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Pharmaceutical Stocks - Best Pharmaceutical Stocks to Buy

Thursday, November 28, 2019 | Matthew Sweeney
Pharmaceutical Stocks - Best Pharmaceutical Stocks to Buy

Pharmaceutical stocks are an important and interesting part of the healthcare market, and of the overall market as well. For investors who are interested in learning more about the pharmaceutical industry, a good place to start is with the following companies, which are some of the largest pharmaceutical companies in the world.

Top Pharmaceutical Companies in the World

These five publicly traded companies have made a name for themselves in the highly competitive, lucrative, and volatile world of pharmaceuticals. Becoming one of the biggest pharmaceutical companies is certainly not the norm. One of the things that makes the pharma industry so exciting—but also risky—is that most startups burn through money but fail to get a single product to market. In order to understand why such a high failure rate occurs, it helps to understand the pharmaceutical industry.

Pharmaceutical Industry

Companies in the pharmaceutical sector attempt to research, develop, make, and market drugs and other pharmaceutical medicines. Pharmaceutical companies may make generic drugs that treat common health issues such as the flu, or they may focus on more specialized branded drugs that treat rare conditions, including certain types of cancer. Medications that pharmaceutical companies produce can be used to ease symptoms, treat existing diseases, or help avoid contraction of diseases in the first place.

The pharmaceutical industry is a segment of the healthcare industry. This means that the pharma industry is likely to benefit from many of the factors that are likely to benefit the healthcare industry as a whole. Specifically, the healthcare industry, and therefore the pharma industry, is likely to grow in coming years due to technological advances and an aging population that will create more consumer demand for the healthcare industry.

One of the benefits of the pharmaceutical industry is that it is less impacted by recession or economic downturn than many other industries. This is because consumers need drugs to either prolong life, minimize pain, or help them deal with chronic issues. Drugs are not something that can be easily cut from a budget in the same way that eating out or taking vacations can be. Another benefit of the pharma industry is that many pharma stocks pay large dividends compared to other sectors of the market.

The pharmaceutical industry is massive. The annual revenue of the pharmaceutical industry is well over $1 trillion dollars. With this much money involved, it’s no surprise that investors are intrigued. Though the overall industry has massive amounts of revenue, the industry is also highly competitive, easily affected by various regulations, and highly volatile. A large part of success is based on which companies will produce the next “blockbuster” drug (a drug that brings in annual sales over $1 billion), but this can be difficult, if not impossible, to predict. For those looking to learn more about the pharmaceutical sector of the market, the following companies are a great place to start.

Pfizer is one of the best-known drug makers in the United States. The company has been in business for about 170 years and exemplifies the potential of a successful company in the pharma industry. Pfizer has a market cap of $227.87 billion. While many drug companies work for years in hopes of having a single blockbuster drug, Pfizer currently has ten different blockbuster drugs. One of these blockbusters under the company’s Prevnar brand includes a family of vaccines for pneumonia and infections similar to pneumonia. Two of Pfizer’s other blockbusters include Lyrica and Eliquis. Lyrica treats fibromyalgia and Eliquis is a blood thinner. These three drugs alone bring in over $1 billion in revenue.

Though Pfizer has a large market share in the pharma industry, the company has not allowed itself to become too comfortable. Instead, the company is constantly working to create new drugs and currently has multiple drugs in the pipeline that look promising. Specifically, Pfizer has over two dozen drugs that are already in Phase III clinical trials. It is certainly possible for issues to arise with Phase III drugs that keep them from ever getting to market, but with so many options so far along in the pipeline, it does seem likely that at least some will make it to market. This is especially important now since Pfizer has multiple blockbuster drugs with expiring patents. Once the patents for the drugs expire, Pfizer no longer has exclusive rights to the drugs. Though this allows prices to remain competitive for consumers, it also cuts into the profit that the original producer of the drug is able to earn.

Merck is a publicly traded pharmaceutical company based in the United States that has been involved in the drug and vaccine space for over 125 years. Merck has a market cap of $197 billion and has an annual return of 34.5%. This makes Merck one of the largest pharmaceutical companies in the world by market capitalization. Merck’s pharmaceutical products are incredibly wide-ranging. The company has drugs related to vaccines, diabetes, oncology, cardiovascular, animal health, HIV, Hepatitis C, and sleep ailments.

2019 has been a strong year for Merck. In the third quarter of 2019 alone, Merck saw sales of $12.4 billion. This is a double-digit growth of 15% in sales from the same quarter of the previous year. Though Merck is involved in many areas of healthcare, this recent growth rate has been based largely on a drug called Keytruda, which has been used to treat multiple types of cancers. Clinical trials are also going on to test the effects of Keytruda in combination with other drugs. Though the clinical test phase is difficult and many promising drugs often never make it to market, the potential for Keytruda does look good for Merck. Merck also has other drugs in its pipeline, including a vaccine for Ebola, drugs to treat chronic heart failure, and a drug to help treat bacterial infections.

With three different blockbuster drugs, AbbVie currently has a market cap of $116.53 billion. It is one of the most active stocks on the market. The blockbuster drug most relevant to AbbVie in the coming years is Humira. Humira is an immunology drug that is currently the best-selling drug in the world. Humira is expected to remain one of the best-selling drugs in the world until at least 2024. That is because Humira has a European competitor, but the competitor cannot enter the United States market until 2023. This gives AbbVie the chance to move other drugs through its pipeline prior to 2024.

