While equity markets this year have recovered some of ground lost from the plunge of 2022, plenty of companies are still struggling. Some of them, though, clearly have the tools to rebound eventually and deliver solid returns to patient investors. Two stocks in that category are AbbVie (ABBV -4.58%) and Tandem Diabetes Care (TNDM -0.90%). For those with $1,000 that they are ready to invest now, these stocks might be excellent choices.
1. AbbVie
There is plenty to like about AbbVie's business: It boasts a rich lineup of drugs treating conditions across multiple therapeutic areas, and a deep pipeline that should yield more innovative medicines. Then, of course, there's AbbVie's dividend. The drugmaker is practically a dream come true for income-focused investors. It has raised its payouts by 270% since 2013, when it became a stand-alone company after Abbott Laboratories spun it off.
AbbVie's dividend yield is also highly competitive -- 4.1% at the current share price -- and its cash payout ratio is 42%, a conservative number that gives management plenty of room to boost the dividend. Considering all these factors, not to mention AbbVie's status as a Dividend King, the company looks like an excellent pick for income seekers. However, it hasn't all been smooth sailing for AbbVie lately.
This year, the company lost patent exclusivity for Humira, an immunosuppressive drug used to treat an array of conditions. It has been AbbVie's most important product since 2013. In fact, other than COVID-19 vaccines, Humira has been the world's top-selling drug for years. But AbbVie's revenues have been declining, and that trend should continue next year.
However, every drugmaker faces patent cliffs at some point. The important thing is how they handle them.
In AbbVie's case, it has pinned its hopes on Skyrizi and Rinvoq, two newer immunology therapies whose indications substantially overlap with Humira's -- and which are in some cases more effective than the older drug. AbbVie's lineup features other key products, too, from its Botox franchise to Qulipta, a migraine treatment. And its pipeline features dozens of promising programs.
No pharmaceutical company has a 100% success rate when it comes to getting approval for the treatments it develops. Still, AbbVie's long list of programs means it will inevitably launch new products while earning label expansions for existing ones. The arrival of biosimilars for Humira is no reason to shun AbbVie stock, but many investors have responded as if it was.
That's why AbbVie is down 9.9% this year, and at these levels, the company looks like a good pick, especially for investors on the market for blue chip dividend stocks. For just over $1,000, investors can buy about seven shares of AbbVie at its current price.
2. Tandem Diabetes Care
The global prevalence of diabetes has been worsening for decades, so there is a high and growing demand for products that can help patients manage the chronic illness. That's what Tandem Diabetes Care provides. The company develops innovative insulin pumps. Tandem's t:slim X2 has been its most significant growth driver for a while, but it recently earned clearance in the U.S. for the Mobi Insulin Pump, a smaller device.
Data source: YCharts.
Tandem Diabetes has faced economic-related challenges lately. Revenue growth has slowed as people have been more reticent to shell out the money to buy insulin pumps, which aren't the cheapest solution for diabetes patients' needs. However, pumps have certain advantages over injections: They are much less painful and more accurate.
That's why there is a good chance that pumps will continue to snatch market share away from daily injections, and there is still plenty of room for Tandem Diabetes Care to increase its sales. Tandem Diabetes Care does business in about 25 countries outside the U.S. It estimates that insulin pump penetration is generally between 10% and 20% in these countries. The company ended the second quarter with an installed base of 437,000, a 16% year-over-year increase.
In addition to capturing new customers, the company's pump renewals will increase as its installed base grows. (The renewal cycle is five years.) And while the company remains unprofitable, Tandem's newest device, the Mobi system, is 10% to 15% cheaper to manufacture than the previous model. That should help decrease the company's costs and bring it closer to profitability.
Overall, given the vast market opportunity, Tandem Diabetes Care's innovative devices, and the company's efforts to bring down costs, its stock could eventually rebound from its terrible performance this year. Buying shares while they're down might be an excellent idea, and with about $1,000, investors could pick up 54 of them right now.
