The pharmaceutical industry is expanding rapidly, driven by increasing demand for tailored medicines, growing investments in drug research, and strong government initiatives. Technological advancements such as artificial intelligence and genomics, which allow for more efficient medication discovery and development, are also contributing to this rise.
Given this backdrop, investors could consider buying fundamentally strong pharmaceutical stocks such as Bayer Aktiengesellschaft (BAYRY), Procaps Group S.A. (PROC), ACADIA Pharmaceuticals Inc. (ACAD), and Zoetis Inc. (ZTS).
Before exploring the fundamentals of these stocks, let’s discuss why the pharmaceutical industry is well-positioned for growth.
Given the ever-rising need for high-quality drugs and therapies, the pharmaceutical industry's long-term prospects appear promising. Moreover, a rapidly growing elderly global population and the rise of chronic diseases such as arthritis, cancer, diabetes, etc., further fuel the pharma sector’s growth prospects.
Technological and research advancements are driving innovation in drug development, resulting in more effective therapies for a wide range of medical ailments. Also, the rising global demand for quality healthcare presents the opportunity for pharmaceutical businesses to broaden their reach and effect.
The pharmaceutical drugs market is predicted to expand to $2.93 trillion by 2028, growing at a CAGR of 13.4%. The projection period's growth can be ascribed to increased government assistance, more healthcare access, increased investments, rapid growth in the older population, increased healthcare expenditure, and greater awareness of immunization and vaccination.
In addition, AI is transforming the pharmaceutical industry by modernizing drug development, improving manufacturing processes, and fostering strategic alliances. Companies pursue innovation in order to strengthen their patent portfolios and make strategic investments in artificial intelligence. The AI in pharma market size is expected to reach $5.62 billion by 2028, growing at a CAGR of 28.5%.
Moreover, investors’ interest in pharmaceutical stocks can be gauged from SPDR S&P Pharmaceuticals ETF’s (XPH) 5.9% returns over the past three months.
With these encouraging trends in mind, let’s examine the fundamentals of the four best Medical - Pharmaceuticals stock picks, beginning with the fourth choice.
Stock #4: Bayer Aktiengesellschaft (BAYRY)
Headquartered in Leverkusen, Germany, BAYRY is a life science company worldwide. It operates through Pharmaceuticals, Consumer Health, and Crop Science segments. The company distributes its offerings through wholesalers, pharmacies and pharmacy chains, supermarkets, online and other retailers, hospitals, and directly to farmers.
On March 14, 2024, BAYRY and Aignostics GmbH announced a strategic agreement on multiple artificial intelligence (AI)-powered techniques for precision oncology drug research and development.
This collaboration will leverage BAYRY's expertise in AI and Aignostics' innovative approach to advance the field of precision medicine. Together, they aim to revolutionize cancer treatment by utilizing cutting-edge technology to tailor therapies to individual patients.
BAYRY’s trailing-12-month EBIT margin of 16.37% is significantly higher than the 0.74% industry average. Also, its 5.77% trailing-12-month CAPEX / Sales is 42.2% higher than the 4.06% industry average. Also, its 3.19% trailing-12-month levered FCF margin is 333.7% higher than the 0.74% industry average.
For the fiscal year ended December 31, 2023, BAYRY’s net sales stood at €47.64 billion ($51.85 billion). Its gross profit came in at €27.89 billion ($30.36 billion). The company’s EBIT amounted to €612 million ($666.11 million).
Also, its cash and cash equivalents at the end of the year rose 14.2% year-over-year to €5.91 billion ($6.43 billion). As of December 31, 2023, BAYRY’s current assets stood at €13.95 billion ($15.13 billion), compared to €13.64 billion ($14.79 billion) as of December 31, 2022.
Street expects BAYRY's EPS and revenue for the quarter ending September 30, 2024, to increase 217.6% and 1.7% year-over-year to $0.32 and $11.26 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past month, the stock has declined 8.3% to close the last trading session at $7.10.
BAYRY's POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BAYRY has an A grade for Value and a B for Growth. Within the Medical - Pharmaceuticals industry, it is ranked #32 out of 165 stocks. To see the additional ratings of BAYRY for Momentum, Stability, Sentiment, and Quality, click here.
Stock #3: Procaps Group S.A. (PROC)
Headquartered in Luxembourg, PROC develops, produces, and markets pharmaceutical solutions worldwide. It formulates, manufactures, and markets branded prescription drugs in several therapeutic areas like feminine care products, pain relief, skin care, digestive health, cardiology, central nervous system, and respiratory.
