One formula to generate strong returns on equity markets involves investing small amounts of money in top stocks regularly over long periods. Buying fractional shares is one way to apply this strategy, but it's also possible to find attractive corporations at already-affordable prices.
Here are two excellent examples in the healthcare industry: Pfizer (PFE 0.30%) and Exelixis (EXEL 4.18%). These drugmakers are worth investing in, and both are changing hands for under $50 apiece. Here is what investors need to know.
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1. Pfizer
Pfizer's shares have declined significantly over the past few years as its revenue and earnings dipped following its coronavirus-related success. What's more, the company could face more trouble soon. The drugmaker will encounter significant patent cliffs in the next few years, particularly for Eliquis, an anticoagulant. However, at about $25 per share, Pfizer looks attractive. Here are four reasons why.
First, the company should succeed in rejuvenating its lineup. Pfizer has improved its pipeline over the past few years. It has also earned major approvals. Though they are not yet helping the company's revenue move in the right direction consistently, that will happen in time.
Second, Pfizer has been engaged in cost-cutting efforts to help boost its bottom line. Pfizer is still at it and is planning to reduce expenses even more through 2027.
Third, Pfizer offers a terrific dividend program. The company has increased its payouts by 19.45% in the past five years. Pfizer's forward yield is 7.1% -- that's well above the S&P 500's average of 1.3%. Pfizer should continue to reward loyal shareholders in this manner.
Lastly, the stock appears to be more than reasonably valued. Pfizer's forward price-to-earnings ratio comes in at a dirt-cheap 8.3, well below the average of 16.1 for the healthcare industry.
Pfizer's stock might not recover overnight. However, for patient, income-seeking investors, it is worth investing in the company right now. Over time, that investment could pay for itself.
2. Exelixis
Exelixis is a relatively small drugmaker that specializes in oncology. The company's top-selling product is Cabometyx, which is approved to treat several kinds of cancers, most notably some forms of liver and kidney cancer. Cabometyx has been a hit and has helped Exelixis' revenue and earnings move in the right direction for years. However, the biotech company has become even more attractive over the past 18 months. Here are three things that happened.
First, Exelixis won a patent litigation case that will help keep a Cabometyx generic off the market until early 2030. Had the drugmaker lost this lawsuit, it might have been disastrous for its financial results.
Second, Cabometyx won another label expansion, this time for the treatment of pancreatic neuroendocrine tumors. Cabometyx has maintained an upward sales trajectory by holding a leading market share for medicines of its type among patients with renal cell carcinoma (kidney cancer), and thanks to label expansions. If it's not broken, don't fix it.
Third, Exelixis recently announced positive top-line results for its next-gen cancer medicine, zanzalintinib, in a phase 3 study that enrolled patients with metastatic colorectal cancer. Although colorectal cancer is highly treatable when caught early, as Exelixis points out, five-year survival rates drop once it has metastasized, meaning there is an unmet need in that niche. The biotech's zanzalintinib could help fill that need and help decrease the company's exposure to Cabometyx, all in one fell swoop.
With all that going on, the future looks brighter than ever for Exelixis. Shares are changing hands for $44 apiece. Investing in the stock and holding on to it for five years or more could lead to solid returns.
