Going big can sometimes pay off. That's especially the case when you invest in the stocks of top large drugmakers.
We asked three Motley Fool contributors to identify the big pharma stocks that they think are no-brainer picks to buy in 2022. Here's why they chose AbbVie (ABBV 0.25%), Pfizer (PFE -0.12%), and Vertex Pharmaceuticals (VRTX 0.10%).
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This company isn't a one-trick pony
Prosper Junior Bakiny (AbbVie): The bears have been predicting AbbVie's doom since the company lost patent protection for its blockbuster rheumatoid arthritis drug, Humira, back in 2018. But time and time again, the pharma giant has proved the doubters wrong. I think that it will continue to do so in 2022 and beyond.
While Humira's sales have been dropping like a rock in international markets, the drug continues to make headway in the U.S. During the third quarter, Humira's domestic sales grew by 10.1% year over year to $4.6 billion. So while the medicine's revenue dropped by 14.6% internationally, total sales of Humira came in at $5.4 billion -- a 5.6% year-over-year increase.
Moreover, AbbVie's already on track to adapt to a post-Humira world. Its newer immunosuppressants, Skyrizi and Rinvoq, are firing on all cylinders, sales-wise. During the third quarter, sales of Rinvoq more than doubled year over year to $453 million, while Skyrizi's sales jumped by 83.3% to $796 million.
CEO Rick Gonzalez has high hopes for these medicines. As he said during the company's third-quarter earnings conference call: "[Skyrizi and Rinvoq] are either approved, under regulatory review, or in late-stage development across all of Humira's major indications, and we remain confident that they will both be significant contributors to AbbVie's long-term growth."
AbbVie also got its hands on a raft of exciting products via its 2020 acquisition of Allergan. Most notably, it now owns the Botox franchise, which continues to report growing sales. That's before we get into AbbVie's dozens of clinical programs, or the $21.68 billion in free cash flow it generated in the trailing 12-month period. This is a company with plenty of financial capacity to acquire other promising clinical compounds in development.
AbbVie is already a Dividend Aristocrat, and is set to join the even more exclusive group of Dividend Kings this year. And at current share prices, its payout offers an above-average yield of 3.83%.
Last but not least, the drugmaker's shares trade at just 11.4 times next year's forecast earnings, making its stock reasonably valued. It may not stay that way for too long. Interested investors might want to scoop up AbbVie's shares before they soar.
A money-making machine that looks unstoppable
David Jagielski (Pfizer): There aren't many stocks that look like surefire winners for 2022, but healthcare giant Pfizer deserves a place near the top of that short list. Its pre-pandemic business was profitable and solid. Now, with a COVID-19 vaccine that generated tens of billions of dollars last year and is likely to do so again in 2022, Pfizer is as safe a buy as there can be. In addition, with a yield of 2.7% at current share prices, it's also a great option for dividend investors. By comparison, the average S&P 500 stock only has a dividend yield of 1.3%.
Over the trailing 12 months, the company's operating income has been 26% of revenue, which is in line with the results it was generating before the pandemic. And during the past four quarters, it has also brought in more than $29 billion in free cash flow. In the period from 2016 to 2020, the company only generated about half that amount during its best year.
Investing in Pfizer could be an excellent way to hedge against the omicron variant this year, but it's a no-brainer buy for the long term as well. The excess cash the company is generating now could set it up for significant expansion down the road. In 2021, Pfizer announced multiple acquisitions, including a $2.3 billion deal for immuno-oncology company Trillium Therapeutics and its $6.7 billion purchase of Arena Pharmaceuticals, a clinical-stage company working on therapies to treat immuno-inflammatory diseases. Those acquisitions, funded entirely through cash, expand the company's pipeline and growth prospects. With Pfizer still generating tons of money today, there could be more acquisition opportunities in 2022.
The future looks bright for Pfizer, regardless of what happens with COVID-19. And with a solid dividend as well, it is an easy investment to justify for both conservative and growth-oriented investors.
Ready to conquer new markets
Keith Speights (Vertex Pharmaceuticals): Vertex has reigned supreme in the cystic fibrosis market for years. It developed the only approved drugs that treat the underlying cause of the rare genetic disease, and still has growth opportunities in that indication as it secures additional reimbursement agreements and wins approvals for its drugs to be used to treat younger patients.
However, the big drugmaker now appears to be ready to conquer new markets. Vertex and its partner, CRISPR Therapeutics, hope to file for regulatory approvals of CTX001 as a treatment for beta-thalassemia and sickle cell disease by late 2022. Clinical trial results have demonstrated that the gene-editing therapy holds the potential to effectively cure these rare blood disorders.
Vertex is advancing another non-cystic fibrosis program into pivotal testing early this year. In December, it reported overwhelmingly positive results from a phase 2 study of VX-147 in treating APOL1-mediated focal segmental glomerulosclerosis (FSGS). The company's late-stage study will include FSGS and other kidney diseases caused by APOL1 gene variants.
Investors have a good reason to be excited about the prospects for VX-147. APOL1-mediated kidney diseases affect more than 100,000 individuals in the U.S. and Europe. By comparison, it is estimated that 83,000 individuals worldwide suffer from cystic fibrosis.
In addition, Vertex expects to report data from a pair of phase 2 studies of its pain drug VX-548 within the next couple of months or so. The company is also making progress on a potential cure for type 1 diabetes. It already reported positive early results from a phase 1/2 study of VX-880 and plans to file this year for U.S. approval to begin an early-stage study evaluating an even more promising type 1 diabetes therapy.
Vertex's shares trade at less than 16 times expected earnings, and its price-to-earnings-to-growth ratio is a super-low 0.32 thanks to its multiple growth drivers. At these bargain valuations, my view is that Vertex is definitely a no-brainer stock pick for 2022.
