The pharmaceutical industry is poised for robust growth, fueled by a rapidly expanding medicinal drug and vaccine market. Due to the persistent necessity of its products, the industry retains stability, which makes it less vulnerable to economic fluctuations.
Given this backdrop, quality pharma stocks Neurocrine Biosciences, Inc. (NBIX), AbbVie Inc. (ABBV), and Novo Nordisk A/S (NVO), with an overall rating of A (Strong Buy) in our proprietary POWR Ratings system, could be solid buys now.
The pharma industry is anticipated to maintain a robust trajectory in the upcoming months in response to the swiftly propagating COVID-19 variants such as EG.5 (Eris), accounting for approximately 21.5% of infections in the United States, followed by FL.1.5.1 with 14.5% of cases, and variant XBB.1.16.6 with 9.2% of cases.
Despite WHO’s assurances of its minimal public health risk, an increase in infection, hospitalization, and death rates has spurred industry leaders to revise existing vaccines. There are currently about 4,304 patients hospitalized in the United States on an average daily, with 15% of those being ICU patients.
Top-tier clinical research institutions and leading pharmaceutical companies have received more than $1.4 billion in funding to pioneer revolutionary vaccines and treatments for COVID-19 as part of President Biden’s $5 billion Project NextGen initiative.
Unceasing innovation remains a hallmark and competitive strategy within pharma companies’ pipelines – an approach designed to catalyze revenue growth and satisfy the industry’s competitive compulsions. Over 20% of sales are reinvested into R&D, primarily focusing on drug discovery. The successful execution and expansion into vital therapeutic domains and favorable results from clinical studies could be critical catalysts for advancement.
Moreover, swift technological progress and escalating demand for generic drugs observed within the sector are due to the widespread prevalence of chronic diseases, an increasing aging population, gene therapy explorations, and enhanced after-care services.
As per Statista, revenue in pharma is expected to reach $1.48 trillion by 2028, growing at a CAGR of 5.8%. Moreover, SPDR S&P Pharmaceuticals ETF’s (XPH) 6% gains over the past three months substantiate investors’ interest in pharma stocks.
In light of these encouraging trends, let’s look at the fundamentals of the three best Medical – Pharmaceuticals stocks, beginning with number 3.
Stock #3: Neurocrine Biosciences, Inc. (NBIX)
NBIX discovers, develops, and markets pharmaceuticals for neurological, endocrine, and psychiatric disorders. The company’s portfolio includes treatment for tardive dyskinesia, Parkinson’s disease, endometriosis, and uterine fibroids, as well as clinical programs in various therapeutic areas. Its products include INGREZZA, DYSVAL, ONGENTYS, ORILISSA, ORIAHNN, and ALKINDI SPRINKLE.
On September 12, NBIX announced positive top-line data from the Phase 3 CAHtalyst™ Adult Study evaluating the efficacy, safety, and tolerability of crinecerfont in adults with classic congenital adrenal hyperplasia (CAH) due to 21-hydroxylase deficiency (21-OHD). This should bode well for the company.
On August 18, 2023, NBIX announced that the U.S. Food and Drug Administration (FDA) approved INGREZZA (valbenazine) capsules for treating adults with chorea associated with Huntington’s disease.
NBIX’s trailing-12-month EBIT and levered FCF margins of 17.60% and 21.38% are significantly higher than the industry averages of 0.15% and 0.23%, respectively. Its trailing-12-month EBITDA margin of 18.71% is 262.9% higher than the 5.15% industry average.
NBIX’s revenues for the fiscal second quarter that ended June 30, 2023, increased 19.7% year-over-year to $452.70 million. Its non-GAAP net income and non-GAAP earnings per share increased 53.1% and 48.8% from the prior-year quarter to $125.70 million and $1.25, respectively.
As of June 30, 2023, NBIX’s total current assets stood at $1.50 billion, compared to $1.45 billion as of December 31, 2022.
Street expects NBIX’s revenue and EPS for the fiscal third quarter ending September 2023 to increase 22.8% and 21.5% year-over-year to $476.46 million and $1.31, respectively.
Over the past six months, the stock has gained 22.2% to close the last trading session at $117.10. It gained 25.3% over the past three months.
NBIX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Value and Sentiment. It is ranked #10 in the 160-stock Medical – Pharmaceuticals industry.
To see the NBIX’s Growth, Momentum, and Stability ratings, click here.
Stock #2: AbbVie Inc. (ABBV)
ABBV is a research-based biopharmaceutical company that develops, manufactures, and sells pharmaceuticals worldwide. The company’s product offerings include HUMIRA, SKYRIZI, and RINVOQ.
In August, ABBV received European Commission approval for AQUIPTA® (atogepant) for the prophylaxis of migraine in adults with four or more migraine days per month, providing a valuable treatment option for both chronic and episodic migraine sufferers. This should prove to be beneficial for the company.
