Dividend-paying pharmaceutical stocks have a rich tradition of delivering market-beating returns on capital. An aging global population, the expansion of healthcare coverage under the Affordable Care Act, and an innovation boom in next-generation biologic therapies have acted in concert to drive most large-cap pharmaceutical stocks higher over the last 10 years.
AstraZeneca (AZN 0.19%) is a case in point. By pivoting to novel cancer meds with strong pricing power, the drugmaker's shares have crushed the broader market over the previous 10 years. Even so, Astra's stock appears to have a lot left in the tank despite its near-parabolic growth in recent years. Here's why this dividend-paying pharma giant is still a top stock to buy right now.
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An elite innovation engine with no major headwinds
The lifeblood of any pharmaceutical company is its clinical pipeline. The ability to replace aging blockbuster drugs in a timely manner is critical from a value-creation standpoint. And that's where Astra has excelled in recent years.
The drugmaker has built a top-notch oncology portfolio, which is home to a multitude of burgeoning stars. Astra's oncology lineup includes lung cancer drug Tagrisso, immunotherapy Imfinzi, and ovarian cancer treatment Lynparza. All three of these drugs are current blockbusters (greater than $1 billion in annual sales).
What's more, Astra also owns a piece of the breakthrough BTK-inhibitor Calquence through an equity stake in Acerta Pharma, as well as antibody-drug conjugate Enhertu via a collaboration agreement with Daiichi Sankyo.
Astra, however, isn't resting on its laurels in oncology. The company recently advanced the late-stage breast cancer candidate camizestrant into late-stage testing, along with the lung cancer therapy datopotamab deruxtecan. Both drugs have blockbuster sales potential.
Astra has also been busy building its non-oncology assets. In 2021, the company acquired the rare-disease behemoth Alexion for a whopping $39 billion. This deal significantly expanded Astra's rare-disease footprint. The big deal is that rare-disease drugs tend to come with tremendous pricing power and exceptionally long commercial shelf lives.
Perhaps best of all, Astra isn't facing any course-altering patent expirations at the moment. The same can't be said for several of its rivals like AbbVie, Amgen, Bristol-Myers Squibb, or Pfizer. So, unlike many within its peer group, Astra won't have to deal with the overhang from a key loss of exclusivity in the near term.
Time to buy?
Even though Astra's shares have been on a lengthy bull run, the drugmaker's stock is still fairly cheap. With a forward-looking earnings yield of 5.7%, for instance, Astra's shares are relatively inexpensive compared to a risk-free asset such as a 10-year Treasury bill. That being said, the company's shares are moderately pricier than the average large cap pharma stock based on this lesser-known valuation metric (mean forward-looking earnings yield of 7.2%).
Astra's shares, however, are arguably worth the price of admission. The company's cancer and rare-disease assets ought to deliver healthy levels of revenue growth for the foreseeable future, and its diverse pipeline could yield several additional blockbuster drugs within the next two to three years. That's a winning combination in the world of biopharma.
All told, Astra's stock stands out as a top buy within the large-cap pharmaceutical space thanks to its outstanding innovation engine and top-shelf product portfolio.
