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2 Pharmaceutical Stocks That Could Outperform the Market in the Long Term

The pharmaceutical industry is growing rapidly with advancements in drug manufacturing and a paradigm shift to personalized medicines. Moreover, despite soaring prices, supportive fiscal policies are expected to keep consumer demand stable. Quality pharmaceutical stocks Pfizer (PFE) and Merck (MRK) have outperformed the broader market over the past year and seem poised to sustain this momentum. Keep reading…

Schumer and Democratic Senator Joe Manchin recently introduced the Inflation Reduction Act, which aims to assist people in saving money on pharmaceutical drugs and health premiums, which should boost demand.

On the other hand, the pharmaceutical industry is transforming with the emergence of new technologies and better efficiency. The fast-advancing field of personalized medicines is further creating opportunities for long-term growth. Manufacturers have been redesigning their supply chain to better align with the patient-centric models.

The global pharmaceutical manufacturing market is expected to grow at a CAGR of 11.3% from 2021 to 2028. Moreover, the pharmaceuticals wholesale and distribution market is expected to grow at a CAGR of 7.9% from 2020 to 2025.

Given the solid prospects of the industry, we think fundamentally sound pharmaceutical stocks Pfizer Inc. (PFE) and Merck & Co., Inc. (MRK), which have outperformed the SPDR S&P 500 Trust ETF’s (SPY) 6.4% decline over the past year, are poised to continue their momentum. So, it could be wise to add these stocks to your portfolio.

Pfizer Inc. (PFE)

PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas. The company serves wholesalers, retailers, hospitals, clinics, government agencies, pharmacies, individual provider offices, and disease control and prevention centers.

On August 8, 2022, PFE announced that it would acquire a biopharmaceutical company, Global Blood Therapeutics, Inc. (GBT). PFE will acquire all the outstanding shares of GBT for $68.50 per share in cash. With this acquisition, the company aims to advance its treatment procedures for sickle cell disease.

On August 5, 2022, the U.S. Food and Drug Administration approved PFE’s and Myovant Sciences’ (MYOV) MYFEMBREE ®, a one-pill, once-a-day therapy for treating moderate to severe pain associated with endometriosis in pre-menopausal women. This approval marks a milestone achievement for both companies.

PFE’s revenues increased 46.8% year-over-year to $27.74 billion for the fiscal second quarter ended July 3, 2022. Its net income came in at $9.91 billion, up 78.1% year-over-year, while its EPS came in at $1.73, up 76.5% year-over-year.

For 2022, PFE’s revenue and EPS are expected to increase 25.1% and 46.7% year-over-year to $101.65 billion and $6.48, respectively. It surpassed EPS estimates in each of the trailing four quarters. The stock has gained 9.3% over the past year to close the last trading session at $49.27.

PFE’s POWR Ratings reflect this promising outlook. The company 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.

PFE has an A grade for Value and a B for Growth and Quality. Within the Medical - Pharmaceuticals industry, it is ranked first among 174 stocks. Click here to see the additional PFE POWR Ratings for Momentum, Stability, and Sentiment.

Merck & Co., Inc. (MRK)

MRK operates as a healthcare company worldwide. It operates through two segments: Pharmaceutical and Animal Health. The company serves drug wholesalers and retailers, hospitals, government agencies, managed health care providers, physicians and physician distributors, veterinarians, and animal producers.

On August 4, 2022, MRK and AstraZeneca PLC (AZN) announced that the European Commission approved LYNPARZA as monotherapy or in combination with endocrine therapy for treating adult patients with germline BRCA1/2 mutations. This is expected to be a game changer in breast cancer treatment procedures and should garner substantial returns for the company.

On July 13, 2022, MRK and Orion Corporation announced their agreement for Orion’s investigational candidate ODM-208 and other drugs targeting cytochrome P450 11A1 (CYP11A1), an enzyme important in steroid production.

Dr. Dean Y. Li, president of MRK Research Laboratories, said, “We believe ODM-208 has the potential to complement our existing program in prostate cancer and look forward to working with the team at Orion.”

For the second quarter ended June 30, 2022, MRK’s sales increased 28% year-over-year to $14.59 billion. The company’s net income came in at $3.94 billion, up 155.3% year-over-year. Also, its EPS came in at $1.55, up 154.1% year-over-year.

Analysts expect MRK’s revenue to increase 20.5% year-over-year to $58.67 billion in 2022. Its EPS is expected to increase 22.4% year-over-year to $7.37 in 2022. It surpassed EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 15.6% to close the last trading session at $87.41.

It is no surprise that MRK has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, and Quality. Click here to see additional ratings for MRK (Momentum, Stability, and Sentiment). MRK is ranked #5 in the same industry.

PFE shares were trading at $49.18 per share on Monday afternoon, down $0.09 (-0.18%). Year-to-date, PFE has declined -14.74%, versus a -12.56% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.


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