"I don't get no respect." That was the line the late comedian Rodney Dangerfield made famous. But it could also apply to some stocks.
Three Motley Fool contributors identified surprisingly underrated stocks they think are great picks to buy right now. Here's why they chose AbbVie (ABBV -4.58%), CRISPR Therapeutics (CRSP 0.34%), and Pfizer (PFE 0.55%).
Investors are heavily discounting AbbVie's business
David Jagielski (AbbVie): AbbVie is a top healthcare stock, with a market cap of more than $260 billion. But investors are treating it as if the business is in big trouble. Concerns about a patent cliff and sharply declining sales from Humira are overblown. The stock of a company as diverse and versatile as AbbVie deserves to be trading at a much higher valuation, in my view.
This year is a tough one for AbbVie, as it is expecting Humira's revenue to decline by around 35%. That's billions off the top line for the company. And for a normal healthcare business, this would be a huge problem.
But AbbVie is better than your run-of-the-mill healthcare company. It already has a plan to replace lost revenue from Humira through a couple of emerging immunology drugs, Skyrizi and Rinvoq, which can combine for higher peak annual revenue than Humira. By 2027, they could bring in more than $21 billion in revenue, which is how much Humira generated last year.
AbbVie also has an encouraging migraine medication, atogepant, which met both primary and secondary endpoints in a late-stage study this year and reduced the number of mean monthly migraine days in patients. The drug is a potential blockbuster, as annual revenue could top $1 billion.
With its hands in eye care, oncology, aesthetics (including Botox), immunology, and other therapeutic areas, AbbVie's business has many products that can potentially drive more growth in the future. The company has the resources at its disposal to develop or acquire more drugs; it has generated more than $20 billion in free cash flow in each of the past two years.
Trading at only 14 times its estimated future profits, AbbVie stock looks incredibly cheap next to most healthcare stocks, which average an earnings multiple of 27. And not only is it cheap, but AbbVie also pays a dividend that yields around 4%, which is more than double the S&P 500 average of 1.5%.
AbbVie's stock is down 7% this year, as investors haven't been showing much confidence in the company. However, it should have a bright future. I think AbbVie is an underrated stock to buy and hold.
The growth story is just getting started
Prosper Junior Bakiny (CRISPR Therapeutics): It's hard to value biotech companies that have no products on the market and are unprofitable. Hard, but not impossible.
Take CRISPR Therapeutics, a company with an almost $4 billion market cap. Its clinical-stage status and red ink on the bottom line have been major factors in its recent stock market performances. The company's shares are down by 27% over the past 12 months. However, at current levels, CRISPR Therapeutics is arguably a steal.
The company awaits approval for exa-cel, a gene-editing therapy for beta-thalassemia (TDT) and sickle cell disease (SCD), a pair of blood-related conditions. It developed this therapy with Vertex Pharmaceuticals and has a multibillion-dollar potential, and the medicine's approval will probably send CRISPR Therapeutics' shares soaring.
But there is something deeper at play. CRISPR Therapeutics developed a therapy that looks effective for two diseases that have almost entirely eluded researchers so far. SCD and TDT patients have been condemned to live challenging, painful lives, marked by the side effects of their illnesses and expensive standards of care that failed to rid them of their conditions. Then CRISPR Therapeutics created exa-cel, a one-time curative option for both diseases. Not only that, but it also uses the CRISPR gene-editing technique that won the researchers who invented it a Nobel Prize.
So far, no therapy that uses this technology has been approved. But CRISPR Therapeutics' management and research team are top-notch, which is an absolutely critical factor for the long-term success of any company in any industry.
To top it all off, CRISPR Therapeutics has an exciting pipeline and the funds necessary to push its programs forward. It should have even more money soon, when revenue from exa-cel starts rolling in.
The biotech has the ingredients necessary for long-term success, and in my view, that isn't reflected in its market cap just yet. That's what makes CRISPR Therapeutics underrated, and it's also why interested investors should rush to buy the biotech's shares before they soar.
More than a COVID story
Keith Speights (Pfizer): In 2020 and 2021, Pfizer reigned as the king of pharma. Its COVID-19 vaccine Comirnaty was raking in more money than any drug or vaccine in history. COVID-19 therapy Paxlovid was adding billions of additional dollars to Pfizer's coffers.
That was then, and Pfizer's shares are now more than 40% below the all-time high set in late 2021 and down nearly 30% so far this year. Sales for Comirnaty and Paxlovid are sinking. Pfizer also has storm clouds on the horizon with patent expirations for multiple key products coming over the next few years.
However, I think many investors are missing the big picture with Pfizer. Sure, there's some uncertainty about what the future holds for the company's COVID-19 products. But Pfizer is more than just a COVID story.
Normally, Pfizer's patent cliff would be something for investors to worry about. The good news, though, is that the drugmaker expects to more than offset the anticipated losses from patent expirations from new products that it has either already launched or will launch by the first half of 2024.
Pfizer has also been putting its massive COVID profits to great use. The business development deals that it has closed or has in progress, including the pending acquisition of Seagen, should generate more than $20 billion in additional revenue by 2030. And the company isn't finished with its dealmaking, either.
The bottom line is that Pfizer expects to deliver average annual non-COVID revenue growth of 10% between 2025 and 2030. With the coronavirus continuing to rear its ugly head, there's a chance the company's COVID franchise could rebound somewhat as well.
In the meantime, Pfizer's shares trade at a low forward earnings multiple of 11. The company offers a dividend that yields more than 4.5%. I think there's a word for a stock with such solid long-term growth prospects, a bargain valuation, and a juicy dividend: underrated.
