The Best Pharma Stocks To Buy

With the best pharma stocks investors participate in the interesting healthcare megatrend. This article looks at some of the most interesting pharmaceutical companies.
best pharma stocks to buy with high dividends

Contents

 

Key Takeaways

 

✅ 10+ companies are strong contenders to be the best pharma stock 
✅ Seven out of the ten best pharma stocks are from the U.S. 
✅ Most pharmaceutical companies are good dividend payers
✅ I believe $ABBV is the best pharma stock to buy and hold for the longterm

 

The Best Pharma Stocks – Compared 

Healthcare and the aging population are global megatrends. The wealthy and massive baby boomer generation is retiring, resulting in a lot of demand for good meds, and pharmaceutical products. 

When looking at the 10 largest pharmaceutical companies in the world, we can see that they are based out of only three countries: U.S., France, and Switzerland:

 

Symbol Company Name Market Cap in Bio $ Dividend Yield % PE Ratio
$JNJ 🇺🇸 Johnson & Johnson $460 2.53 25
$LLY 🇺🇸 Eli Lilly  $346 1.08 55
$ABBV 🇺🇸 AbbVie $280 3.57 21
$PFE 🇺🇸 Pfizer  $278 3.23 10
$MRK 🇺🇸 Merck  $276 2.54 18
$XSWX:ROG 🇨🇭Roche  $268 3.01 18
$XSWX:NOVN 🇨🇭Novartis $189 3.72 9
$BMY 🇺🇸 Bristol-Myers Squibb $168 2.73 26
$AMGN 🇺🇸 Amgen  $150 2.75 23
$XPAR:SAN 🇫🇷 Sanofi  $116 3.78 17

 

We can note that, out of the 10 largest pharma companies by market cap, only three are non-U.S. companies: Roche (XSWX:ROG) and Novartis (XSWX:NOVN) from Switzerland, and Sanofi (XPAR:SAN) from France.

As a German DIY Investor, I was actually expecting BAYER (XTER:BAYN), the producer of Aspirin, but it only is at spot #12 of the largest and best pharma stocks.  

 

Model Portfolio Of Best Pharma Stocks

 

$10,000 invested in Jan 1995 – Dec 2021 into 5x leading pharma stocks, with an equal allocation of each 20%: 

 

Ticker Name Allocation best pharma stock model portfolio 20% each
$BMY Bristol-Myers Squibb 20.00%
$PFE Pfizer, Inc. 20.00%
$JNJ Johnson & Johnson 20.00%
$MRK Merck & Company, Inc. 20.00%
$LLY Eli Lilly and Company 20.00%

 

If we invested an imaginary initial amount of $10,000 US in January 1995, the final balance would come down to $206,000 USD at the end of 2021:

 

Initial Balance Final Balance CAGR Best Year Worst Year
$10,000 $206,084 11.86% 66.61% -20.68%

 

A CAGR of 11.86% means you compounded your money by approx. 12% every year.

 

best pharma stock model portfolio 1995 -2021

 

To 20X your money in those 26 years is nothing to sneeze at, but what’s really interesting is the fact that every single year going forward, this portfolio generates you passive income in form of dividends of $4,300 US, every single year (representing a yield on cost of 43%!).

So every second year you essentially would get back 100% of what you invested. The power of compounding at work.

 

The below chart now shows the yearly dividends you would have received on your initial $10,000 US.

dividend income of pharma stock model portfolio 1995 -2021

 

Revenues of The Best Pharma Stocks

 

When looking at the revenues/sales of the largest pharma stocks, we get the following:

Symbol Company Name Revenue in $ Mio ROIC %
PFE Pfizer Inc $99,879 19.5%
JNJ Johnson & Johnson $96,041 16.6%
XSWX:ROG Roche Holding AG $68,668 21.2%
MRK Merck & Co Inc $58,974 22.6%
ABBV AbbVie Inc $57,819 13.2%
XSWX:NOVN Novartis AG $52,856 8.4%
BMY Bristol-Myers Squibb Co $46,738 8.3%
XPAR:SAN Sanofi SA $44,239 8.0%
LLY Eli Lilly and Co $29,240 22.3%
AMGN Amgen Inc $26,330 20.1%

 

Warren Buffett is known for paying close attention to the ROIC% (return in invested capital)), showing thatul but four have ROICs of above 15% (10% is usually considered to be good, with the minimum to be above real yield).