On September 8, ABBV’s board of directors declared a quarterly dividend of $1.48 per share, payable to the shareholders on November 15, 2023. Since the company’s inception in 2013, it has increased its dividend by 270%.
Its annual dividend of $5.92 per share dividend translates to a 3.97% yield on the current price level. ABBV’s dividend payments have grown at a CAGR of 8.3% and 12.3% over the past three and five years, respectively. Its four-year average dividend yield is 4.38%.
ABBV’s trailing-12-month EBIT and levered FCF margins of 36.50% and 42.28% are significantly higher than the 0.15% and 0.23% industry averages, respectively. Its trailing-12-month EBITDA margin of 52.11% is 911% higher than the 5.15% industry average.
ABBV’s net revenues stood at $13.87 billion for the fiscal second quarter that ended June 30, 2023. Its operating earnings increased 37% year-over-year to $4.51 billion. Net earnings attributable to ABBV improved 119% from year-ago value to $2.02 billion. Earnings per share attributable to ABBV came in at $1.14, registering a 123.5% improvement from the prior-year quarter.
The consensus EPS estimate for the next year (ending December 2024) of $11.10 indicates a marginal improvement from the prior year. Its revenue for the same year is expected to be $53.05 billion. It has an impressive earnings surprise history, surpassing EPS estimates in three of the trailing four quarters.
ABBV’s shares have gained 4.9% over the past year and 8.4% over the past three months to close the last trading session at $149.27.
It is no surprise that ABBV has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
ABBV has an A grade for Quality and a B for Value, Stability, and Sentiment. It is ranked #3 within the same industry.
Beyond what has been stated above, we’ve also rated ABBV for Momentum and Growth. Click here to see all POWR Ratings of ABBV.
Stock #3: Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a global healthcare company engaged in the research, development, manufacture, and marketing of pharmaceutical products worldwide. The company operates through two segments: Diabetes and Obesity care; and Biopharm.
Recently, NVO approved a split of the trading units of its B shares listed on Nasdaq Copenhagen and of the American Depositary Receipts (ADRs) listed on the New York Stock Exchange (NYSE) in a two-for-one ratio.
On August 10, NVO initiated a share repurchase program, which is part of the overall share repurchase program of up to DKK 30 billion to be executed during 12 months beginning February 1, 2023. Under the program, NVO will repurchase B shares for up to DKK 5.7 billion ($820.01 million) from August 10, 2023, to October 31, 2023.
On August 10, NVO announced its plans to acquire Inversago Pharma, a Montreal-based firm focusing on CB1 receptor-based therapies for obesity, diabetes, and metabolic disorder treatment. This acquisition is expected to expand NVO’s clinical development pipeline.
NVO has a record of paying dividends for 41 consecutive years. Its annual dividend of $2.06 yields 1.03% on its current share price. Its dividends have grown at 16.5% and 10.2% CAGRs over the past three and five years, respectively. NVO’s four-year average dividend yield is 1.61%. This reflects the company’s solid shareholder return ability.
NVO’s trailing-12-month EBIT margin of 43.20% is significantly higher than the industry average of 0.15%. Its trailing-12-month ROCE, ROTC, and ROTA are 81.54%, 50.32%, and 23.95% compared to the industry average of negative 43.46%, 22.61%, and 31.38%, respectively.
For the fiscal second quarter that ended June 30, 2023, NVO’s net sales increased 31.6% from year-ago value to DKK 54.30 billion ($7.81 billion), while its gross profit increased 32% year-over-year to DKK 46.44 billion ($6.68 billion). Its EBIT came in at DKK 23.89 billion ($3.44 billion), up 29.9% from the prior-year value.
The company’s net profit and EBITDA came in at DKK 19.43 billion ($2.79 billion) and at DKK 26.07 billion ($3.75 billion), representing increases of 45.9% and 30.1%, respectively, from the prior-year quarter.
Street expects NVO’s revenue and EPS to increase 34.1% and 57.4% year-over-year in the current quarter (ending September 2023) to $8.07 billion and $1.32, respectively. Additionally, it topped the revenue estimates in three of the trailing four quarters.
The stock has gained 80% over the past year to close the last trading session at $196.75. Over the past six months, it gained 39.3%.
NVO’s POWR Ratings reflect its fundamental strength. The company has an overall A rating, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Stability. NVO is ranked #2 within the same industry.
Click here for additional ratings for NVO’s Sentiment, Value, and Momentum.
43 Year Investment Pro Shares Top Picks
Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…
Want More Great Investing Ideas?
NVO shares fell $5.30 (-2.69%) in premarket trading Wednesday. Year-to-date, NVO has gained 43.24%, versus a 17.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|NVO||Get Rating||Get Rating||Get Rating|
|ABBV||Get Rating||Get Rating||Get Rating|
|NBIX||Get Rating||Get Rating||Get Rating|