The global pharmaceutical market totals roughly $1.7 trillion and continues to grow. This huge sector improves the quality of life for many people while creating attractive opportunities for long-term investors. Before you invest in pharmaceutical companies, learn about some top picks and how to choose the best stocks in the pharmaceutical sector.
Top pharmaceutical stocks to consider
Here are our top picks for pharmaceutical stocks investors should consider in 2026.
| Name and ticker | Current price | Market cap | Dividend yield |
|---|---|---|---|
| AbbVie (NYSE:ABBV) | $227.02 | $403.7 billion | 2.91% |
| Eli Lilly (NYSE:LLY) | $1,028.83 | $983.1 billion | 0.60% |
| Johnson & Johnson (NYSE:JNJ) | $245.30 | $593.5 billion | 2.11% |
| Pfizer (NYSE:PFE) | $27.11 | $154.3 billion | 6.34% |
1. AbbVie
For years, the top-selling blockbuster drug -- defined as one that generates more than $1 billion in annual sales -- for AbbVie (ABBV -0.62%) was Humira, which is approved for treating rheumatoid arthritis and several other autoimmune diseases. However, Humira's sales are sinking as it faces competition after losing patent exclusivity in 2023.
NYSE: ABBV
Key Data Points
NYSE: LLY
Key Data Points
These two products (which share the same active ingredient) could be on track to become among the most successful drugs of all time, according to some analysts. Lilly has expanded its Mounjaro/Zepbound franchise into other indications as well, including obstructive sleep apnea.
Perhaps the greatest threats to Mounjaro and Zepbound come from Lilly's own pipeline. The company awaits U.S. regulatory approval of orforglipron, an oral obesity drug. Lilly is also evaluating promising obesity therapy retatrutide in late-stage clinical studies.
Eli Lilly's lineup features other successful products, too. They include cancer drug Verzenio, diabetes drug Jardiance, and autoimmune disease drug Taltz.
3. Johnson & Johnson
Johnson & Johnson (JNJ -0.40%) is a healthcare giant that derives the majority of its growth from its pharmaceutical business. J&J boasts a large product lineup that includes immunology drugs Stelara and Tremfya and cancer drugs Darzalex and Erleada.
NYSE: JNJ
Key Data Points
The company's pipeline features almost 40 programs in late-stage clinical testing. These clinical trials are testing new drug candidates and seeking additional approvals for drugs such as Tremfya.
Johnson & Johnson spun off its consumer health unit into a stand-alone entity in 2023. This left the company with its two fastest-growing segments: pharmaceutical and medical devices.
Like AbbVie, J&J is a Dividend King, having raised its annual dividend for 63 consecutive years. The company is also highly resilient, surviving and thriving since it began operations in 1886.
NYSE: PFE
Key Data Points
The big drugmaker faces some challenges. Its COVID-19 vaccine sales have declined sharply, and several of Pfizer's top-selling products will lose patent exclusivity over the next few years. However, Pfizer has invested heavily in research and development (R&D).
The company has also made several key acquisitions, including the purchase of Seagen in 2023. These moves have put Pfizer in a solid position to deliver long-term growth.
The drugmaker's pipeline includes more than 100 candidates. Roughly one-third of these programs are either in late-stage testing or awaiting approval. The company also has promising drugs in earlier-stage development.
Pfizer has long been a favorite among income-seeking investors. Its forward dividend yield is among the highest in the pharmaceutical industry.
How to invest in pharmaceutical companies
The basics of investing in pharmaceutical companies are no different than investing in any stock. Follow these steps to invest in pharma stocks:
- Open your brokerage app: Log in to your brokerage account where you handle your investments.
- Search for the stock: Enter the ticker or company name into the search bar to bring up the stock's trading page.
- Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this stock.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
Choosing the best pharmaceutical stocks
Knowing what to look for can help you identify the best pharmaceutical stocks. The top pharma companies have a few key characteristics in common, including:
- They usually increase their revenue and earnings consistently.
- They have robust pipelines that allow them to offset any revenue declines resulting from patent expirations.
- They are adept at developing new therapies and using existing drugs for new purposes.
- They make smart business development deals that bolster their internal research and development.
Risks of owning pharmaceutical stocks
The significant cost and long elapsed time between drug discovery and approval (assuming the drug development process succeeds and regulatory approval is granted) make investing in pharmaceutical stocks relatively risky. Consider these risk factors before investing in any pharmaceutical companies:
- Potential for clinical failure: Early-stage drug candidates are especially likely to fail, meaning they are proven to be unsafe or ineffective in clinical trials. Even drug candidates in phase 3 testing can ultimately fail.
- Potential failure to win regulatory approval: Even drug candidates that successfully complete clinical testing may fail to win approval from the relevant regulatory agencies.
- Non-reimbursement risks: To achieve commercial success for approved drugs, pharma companies must convince institutional payers, such as public and private health insurers, to reimburse patients for the costs of their drugs. Pharmaceutical companies must also contend with pressure from these payers to set drug prices lower than their targets.
- Product liability and litigation potential: The medical risks associated with pharmaceutical drugs expose drugmakers to liability issues. Companies can be forced to recall drugs from the market due to safety concerns, and lawsuits against pharma companies are common.
As in any industry, pharmaceutical companies face competition from other drugmakers. But competition in this sector can be especially fierce because when patents expire, generic drugmakers are able to produce the same drugs much more cheaply.
Should you invest in pharmaceutical companies?
There are several reasons to consider investing in pharmaceutical companies, including:
- Many pharmaceutical companies pay attractive dividends, so their stocks are well suited for income-focused investors.
- Pharmacy stocks can be safe havens during periods of market volatility.
- Some therapeutic areas, such as obesity, have especially strong growth prospects.
- Artificial intelligence (AI) is enabling pharmaceutical companies to develop new drugs more quickly and cost-effectively, thereby accelerating revenue and earnings growth.
- With the baby boomer generation growing older, many more people in the coming years are likely to need prescription medications.
Pharma stock trends
Below are key trends affecting pharmaceutical stocks over the coming years:
- Negotiated prices with Medicare for high-cost drugs
- Evolution of the GLP-1 obesity drug market to oral therapies
- A transition to manufacturing more drugs in the U.S. due to high tariffs
- Increased adoption of personalized medicines based on a patient's genetics, environment, and lifestyle
- Use of AI in drug discovery and development
- Aging demographic trends in the U.S. and other countries
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FAQ
Pharmaceutical stocks FAQ
About the Author
Keith Speights has positions in AbbVie, Bristol Myers Squibb, and Pfizer. The Motley Fool has positions in and recommends AbbVie, Bristol Myers Squibb, and Pfizer. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