 

The Best Pharma Stock – AbbVie

 

My current largest holding, and in my opinion the best pharma stock I hold in my All-Weather Portfolio, is AbbVie (ABBV).

This globally-diversified biopharmaceutical company has with multiple businesses. It has several sources of growth and excellent long-term prospects. 

$ABBV’s approx. 50,000 employees and scientists discover, develop, and commercialize advanced therapeutics with the aim of positively impacting people’s lives. 

I currently own 130 shares of $ABBV, valued at approx. $20,000 US.

 

Multiple Sources of Growth

 

ABBV sources of growth
Source: J.P. Morgan Healthcare Conference / Rob Michael / CFO / January 11, 2022

  • Immunology (Humira)
  • Immunology (Rheumatology, Dermatology and Gastroenterology)
  • Neuroscience (Migraine Treatment, Parkinson’s and Alzheimer’s Diseases)
  • Oncology (cancer treatment)
  • Eye Care
  • Aesthetics

Each one of those by itself is a multi-billion dollar strong division, with massive potential.

 

Diverse Product Portfolio

 

$ABBV has a fantastic and diverse portfolio of products, with the largest revenue drivers being

  • Humira 
  • AndroGel
  • CREON
  • Depakote
  • Botox
  • plus all Allergan products besides Botox (acquired 2019)

Humira used to be 60% of $ABBVs sales, now it ‘only’ represents 40%, a more healthy ratio.

 

 

Reasonable Valuation

 

$ABBV grows quickly (see orange series, the big jump in 2020 is from the Allergan acquisition).

Historically, $ABBV’s PE is in the high 20s, often above 30, but currently (Dec 2022), it sits at 21 (see blue series on the below’s chart), which is not cheap, but also not expensive.

 

best pharma stock ABBV PE Revenues

 

 

Strong Cashflows

 

$ABBV is throwing off cash left and right. It did not have one year in the past 10 years without strong free cashflows (blue line on the below chart).

Its dividend yield, yellow line, since 2012, ranges between 2.25% – 6.25%. It currently sits at 3.49%.

 

 

Best pharma stock ABB Cashflows

 

 

 

Conclusion

 

In my opinion, $ABBV is the best pharma stock because it has it all! It’s growing quickly, has an extensive portfolio, covers multiple sectors, and still has massive portfolio. In my opinion, $ABBV is one of those stocks I will buy and hold forever.

Another drug stock I like is Pfizer (PFE), which I also hold in my All-Weather Portfolio

 

 

📘 Read Also

 

FAQ

 

What pharmaceutical stock should I buy?

The five largest pharmaceutical stocks in the world are
Symbol Company Name Revenue in $ Mio
– PFE | Pfizer Inc | $99,879
JNJ | Johnson & Johnson | $96,041
XSWX:ROG | Roche | $68,668
MRK | Merck & Co | $58,974
ABBV | AbbVie Inc | $57,819

What is the best pharmaceutical stock to invest in?

Opinions differ greatly, every investor will have a different opinion. Three very popular and by many considered to be the best pharmaceutical stocks to invest in are
$JNJ | Johnson & Johnson
$PFE | Pfizer
$ABBV | AbbVie

What pharma stock comparison is good?

When you like to do pharma stock comparisons you can look at the ROC (Return on Capital), ROA (Return on Assets), and Free Cashflow. The best pharma stocks typically have ROCs of +12%, for example $ABBV has 13% or $PFE has 19%.

Which pharma stock is best?

Many consider Johnson & Johnson (JNJ) to be the best pharma stock there is, but opinions obviously differ. Other believe AbbVie (ABBV) with its blockbuster products Humira and Botox, or Pfizer (PFE), with its Covid vaccines are at the top of the list.

AbbVie - The Best Pharma Stock

4.7 Score

In my opinion, $ABBV is the best pharma stock because it has it all! It's growing quickly, has an extensive portfolio, covers multiple sectors, and still has massive portfolio. In my opinion, $ABBV is one of those stocks I will buy and hold forever.

PROS

  • Multiple Sources of Growth
  • Diverse Product Portfolio
  • Reasonable Valuation
  • Strong Cashflows

CONS

  • Dependence on Humira & Botox

Review Breakdown

  • Financial Strength
  • Predictability
  • Growth Rank
  • Dividend
  • Overall Rating

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