Are stocks expensive? Many of them are. Valuations are skyrocketing after massive gains generated over the past decade. However, not all stocks trade at nosebleed levels.
We asked three Motley Fool contributors to select pharmaceutical stocks that remain well valued. Here is why they think Bristol Myers Squibb (NYSE: BMY), Novartis (NYSE: NVS), and Viatris (NASDAQ: VTRS) are too cheap to ignore.
A value stock with a lot of growth potential
Prosper Junior Bakiny (Bristol Myers Squibb): Investors are sometimes wary of undervalued companies. A cheap stock could be a sign of an unhealthy business that the market has rightly punished, the argument goes. But when it comes to Bristol Myers Squibb, the exact opposite is true.
Yes, this drug maker is very cheap. It is currently trading at just 7.6 times forward earnings and its price relative to Free Cash Flow (FCF) is only 8.8. For reference, the pharmaceutical industry’s average futures price-to-earnings ratio was 13.9 on November 17, while a price against FCF below 20 is widely considered good.
But Bristol Myers’ business is going very well. The company claims no less than eight drugs that generate at least $ 1 billion per year. In particular, Opdivo and Eliquis still have considerable room for growth. Both are expected to rank among the top three best-selling drugs in the world by 2026, according to the EvaluatePharma market research.
Other winners could be on the way. Bristol Myers Squibb has over 50 clinical compounds in its pipeline.
With its rich current product line, Bristol Myers generates enough cash flow to keep its dividend healthy. The company is currently offering a return of 3.44% – well above the S&P 500yield of 1.29% – with a cash payout ratio of 29.6%. This makes Bristol Myers a solid option for investors looking for dividends.
With attractive valuation metrics, a strong portfolio coupled with a strong pipeline and a juicy dividend yield, Bristol Myers has a lot to offer investors. It’s worth buying shares of this drugmaker before they skyrocket.
A cheap buy that has strong fundamentals and pays a high dividend
David Jagelski (Novartis): Investing in stocks with strong fundamentals that trade low is one way to prepare your portfolio for attractive long-term gains. Multinational pharmaceutical giant Novartis won’t be a leading stock that will rise in price on its own, but you can expect it to be an investment that steadily increases in value over time.
Year-to-date, its stocks are down 13% while the S&P 500 has risen 25%. But there is no glaring reason to be bearish on the stock, as the company has performed well. In the first nine months of 2021, Novartis’ net sales of $ 38.4 billion increased 7% year-on-year. And his net income of $ 7.7 billion rose 29%. Free cash flow of $ 10.2 billion is also 23% higher than it was a year ago.
What is also great about Novartis is the diversity of its activities. Its 20 most innovative drugs have generated $ 24.4 billion in product sales so far this year, just under two-thirds of all revenue. And many of those products have seen at least 20% year-over-year growth, with psoriasis drug Cosentyx leading the way with $ 3.5 billion in year-to-date revenue. of the year. Novartis management believes the drug could reach at least $ 7 billion in annual revenue at its peak.
Overall, the business appears to be in good shape. Falling prices this year are an opportunity for value investors to recoup a great investment. Today, Novartis shares are trading at a futures price / earnings multiple of just 13. Industry Giant Johnson & johnson, by comparison, is a multiple of more than 16.
Another motivator to buy Novaris right now is its dividend. With the stock price falling this year, the stock now returns 3.9%, more than double the S&P 500 average of 1.4%.
Novartis stock is near its 52 week low and can be a great investment to buy and forget to add to your portfolio today.
Wall Street thinks this cheap pharmaceutical stock could skyrocket
Keith Speights (Viatris): I recognize that Bristol Myers Squibb and Novartis have attractive valuations. If you’re looking for a good deal, check out Viatris. Its shares are trading at just 3.6 times expected earnings.
Normally, such a cheap stock would have major pitfalls. Not Viatris. It’s profitable. The company recently raised its forecast for the year 2021. Probably the only real downside to Viatris is that it is not likely to generate meteoric growth anytime soon.
These weaker growth prospects are mainly due to the company’s focus on biosimilars and generics. Just because income may not skyrocket doesn’t mean the stock won’t. Wall Street analysts have high expectations of Viatris. The 12-month consensus price target reflects a 54% premium over the current share price.
In the longer term, Viatris should be able to bring stronger growth to investors. The company’s pipeline includes several biosimilars and complex drugs in development that may gain regulatory approvals in the coming years.
In the meantime, Viatris rewards patient shareholders with an attractive dividend yield of nearly 3.4%. The company expects it to increase dividend payouts in the future.
Viatris will not be a first choice for growth investors. But for value and income oriented investors, I think this is a question that should definitely be considered.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.