Momentum equals mass times velocity. That's the formula used in physics. But it also applies, in a way, to investing. The greatest momentum can often be found in big companies that are moving fast. Such companies -- and their stocks -- can be practically unstoppable.
We asked three Motley Fool contributors to identify unstoppable pharma stocks to buy in May. Here's why they chose Novo Nordisk (NVO -0.94%), Pfizer (PFE -0.47%), and Seagen (SGEN 1.47%).
Built to last
Prosper Junior Bakiny (Novo Nordisk): For the past several decades, Novo Nordisk has been a leader in the market for diabetes drugs. As of February 2022, the company held a 30.5% share of the diabetes care market, an increase from the 29.3% slice of the pie it had in February 2021.
Novo Nordisk's dominance in this therapeutic area is one reason it has outperformed the broader market in each of the past one, five, 10, and 20 years. I think that there are many more years of market-beating performances ahead for the pharma giant.
That's in part because the diabetes market will only get larger. According to some estimates, about 33% of the U.S. population could be diabetic by 2050. The need for medicines to treat this chronic illness will almost certainly increase. Novo Nordisk is well positioned to help this patient population while delivering solid financial results in the process.
The company's current crop of diabetes and obesity therapies includes blockbusters Victoza and Ozempic, as well as Rybelsus, whose sales are growing at a good clip. In addition, Novo Nordisk has about a dozen more candidates targeting either diabetes or obesity in its pipeline.
One of the more promising programs is Icodec, a potential once-weekly insulin product for Type 1 and Type 2 diabetes. Type 1 diabetics and the subset of patients with the Type 2 variety who require insulin typically need to take it daily. A product like Icodec would greatly simplify their lives and could be very successful. Novo Nordisk has a rich history of innovating in this area, and investors can rest assured that it will continue to do so.
Of course, the company also has medicines and candidates in other therapeutic areas. Novo Nordisk's programs target such rare illnesses as sickle cell disease and hemophilia, as well as more common conditions such as Alzheimer's disease and non-alcoholic steatohepatitis.
Overall, this healthcare giant has a solid lineup, a rich pipeline, and the potential to continue rewarding patient shareholders for a very long time. That's why it is an excellent stock to consider buying in May and beyond.
The GOAT of the pharma industry?
Keith Speights (Pfizer): Which pharma company is the greatest of all time (i.e., the GOAT)? I think that Pfizer would certainly be a top contender.
Pfizer is poised to shatter two industry records in 2022. It's on track to generate the most annual revenue of any drugmaker in history, with the midpoint of its full-year guidance range of $100 billion. The company's Paxlovid seems likely to set the all-time-high yearly sales mark for a non-vaccine drug in 2022 as well. Pfizer expects that the COVID-19 pill will make at least $22 billion this year.
Keep in mind that Pfizer's Comirnaty already raked in the most revenue for a drug (including vaccines) ever last year, with sales of $36.8 billion. And the company's Lipitor stands as the best-selling drug over its lifetime of all time -- at least for now.
The most important aspect of Pfizer's GOAT-worthy credentials is that the drugmaker clearly has what it takes to achieve long-term success. However, that's not the only reason why I think it's a good stock to buy in May.
Pfizer is a bargain in a stock market that remains largely overpriced despite the significant pullback. Its shares trade at only 7.1 times expected earnings. Sure, there's some uncertainty about the dynamics of the COVID-19 market. However, Pfizer stock still looks attractively valued.
Also, Pfizer's business isn't likely to be affected all that much if the economy enters a recession. With interest rates rising rapidly, my concern is that a recession could be on the way. If so, Pfizer is a less-volatile stock to buy than most stocks are. It also offers a solid dividend with a yield of more than 3.2%.
Promising long-term potential
David Jagielski (Seagen): One area of continued high growth that pharma investors should target is oncology. Cancer is, unfortunately, a problem that continues to need revolutionary drugs to help keep survival rates as high as they can be. According to Fortune Business Insights, the global oncology drug market will be worth more than $286 billion by 2028, growing at a compound annual growth rate of 9.1% until then.
Seagen stands out as a promising company that has already developed some cancer-fighting drugs. In its latest results released last month, the company reported revenue of $426.5 million, up 28% year over year. That's during the first three months of 2022, when COVID-19 was still disrupting hospitals due to the emergence of the omicron variant.
Many healthcare companies have struggled because of the pandemic, but not Seagen. The need for cancer treatment doesn't stop amid a pandemic, and the persistent need for ongoing care and treatment is why Seagen is what I'd call an "unstoppable" pharma company to invest in.
It also has all the necessary ingredients to get bigger and eventually become profitable. For one, its gross margins are incredibly lean, with the cost of sales this past quarter amounting to just $87.6 million. That only represents 21% of the revenue those expenses helped generate. Roughly 79 cents of every dollar of revenue will help cover the company's overhead and other operating expenses.
While Seagen is unprofitable right now (it incurred a loss of $136.5 million in the first quarter), that doesn't mean things will stay that way. As the business expands and more revenue flows into it, the bottom line should also improve, given the company's strong gross margins.
Seagen's Tivdak is just scratching the surface in terms of revenue. At $11.4 million in sales this past quarter, the cervical cancer drug has only begun contributing to the business after winning U.S. approval in September 2021. Tivdak holds the potential to generate annual revenue of more than $1.3 billion at its peak.
Shares of Seagen are down currently down close to 15% year to date. However, I think this could be one of the better growth stocks to buy in May.