Investing in quality stocks within steadily growing industries is the closest an investor can come to a guarantee of building life-changing wealth over the long run. With the growing and aging global population, it's a safe bet that more prescriptions will be filled in the future than today.
Thus, it's anticipated that global pharmaceutical industry spending will compound 4.7% annually from almost $1.3 trillion in 2020 to $1.6 trillion by 2025. These two pharma stocks boast solid existing drug portfolios and pipelines to cash in on the unstoppable trend of higher global pharmaceutical spending.
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1. AstraZeneca
The first biotech stock to consider buying now is British-based AstraZeneca (AZN 1.03%). With a $199 billion in market capitalization, that makes it the seventh-largest pharma stock in the world.
Despite its impressive size and scale, analysts expect AstraZeneca will deliver 15.7% annual earnings growth over the next five years. What's the basis of this promising growth outlook?
AstraZeneca's existing portfolio consists of several-dozen products, including 12 blockbuster drugs and its blockbuster COVID-19 vaccine. And out of its five disease areas excluding COVID-19, the only one that didn't record overall revenue growth in 2021 was its "other medicines" group where revenue dropped 8%. All other disease areas managed to produce revenue growth ranging from 8% (rare diseases) to 20% (oncology).
Revenue growth should persist in the near future on the back of AstraZeneca's variety of blockbuster drugs. And with 177 projects at various phases of clinical development, the company's future drug launches should drive revenue and earnings significantly higher in the medium to long term.
AstraZeneca's forward price-to-earnings (P/E) ratio of 16.7 is well above the industry average of 11.4. But its annual earnings growth prospects are more than double the industry average of 7.5%. That explains why AstraZeneca and its 2.3% dividend yield make it a top dividend stock.
2. Merck
The other biotech stock to contemplate purchasing now is U.S.-based Merck (MRK -0.05%). Its $200 billion market cap narrowly makes it the sixth-largest pharma stock in the world ahead of AstraZeneca.
Merck's existing drug and vaccine portfolio is more concentrated than AstraZeneca's. The company has five blockbuster products, most prominently led by rapidly growing mega-blockbusters like its cancer drug Keytruda and human papillomavirus (HPV) vaccine Gardasil/Gardasil 9.
Together with double-digit revenue growth in the company's animal health business (which provides veterinary medicines and services), Merck's net revenue powered 17.3% higher to $48.7 billion in 2021. This helped the company's non-GAAP (adjusted) diluted earnings per share (EPS) to surge 32.9% higher year over year to $6.02.
And Merck looks positioned to continue delivering strong growth for the foreseeable future. Analysts predict that the company will generate 9.4% annual earnings growth through the next five years.
Merck is forecasting that its HPV vaccine revenue will double to more than $10 billion by 2030, which is due to both the low global HPV vaccination rates and robust demand. The company also has a pipeline of 75 phase-two programs and 28 phase-three programs, which are balanced across fast-growing therapy areas like oncology and vaccines.
Merck's healthy pipeline is reason to be optimistic that the company will be able to move past Keytruda once its patents expire in major markets in 2028. And with a dividend payout ratio of just 43% in 2021, the company retains enough capital to execute needle-moving acquisitions like the $11.5 billion deal for Acceleron Pharma that was completed last November.
Investors looking for a blend of value, income, and growth can acquire Merck's market-beating 3.5% dividend yield at a forward P/E ratio of 11, which is slightly below the industry average of 11.4. This is a bargain valuation considering that Merck's earnings growth potential is also moderately higher than the industry average of 7.5% annually over the next five years.
