For investors with spare cash on hand, market sell-offs such as this one can provide plenty of opportunities. Stocks with sky-high valuations may have finally fallen to a price where it is reasonable to buy, and stocks that were cheap beforehand may have declined further into a valuation level that defies all reason.
More often than not, companies with sound business models that are finding new ways to grow their revenue will see their share prices rebound once the crisis is over. Let's examine two value stocks that can make you richer in May.
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A blue-chip pharmaceutical stock
AbbVie (ABBV 0.05%) is a blue-chip pharmaceutical company trading at just eight times forward earnings. Investors are arguably skeptical of the company's potential for a good reason. The company's flagship product is Humira, a drug that treats a variety of diseases, such as Crohn's disease, rheumatoid arthritis, and ulcerative colitis. Last year, sales of the drug amounted to $19.17 billion, or 58% of AbbVie's total revenue.
Unfortunately, Humira's patents are expiring and the company has three years before biosimilars enter the market. When biologics lose their patent protection, their sales usually decline by 95% or more if there are more than six competitors on the market. Having the risk of nearly $19 billion wiped out after 2023 is surely something no shareholder will ever wish to see.
However, the company is making efforts to diversify away from its dependence on Humira. Last year, the company launched two new drugs in its immunology portfolio: Skyrizi for the treatment of psoriasis and Rinvoq for rheumatoid arthritis. The two drugs have already generated combined revenue of $402 million by January. Furthermore, AbbVie is expecting $1.7 billion in revenue this year for Skyrizi and Rinvoq. That's almost 322% growth year over year.
Additionally, AbbVie recently closed its acquisition of Allergan, the famous maker of Botox, for $62 billion. Despite having no patent protection, Botox still generates up to $800 million in sales per quarter.
Overall, pharmaceutical investors would be getting shares of AbbVie at a bargain with its current valuation of 1.5 times price-to-sales. The stock also posts a 5.4% dividend yield to reward those in it for the long term.
An innovative opioid manufacturer
Among opioid manufacturers, Collegium Pharmaceutical (COLL 1.99%) represents a true anomaly.
First of all, out of more than 2,600 lawsuits nationwide against opioid suppliers, distributors, and manufacturers for their role in the ongoing opioid crisis, Collegium is named in less than 1% of these cases. The company wasn't marketing opioids between 2006 and 2012 when the vast majority of accusations against drugmakers for false and misleading marketing practices arose.
Second, it's striking how little debt the company has compared to its peers. Combined, its long-term debt and convertibles amount to $286.95 million. Meanwhile, the company has $116.18 million of cash on hand and is guiding for adjusted earnings of more than $125 million.
Finally, Collegium grew revenue of its abuse-deterrent opioid Xtampza by 30% this quarter compared to last year, despite disruptions caused by the COVID-19 pandemic and the fact that its entire staff is now working from home.
Speaking of Xtampza, the drug is rapidly gaining traction in replacing traditional oxycodone since its launch in 2016. Over 40% of Americans with Medicare or health insurance will be prescribed Xtampza if they are in need of immediate-release oxycodone tablets for pain relief.
Collegium is trading for merely six times its price-to-earnings guidance this year, and less than three times its price-to-sales guidance. In my opinion, the stock has ample potential to appreciate once market participants realize the company is a diamond in the rough in the opioid space.
