The healthcare sector has historically been a resilient place for investors to park cash. The companies that operate in this space often provide life-saving medicines, devices, and solutions that consumers need regardless of what is happening with the domestic or global economy. That fact can make healthcare businesses a wise addition to a well-diversified investment portfolio in a wide range of market environments.
If you're looking for healthcare stocks trading at particularly attractive valuations right now, here are two names to consider for your buy list.
1. AbbVie
AbbVie's (NYSE: ABBV) growth has slowed since it lost patent exclusivity for Humira last year. However, the company positioned itself well to recover from the financial impact it knew this change would bring. While AbbVie will likely continue to face a transition period over the next few quarters as the impact of waning Humira sales plays out, it has other blockbuster drugs in its portfolio as well as a promising pipeline that long-term investors would do well to factor into their buying decision.
Top-selling products include blood cancer drug Venclexta as well as immunology drugs Skyrizi (which treats plaque psoriasis, psoriatic arthritis, and Crohn's disease) and Rinvoq (which treats ailments including eczema and rheumatoid arthritis). Year-over-year revenue from these three drugs alone rose 11.5%, 44.8%, and 55.8%, respectively, in the second quarter.
Newer entrants to AbbVie's portfolio, including Vraylar (which treats schizophrenia, bipolar disorder, and major depressive disorder) as well as migraine medications Ubrelvy and Qulipta, clocked double-digit revenue increases in the most recent quarter. Those year-over-year revenue increases were 17.6%, 17.5%, and 56.3%, respectively. AbbVie's overall revenue rose more than 4% year over year in the second quarter of 2024 to $14.5 billion, while net earnings totaled $1.4 billion.
Along with alternate drug development, AbbVie managed several acquisitions recently, including Celsius Therapeutics and Cerevel Therapeutics. The Celsius acquisition brought multiple new pharmaceutical candidates into the fold, including a potential first-in-class investigational antibody drug that addresses inflammatory bowel disease. The Cerevel Therapeutics acquisition bolsters AbbVie's neuroscience pipeline and brings Emraclidine, a potential best-in-class next-generation antipsychotic that is still in clinical trials, into the fold.
Beyond its underlying financial strength and business growth trajectory, another key reason for investors to consider AbbVie is its dividend, which the company habitually increases. Over the trailing five-year period, AbbVie's dividend has risen 45%. The company's yield is in the ballpark of 3% at the time of this writing, roughly double that of the average stock trading on the S&P 500. Its lofty track record of dividend increases is icing on the cake to a business that looks poised for future growth, all elements that could compel investors to take a second look. Currently, the stock trades at a reasonable price-to-sales (P/S) ratio of 6.4.
2. Pfizer
Pfizer (NYSE: PFE) stock trades at a price-to-sales ratio (P/S) of 3 right now. After a serious run-up during the pandemic thanks to record-breaking sales of its COVID-19 vaccine and antiviral treatment drug, its growth has normalized on revenue as well as profit metrics.
But that doesn't mean Pfizer isn't working to keep its growth going. The company used its record-breaking COVID-19-related profits to fund internal business development along with multiple acquisitions. Pfizer recently finished a series of acquisitions including purchases of Biohaven Pharmaceuticals (known for its migraine medication Nurtec), immuno-inflammatory drugmaker Arena Pharmaceuticals, and oncology drug giant Seagen.
That last acquisition alone is expected to add as much as $10 billion in annual revenue to Pfizer's balance sheet by 2030, along with roughly eight blockbuster oncology drugs to the company's existing broad footprint in the cancer drug space.
The Seagen acquisition also doubled Pfizer's pipeline and added oncology drugs that are already approved to the mix. One example is Padcev, estimated to have sales potential of up to $2.5 billion annually as a first-line treatment for bladder cancer and annual peak sales potential of $7 billion. Even with much lower COVID-19-related revenue, Pfizer still pulled in more than $55 billion in revenue over the trailing 12 months. Its operating cash flow came in around $8 billion.
The stock hasn't performed well recently. However, the company remains committed to its dividend. The price drop means its dividend yield has risen to just shy of 6%, nosebleed levels compared to the average stock trading on the S&P 500 (1.5%). Pfizer's payout grew about 17% over the last five years alone.
Pfizer is an incredibly well-established business, with about 175 years of company history to its name. It's survived its fair share of business cycles, and there's no reason to think this transition period following the height of its pandemic successes will be any different. Investors might want to consider taking a slice of the action while the stock still trades at a lower-than-usual valuation.
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Rachel Warren has positions in AbbVie. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
