This is a great time to hunt for deals in the equity markets. Many quality stocks continue to fall, carried downward in part by the momentum of the broader market, and even among those that are somewhat defying the trend, some now trade at more reasonable valuations than they have in quite a while.
The healthcare sector is a particularly smart place for investors to consider. Medical care will remain in high demand regardless of economic conditions, so companies in this industry can survive -- or even thrive -- despite the challenging environment. And in my view, AbbVie (ABBV -5.50%), Pfizer (PFE 0.95%), and Viatris (VTRS 1.26%) all look like bargains now.
The case for AbbVie
AbbVie's shares are up 5% since January, despite the fact that Humira, its best-selling drug, will face biosimilar competition in the U.S. starting next year. The market seems to be looking beyond this headwind, and with good reason. AbbVie has gone to great lengths to decrease its reliance on the popular immunology medicine.
First, the company has developed a pair of newer immunology treatments -- Skyrizi and Rinvoq -- that have earned approvals for most of Humira's key indications. Both have grown their sales rapidly in the past couple of years. In the first half of 2022, Rinvoq's revenue increased by 55% year over year to $1.1 billion, while Skyrizi's sales jumped by 76% to $2.2 billion.
AbbVie's blockbuster acquisition of Allergan is also paying off, as its Botox franchise continues to perform well. Management asserts that it's unlikely competitors will be able to create biosimilar versions of Botox, so it could continue contributing to AbbVie's top-line growth for a while.
Humira sales won't come to a complete halt after generic versions hit the market in the U.S. -- but they will fall. That said, the rest of AbbVie's lineup is positioned to pick up the slack. The drugmaker also has a pipeline of dozens of candidates in clinical trials, some of which should eventually expand its portfolio.
For investors, it's also worth noting that AbbVie this year joined the ranks of the Dividend Kings when management raised its payout for the 50th consecutive year (including the period before it was spun off from Abbott Labs). At its current share price, it offers a dividend yield of 3.9%, making it an excellent choice for income investors. And trading at a forward price-to-earnings ratio of just 10.4 -- compared to the pharmaceutical industry's average of 12.7 -- AbbVie looks like a buy.
The case for Pfizer
Pfizer is currently making a lot of money from its coronavirus portfolio, which includes COVID-19 vaccine Comirnaty and the antiviral therapy Paxlovid. With the pandemic threat receding (albeit not disappearing), demand for both products will probably drop substantially starting next year. That will make year-over-year comparisons challenging for Pfizer in 2023, especially as its non-coronavirus lineup isn't performing well. But let's look at things in perspective.
Pfizer would have struggled a lot more in the past two years if it had not developed and marketed some of the most successful COVID-19 products. Unflattering year-over-year comparisons in 2023 seem like a small price to pay for the billions of dollars in earnings that Paxlovid and Comirnaty have generated since last year. This money has allowed Pfizer to expand its pipeline, partly through acquisitions.
It has multiple late-stage clinical trials underway, many of which are for brand-new products. For instance, Pfizer is developing an mRNA-based influenza vaccine that it hopes will address the shortcomings of the current options.
In September, the company announced that health regulators in the U.S. and Europe had accepted its application for ritlecitinib as a potential treatment for alopecia areata. Pfizer should successfully rejuvenate its lineup in the next half a decade.
Although it's not a Dividend King (nor even a Dividend Aristocrat), Pfizer has a long history of making payouts every quarter, and is an excellent stock for those seeking passive income.
Its yield at the current share price of 3.7% is well above average, and it has raised its payouts by a respectable 25% in the past five years. Pfizer's forward price-to-earnings ratio is 6.8, making it an attractively valued stock to buy right now.
The case for Viatris
Viatris is one of the world's largest generic drug manufacturers. It boasts a portfolio with hundreds of products -- among them, generics for such well-known brands as Xanax, Viagra, and Lyrica -- which it sells in dozens of countries worldwide.
Although it hasn't been smooth sailing for Viatris in the past year -- its revenue and earnings growth rates have not been impressive -- the healthcare stock possesses some redeeming qualities. First, its forward price-to-earnings ratio is a very low 2.7. On the one hand, that partly reflects Viatris' recently poor performance, but the company is improving its business.
Viatris' pipeline is vast, which allows it to expand its lineup constantly. It's on track to achieve $600 million in revenue from new product launches in 2022, and Viatris will keep earning approvals for new generics in the coming years.
Further, Viatris is in the process of selling its biosimilar portfolio to India-based Biocon, with which it has partnered on multiple programs. Viatris will receive $3.3 billion in cash and stock from the transaction, giving it more financial flexibility, a greater ability to reinvest in the business, and, of course, more capacity to increase its dividend payouts.
Viatris is committed to rewarding its shareholders with dividend hikes, and the yield is already an impressive 5%. Viatris may not deliver market-shattering share price growth, but it's a great stock to buy for income-oriented investors looking for a good deal.
