Pharmaceutical companies play a tremendous role in modern healthcare. While sometimes controversial, drugmakers design medicine to treat some of the worst ailments plaguing society and constantly innovate to improve human life.
Their long-term relevance in healthcare makes the pharmaceutical business an excellent place for investors to find long-term investment ideas. These three stocks offer investors a mix of solid financials, long-term upside, and passive income.
A high-yield dividend stock
Pfizer (PFE +0.83%) is a mainstay in the pharmaceutical space. The company has been around for decades and has shifted multiple times with blockbuster acquisitions. Most recently, Pfizer became a leading vaccine company during the COVID-19 pandemic, generating tremendous revenue from Comirnaty and Paxlovid. However, those sales fell off as the pandemic passed, which soured Wall Street on Pfizer's growth outlook. The stock has fallen a whopping 55% from its high.
NYSE: PFE
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But it's not all bad. Pfizer has made moves to bolster its long-term pipeline, including acquiring Seagen for $43 billion late last year to bolster its oncology pipeline.The company is poised to lean on its oncology and mRNA vaccine technology for long-term growth. Management believes its oncology segment can double its footprint of treated patients by 2030.
Today, the company pays a hefty dividend that yields 6.3% at the current share price and is funded by a solid 76% payout ratio using estimated 2024 earnings. Shares also trade at a forward P/E ratio of just 12, which is a bargain if the company can grow earnings by 10% annually moving forward, as analysts believe.
The balance of growth and yield
AbbVie (ABBV 0.01%) has been a monster investment since being spun off from Abbott Laboratories over a decade ago. Since then, shares have turned a $10,000 investment into over $82,000. The company rode blockbuster sales from Humira for years, but that patent expired last year. Fortunately, AbbVie has aggressively filled that hole with acquisitions and organic growth from up-and-coming products.
NYSE: ABBV
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The company bought Botox owner Allergan for $63 billion in 2020 and expects rising star products Rinvoq and Skyrizi to combine for $27 billion in annual sales by 2027. Despite Humira sales, which represented 36% of all revenue in 2022, dropping 40% year over year in Q4 2023, analysts expect AbbVie to grow revenue over the long term. That's due mainly to these new growth catalysts.
Investors can get a solid 3.4% starting yield; the payout ratio is only 48% of cash flow. The company's dividend has risen yearly since the spin-off and extends decades if you return to its days with Abbott. Shares trade at a forward P/E of 16, a fair price, considering analysts expect earnings will grow at a mid- to high-single-digit rate over the coming years.
An industry disruptor with long-term upside
Ginkgo Bioworks (DNA +0.91%) has a pioneering new technology that could change the industry entirely. The company uses genetic engineering to create microbes that perform specific functions. Potential uses span many sectors, including vaccine manufacturing, cannabinoids, and even probiotics in plant foods. This synthetic biology opens up a massive market opportunity for Ginkgo Bioworks.
NYSE: DNA
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The company generates revenue upfront when it launches a program, but long-term profits will primarily stem from royalties and fees from successful product development. Ginkgo Bioworks is still a very young company with just $250 million in annual revenue and it trades at a $2.6 billion market capitalization. There's far more risk in Ginkgo than these first two stocks, but the potential reward is also far greater. It's a potential multibagger if the company establishes leadership in the synthetic biology industry.
Ginkgo Bioworks isn't profitable yet, and analysts don't expect future profits soon. However, it's sitting on a massive $944 million cash pile and is burning just $60 million in cash each quarter or so, which gives investors the ability to be patient and let this nascent company work toward realizing its full potential. You probably shouldn't buy the stock if you don't believe in the technology and its long-term uses, but it's hard to deny the upside if things work out.
