3 Dirt-Cheap Stocks to Buy Sooner Rather Than Later

Arguably the best way to make money investing in stocks is to buy them at the right price. If you do that, generating positive returns is practically a slam dunk.

With this in mind, we asked three Motley Fool contributors to identify dirt-cheap pharmaceutical stocks that they think investors should buy sooner rather than later. Here's why they chose Bristol Myers Squibb (BMY 0.49%), Pfizer (PFE 0.28%), and Viatris (VTRS 0.61%).

A market-beating stock at a reasonable valuation 

Prosper Junior Bakiny (Bristol Myers Squibb): Sometimes, a  pharmaceutical company like Bristol Myers Squibb can be viewed by investors as "boring." Whether that's a fair view or not, though, it's hard to argue with results, and Bristol Myers Squibb did something few corporations managed to pull off in the past year; it beat the market and stayed in the green. 

The drugmaker did that while retaining an attractive valuation. Bristol Myers Squibb's forward price-to-earnings ratio currently sits at 8.7, compared to the S&P 500's 20.4 and the pharmaceutical industry's average of 15.2. Perhaps some investors are undervaluing the company as a few of its key products are now facing generic competition. 

But that's a reason to worry if and only if the company cannot replace the revenues from those older drugs that have lost their patent protection with sales of newer ones. There is not much to be too concerned about on this front. Bristol Myers has earned important new drug approvals since 2019 that are helping rejuvenate its portfolio of medicines. And with its vast pipeline, more approvals and label expansions are likely on the way.

The 5% year-over-year revenue decline that Bristol Myers experienced in its latest quarter won't be the norm. Investors can expect its revenue growth to pick up. They can also look forward to solid dividends. Its 3.19% yield and 42.5% payout increase over the past five years are both highly competitive. That makes Bristol Myers Squibb an ideal, dirt-cheap stock for value- and income-seeking investors alike. 

A better bargain than you might think

Keith Speights (Pfizer): Some investors could be skeptical about Pfizer. Sure, the big drugmaker's shares trade at only 12.8 times expected earnings. However, the outlook for Pfizer is uncertain as it faces steep sales declines for its COVID-19 products this year. The looming loss of exclusivity for multiple blockbuster drugs over the next few years will also be problematic. However, Pfizer is a better bargain than you might think. 

To be sure, Pfizer has projected that sales for its COVID-19 vaccine Comirnaty could plunge by 64% in 2023. The company also expects sales for its COVID antiviral therapy Paxlovid will fall by close to 57%. But there's more to the story. Pfizer thinks that its sales for both products will start to grow again beginning in 2024. It also predicts that combination COVID-flu vaccines will boost sales significantly in 2025.

Pfizer won't be able to avoid the negative impact of major products, including blood thinner Eliquis and breast cancer drug Ibrance, losing patent exclusivity. Indeed, the company anticipates its annual revenue loss for products going off patent between 2025 and 2030 will total close to $17 billion. However, Pfizer believes that the launches of new products through the first half of 2024 could generate more than enough new revenue to offset this anticipated decline.

Even better, the company plans to use its large cash stockpile and ample cash flow to fund additional business development activity. Pfizer is betting that its future deals could add around $25 billion to its annual revenues by 2030.

The bottom line is that Pfizer's growth prospects are actually quite good. That puts the stock's current valuation in a much more attractive light.

Viatris could look like a steal of a deal in a few years

David Jagielski (Viatris): Viatris hasn't performed terribly well in recent quarters. Its sales for the first three quarters of 2022 totaled just $12.4 billion, which was down 8% from the prior-year period. But when excluding the impact of changes in foreign currency exchange rates, its sales were down by just 2%. And in the long run, there could be more growth opportunities ahead for this maker of generic and branded drugs.

The company recently launched an eye care division after the closing of a couple of acquisitions (Family Life Sciences and Oyster Point Pharma). Viatris estimates the new segment could add more than $1 billion in sales to its top line by 2028. It also has numerous product launches coming up over the next few years that could help pad its top line even further.

Overall, Viatris has some exciting growth opportunities that could in a few years make the stock look like a better bargain at recent prices. Plus, its dividend boasts an attractive yield of 4.1% at the current share price -- that's more than double the yield of the S&P 500 average.

Currently, Viatris stock trades at less than 4 times its future earnings, which is incredibly cheap when you consider the average healthcare stock trades at a multiple of 17. Viatris is a bit of a sleeper stock right now as it isn't generating much traction despite its low valuation and promising outlook. You may want to consider adding this underrated stock to your portfolio today.