is 610.9% higher than the industry average of $1.28. Its trailing-12-month EBIT and levered FCF margins of 27.79% and 23.24% are significantly higher than the industry averages of 0.75% and 0.78%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, JNJ’s sales to customers and gross profit stood at $21.40 billion and $14.60 billion, up 7.3% and 5.4% year-over-year, respectively.
For the same quarter, its non-GAAP net earnings from continuing operations and adjusted EPS increased 2.4% and 11.7% from the year-ago quarter to $5.56 billion and $2.29, respectively.
Street expects JNJ’s revenue and EPS for the fiscal year ending December 2024 to increase 3.7% and 7.6% year-over-year to $88.28 billion and $10.67, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 2.5% over the past year to close the last trading session at $158.18. Over the past three months, it has gained 2%.
JNJ’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
JNJ has a B grade for Value, Stability, and Quality. Within the same industry, it is ranked #13.
To see additional POWR Ratings for Growth, Momentum, and Sentiment for JNJ, click here.
Stock #2: Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products. The company offers prescription medicines for patients and physicians.
On February 5, NVS entered into an agreement to make a voluntary public takeover offer to acquire the German bio-pharma company MorphoSys AG that develops innovative medicines in oncology.
The acquisition would expand and complement NVS’ pipeline in oncology, one of its priority therapeutic areas, while also enhancing NVS global footprint in hematology. Upon completion of the acquisition, NVS will own pelabresib, a novel and potentially practice changing treatment option with a well-tolerated safety profile provided in combination with ruxolitinib for patients with myelofibrosis.
NVS pays an annual dividend of $3.78 per share, which translates to a dividend yield of 3.88% on the current share price. Its four-year average yield is 3.65%. NVS’ dividend payments have grown at CAGRs of 7.6% and 7.1% over the past three and five years, respectively.
NVS’ trailing-12-month cash per share of $6.55 is 412.9% higher than the industry average of $1.28. Its trailing-12-month levered FCF and EBIT margins of 26% and 27.09% are significantly higher than the industry averages of 0.78% and 0.75%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, NVS’ net sales and core operating income increased 8% and 4.8% year-over-year to $11.42 billion and $3.82 billion, respectively. Moreover, its free cash flow stood at $2.14 billion. For the same quarter, its core net income and core EPS increased 5.5% and 10.1% from the year-ago quarter to $3.13 billion and $1.53, respectively.
Street expects NVS’ revenue and EPS for the fiscal year ending December 2024 to increase 5.9% and 9.8% year-over-year to $48.11 billion and $7.10, respectively. The company surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has gained 25.2% over the past year to close the last trading session at $97.27. Over the past nine months, it has gained 1.3%.
NVS’ POWR Ratings reflect this promising outlook. It has an overall rating of A, which indicates a Strong Buy in our proprietary rating system.
NVS has a B grade for Value, Stability, and Quality. Within the same industry, it is ranked #12.
To see other ratings of NVS for Growth, Momentum, and Sentiment, click here.
Stock #1: Merck & Co., Inc. (MRK)
MRK offers health solutions through its prescription medicines, including biological therapies, vaccines and animal health products. The company operates through Pharmaceutical and Animal Health segments.
On March 15, MRK’s MSD Animal Health collaborated with the Israel-based FarmSee, a pioneer in camera-based AI solutions for swine monitoring and production optimization. MSD Animal Health participated in FarmSee's A round and entered into a long-term agreement to integrate FarmSee's AI-based weighing technology into its global offerings for swine producers.
On March 13, MRK announced plans to initiate clinical development of a new investigational multi-valent HPV vaccine designed to provide broader protection against multiple HPV types. Separately, the company also plans to conduct clinical trials in both females and males to evaluate the efficacy and safety of a single-dose regimen of GARDASIL9, compared to the approved three-dose regimen.
These significant investments build upon its leadership and, importantly, provide the opportunity to further impact the global burden of certain HPV-related cancers and diseases.
MRK pays an annual dividend of $3.08 per share, which translates to a dividend yield of 2.53% on the current share price. Its four-year average yield is 2.96%. MRK’s dividend payments have grown at CAGRs of 7.7% and 8.8% over the past three and five years, respectively.
MRK’s trailing-12-month asset turnover ratio of 0.56x is 42.1% higher than the industry average of 0.39x. Its trailing-12-month EBIT and levered FCF margins of 7.59% and 3.54% are 906.4% and 351.6% higher than the industry averages of 0.75% and 0.78%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, MRK’s sales increased 5.8% year-over-year to $14.63 billion. For the same quarter, its non-GAAP net income and non-GAAP EPS stood at $66 million and $0.03, respectively.
MRK increased its full-year 2024 guidance and expects non-GAAP EPS between $8.44 and $8.59.
Street expects MRK’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 4.7% and 46.8% year-over-year to $15.17 billion and $2.06, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 15.6% over the past three months to close the last trading session at $121.52. Over the past six months, it has gained 13%.
MRK’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
MRK has a B grade for Growth, Stability, Sentiment, and Quality. It is ranked #5 within the same industry.
Click here for the additional POWR Ratings for MRK (Value and Momentum).
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JNJ shares were trading at $156.91 per share on Monday morning, down $1.27 (-0.80%). Year-to-date, JNJ has gained 0.87%, versus a 8.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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