When done right, investing in pharmaceutical companies can be a lucrative endeavor. This is because as long as there are diseases and infections, medicines and vaccines will always remain in high demand. That builds a great deal of pricing power into the industry, which can in turn lead revenue and profits higher over the long run.
These two pharmaceutical companies both arguably possess the best of both worlds for industry investors: stacked product portfolios and promising product pipelines. Let's dig in.
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1. AstraZeneca: A pharmaceutical powerhouse
Dating back to Astra's founding in 1913 in Sweden, AstraZeneca (AZN 0.19%) has more than a century of corporate history. Over the years, the now-U.K.-based company has launched many drugs that have achieved massive commercial success.
In fact, AstraZeneca's product portfolio consists of 12 medicines that are on track to be blockbusters ($1 billion-plus in annual sales) across its oncology, cardiovascular/renal/metabolic, respiratory and immunology, and rare disease business segments in 2023. The company's most prominent medicines include the cancer medicines Tagrisso and Imfinzi, and the cardiovascular/renal/metabolic therapy Farxiga.
This explains AstraZeneca's monstrous $226 billion market capitalization, which positions it as a top 10 pharmaceutical company globally and the second biggest international-based drugmaker, trailing only Novartis. And it should be able to preserve its status as an industry leader moving forward. That's because AstraZeneca allocated 24% of its revenue in the first quarter of 2023 to research and development to fund the more than 170 projects within its pipeline as of late April.
The depth of the company's existing product portfolio and its pipeline is expected to power 13.2% annual non-GAAP (core) earnings per share (EPS) over the next five years. For perspective, that is double the drug manufacturer industry average annual earnings growth projection of 6.6%.
AstraZeneca also offers investors a 2% dividend yield, which is meaningfully higher than the S&P 500 index's 1.6% yield. This above-average income is supported by a dividend payout ratio that is poised to clock in at just above 39% in 2023. AstraZeneca's forward price-to-earnings (P/E) ratio of 17.3 is cheap compared to the industry average of 13.2 when considering its better growth profile.
Simply put, whether you're a growth investor, income investor, or value investor, AstraZeneca checks all the boxes.
2. Sanofi: A dirt cheap growth stock
Like AstraZeneca, Sanofi (SNY -0.47%) has a rich corporate history. The oldest part of this French company dates back to the 19th century. Sanofi's $129 billion market cap makes it the third-largest non-U.S. drugmaker in the world.
Unsurprisingly, the company is strong on all fronts. Of the dozens of medicines and vaccines in Sanofi's portfolio, seven of them are poised to achieve either blockbuster or mega-blockbuster status in 2023 (the latter is at least $5 billion in annual revenue). Led by Dupixent, four of these seven products grew sales at mid-single-digit to double-digit clips in the first quarter ended March 31, which should push sales and earnings higher in the near term.
In the medium term and beyond, Sanofi has several growth catalysts. For one, its recent $2.9 billion acquisition of Provention Bio and its type 1 diabetes-delaying treatment Tzield demonstrated that the company can strengthen itself with bolt-on acquisitions. Second, its respiratory syncytial virus (RSV) vaccine candidate co-owned with AstraZeneca, nirsevimab, could generate up to $3 billion in annual revenue for the two companies to split.
Finally, Sanofi has over 70 projects currently in different stages of clinical development within its pipeline. For these reasons, analysts believe that the company's earnings will grow by 7.4% each year through the next five years.
Sanofi's 3.8% dividend yield is quite generous in comparison to the S&P 500 index. And since the dividend payout ratio is set to come in at approximately 39% in the next 12 months, this high starting income appears to be safe. Sanofi's valuation seals the deal to make the stock a convincing buy; the stock's forward P/E ratio of 5.8 is less than half of the drug manufacturer industry average of 13.2.
