Long term investors should focus on sectors that will show steady growth for years to come. One thing we know is that the population is getting older and growing across the world. That said, the best pharmaceutical stocks should continue to thrive.
Walk down the street in a big city and you are likely to bump into a pharmacy.
Source: Consumer Reports
The rise of prescription drug usage has been growing exponentially it seems.
The 3 Best Pharmaceutical Stocks
Novartis AG (NYSE: NVS)- One of largest pharmaceutical companies based on market cap and sales. Some of its most important products include: Gilenya, Cosentyx, Gleevac/Glivec, Lucentis, and Tasigna.
The company researches and develops treatments in many fields of disease. They include: cancer, cardio-metabolic, immunology and dermatology, ophthalmology, neuroscience and respiratory.
The firm has over 200 projects in clinical pipeline. In addition, it has over 500 clinical trials in progress. Founded in 1895, the Swiss drug company now employs more than 125K employees.
Novartis products sell in 155 countries. That said, the firm spends billions on research and development each year.
Pfizer Inc (NYSE: PFE)- A member of the Dow Jones Industrial Average and the S&P 500, the creator of the drug Viagra, one of largest pharmaceutical companies in the world.
Other popular drugs the company manufactures include: Prevnar family, Lyrica, Ibrance, Enbrel and Lipitor.
The firm serves wholesalers, retailers, hospitals, clinics, government agencies, pharmacies, and individual provider offices as well as centers for disease control.
In 2016, Pfizer had 63 manufacturing sites worldwide. As of the end of 2017, it had 96 assets in the current product pipeline. The firm sells products in over 150 countries and employees nearly 100K people across the globe.
AbbVie (NYSE: ABBV) – A member of the S&P 500, AbbVie produces one of the highest grossing drug in the world, Humira, a drug that treats different forms of arthritis.
Key medical areas the firm develops drugs for include: immunology, oncology, neuroscience, and virology. However, Humira accounts for more than half of the AbbVie’s global sales.
The company has strategic partnerships with: The University of Chicago, MD Anderson Cancer Center, and the University of California (SF). AbbVie employs 29K people in more than 170 different countries.
Based in Chicago, the firm is a spin-off of Abbot Laboratories.
What The Best Pharmaceutical Stocks Have In Common
Valuation: The price to earnings ratio are in the mid 20s to low 30s. They are among the largest companies in the world, with market caps comfortable above $100B.
Financial: The best pharmaceutical stocks have a positive return on equity, and a low debt to equity ratio. They have insanely high gross margins, ranging between 65 to 90%
Investors: They are primarily owned by institutions like hedge funds and mutual funds.
Trading: They are actively traded, with millions of shares are exchanged on a daily basis.
Even The Best Pharmaceutical Stocks Have Risk
President Trump has said that the pharmaceutical companies have been getting away with murder.
Not only are pharmaceutical companies getting a bad reputation as price gougers, but even some believe that certain pharmaceutical pills are adding to the country’s drug problem.
In June of 2017, the FDA asked Endo Pharmaceuticals to withdraw one of its painkiller drugs, sending shares of the stock lower by double digits on the day of the announcement. Painkillers are heavily abused in America and a leading cause of the opioid crisis in the country.
That said, its important to stay on top of politics. It’s true, that the pharmaceutical industry has strong lobby groups. But, we’ve seen the power of social media and how it can create social change.
The best pharmaceutical stocks have successful products and a growing pipeline. However, you can’t say that about all the stocks in the industry. That’s why most pharmaceutical stocks are volatile and risky to trade.
Trading Pharmaceutical Stocks
Pharmaceutical stocks are among the most volatile to trade. There are several steps a drug must go through before it ever sees the light of day. And when it comes to clinical studies, there are 3 phases that must be passed before a drug can be considered for FDA approval.
Traders trade these catalyst events all the time. In fact, websites like BioPharmCatalyst offer FDA calendars so investors can stay on top of events.
Most traders who trade pharmaceutical stocks are not doctors or are trained in medicine. That said, after a catalyst, pharmaceutical stocks have the ability to overshoot in either direction.
Easy Way To Buy The Best Pharmaceutical Stocks
A quick and easy way for an investor to gain exposure to some of the top pharmaceutical names is by buying the PowerShares Dynamic Pharmaceutical ETF (NYSE: PJP)
Some of its largest holdings include: AbbVie, Bristol-Myers Squib, Gilead Sciences, Amgen, Abbott Labs, Pfizer, Johnson & Johnson, and Eli Lilly & Co.
The best pharmaceutical stocks have a steady product line, plenty of cash to spend on research and development, and are constantly looking for ways to grow their pipeline.
Most of the companies in the sector never really make it. The top names in the sector thrive. The easiest way for an investor to get involved is by buying into an ETF that invests in a basket of pharmaceutical stocks.