AbbVie’s other two blockbuster drugs are Imbruvica and Mavyret. Imbruvica is a drug used for the treatment of certain types of cancer and Mavyret is a hepatitis C drug. AbbVie is hoping that Imbruvica will soon gain approval to be used in treating even more types of cancer than it currently does. While AbbVie also produces other drugs, it is largely thanks to these blockbuster drugs that AbbVie was able to see $32.8 billion in revenue and $5.7 billion in earnings in 2018.

Two drugs in AbbVie’s pipeline that might go to market fairly soon are risankizumab and upadacitinib. Both of these two immunology drugs have seen fantastic results from their Phase III clinical trials. AbbVie is hoping to receive FDA approval for both drugs before the end of 2019. If these two drugs were to make it to market soon, they could be a big step in helping AbbVie reach its goal of $35 billion in earnings by 2025.

For those with a dividend investing strategy seeking some extra cash flow, the dividends that AbbVie pays may also make it worth looking into the company further. AbbVie pays a dividend with a dividend yield of more than 5%.

Johnson & Johnson is a U.S based company that produces, manufactures, and sells consumer packaged goods, medical devices, and pharmaceutical drugs. The pharmaceutical branch of Johnson & Johnson is quite wide-ranging. The company is involved in many different areas of the pharma sector including metabolism, cardiovascular, immunology, vaccines, neuroscience, infectious diseases, oncology, and pulmonary hypertension. Though the company is more diversified than many other pharmaceutical companies, analysts are still concerned with the company’s dependence on the pharma segment of its business.

Johnson & Johnson has a market capitalization of $375.67 billion but has had a less than stellar year. The company’s annual return was -7.3%. The risks associated with this reliance on one segment of its business can be seen in the high volatility that Johnson and Johnson stock saw in 2018. The company also saw a drastic drop in its stock price after reports surfaced that the company had long been aware of the safety concerns surrounding the company’s use of talcum powder.

Novartis is a publicly traded healthcare company based in Switzerland with international influence in the pharma industry. Though Novartis works in a few different areas of healthcare, its primary focus is in ophthalmology—the branch of medicine dealing with the eyes. Novartis has a popular line of contact lenses and solutions, called Alcon. Novartis also has a strong presence in neuroscience drugs, medical equipment, and branded immunology. In the medical equipment market, Novartis produces surgical packs and other medical instruments. Since Novartis does not work exclusively with drugs and has instead diversified into other areas of healthcare, this gives Novartis an extra level of stability compared to some other pharmaceutical companies. Another reason that investors may find Novartis appealing is its current dividend yield of 3.5%.

Top Pharmaceutical ETF

Exchange-traded funds (ETFs) are traded on a stock exchange just like a stock. The difference is that an ETF is made up of multiple securities. Why not invest in each stock individually as opposed to in an ETF? There are a few reasons. Even a single share of stock in individual companies, especially big pharma companies, may be expensive. For some investors, this may be limiting. An ETF also allows for more diversification with a single investment. Instead of stressing over which stocks to buy, investors can pick multiple pharma companies at once.

If you’re interested in investing in some of the best pharmaceutical stocks, these ETFs are made up of some of the best pharmaceutical companies.

  • Invesco Dynamic Pharmaceuticals ETF (PJP)
  • iShares US Pharmaceuticals ETF (ARCA:IHE)
  • SPDR S&P Pharmaceuticals ETF (ARCA:XPH)

Why Should I Invest in Pharmaceuticals?

Along with biotechnology and biotech companies, the pharma industry is a major part of the overall healthcare market. Pharmaceutical companies include some of the biggest stock gainers and some of the best growth stocks on the market. The pharmaceutical market has many amazing stocks to watch. The pharma industry may also be a good investment for those looking for dividend stocks since so many of the largest pharmaceutical companies pay a dividend to its shareholders. Though the industry has plenty of potential for growth, investors should also be aware that pharma stocks—especially smaller startups—can be risky. Investors buying pharma stocks should make sure to do their research and only invest in pharma stocks as part of a diversified portfolio.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Pfizer (PFE)2.6$37.23+1.9%4.08%14.77Hold$40.00
Merck & Co., Inc. (MRK)2.4$79.86-0.2%3.06%17.67Buy$95.33
Johnson & Johnson (JNJ)2.5$144.00+0.2%2.81%22.64Buy$166.08
Novartis (NVS)2.2$89.76+0.7%2.24%29.05Hold$116.00
Invesco Dynamic Pharmaceuticals ETF (PJP)0.4$67.62+1.2%0.84%N/AN/AN/A
iShares U.S. Pharmaceuticals ETF (IHE)0.5$171.87+0.8%1.24%N/AN/AN/A
SPDR S&P Pharmaceuticals ETF (XPH)0.6$48.47+1.2%0.54%N/AN/AN/A
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15 Healthcare Stocks that Analysts Love

There are more than 200 healthcare companies traded on public markets. Given the sheer number of pharmaceutical companies, medical research firms, hospital systems, and other healthcare stocks, it can be hard to identify which healthcare companies will outperform the market.

Fortunately, Wall Street's brightest minds have already done this for us. Every year, analysts issue approximately 3,000 distinct recommendations for healthcare companies. Analysts don't always get their "buy" ratings right, but it's worth taking a hard look when several analysts from different brokerages and research firms are giving "strong-buy" and "buy" ratings to the same healthcare stock.

This slide show lists the 15 healthcare companies with the highest average analyst recommendations from Wall Street's equities research analysts over the last 12 months.

View the "15 Healthcare Stocks that Analysts Love".

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