There's a concise saying in investing that, when properly applied, can make you a better investor. It is as follows: "The trend is your friend." While it's often ascribed to momentum trading, the quote is arguably more beneficial to long-term investing. That's because while short-term price movements of stocks are really anyone's guess, long-term investing success largely depends on picking high-quality, reasonably priced stocks in growing industries.
Given that the global pharmaceutical industry is forecasted to grow at nearly 5% annually from $1.3 trillion last year to $1.6 trillion by 2025, leading pharma stocks are set to do well going forward. Here are two biotech bargains you should consider purchasing now before everyone else does.
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1. AstraZeneca
The first biotech stock to buy is AstraZeneca (AZN -0.77%). The drugmaker has reported impressive year-to-date growth in both its revenue and its core earnings per share (EPS).
Excluding the acquisition of the rare-disease drugmaker known as Alexion Pharmaceuticals that closed earlier this year, AstraZeneca's year-to-date revenue jumped 25.4% against the year-ago period to $24.1 billion. This robust revenue growth was driven by several factors. The first was the introduction of the company's COVID-19 vaccine, which chipped in $2.2 billion or 45.4% of AstraZeneca's year-to-date revenue growth, excluding the Alexion acquisition.
Second, the oncology segment revenue led by Tagrisso, Imfinzi, and Lynparza grew $1.6 billion, or 19%, year-to-date compared to the year-ago period, to $9.7 billion. This contributed to 31.9% of AstraZeneca's year-to-date revenue growth, not counting the Alexion acquisition. Double-digit year-to-date growth rates from the company's CVRM (cardiovascular, renal, and metabolism) and RI (respiratory and immunology) segments more than offset the revenue decline in its other medicines segment, which made up the remainder of AstraZeneca's revenue growth this year.
Due to AstraZeneca's significantly higher revenue base year to date, its core EPS soared 22% against the prior-year period to $3.59. Better yet, this high overall growth is likely to continue in the medium-term as a result of AstraZeneca's pipeline of 175 projects at various phases of clinical development. That's why analysts are forecasting that the stock will deliver 20%+ annual earnings growth to shareholders over the next five years.
And investors can snatch up AstraZeneca's 2.5% dividend yield and strong growth prospects at a forward P/E ratio of just 13.8, which is what makes the stock such a great buy at this time.
2. Merck
The second biotech stock to contemplate purchasing at the present time is Merck (MRK 0.05%). Like AstraZeneca, Merck has had a tremendous year thus far. First, the company's year-to-date total revenue has surged to $35.2 billion, which represents a 15.1% growth rate compared to the year-ago period.
Merck's oncology segment, headed by its crown jewel Keytruda, was able to grow its year-to-date segment revenue 22.1% over the year-ago period, to $13.8 billion. Strong momentum from each of Keytruda, Lynparza, and Lenvima helped the oncology segment grow its year-to-date revenue by $2.5 billion, which is 54.2% of the company's total year-to-date revenue growth.
Even with Keytruda accounting for 35.8% of its year-to-date revenue, Merck appears well-prepared for the drug's loss of exclusivity in major markets that will occur in 2028 for a couple of reasons.
For one, the vaccine segment saw its total year-to-date revenue fly 22% higher compared to the year-ago period, to $7.1 billion. Also, the animal-health segment advanced its revenue by 21.8% year to date against the year-ago period, to $4.3 billion. Simply put, these two segments combined are about as large as the oncology segment and are growing at equally remarkable rates.
Second, the company just completed its acquisition of Acceleron last month. Through the deal, Merck receives a late-stage pulmonary arterial hypertension drug known as sotatercept that possesses plenty of blockbuster potential. The company also receives 20% to 25% royalties from Bristol Myers Squibb (BMY -0.20%) on the anemia drug known as Reblozyl, which has blockbuster potential in its own right.
Merck's strong operating fundamentals are expected to continue for the foreseeable future, which is evidenced by the analyst forecast of 15% annual earnings growth over the next five years. When weighed against the forward P/E ratio of just 10, Merck boasts an attractive mix of value and growth. Merck's 3.8% dividend yield is also triple the S&P 500's 1.3%, which is yet another reason investors should consider the stock.
