Contrary to what you've heard, great minds don't always think alike. Just look at the stock picks made by Warren Buffett and Cathie Wood. There aren't many stocks on which these two well-known investors agree. But I can think of at least one notable exception.
Buffett's Berkshire Hathaway (BRK.A 0.55%) (BRK.B 0.50%) added AbbVie (ABBV 0.76%) to its portfolio in the third quarter of last year. Berkshire bought even more shares of the big drugmaker in the fourth quarter. Meanwhile, Wood's ARK Genomic Revolution ETF (ARKG -1.63%) scooped up shares of AbbVie in February.
What makes AbbVie so appealing to two very different investors like Buffett and Wood? And is the big pharma stock one that you should consider buying as well?
It's pretty easy to figure out why Wood chose AbbVie for the ARK Genomic Revolution ETF. The stated objective of the ETF is to invest in companies that "are focused on and are expected to substantially benefit from extending and enhancing the quality of human and other life by incorporating technological and scientific developments and advancements in genomics into their business." AbbVie certainly meets that wordy description.
Genomics serves as a core component of AbbVie's research and development. In particular, the company's pipeline features a long lineup of experimental cancer drugs for which genomic analysis is especially important.
Buffett probably wasn't thinking much about genomics when Berkshire bought AbbVie, though. Instead, I suspect the legendary investor was drawn to a great extent by the drugmaker's attractive valuation. AbbVie's shares currently trade at less than nine times expected earnings.
While Berkshire itself doesn't pay a dividend, Buffett tends to like to buy stocks of companies that do. AbbVie arguably ranks as one of the best dividend stocks around. It's a Dividend Aristocrat with 49 consecutive years of dividend increases under its belt. AbbVie's juicy dividend yield of more than 4.8% was no doubt something that Buffett found really attractive.
A common denominator
Both Buffett and Wood want the stocks that they buy to generate solid growth over the long term. Neither investor would have picked AbbVie if they didn't fully expect the drugmaker would be able to deliver on that front.
The important thing to note is that Buffett and Wood are focused on the long term and not the short term. AbbVie will soon hit a speed bump with its growth. The company's top-selling drug Humira faces biosimilar competition in the U.S. beginning in 2023. As a result, AbbVie looks for total sales to decline.
However, the drugmaker expects a return to modest revenue growth in 2024. And by 2025, AbbVie anticipates "a rapid return to strong top-line growth." This trend should continue throughout the rest of the decade.
AbbVie already has multiple products in its lineup that should fuel its rebound. Autoimmune disease drugs Rinvoq and Skyrizi are expected to generate combined sales of more than $15 billion in 2025. Antipsychotic drug Vraylar could achieve peak annual sales of close to $4 billion. The company also has several pipeline candidates that could become big winners.
Should you buy AbbVie too?
Aggressive growth investors probably won't be fans of AbbVie. The stock isn't one that's likely to be a 10-bagger over the next decade. However, I think that most other investors will like AbbVie.
The stock is attractively valued. It offers a fantastic dividend. And it should be able to generate average annual revenue growth in the high single-digit percentages after the first year of U.S. biosimilar competition for Humira.
AbbVie just might be a stock that you should buy. When great investors like Warren Buffett and Cathie Wood think alike about a stock, it's one that's worth checking out.