Investors looking for stocks that can reliably outperform the broad market should have a look at the pharmaceutical industry. The tailwind pushing them forward is powerful. In the U.S., around 10,000 people become eligible for Medicare each week.
The U.S. is one of many developed countries with an aging population that's increasingly dependent on prescription drugs. This is how AbbVie (ABBV 2.23%) and AstraZeneca (AZN +0.00%) have consistently outperformed the benchmark S&P 500 index.
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Total Return: |
Total Return: |
Total Return: | |
|---|---|---|---|
| SPDR S&P 500 ETF | 33% | 103% | 235% |
| AbbVie | 102% | 237% | 391% |
| AstraZeneca | 51% | 106% | 512% |
Data source: Yahoo! Finance.Table by Author.
Whether you're trying to build a stream of passive income or outperform the overall market, these stocks have what it takes. Here's how they could keep outperforming in the years ahead.
1. AbbVie
AbbVie raised its dividend payout by a stunning 270% over the past 10 years but isn't trading like a stock that rapidly raises its quarterly payout. At recent prices, it offers a 3.2% yield.
NYSE: ABBV
Key Data Points
Shares of AbbVie have been under pressure because its former lead drug Humira lost patent-protected market exclusivity in the U.S. in 2023. In the first half of 2024, Humira sales decreased 33% year over year to $5.1 billion.
Declining Humira sales are a challenge, but AbbVie has done a pretty good job reinvesting the profits it produced. In 2019, the company launched Skyrizi for psoriasis and Rinvoq for arthritis, and these two drugs are offsetting Humira losses on their own.
Combined sales of the pair reached $7.3 billion in the first half of 2024 and are a long way from being finished. In February, management told investors it expects Rinvoq and Skyrizi to generate more than $27 billion in combined annual sales by 2027.
Investors will be glad to learn that Rinvoq and Skyrizi aren't the only blockbuster drugs that AbbVie's launched in recent years. For example, its oral treatments for migraine headaches, Ubrelvy and Qulipta, are expected to produce more than $3 billion in combined annual sales at their peaks.
AbbVie shares have been trading for around 17.9x the midpoint of management's earnings expectations for 2024. That's a historically high multiple for this company, but pressure from Humira's competition is already beginning to subside. With plenty of growth drivers to push earnings higher, investors who buy at recent prices have a great chance to come out miles ahead over the long run.
2. AstraZeneca
AstraZeneca is an international drugmaker that doesn't get much attention from U.S.-based investors. That's because its dividend payouts are a little unusual.
NASDAQ: AZN
Key Data Points
Instead of four equal quarterly distributions, AstraZeneca insists on two payments per year, with a greater portion announced alongside fourth-quarter results and payable in March. In July, the company raised its first interim distribution by 7.5% to $0.50 per American depository receipt (ADR).
At recent prices, the stock offers a 1.9% dividend yield. That isn't particularly tempting now, but the distribution could grow at the same pace as the company's bottom line. AstraZeneca generated $7 billion in free cash flow over the past year and only needed 64% of this sum to meet its dividend commitment.
AZN Dividend data by YCharts.
AstraZeneca has multiple growth drivers that could push up profits and its dividend payout in the years ahead. In the first half of 2024, sales of Farxiga -- a treatment for diabetes, heart failure, and chronic kidney disease -- surged 35% year over year to $3.8 billion. Sales of Calquence, a blood cancer drug, surged 27% to $1.5 billion, and Ultomiris, a rare disease drug, shot 32% higher to $1.8 billion.
Free cash flow has surged since 2020 and could continue rising, thanks to an extremely successful product line. In the first half of 2024, AstraZeneca reported sales that grew more than 10% year over year for 21 different drugs.
With heaps of growth drivers to push earnings higher and a lack of significant patent cliffs to offset, AstraZeneca expects earnings to grow by a percentage in the middle teens this year. Adding some shares to a diversified portfolio now looks like a smart move.
