As the stock market selloff accelerates, this one sector could be the unsung hero for your investment account.
The current state of the markets is far from secure and certain. Many investors are pulling out of big-name companies such as Apple, Microsoft, and Tesla as major sell-offs occur across all markets.
S&P 500 has just recently reached what is known as a bear market, NASDAQ Composite (a tech-heavy index) has been in a bear market since March, and despite the fact that the Dow Jones Industrial Average has yet to reach the point of a bear market, it has suffered major pullbacks within the last month, reaching the point of a correction, or 10% from recent highs.
TLDR: Markets as a whole are trading down 20-30% which has forced every investor to ask themselves: How do I survive this brutal market?
The answer, as it turns out, is the pharmaceutical sector. These stocks have not only been outperforming as of late but appear poised to continue these gains in the months ahead as recession fears affect nearly every other sector of the economy.
Stock #1: Eli Lily and Co | $LLY | +30%
Company Overview:
Eli Lilly and Company was founded in 1876 and is headquartered in Indianapolis, Indiana. They have been an ever-evolving modern marvel in medicine as they are slowly becoming one of the most prominent companies to discover, develop, and market human pharmaceuticals worldwide.
The company mainly offers medications for diabetes (both type 1 and 2), cancer (gastric, head and neck, and Hodgkin’s lymphoma), mental illnesses, and more recently Covid-19.
Many of Eli Lily’s medical advancements have been made through collaborations with Incyte Corp., Boehringer Ingelheim Pharmaceuticals Inc., AbCellera Biologics Inc., Junshi Biosciences, Regor Therapeutics Group, and more.
Why Invest:
Currently, within the last year, Eli Lily is trading up 30%+ and as major news such as the FDA approving Lily and Incyte’s OLUMIANT® as the first and only systemic medicine for adults with severe alopecia areata AND Eli Lily’s Jardiance® being found to decrease the relative risk of hospitalization for heart failure by 50% when compared in a study against other inhibitors and receptor agonists, the company surely shows no signs of slow down.
As of now, Eli Lily’s earnings have grown faster (27% per year) than the U.S. Drug Manufacturers’ general average (15.3%). Their revenue growth is also moving at light speed as growth has been found to be 15% over the last year and is over the 5-year compound annual rate of 6.32%.
Return on Assets is also a virtue for Eli Lily as its figures show an increase of 12.8% compared to the U.S. Drug Manufacturers’ general average of 10.15%. Back to revenue growth, Eli Lily’s revenues are forecasted to grow fast than the rest of the U.S. Drug Manufacturers’ general average (7.26% vs. 2.08%).
With all the data backing them, Eli Lily undoubtedly has gained the trust of Wall Street analysts. The company’s 1-year price target has an average estimate of $304.28 which is an indication of a possible 5% increase with the current price being $288.07. Analysts have also weighed in on Eli Lily, giving it a “Buy” rating.
Stock #2: Novo Nordisk A/S | $NVO | +25%
Company Overview:
Another leading global biopharmaceutical company headquartered in Denmark that specializes in treatments for diabetes, obesity, and other chronic diseases is also outperforming the total market. Novo Nordisk A/S is a Bagsværd, Denmark-based company with a $250 billion market cap.
Since the beginning of the year, investors haven’t been impressed with a delivered return of -5.24%. However, patience is a virtue, and in a 1-year span, Novo Nordisk is up 25%+.
The consensus is that Novo Nordisk’s diabetes franchise will continue to dominate with hopes of solid growth driven by its most popular drugs: Rybelsus and Ozempic. Many investors are also excited about the continual growth of Novo Nordisk’s anti-obesity sector.
There are over 650 million people currently living with obesity globally and it is estimated that a measly 2% are treated with any form of anti-obesity medication.
Why Invest Now:
When will we not need medicine development? Coming off of the Covid pandemic, more people are turning their trust in these companies in hopes that they’ll produce the next life-saving drug. Novo Nordisk has done nothing but fulfill that hope.
For example, in a 68-week clinical study of adults living with obesity or excess weight with a medical problem, adults taking Wegovy (Novo Nordisk’s recently released anti-obesity drug) lost on average 35 pounds or roughly 15% of body weight.
The earning growth for the company is also amazing over the last year registering an 8.26% gain which is above the 5-year compound annual rate of 7.67%. As earnings grow, so do revenues. Novo Nordisk’s revenue growth is also moving at amazing speeds as the company reported an 8.82% growth over the last year which is also above the 5-year compound annual rate threshold of 6.3%. Revenues are also forecasted to grow faster than the U.S. market average (15.41% per year vs. 9.22%).
Novo Nordisk is currently trading at $104.85 and Wall Street estimates have an average 1-year price target of $124.80 indicating a possible 18% increase. Strong data and a very hopeful Wall Street have also led to an overall rating of “Buy.”
Stock #3: Merck and Co. Inc | $MRK | +12%
Company Overview:
Merck and Co. Inc. is one of the ever-growing worldwide healthcare companies. The advantage Merck has is its two business segments: Pharmaceutical and Animal Health. As you may know, many investors turn to earnings calls to indicate a healthy stock. For Q1 earnings, Merck reported an EPS of $2.14 which beat estimates by $0.31. The healthcare company also reported a VERY healthy $15.90 billion which is up 31.63% YOY and outperformed estimates by $1.25 billion.
Why Invest Now:
This is an undervalued stock that you can’t afford to miss. Not only is the company undervalued, but Merck pays out dividends as well. The company has a forward P/E ratio of 11.5 and a dividend yield of 3.25%.
Revenue has been massive for Merck. Growth over the last year is being reported as 29% which is above its 5-year compound annual rate of 6.21%. Also, Merck’s revenue is forecasted to grow faster than the U.S. Drug Manufacturers’ general average (3.65% vs. 2.08%).
Merck is also generating higher Returns on Assets and Returns on Capital. For Assets, the company reported an increase of 14.3% which is greater than the U.S. Drug Manufacturers’ general average of 10.15%. For Capital, Merck has generated an increase of 19%. In just three years, this is a 16% increase.
With these numbers, it’s no mystery as to why 84 hedge funds disclosed ownership of stakes in Merck at the end of Q1 2022. Hedge funds have increased investment values by $2.08 billion bringing the total to $5.86 billion (when reported at the end of Q1). The hedge fund sentiment for the stock is positive.
As the news broke that the FDA has accepted Merck’s application for its KEYTRUDA® (pembrolizumab) as Adjuvant Therapy for Stage IB-IIIA Non-Small Cell Lung Cancer, Wall Street upgraded its sentiments towards the stock. Merck’s 1-year average price target sits at $97.35, indicating a 15% potential increase. Wall Street also has rated Merck as a “Buy.”
Your Bottom Line:
If you happen to of already owned one of these names, odds are it has been the best investment this year. And if not, you might consider adding them to your portfolio.
As previously noted, the overall market is trading down 20-30% this year and these low-risk companies are thriving and have proved themselves to be amazing sources of security in a choppy market.
Not only are they performing well since the market decline, but a bonus is they pay great dividends.
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