Despite the banking crisis, the Fed raised interest rates by a quarter of a percentage point, bringing the benchmark funds rate to a range of 4.75% to 5%, the highest since October 2007. Concerns over the federal funds rate climbing higher than previously predicted and tighter lending by banks following the worst banking crisis since 2008 are expected to push the economy into a recession.
In this scenario, investors could consider buying fundamentally strong pharma stocks Johnson & Johnson (JNJ), AstraZeneca PLC (AZN), Novartis AG (NVS), and Bristol-Myers Squibb Company (BMY) as long-term investments.
Following the banking crisis, investors are skeptical about the financial system’s health. Goldman Sachs chief economist Jan Hatzius now sees a 35% chance of a recession in the next 12 months, up from a previously predicted 25%.
Thanks to the inelastic demand for medicines and healthcare, the pharma industry is known to remain mostly unaffected by economic cycles, making pharma stocks a potential hedge for investors against recessionary pressure. Pharma companies are able to maintain their profit margins during an economic slowdown.
The pharma industry is also well-positioned for long-term growth as the global population is aging, and there has been a steady rise in chronic diseases. Technological breakthroughs are also helping pharma companies develop new drugs and therapies to treat and cure several previously untreatable diseases.
Moreover, investors’ interest in pharma stocks is evident from VanEck Vectors Pharmaceutical ETF’s (PPH) 10.3% returns over the past six months. The global pharmaceutical market is expected to expand at a CAGR of 5.3% to reach $2.03 trillion by 2028.
To that end, it could be wise for investors to buy fundamentally strong dividend-paying pharma stocks JNJ, AZN, NVS, and BMY to capitalize on the industry tailwinds and ensure a stable income stream given its reliable dividends.
Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates under three segments: Consumer Health; Pharmaceutical; and MedTech.
On December 22, 2022, JNJ announced its acquisition of Abiomed, Inc. (ABMD). JNJ’s CEO, Joaquin Duato, believes this acquisition is essential to accelerate growth in its MedTech business segment and deliver innovative medical technologies to more people worldwide.
In terms of the trailing-12-month gross profit margin, JNJ’s 67.36% is 20% higher than the 56.13% industry average. Its 34.46% trailing-12-month EBITDA margin is significantly higher than the 3.35% industry average. Likewise, its 0.51x trailing-12-month asset turnover ratio is 49.9% higher than the industry average of 0.34x.
Over the last three years, JNJ’s dividend payouts have grown at a 6% CAGR. Its four-year average dividend yield is 2.61%, and its forward annual dividend of $4.52 per share translates to a 2.99% yield. It paid a quarterly dividend of $1.13 per share on March 7, 2023.
JNJ’s U.S. sales increased 2.9% year-over-year to $12.52 billion for the fourth quarter that ended December 31, 2022. Its non-GAAP net earnings rose 9.5% year-over-year to $6.22 billion. The company’s non-GAAP EPS increased 10.3% from the year-ago value to $2.35.
JNJ's EPS for the quarter ending June 30, 2023, is expected to increase 0.9% year-over-year to $2.61. Its revenue for the quarter ending March 31, 2023, is expected to increase 0.7% year-over-year to $23.58 billion. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has fallen 4.2% to close the last trading session at $151.13.
JNJ’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and a B for Value and Quality. Within the Medical - Pharmaceuticals industry, it is ranked #6 of 167 stocks. Click here to see the additional POWR Ratings of JNJ for Growth, Momentum, and Sentiment.
AstraZeneca PLC (AZN)
Headquartered in Cambridge, the United Kingdom, AZN, a biopharmaceutical company, focuses on discovering, developing, manufacturing, and commercializing prescription medicines. It markets products for cardiovascular, renal, and metabolism diseases, oncology, respiratory, immunology, and rare diseases.
On February 24, 2023, AZN announced the acquisition of CinCor Pharma, Inc. (CINC), a clinical-stage biopharmaceutical company focused on developing novel treatments for resistant and uncontrolled hypertension as well as chronic kidney disease.
The acquisition bolsters AZN’s cardiorenal pipeline by adding baxdrostat (CIN-107), an aldosterone synthase inhibitor (ASI) for blood pressure lowering in treatment-resistant hypertension, to its cardiorenal portfolio.
In terms of the trailing-12-month gross profit margin, AZN’s 80.57% is 43.5% higher than the 56.13% industry average. Its 31.33% trailing-12-month EBITDA margin is considerably higher than the 3.35% industry average. Likewise, its trailing-12-month net income margin of 7.41% compares to the negative 6.99% industry average.
Over the last three years, AZN’s dividend payouts have grown at a 1.2% CAGR. Its four-year average dividend yield is 2.66%, and its forward annual dividend of $1.97 per share translates to a 2.93% yield. It is expected to pay a semi-annual dividend of $0.99 per share on March 27, 2023.
AZN's gross profit for the fourth quarter ended December 31, 2022, increased 12.5% year-over-year to $8.31 billion. The company’s operating profit came in at $1.09 billion, compared to a loss of $292 million in the year-ago period.
