Nvidia (NVDA +3.75%) has been a great stock to own, and it could remain that way for long-term investors. However, the problem is that it's trading at nearly 40 times its future profits. At such a high valuation, it sets a high bar for the business and effectively prices in a lot of future growth already. It could make it difficult for the stock to continue to generate high returns. Even if it does, at such an inflated valuation, the risk of a potential sell-off is high if the business falls short of analyst and investor expectations.
There are arguably better opportunities out there for investors than just buying shares of Nvidia. There are magnificent stocks to buy in other industries, such as healthcare, which may provide investors with safer and better overall investment options. One stock that looks particularly attractive right now is AbbVie (ABBV +1.84%).
NYSE: ABBV
Key Data Points
Why AbbVie's recent numbers may look a bit misleading
AbbVie hasn't been nearly as hot a buy as Nvidia, and for good reason -- its growth rate has been underwhelming. During the first three months of the year, the company's revenue totaled $12.3 billion and was up less than 1% year over year.
But a big reason for AbbVie's underwhelming numbers is the loss of exclusivity of Humira, its top-selling drug. The rheumatoid arthritis drug's sales declined by nearly 36% during the period, falling to less than $2.3 billion. AbbVie was able to avoid an overall decline in the top line because of how well its new up-and-coming drugs have been performing. Skyrizi and Rinvoq are two immunology drugs AbbVie developed and commercialized to offset the revenue loss from Humira, and that strategy has been working. Together, the two drugs combined for $3.1 billion in revenue this past quarter, with Skyrizi growing at a rate of 48% while Rinvoq's sales rose by more than 59%.
The company possesses some promising growth potential
AbbVie has also been investing in opportunities to enhance its growth prospects in the long run. Earlier this year, it closed on its $10 billion acquisition of ImmunoGen. The company makes antibody-drug conjugates, which target cancer cells more effectively without damaging healthy ones -- a common concern with chemotherapy. AbbVie also plans to buy Cerevel Therapeutics for $8.7 billion, in a move that would expand its neuroscience pipeline and bolster that area of its business.
Management is working on strengthening the business, with AbbVie CEO Richard A. Gonzalez believing that it may not be too long before investors start to see a payoff from the company's efforts. He's expecting "a return to robust growth in 2025 and a high single-digit CAGR through the end of the decade."
While that growth rate may still be a bit low for growth-oriented investors, don't forget that AbbVie accumulates plenty of free cash, which could pave the way for even more acquisitions and opportunities in the future. Over the past three years, AbbVie has generated over $68 billion in free cash flow.
AbbVie's modest valuation could set investors up for strong gains
Year to date, shares of AbbVie have climbed by just 5%. But despite the lackluster gains, the healthcare stock has the potential to make for a phenomenal long-term investment. Trading at just 15 times its estimated future profits and with a price/earnings-to-growth (PEG) ratio of 0.4, the stock could prove to be a steal of a deal for long-term investors. In comparison, Nvidia's PEG ratio is around 1.3, suggesting that it may be a bit more overpriced in relation to its growth prospects.
And without a skyrocketing valuation, investors can buy shares of AbbVie while also securing a fairly high dividend, which yields 3.8% right now. That's more than double the S&P 500 average of 1.4%.
AbbVie is a great stock to buy and hold
Although its recent results may not look all that impressive, there's reason to remain bullish on AbbVie in the long run. While you could wait for the business to generate better numbers, odds are that by then, the stock will be trading higher. Adding the stock to your portfolio before that happens can lead to much greater gains.
