You may not immediately think of growth when you think of big-pharma companies. Smaller biotech players often steal the show when they introduce a first product or report positive clinical-trial news. But bigger, more established companies actually can bring you a fair share of growth -- and other benefits, like dividends.
Two great examples are Pfizer (PFE -0.12%) and Gilead Sciences (GILD -1.15%). They both brought in billions of dollars, thanks to their coronavirus products. Even though demand for these products is on the decline, the companies also offer a broad portfolio of products treating various illnesses that bring in blockbuster revenue.
Which of these pharmaceutical players is the better buy today? Let's find out.
The case for Pfizer
Pfizer is facing two challenges right now. First, demand for its coronavirus vaccine and treatment is falling as we move toward a post-pandemic situation. Second, Pfizer's older blockbusters are facing a loss of exclusivity. All of this is set to weigh on revenue.
But here's why you shouldn't worry -- and instead be optimistic about this big-pharma player. The company's coronavirus sales aren't set to disappear. In fact, Pfizer expects the coronavirus program to continue contributing billions to revenue in the coming years. This is as the coronavirus vaccine market follows that of the flu vaccine market.
Another reason to like Pfizer is this: The company's pipeline and recent acquisitions not only will compensate for lost revenue, but also will lead to a new wave of growth.
Pfizer forecasts $17 billion in lost revenue from 2025 through 2030 as older drugs face competition. But it expects to gain $45 billion from its newly launched products in 2030. So we may face a time of transition and a slowdown in the near term -- but that situation should be temporary.
Finally, while investors wait for Pfizer's growth to take off, they can collect passive income. Pfizer pays an annual dividend of $1.64 at a dividend yield of 4.11%. This is well above the average yield of the pharmaceutical industry. And Pfizer's high level of free cash flow suggests the company has what it takes to continue growing its dividend.
PFE Free Cash Flow data by YCharts.
The case for Gilead
Gilead's coronavirus antiviral Veklury may no longer generate the $5.6 billion it brought in back in 2021, but the product still should continue to play an important role in the treatment of patients. Like Pfizer, though, Gilead doesn't depend on its coronavirus program.
Gilead is a giant in other areas -- from HIV to oncology. It's the leader in HIV treatments worldwide. Its drugs Biktarvy and Genvoya are the top two HIV drugs by sales globally, according to Statista. And six of its drugs are among the top 10.
Gilead holds at least 70% of the HIV market. Biktarvy has gained market share in every quarter since its launch.
Last year, Gilead's entire HIV portfolio generated more than $17 billion in revenue, up 5% from the previous year. Growth in HIV revenue isn't over though. The company sees opportunity to increase treatment rates and address underserved populations. All of this could add 350,000 more potential patients.
Cell therapy, which includes Gilead's oncology treatments, soared 68% last year to more than $1.4 billion in revenue, representing another growth opportunity. Over the past decade, Gilead has increased revenue and free cash flow in the triple digits and has increased net income in the double digits.
The company pays an annual dividend of $3 at a yield of 3.46% and says it aims to increase the dividend in line with earnings growth. So you're likely to benefit from earnings and passive income with Gilead.
Pfizer or Gilead?
Which of these hot pharma stocks should you buy? Let's talk price first.
Pfizer and Gilead each trade around 12 times forward earnings estimates. That seems very reasonable, considering the companies' track records and long-term prospects. They also are great dividend stocks.
PFE PE Ratio (Forward) data by YCharts.
Pfizer has dropped more than 20% so far this year, while Gilead shares are little changed. So both could be ripe for a rebound.
I'm positive on both of these stocks, but Pfizer may face tougher times in the near term. Investors might be a bit more hesitant about Pfizer during this period of transition as its coronavirus business slows and it loses sales from older blockbusters. This could weigh on the stock in the coming months and even beyond.
Gilead's path might be smoother. The company's strength in HIV and cell therapy should keep growth going. That could lift the stock price at any moment. So right now is a great time to hop on board.