Its profit after tax came in at $902 million, compared to a loss after tax of $346 million. Additionally, its EPS came in at $0.58, compared to a loss per share of $0.22 in the year-ago period.
Analysts expect AZN’s EPS and revenue for the quarter ending June 30, 2023, to increase 0.5% and 3.2% year-over-year to $0.86 and $11.11 billion. Over the past six months, the stock has gained 23.2% to close the last trading session at $67.26.
It is no surprise that AZN has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It is ranked #9 within the same industry. It has a B grade for Growth, Stability, Sentiment, and Quality.
In total, we rate AZN on eight different levels. Beyond what we stated above, we have also given AZN grades for Value and Momentum. To see all AZN ratings, click here.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide. The company operates through two segments, Innovative Medicines, and Sandoz.
On January 24, 2023, Sandoz, an NVS division, signed an agreement to acquire worldwide product rights for the leading systemic antifungal agent Mycamine from Astellas.
Sandoz CEO, Richard Saynor, said, “Acquiring this leading and respected global brand will significantly reinforce the Sandoz global hospital offering, as well as complement our existing global leadership position in generic antibiotics.”
In terms of the trailing-12-month gross profit margin, NVS’ 70.90% is 26.3% higher than the 56.13% industry average. Its trailing-12-month levered FCF margin of 18.69% compares to the negative 3.87% industry average. Likewise, its 0.42x trailing-12-month asset turnover ratio is 21.3% higher than the industry average of 0.34x.
Over the last three years, NVS’ dividend payouts have grown at a 4.3% CAGR. Its four-year average dividend yield is 3.59%, and its forward annual dividend of $3.50 per share translates to a 4.24% yield. It paid an annual dividend of $3.47 per share on March 20, 2023.
For the fiscal fourth quarter that ended December 31, 2022, NVS’ total liabilities declined 9.3% to $58.03 billion, compared to $63.97 million for the fiscal year ended December 31, 2021. Its net cash flows from operating activities came in at $4.11 billion, representing an increase of 5.8% year-over-year. Also, its net income came in at $1.47 billion.
Street expects NVS’ EPS and revenue for the quarter ending March 31, 2023, to increase 6.2% and 1.3% year-over-year to $1.55 and $12.69 billion, respectively. Over the past six months, the stock has gained 8.6% to close the last trading session at $82.51.
NVS’ POWR ratings reflect this promising outlook. NVS has an overall rating of A, translating to a Strong Buy. It is ranked #3 in the Medical Pharmaceuticals industry. It has an A grade for Stability and a B for Value and Quality.
We have also given NVS grades for Growth, Momentum, and Sentiment. Get all NVS ratings here.
Bristol-Myers Squibb Company (BMY)
BMY discovers, develops, licenses, manufactures, and markets biopharmaceutical products worldwide. It offers products for hematology, oncology, cardiovascular, immunology, fibrotic, neuroscience, and covid-19 diseases.
On January 3, 2023, BMY announced that it had completed the previously announced sale of the manufacturing facility in Syracuse, New York, to South Korea-based LOTTE BIOLOGICS. This divesture is part of the evolution of its manufacturing facilities to support its current product portfolio. Also, BMY entered into a contract manufacturing organization (CMO) relationship with LOTTE.
In terms of the trailing-12-month gross profit margin, BMY's 78.81% is 40.4% higher than the 56.13% industry average. Its 43.68% trailing-12-month EBITDA margin is considerably higher than the industry average of 3.35%. Likewise, its 0.45x trailing-12-month asset turnover ratio is 30.6% higher than the industry average of 0.34x.
Over the last three years, BMY’s dividend payouts have grown at a 9.2% CAGR. Its four-year average dividend yield is 3.02%, and its forward annual dividend of $2.28 per share translates to a 3.40% yield. It is expected to pay a quarterly dividend of $0.57 per share on May 1, 2023.
For the fiscal year ended December 31, 2022, BMY's U.S. revenues increased 9% from the prior-year period to $31.83 billion. Its non-GAAP net earnings attributable to BMY increased 2.8% year-over-year to $16.53 billion. The company’s non-GAAP EPS came in at $7.70, representing an increase of 7.5% year-over-year.
BMY’s EPS for the quarter ending March 31, 2023, is expected to increase 2.1% year-over-year to $2. Its revenue for the quarter ending June 30, 2023, is expected to increase 0.6% year-over-year to $11.96 billion. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has fallen 5.3% to close the last trading session at $66.98.
BMY’s solid prospects are reflected in its POWR ratings. The stock has an overall rating of A, which equates to a Strong Buy. It is ranked #2 in the same industry. In addition, it has an A grade for Value and a B for Growth, Stability, Sentiment, and Quality.
To see BMY’s rating for Momentum, click here.
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JNJ shares rose $0.43 (+0.28%) in premarket trading Friday. Year-to-date, JNJ has declined -13.83%, versus a 3.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
4 Best Pharma Stocks to Buy for the Long Haul StockNews.com
