The dust is finally starting to settle on the third-quarter earnings season, which was particularly disappointing for the healthcare sector.
that put some Big Pharma stocks in her sights — plus the realization that the Affordable Care Act would only serve up one big revenue surge — sent a bunch of hospital and pharmaceutical stocks down to bargain-basement prices.
To forward-thinking investors, though, some of these names aren’t the ones to flee from in fear of more losses. Rather, they’re actually stocks to buy while they’re beaten down.
Here’s a look at five of the market’s Big Pharma names that are undervalued right now, as well as a couple more struggling pharmaceutical stocks that may actually be best left avoided at this time.
Big Pharma Stocks to Buy: Pfizer Inc. (PFE)
Yes, the Pfizer (PFE) acquisition of Allergan (AGN) . Namely, some observers fear that making the Big Pharma company even bigger could simply make it so big that it’s unmanageable; Pfizer was mulling a breakup for that very reason even before making an overture for Allergan.
There’s no real downside to the pairing, however, even if the upside may be limited. The merger of the two pharmaceutical companies will generate an estimated $2 billion in synergies, plus hundreds of millions of dollars in tax savings every year.
In the meantime, the market already underestimates Pfizer, with or without a consummated deal with Allergan. The pullback since early August has left PFE shares at a palatable forward-looking price-to-earnings ratio south of 14, and once the dust settles on the Allergan deal, .
Big Pharma Stocks to Buy: Shire PLC (ADR) (SHPG)
Pfizer and Allergan are hardly the only Big Pharma stocks to enter the M&A arena of late. Shire PLC (SHPG) is also in the mix, having becoming the hunter after being the hunted last year before AbbVie (ABBV) ultimately dropped its bid to buy the Irish drugmaker.
Specifically, Baxalta (BXLT).
. But, more importantly, SHPG has earned a spot on a list of pharmaceutical stocks to buy because it’s got a great pipeline.
It was admittedly a self-serving assessment, but earlier in the year, Shire CEO Flemming Ornskov may have been right when he said . Even the regarding the Opus-3 trial of lifitegrast as a treatment for dry-eye disease was largely taken in stride, and the company has already .
Big Pharma Stocks to Buy: GlaxoSmithKline plc (ADR) (GSK)
GlaxoSmithKline plc (GSK) is another one of a handful of worthy pharmaceutical stocks to buy, but not because it’s a buyout target that could make for a compelling tax-inversion play.
Rather, GSK is a Big Pharma stock worth owning for an old-fashioned reason: It just has a lot going for it, particularly within its current portfolio.
That’s a premise not everyone will agree with; GlaxoSmithKline has been something of a punching bag since mid-2014, when GSK started a 25% tumble that’s still going pretty strong. What has changed in the meantime to thwart that pullback? News that , then file 20 more new drug applications by 2025 … 80% of which would be first-in-class therapies.
Not all of them will be approved of course, nor will all of them even make it to the end of phase 3 trials. Enough of them will, however.
In the meantime, GlaxoSmithKline shares have the potential to move higher in anticipation of those near-term approvals, as those drugs’ value and potential become clearer.
Big Pharma Stocks to Buy: Bristol-Myers Squibb Co (BMY)
With a trailing P/E of 63 and a forward-looking P/E of 29, Bristol-Myers Squibb (BMY) isn’t topping a lot of investors’ lists of Big Pharma buys.
But don’t let the past or the foreseeable future’s reality fool you. Bristol-Myers Squibb arguably has one of the most underestimated pipelines among all the Big Pharma names. And what Bristol-Myers Squibb doesn’t have in the pipeline, it’s not shy about buying.
For example, in early November, Bristol-Myers Squibb acquired a company called Cardioxyl Pharmaceuticals
to , beefing up the suitor’s presence in the heart-care market. Earlier in the year, the company acquired Flexus Biosciences for a cool $1.25 billion to . Flexus was working on a novel immunotherapy that had yet to enter clinical trials; that’s a testament to its potential.
As for the existing pipeline and portfolio, Opdivo has already made a splash, and is just getting started. Bristol-Myers’ Opdivo has already , and . With more trials of the drug underway, though, in addition to the sales growth it will see as a therapy for its approved uses, analysts think annual … versus nothing last year.
Big Pharma Stocks to Buy: Merck & Co., Inc. (MRK)
Merck (MRK) might not have any grand slams left in its pipeline or portfolio, but it’s quietly got more doubles, triples — and maybe even a couple of solo shots — than the market may be giving it credit for.
Case in point: Keytruda. Kudos to Merck for coming up with something entirely new. Keytruda is an anti-PD1 (programmed death) therapy … . Keytruda was first approved to treat melanoma, and more recently it was approved as a therapy for non-small cell lung cancer.
In the meantime, Merck has readied another drug as a treatment for hepatitis C;. Leerink analyst Seamus Fernandez thinks the strength of this piece of the pipeline
The kicker is the yet-another dividend hike, . The upped dividend that’s been in place since 2011.
Big Pharma Duds: AstraZeneca plc (ADR) (AZN)
You have to give credit where it’s due. AstraZeneca plc (AZN) CEO Pascal Soriot gave it the proverbial “old college try” when he took the helm in 2012. for a company that many would argue had the weakest research and development units among all Big Pharma companies was a big one.
But neither the pipeline nor the portfolio are significantly stronger in the meantime , and there’s not a lot on the horizon to get excited about.
Don’t misunderstand. AstraZeneca has been making forward progress. Baby steps aren’t enough to climb out of the deep hole AZN was and still is in.
The one possible exception is a compelling oncology effort. Lynparza was , and AZD9291 has . It’s just not enough.
Sadly, the biggest value AstraZeneca offered to shareholders was as a acquisition candidate … but its most likely suitor was Pfizer in 2014. AZN rejected all of Pfizer’s bids, and subsequently sent a message to any other suitor that it was only interested in offers the company knew it wouldn’t be getting.
Now with a looming overhaul to the U.S. tax code that will likely quell so-called tax inversions, AZN isn’t even a good buyout candidate.
Big Pharma Duds: Eli Lilly and Co (LLY)
Yes, Eli Lilly (LLY) . Don’t let one approval speak for the company’ entire pipeline, however. Remember, it was less than two months ago Eli Lilly , after it failed to do as well as hoped in phase 3 trials.
Point being, Eli Lilly isn’t exactly firing on all cylinders when it comes to its pipeline.
Yet, it’s acquiring new drugs now. For instance, In October it from Locemia Solutions, and it acquired Novartis’ (NVS) . That’s a new strategy, though, and a boat that Eli Lilly may have missed if it’s just getting into the game. Remember, as of the beginning of the year . It’s well behind other Big Pharma suitors in the buyout race.
Besides, neither of those acquisitions suggest big-enough thinking to be a much-needed game-changer for struggling LLY.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
