Are These Top 2 Pharma Stocks On Your August Watchlist?
Pharmaceutical stocks have been among the typical investments for investors looking for strong growth prospects and solid dividend yields. The pharmaceutical industry is part of the broader healthcare sector. Not only does it create opportunities for long-term investors, but it also provides quality of life advancement for patients. Unlike other sectors, the pharmaceutical industry generally is on the higher highs and higher lows trend. It is very unusual to see any top pharmaceutical stocks on the downtrend in the long-run. That’s because most drugmakers generate lots of cash from their drug sales. They continually reinvest in new ventures to drive future growth. They are also generous in rewarding shareholders with high dividend yields.
Certainly, the COVID-19 pandemic has drawn even more attention to the space. This is especially true for companies developing vaccines and drugs for the novel coronavirus. But as more and more companies are creating the COVID-19 with modest efficacy, we shouldn’t be surprised that it’s only a matter of time before we have a list of successful vaccine developers. Isn’t that a good thing, you ask? Not quite if you ask the existing investors of those pharmaceutical stocks. Take a look at the massive valuations of stocks like Moderna (MRNA Stock Report) or Novavax (NVAX Stock Report). What is going to happen to their stock prices if other phase 3 candidates receive approvals before them? Well, it won’t be pretty, will it?
Why Invest In Pharmaceutical Stocks?
Despite a reputation of being high risk, pharma stocks can be compelling for long term investors. Since its 2006 inception, the SPDR S&P Pharmaceuticals ETF (XPH Stock Report), an exchange-traded fund that focuses on the pharmaceutical industry, has delivered a significantly higher total return than the S&P 500 index. But determining which pharma stock is a good investment over another can be tricky. So how should investors evaluate opportunities in an industry dependent on outcomes as unpredictable as drug approvals? The pharmaceutical sector continues to create major headlines, with potential treatments and vaccines for COVID-19. Yet this week, two pharmaceutical companies got attention largely unrelated to the novel coronavirus. That said, are these two pharma stocks on your watchlist this week?
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Top Pharmaceutical Stocks To Buy [Or Sell] In August: Momenta Pharmaceuticals
Shares of Momenta Pharmaceuticals (MNTA Stock Report) soared almost 70% after Johnson & Johnson (JNJ Stock Report) is reportedly going to acquire the company. Investors were pleased not only because MNTA was a target, but also the price that J&J was willing to pay. Johnson & Johnson entered into an agreement with Momenta to pay $6.5 billion for the biotech company.
There are a number of ways this deal could benefit J&J. Momenta’s experimental antibody treatment for autoimmune diseases, nipocalimab, could be worth billions if the drug is successful. Besides, Momenta’s location in Cambridge, Massachusetts is a major hub for the biotech industry.
An increased presence there would strengthen J&J. Certainly, some Momenta existing shareholders will be disappointed to give up the company’s growth potential. But hey, a quick 70% gain is a nice consolation prize, right?
Top Pharmaceutical Stocks To Buy [Or Sell] In August: Vertex Pharmaceuticals
Vertex Pharmaceuticals (VRTX Stock Report) has got to be one of the most resilient pharmaceutical companies on the market. Its shares rose almost 24% year to date. While there are a few reasons for this, Vertex’s main advantage is in its cystic fibrosis (CF) treatments. The company is a leader in treatments for CF and is currently monopolizing the CF treatment. This allows the company to shield itself from the coronavirus pandemic and broader economy. Consumers will still need to depend on CF drugs regardless of the broader state of the economy.
From Vertex’s second quarter, Trikafta brought in a jaw-dropping $918 million in revenue. That’s a 219% increase from the $420 million reported in the fourth quarter of 2019. This came after the drug received FDA approval and became available for purchase. Despite being such a new drug, Trikafta already accounts for most of Vertex’s product revenue as of today. The revenue posted was rather reassuring during the coronavirus pandemic.
After all, many companies could not keep up with their revenue growth. With such a strong balance sheet, Vertex has the chance to venture into new drug candidates that might potentially serve as growth drivers. With all that in mind, is VRTX stock the best pharmaceutical stocks to buy now?