The pharma industry is one of the most lucrative sectors in the global economy, with a high demand for innovative drugs and treatments. Over the last five years, worldwide medicine spending has increased by 35%, with a projected 38% increase through 2028 due to rising demand.
Given the industry’s bright prospects, investors could consider buying fundamentally strong pharmaceutical stocks such as Dr. Reddy’s Laboratories Limited (RDY), Teva Pharmaceutical Industries Limited (TEVA), and AbbVie Inc. (ABBV).
The pharmaceutical industry is thriving due to increased demand for medications and treatments, technological advancements, and research that leads to the development of new drugs and therapies. The American pharmaceutical industry, which accounts for 40 - 45% of global pharmaceutical revenues, has significant market domination and economic impact, demonstrating the industry's strength and competitiveness.
Increasing rates of pharmaceutical business collaborations, accurate digitized diagnoses, and an increasing volume of bio-medical trials will contribute to the growth of the global pharma industry. The pharmaceutical manufacturing market is estimated at $465.16 billion in 2024 and is predicted to reach $967.12 billion by 2029, expanding at a CAGR of 12.1%.
In addition, the Global Pharma 4.0 Market is transforming the pharma sector as cutting-edge technologies are integrated into manufacturing to increase efficiency, lower costs, and speed up drug discovery processes. The global pharmaceutical 4.0 market is expected to expand at a CAGR of 8.2% until 2029.
The global pharmaceutical industry is expected to reach $2.83 trillion by 2033, growing at a CAGR of 6.2%. Investors’ interest in pharma stocks is evident from the Invesco Pharmaceuticals ETF’s (PJP) 9% returns over the past six months.
With these favorable trends in mind, let’s examine the fundamentals of the three best Medical - Pharmaceuticals stock picks, beginning with the third choice.
Stock #3: Dr. Reddy’s Laboratories Limited (RDY)
Headquartered in Hyderabad, India, RDY is a global pharmaceutical company that manufactures and markets generic and branded drugs and active pharmaceutical ingredients, provides research services, develops therapies in oncology and inflammation, and offers digital healthcare services.
RDY’s trailing-12-month EBIT margin of 24.90% is significantly higher than the industry average of 1.06%. Likewise, the stock’s trailing-12-month levered FCF margin of 8.56% is 886.8% higher than the industry average of 0.87%. Additionally, its 0.80x trailing-12-month asset turnover ratio is 102.2% higher than the industry average of 0.39x.
During the third quarter, which ended December 31, 2023, RDY’s revenues rose 6.5% year-over-year to $867 million. The company’s profit for the period grew 10.7% from the prior-year quarter to $166 million. Moreover, its EPS and EBITDA increased 10% and 7.6% from the previous year’s quarter to $0.99 and $254 million, respectively.
Street expects RDY’s EPS and revenue for the quarter ended March 31, 2024, to increase 11.2% and 10.7% year-over-year to $0.81 and $853 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, RDY’s shares have gained 25.7% to close the last trading session at $73.89.
RDY's POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
RDY has an A grade for Stability and a B for Value and Sentiment. Within the Medical - Pharmaceuticals industry, it is ranked #15 out of 161 stocks. To see RDY's additional ratings for Growth, Momentum, and Quality, click here.
Stock #2: Teva Pharmaceutical Industries Limited (TEVA)
Headquartered in Tel Aviv, Israel, TEVA develops, manufactures, markets, and distributes generic medicines, specialty medicines, and biopharmaceutical products in North America, Europe, Israel, and globally. It provides generic medicines, sterile products, and generic products. It focuses on the central nervous system (CNS), respiratory, and oncology areas.
On April 4, 2024, TEVA and mAbxience, a Fresenius Kabi majority-owned firm with an ownership interest in Insud Pharma, announced a strategic license deal for a biosimilar candidate in development to treat various cancer indications. Biosimilars show promise as cost-effective alternatives to conventional oncology medicines, addressing a crucial need in global oncology care.
This partnership between TEVA and mAbxience highlights their commitment to expanding access to high-quality, affordable cancer treatment worldwide.
TEVA’s trailing-12-month EBIT margin of 20.07% is significantly higher than the industry average of 1.06%. Its trailing-12-month EBITDA margin of 27.34% is 412.2% higher than the industry average of 5.34%. Additionally, its 20.79% trailing-12-month levered FCF margin is considerably higher than the 0.87% industry average.
For the fiscal fourth quarter that ended December 31, 2023, TEVA’s net revenues increased 14.7% year-over-year to $4.46 billion. Its non-GAAP operating income was $1.55 billion, up 36.8% from the prior year’s quarter.
In addition, non-GAAP net income attributable to TEVA and non-GAAP EPS of $1.13 billion and $1 indicates growth of 43.5% and 40.8% year-over-year, respectively. Its adjusted EBITDA increased 33.9% from the prior year’s quarter to $1.66 billion.
For the quarter ended March 31, 2024, TEVA’s revenue and EPS are expected to increase 3% and 29.1% year-over-year to $3.77 billion and $0.52, respectively. Over the past nine months, the stock has gained 75.5% to close the last trading session at $13.97.
TEVA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #10 in the same industry. It has an A grade for Growth and Value and a B for Sentiment. Click here to see the additional ratings of TEVA for Momentum, Stability, and Quality.
Stock #1: AbbVie Inc. (ABBV)
ABBV is a global pharmaceutical company known for its diverse portfolio, including medications like Humira, Skyrizi, and Imbruvica, addressing conditions ranging from autoimmune diseases to cancer and neurological disorders.
On March 25, 2024, ABBV announced the agreement to acquire Landos Biopharma, Inc. (LABP) for approximately $137.50 million in cash, with further potential value rights of up to $75 million.
The acquisition will allow ABBV to expand its pipeline of innovative therapies for autoimmune diseases. This strategic move demonstrates ABBV's commitment to investing in cutting-edge research and development within the biopharmaceutical industry.
ABBV’s trailing-12-month gross profit margin of 69.21% is 21.5% higher than the industry average of 56.95%. Its trailing-12-month EBITDA margin of 48.53% is 808.9% higher than the industry average of 5.34%. Additionally, its 41.66% trailing-12-month levered FCF margin is significantly higher than the 0.87% industry average.
ABBV reported net revenue of $14.30 billion in the fourth quarter that ended December 31, 2023. The company’s operating earnings and net earnings stood at $3.20 billion and $824 million, respectively. Also, its adjusted EPS amounted to $2.79 for the quarter.
Analysts expect ABBV’s revenue and EPS for the quarter ending September 30, 2024, to grow 1.5% year-over-year to $14.13 billion. For fiscal 2024, ABBV’s revenue and EPS are expected to increase marginally and 1.1% year-over-year to $54.60 billion and $11.23, respectively. Shares of ABBV have gained 25.6% over the past nine months to close the last trading session at $170.14.
It’s no surprise that ABBV has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has a B grade for Growth, Value, Stability, Sentiment, and Quality. It is ranked #2 in the Medical - Pharmaceuticals industry. Beyond what is stated above, we’ve also rated ABBV for Momentum. Get all ABBV ratings here.
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ABBV shares were trading at $169.51 per share on Wednesday morning, down $0.63 (-0.37%). Year-to-date, ABBV has gained 10.43%, versus a 8.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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