The healthcare industry's prospects appear bright due to several advancements in biomedical science, accessible digital health products, and comprehensive operations in human and animal health. Notably, the sector is known for its stability during economic uncertainties, as the demand for medical treatments remains consistent.
Amid this backdrop, investors could consider buying fundamentally strong pharma stocks: Johnson & Johnson (JNJ), Merck & Co., Inc. (MRK), and AbbVie Inc. (ABBV), for long-term gains, particularly as they are currently undervalued.
The healthcare sector's bright outlook is driven by increased investment in pharma sciences to tackle global health concerns. Advances in drug technology, including mRNA and gene therapy, along with a focus on tackling chronic diseases, fuel the industry’s expansion. The global pharmaceutical revenues are expected to hit $1.16 trillion this year and grow to $1.47 trillion by 2028.
Meanwhile, the animal healthcare sector is growing due to rising pet adoption, greater pet humanization, and concerns about zoonotic diseases. Innovations in biologics and diagnostics, coupled with increased consumer awareness and advancing technology, are driving market growth. The animal medicine market is expected to reach $55.10 billion in 2024, growing at a 7.7% CAGR.
Considering these conducive trends, let’s take a look at the fundamentals of the three Medical - Pharmaceuticals stock picks, beginning with the third choice.
Stock #3: Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. The company operates through two segments: Innovative Medicine and MedTech.
On August 2, 2024, JNJ MedTech announced the launch of the VELYS Active Robotic-Assisted System for spinal surgery, featuring dual-use robotics and navigation technology. This system, developed with eCential Robotics, aims to enhance spine surgery by offering customizable surgical guidance and is set to become part of their VELYS Enabling Technologies Portfolio.
On July 30, 2024, JNJ announced that the FDA approved DARZALEX FASPRO for use with bortezomib, lenalidomide, and dexamethasone in treating newly diagnosed multiple myeloma patients who are eligible for a transplant. This regimen reduced disease progression or death by 60%.
In terms of forward non-GAAP P/E, JNJ’s 16.05x is 22.9% lower than the 20.83x industry average. Likewise, its 12.90x forward EV/EBITDA is 5.2% lower than the 13.61x industry average. Furthermore, its 14.57x forward EV/EBIT is 12.8% lower than the 16.71x industry average.
In the second quarter that ended June 30, 2024, JNJ’s reported sales increased 4.3% year-over-year to $22.45 billion. Its gross profit grew 3.5% from the year-ago value to $15.58 billion. Moreover, the company’s adjusted net earnings rose 1.6% and 10.2% from the prior year’s quarter to $6.84 billion and $2.82 per share, respectively.
For the third quarter ending September 30, 2024, JNJ’s revenue is expected to increase 3.7% year-over-year to $22.14 billion. Its EPS for the quarter (ending December 31, 2024) is expected to increase marginally year-over-year to $2.31. The company surpassed consensus EPS estimates in each of the trailing four quarters.
JNJ’s stock has gained 8.6% over the past nine months to close the last trading session at $159.88.
JNJ’s POWR Ratings reflect a robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
JNJ is ranked #21 out of 153 stocks in the Medical – Pharmaceuticals industry. It has a B grade for Value, Stability, and Quality. Click here to see JNJ’s Growth, Momentum, and Sentiment ratings.
Stock #2: Merck & Co., Inc. (MRK)
MRK operates as a healthcare company worldwide. It operates through two segments: Pharmaceutical and Animal Health. The company's offerings include global healthcare solutions in human health pharmaceuticals (oncology, immunology) and preventive vaccines. The Animal Health segment provides veterinary pharmaceuticals, vaccines, and digital health products.
On August 9, 2024, MRK announced an acquisition of CN201, an investigational bispecific antibody from Curon Biopharmaceutical. The $700 million deal includes potential milestone payments and aims to enhance MRK’s pipeline for treating B-cell malignancies and autoimmune diseases.
On August 6, 2024, MRK and Daiichi Sankyo announced a global agreement to co-develop and commercialize MK-6070, a DLL3-targeting T-cell engager for cancer treatment. MRK will retain exclusive rights in Japan and is responsible for manufacturing, while both companies will share global R&D and commercialization expenses and profits.
In terms of forward non-GAAP PEG, MRK’s 0.33x is 81.9% lower than the 1.85x industry average. Its 12.81x forward EV/EBIT is 23.3% lower than the 16.71x industry average. Likewise, the stock’s 14x forward non-GAAP P/E is 32.8% lower than the 20.83x industry average.
During the second quarter that ended June 30, 2024, MRK’s total sales rose 7.2% year-over-year to $16.11 billion. MRK’s KEYTRUDA sales increased 15.9% year-over-year to $7.27 billion. Its non-GAAP net income and EPS were $5.81 billion and $2.28, compared to a net loss of $5.22 billion and $2.06 per share in the same quarter of 2023, respectively.
Street expects MRK’s revenue for the quarter ending September 30, 2024, to increase 3.8% year-over-year to $16.57 billion. Its EPS for the quarter ending December 31, 2024, is expected to grow considerably year-over-year to $1.95. Also, the company topped consensus EPS estimates in three of the trailing four quarters.
Over the past nine months, the stock gained 11.9% to close the last trading session at $113.48.
MRK’s POWR Ratings reflect strong prospects. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Value and Stability. It is ranked #5 in the same industry. To see MRK’s additional grades for Growth, Momentum, and Sentiment, click here.
Stock #1: AbbVie Inc. (ABBV)
ABBV discovers, develops, manufactures, and sells pharmaceuticals worldwide. It offers a diverse range of pharmaceutical products, including treatments for autoimmune diseases, dermatology, rheumatology, oncology, neuroscience, eye care, gastroenterology, and endocrinology. Some of the products in its portfolio are HUMIRA, SKYRIZI, and RINVOQ.
In terms of forward EV/EBITDA, ABBV’s 15.07x is 4.9% lower than the 15.85x industry average. Similarly, its 17.47x forward non-GAAP P/E is 16.1% lower than the 20.83x industry average. Also, its 15.84x forward EV/EBIT is 5.2% lower than the 16.71x industry average.
ABBV’s net revenues for the fiscal second quarter that ended on June 30, 2024, increased 4.3% year-over-year to $14.46 billion. Its operating earnings for the period were $4 billion, and its adjusted earnings after tax were $4.71 billion. Additionally, the company reported an adjusted EPS of $2.65.
Analysts expect ABBV’s revenue for the quarter ending September 30, 2024, to increase 2.5% year-over-year to $14.27 billion. Its EPS for the quarter ending December 31, 2024, is expected to grow 5.8% year-over-year to $2.95. Over the past nine months, ABBV’s stock has gained 37.2% to close the last trading session at $190.18.
It’s no surprise that ABBV has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
ABBV has a B grade for Growth, Value, Stability, and Quality. It is ranked #4 in the Medical – Pharmaceuticals industry.
Beyond what we stated above, we also have given ABBV grades for Momentum and Sentiment. Get all the ABBV’s ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
JNJ shares were trading at $157.54 per share on Tuesday afternoon, down $2.34 (-1.46%). Year-to-date, JNJ has gained 2.09%, versus a 14.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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