PROC’s trailing-12-month EBIT margin of 11.77% is significantly higher than the industry average of 0.74%. Its trailing-12-month EBITDA margin of 13.78% is 152.7% higher than the industry average of 5.45%. Additionally, its 0.85x trailing-12-month asset turnover ratio is 116.9% higher than the 0.39x industry average.
During the fiscal third quarter that ended September 30, 2023, PROC’s revenue and gross profit increased 7.3% and 1.3% year-over-year to $118.41 million and $68.40 million, respectively. Moreover, its adjusted EBITDA stood at $22 million.
For the same quarter, its income for the period attributable to owners of the company and earnings per share stood at $8.19 million and $0.08, respectively.
For the quarter ended December 31, 2023, PROC’s revenue is expected to increase 9% year-over-year to $110.60 million. Over the past three months, the stock has gained 12.5% to close the last trading session at $3.25.
PROC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #28 in the same industry. It has a B grade for Value, Sentiment, and Quality. Click here to see the additional ratings of PROC for Growth, Momentum, and Stability.
Stock #2: ACADIA Pharmaceuticals Inc. (ACAD)
ACAD is a biopharmaceutical company that develops and commercializes innovative medicines to address unmet medical needs in central nervous system (CNS) disorders and rare diseases. Its offerings include NUPLAZID and Trofinetide for Alzheimer’s disease psychosis and Rett Syndrome, as well as treatments and programs for neuropsychiatric symptoms.
ACAD’s trailing-12-month levered FCF margin 3.91% is 432.6% higher than the industry average of 0.74%. Additionally, its 1.09x trailing-12-month asset turnover ratio is 176% higher than the industry average of 0.39x.
For the fiscal fourth quarter that ended on December 31, 2023, ACAD’s total revenues increased 69.3% year-over-year to $231.04 million. Its income from operations came in at $34.94 million compared to a loss from operations of $46.06 million in the prior-year quarter.
In addition, its net income came in at $45.80 million, or $0.28 per share, compared to net loss and loss per share of $41.73 million and $0.26 for the prior year’s quarter, respectively.
Street expects ACAD’s revenue for the quarter ending March 31, 2024, to increase 76.2% year-over-year to $208.74 million. Its EPS for the quarter ending June 30, 2024, is expected to grow significantly year-over-year to $0.21. Shares of ACAD have gained 1.3% intraday to close the last trading session at $18.72.
It’s no surprise that ACAD has an overall B rating, equating to a Buy in our POWR Ratings system.
It has an A grade for Growth and a B for Value and Quality. It is ranked #27 in the Medical - Pharmaceuticals industry. Beyond what is stated above, we’ve also rated ACAD for Momentum, Stability, and Sentiment. Get all ACAD ratings here.
Stock #1: Zoetis Inc. (ZTS)
ZTS discovers, develops, manufactures, and commercializes animal health medicines, vaccines, and diagnostic products in the United States and internationally.
ZTS’ trailing-12-month gross profit margin 70.06% is 23.8% higher than the industry average of 56.60%. Likewise, the stock’s trailing-12-month EBIT margin of 35.96% is significantly higher than the industry average of 0.74%. Additionally, its 40.82% trailing-12-month EBITDA margin is 648.6% higher than the industry average of 5.45%.
For the fiscal fourth quarter that ended December 31, 2023, ZTS’ revenue and non-GAAP gross profit increased 8.5% and 6.9% year-over-year to $2.21 billion and $1.49 billion, respectively.
For the same quarter, its non-GAAP net income attributable to ZTS and non-GAAP earnings per common share attributable to ZTS increased 5.6% and 7.8% from the year-ago quarter to $569 million and $1.24, respectively.
Analysts expect ZTS’ EPS and revenue for the quarter ending March 31, 2024, to increase 3.4% and 7.9% year-over-year to $1.35 and $2.16 billion, respectively. ZTS shares have gained 3.8% over the past year to close the last trading session at $170.69.
ZTS’ solid prospects are reflected in its POWR Ratings. It has an overall B rating, equating to a Buy in our proprietary rating system.
It has a B grade for Stability and Quality. ZTS is ranked #25 in the same industry. To see the additional ratings of ZTS for Growth, Value, Momentum, and Sentiment, click here.
What To Do Next?
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ZTS shares were trading at $171.95 per share on Tuesday afternoon, up $1.26 (+0.74%). Year-to-date, ZTS has declined -12.68%, versus a 7.96% 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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