In some ways, the stock market crash earlier this year seems like a distant memory. After all, we just experienced one of the best quarterly stock market performances in decades in the Q2. Now, you're likely to hear people talk about how steep the market's valuation is.
But not every stock is priced at a premium. In fact, some remain relative bargains despite the tremendous broad market recovery of recent months. Here are three stocks that are still ridiculously cheap right now (listed in alphabetical order).
There's one obvious reason why AbbVie sports such a cheap valuation. It already faces biosimilar competition in Europe for Humira -- by far its top-selling drug -- and will have to adjust to it in the U.S. in 2023. Investors are worried that the company could be in trouble when the gravy train from the popular immunosuppressive starts to dry up.
Keep in mind, though, that Humira's sales won't evaporate overnight. The drug's international sales declined significantly after biosimilars hit the market, but still topped $1 billion in the first quarter of 2020. More importantly, AbbVie has other arrows in its quiver that will help offset future sales declines for Humira, notable among them new immunology drugs Rinvoq and Skyrizi, and cancer drugs Imbruvica and Venclexta.
AbbVie won't have to deliver impressive earnings growth to provide an attractive total return. That's because the company offers an outstanding dividend with a current yield of close to 4.8%. Investors should also like its track record of dividend hikes: The company has boosted its payout in each of the last 47 years.
2. Bristol Myers Squibb
The drugmaker's lineup is loaded with blockbusters. Sales continue to soar for blood thinner Eliquis, arthritis drug Orencia, and cancer drug Sprycel. Cancer immunotherapy Opdivo is likely to pick up momentum with new approved indications. Bristol Myers Squibb also has added three big winners thanks to its acquisition of Celgene -- blood cancer drugs Revlimid and Pomalyst and solid tumor drug Abraxane.
But the company's newer drugs and late-stage pipeline candidates are what really make Bristol Myers Squibb a stock to watch. Blood disorder drug Reblozyl and multiple sclerosis drug Zeposia could easily become blockbusters in the not-too-distant future. It hopes to win regulatory approvals for CAR-T cell therapies ide-cel and liso-cel -- both could generate peak annual sales of $2 billion or more.
Wall Street analysts think that Bristol Myers Squibb will grow its earnings by an average of nearly 22% annually over the next five years. Add to that mix the company's dividend, which currently yields more than 3%, and this cheap pharma stock could provide impressive total returns to investors.
You might have noticed a pattern: The first two cheap stocks discussed here are pharmaceutical companies. So is the third. Pfizer (NYSE:PFE), too, is a drugmaker with an inexpensive valuation. Its shares currently trade at less than 12.5 times expected earnings.
It might seem to be a less-than-ideal pick at first glance, though. Pfizer faces rapidly declining sales for nerve pain drug Lyrica. In addition, it reported disappointing results last month from a late-stage study of Ibrance as adjuvant therapy in treating early-stage breast cancer. Ibrance's market prospects now appear to be much lower because of this clinical setback.
However, Pfizer won't be weighed down by Lyrica for much longer. The company plans to spin off its Upjohn unit (which markets Lyrica and other older drugs) and merge it with Mylan. Pfizer's pipeline also includes several candidates that could be big winners, including the COVID-19 vaccine candidate that it's developing with German biotech BioNTech.
Income investors have loved Pfizer for a long time. That shouldn't change after the Upjohn-Mylan deal wraps up. Its dividend yield won't be much lower than its current yield of 4.3%. If its pipeline delivers on its promise, the future for Pfizer will look much brighter than its recent past.