With savvy stock-picking and a bit of patience, building wealth isn't as difficult as it is often made out to be. This is because quality businesses grow their revenue and profits, which makes their shares more valuable over time.
Shares of AstraZeneca (AZN 0.19%) and Merck (MRK 0.37%) have both more than doubled over the last five years. Let's dig into what the two pharmaceutical companies accomplished that drove their stock prices higher, and whether they can keep up those strong performances.
1. AstraZeneca: Out-of-this-world growth potential
With a $228 billion market capitalization, AstraZeneca is the sixth-largest pharmaceutical company in the world and the second-biggest international-based drugmaker behind Novartis (NYSE: NVS).
As you'd guess would be the case for a major player in the pharmaceutical industry, the British drugmaker possesses a remarkable product portfolio. Its lineup includes 12 drugs that are on pace to either be blockbusters (i.e., $1 billion or more in annual sales) or mega-blockbusters ($5 billion or more) in 2023. These include the cancer treatments Tagrisso and Imfinzi, the cardiovascular/renal/metabolism medicine Farxiga, and asthma/chronic obstructive pulmonary disease therapy Symbicort.
The successes that AstraZeneca has had with its drug portfolio have turned a $10,000 investment made five years ago into $23,000 today with dividends reinvested. For context, the same investment five years ago in the S&P 500 index would now be worth $17,000.
Thanks to the heavy investments that AstraZeneca is making in research and development to advance nearly 180 pipeline projects in clinical trials, its future could be just as bright. Analysts are predicting the company will achieve annualized earnings growth of 13.1% over the next five years. For perspective, that is double the industry's average annualized earnings growth forecast rate of 6.5%.
On top of its market-trouncing potential, AstraZeneca sports a dividend that at current share prices yields 2% -- moderately better than the S&P 500 index's 1.7% yield. And with the dividend payout ratio set to clock in below 40% in 2023, the payout looks to be safe. Investors can snatch up shares at a forward price-to-earnings (P/E) ratio of 17.2. When factoring in its impressive growth profile, that's not unreasonably higher than the industry average of 13.1.
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2. Merck: Above-average growth prospects at an average valuation
By virtue of its $284 billion market capitalization, Merck is the third-largest drugmaker in the world behind only Johnson & Johnson (NYSE: JNJ) and Eli Lilly (NYSE: LLY). The company is best known for the oncology medicine Keytruda, which is expected to generate an industry-leading $24 billion in revenue for the drugmaker in 2023.
But with seven other products on track to at least be blockbusters this year, Merck isn't relying solely on Keytruda for growth. In fact, non-Keytruda products are expected to provide approximately 59% of the $58.3 billion in total revenue that the company is forecasting in 2023. Due to its healthy product portfolio, it shouldn't be surprising to learn that a $10,000 investment made in Merck five years ago would currently be valued at $24,000 with dividends reinvested.
And considering that the company has over 100 projects in either phase 2 or phase 3 clinical trials, analysts are projecting 8.2% annualized earnings growth for the next five years. Coupled with a dividend that yields 2.6% at the current share price and that is well-supported by profits, this makes Merck an intriguing stock pick. This is especially the case given that its forward P/E ratio of 13.3 is in line with the industry average.
