Many economic analysts continue to predict that a recession will hit the U.S. economy sometime in 2023. Equity markets already experienced a downturn last year due partly to economic troubles, so the possibility of a recession seems even more daunting than it otherwise would be. However, there are ways for investors to prepare.
Some corporations can perform relatively well if the economy sinks even further. Buying shares of such companies can help investors strengthen their portfolios and make them recession proof, so to speak. Let's look at two stocks to buy if a recession hits this year: AbbVie (ABBV -1.03%) and Incyte (INCY 0.17%).
1. AbbVie
AbbVie is one of the largest pharmaceutical companies in the world. It markets medicines in various areas, from immunology and oncology to neuroscience and aesthetics. Most of AbbVie's products are must-haves -- that is, patients won't be inclined to stop buying them even in a recession. That is especially the case for some of its most important products.
Going forward, AbbVie will be relying heavily on two immunology drugs, Skyrizi and Rinvoq. These two medicines are set to replace the drugmaker's longtime best-selling product, rheumatoid arthritis medicine Humira, which will start facing biosimilar competition this year. But Skyrizi and Rinvoq have earned plenty of indications that overlap with Humira's, and they will continue to do so.
The company projects that these two medicines will generate a combined $17.5 billion in sales by 2025 and $21 billion by 2027. We don't have the numbers for its full fiscal year 2022 yet, but in the first nine months of the year, Skyrizi racked up $3.6 billion in revenue, representing a 75.6% year-over-year increase, while Rinvoq's sales jumped by 54.5% year over year to $1.8 billion. Combined, the two generated about $5.4 billion in sales.
If AbbVie's predictions for these medicines are anywhere close to accurate, we can expect both to keep up their rapid sales growth for the next few years at the very least, and that's even if a recession hits. AbbVie does expect its sales to decline this year and the next as it absorbs the challenges to Humira. But growth should return in 2025 as AbbVie will likely continue earning new approvals and generating profits.
Plus, there's good reason to think that the company can maintain its stellar dividend track record. AbbVie is in the elite club of Dividend Kings, boasting 51 years of consecutive payout raises. Recession or not, the company won't be inclined to halt this habit. Consider that late last year the company instituted a 5% dividend raise that will kick in with its payout due on Feb. 15. The company did so knowing Humira's challenges were on the way and also fully aware of the state of the economy.
That shows management's confidence in the business. Investors can be equally confident that AbbVie can navigate the next recession better than most.
2. Incyte
Incyte is a drugmaker best known for its leading product, Jakafi. This medicine treats a type of bone marrow cancer called myelofibrosis; polycythemia vera, a blood-related cancer; and acute (and chronic) graft-versus-host disease, a condition that sometimes arises in patients following a stem-cell transplant.
Jakafi has been successful for Incyte and responsible for the bulk of the company's revenue and top-line growth for some time. In the third quarter, Incyte recorded $619.6 million in net product revenue from Jakafi, an increase of 13% year over year. In late 2021, Incyte earned approval for Opzelura, the topical formulation of Jakafi, as a treatment for atopic dermatitis (eczema).
And in July of last year, Opzelura earned a label expansion in treating vitiligo, an autoimmune disease that causes patients' skin patches to lose pigmentation. Opzelura became the first therapy approved in the U.S. for repigmentation in those with vitiligo. Jakafi and Opzelura should continue growing their sales for some years, especially the latter.
Jakafi will face a patent cliff at the end of 2028, but Opzelura will only do so in 2040. Incyte has also earned more approvals in recent years, including that of cancer medicine Pemazyre, which first earned the green light in the U.S. back in 2020. The company is running plenty more clinical trials, and it expects notable pipeline progress this year, including data readouts and new clinical trial initiations for key products.
While Incyte total revenue only increased by 1% year over year to $823.3 million in the third quarter, that was due to a combination of unusual factors that won't permanently harm its business, including unfavorable currency exchange dynamics and the drop in sales for Olumiant, which has been used in recent years as a COVID-19 treatment.
These short-term issues will do little to disrupt Incyte's robust operations in the long run. And importantly, the biotech company can likely deliver solid financial results even in a recession, making it a solid pick for investors worried about a potential upcoming downturn.
