The healthcare industry’s growth is driven by the fast-rising medical needs, the growing demand for personalized and precision drugs, and the use of advanced technologies.
Given this backdrop, investors could consider buying undervalued healthcare stocks such as AbbVie Inc. (ABBV), Bristol-Myers Squibb Company (BMY), and Gilead Sciences, Inc. (GILD), given their high potential. Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the healthcare industry’s prospects.
The healthcare industry is not cyclical given the consistent demand for medications and treatments. The increasing incidence of chronic diseases like diabetes, arthritis, and cancer, an aging population, and global initiatives to improve drug affordability and accessibility are expected to boost the need for effective drugs and therapies.
Additionally, expansion into new markets and obtaining approval for innovative medications present opportunities for expansion. Advanced technologies such as AI, IoT, and big data analytics have revolutionized drug discovery and manufacturing, accelerated clinical trial timelines, and enhanced supply chain efficiency.
Furthermore, the growing demand for tailored treatments to improve clinical efficacy drives the demand for personalized and precision medicine. The U.S. pharmaceutical market is projected to reach $760 million by 2030, growing at a CAGR of 5.5%.
In light of these encouraging trends, let's examine the fundamentals of the three healthcare sector stock picks.
AbbVie Inc. (ABBV)
ABBV discovers, develops, manufactures, and sells pharmaceuticals worldwide. The company offers Humira, Skyrizi, Rinvoq, Imbruvica, Epkinly, Elahere, and Venclexta/Venclyxto.
On June 4, 2024, ABBV announced that RINVOQ is indicated in the U.S. for treating pediatric patients aged two and older with active polyarticular juvenile idiopathic arthritis and psoriatic arthritis. RINVOQ LQ, a weight-based oral solution for pediatric patients, is also available.
In terms of forward EV/EBIT, ABBV is trading at 14x, 12.5% lower than the industry average of 15.99x. Its 15.17x forward non-GAAP P/E is 22.8% lower than the 19.64x industry average.
ABBV’s net revenues for the fiscal first quarter that ended March 31, 2024, increased marginally year-over-year to $12.31 billion. Its operating earnings rose marginally over the prior-year quarter to $2.80 billion. In addition, its adjusted earnings after tax stood at $4.12 billion. Also, its adjusted EPS came in at $2.31.
Analysts expect ABBV’s revenue and EPS for the quarter ending June 30, 2024, to increase 1% and 4.9% year-over-year to $14.01 billion and $3.05, respectively. The company surpassed the Street revenue estimates in each of the trailing four quarters, which is impressive. Over the past year, the stock has gained 23.4%, closing the last trading session at $170.46.
ABBV’s POWR Ratings reflect this positive outlook. It has an overall rating of A, equating 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.
ABBV has a B grade for Growth, Value, and Quality. It is ranked #6 out of 155 stocks in the Medical - Pharmaceuticals industry. Click here to see ABBV’s Momentum, Stability, and Sentiment ratings.
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 May 29, 2024, BMY announced that the European Commission approved Opdivo in combination with cisplatin and gemcitabine for the first-line treatment of unresectable or metastatic urothelial carcinoma (UC). With this approval, Opdivo became the first concurrent immunotherapy-chemotherapy approved for treating UC in the European Union.
On May 16, 2024, BMY announced that the FDA granted accelerated approval for Breyanzi, a CAR T cell therapy, for treating adults with relapsed or refractory follicular lymphoma (FL). It is also listed in the National Comprehensive Cancer Network Guidelines for B-cell Lymphomas as a therapy for relapsed or refractory FL.
In terms of forward Price/Sales, BMY is trading at 1.87x, 49.2% lower than the industry average of 3.69x. The stock’s forward EV/Sales of 2.90x is 16.2% lower than the industry average of 3.46x.
For the fiscal first quarter that ended March 31, 2024, BMY’s total revenues increased 4.7% year-over-year to $11.87 billion. Its non-GAAP gross profit rose 1.5% from the year-ago quarter to $8.96 billion. As of March 31, 2024, BMY’s total assets amounted to $99.03 billion, compared to $95.16 billion as of December 31, 2023.
Street expects BMY’s fiscal 2025 EPS to increase considerably year-over-year to $6.91. Its revenue for the quarter ending June 30, 2024, is expected to rise 2.4% year-over-year to $11.50 billion. The company surpassed consensus EPS and revenue estimates in three of the trailing four quarters. BMY has gained 2.6% intraday, closing the last trading session at $42.57.
BMY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Sentiment. It is ranked #9 in the Medical - Pharmaceuticals industry. Get BMY’s Momentum, Stability, and Quality ratings here.
Gilead Sciences, Inc. (GILD)
GILD discovers, develops, and commercializes medicines in the areas of unmet medical need in the U.S., Europe, and internationally. The company provides Biktarvy, Genvoya, Descovy, Odefsey, Truvada, Complera/ Eviplera, Stribild, Sunlencs, and Atripla products for treating HIV/AIDS.
On April 26, 2024, GILD announced that the FDA approved an updated label with additional data reinforcing the safety and efficacy profile of Biktarvy to treat pregnant people with HIV-1 with suppressed viral loads. This update makes Biktarvy the only second-generation integrase strand transfer inhibitor-based single-tablet regimen with in-label clinical trial data.
On March 28, 2024, GILD announced that the FDA approved the supplemental new drug application for Vemlidy 25 mg tablets as a once-daily treatment for chronic hepatitis B virus infection in pediatric patients six years of age and older and weighing at least 25 kg with compensated liver disease.
In terms of forward EV/EBITDA, GILD is trading at 10.44x, 20% lower than the industry average of 13.04x. Additionally, the stock’s forward Price/Sales of 2.95x is 20.1% lower than the industry average of 3.69x.
GILD’s revenue for the fiscal first quarter that ended March 31, 2024, amounted to $6.69 billion, up 5.3% year-over-year. Its free cash flow grew 29.3% from the year-ago quarter to $2.11 billion. Moreover, its cash and cash equivalents at end of period stood at $4.72 billion. As of March 31, 2024, GILD’s net accounts receivable amounted to $4.67 billion, compared to $4.66 billion as of December 31, 2023.
For the quarter ending June 30, 2024, GILD’s revenue and EPS are expected to increase 1.6% and 18% year-over-year to $6.70 billion and $1.58, respectively. It surpassed consensus revenue estimates in each of the trailing four quarters. The stock has gained marginally intraday to close the last trading session at $65.25.
GILD’s POWR Ratings reflect its robust prospects. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
GILD has an A grade for Value and a B for Growth and Quality. Within the Biotech industry, it is ranked first out of 355 stocks. Click here for the additional POWR Ratings of GILD (Momentum, Stability, and Sentiment).
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.
ABBV shares were trading at $167.67 per share on Tuesday morning, down $2.79 (-1.64%). Year-to-date, ABBV has gained 10.25%, versus a 12.78% 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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