Cheap Biotech Stocks for 2019
Now that Congress is split, with Republicans in charge of the Senate and Democrats holding down the House, there is no way that Washington can get rid of Obamacare. At least not right now.
On top of that, it’s unlikely that President Donald Trump’s highly touted plan to cut drug prices will pass both houses. That means it’s a great time to reconsider some cheap biotech stocks for 2019—especially after the abysmal year the biotech industry has seen.
With that in mind, the biotech stock forecast for 2019 looks bullish, especially for the best undervalued biotech stocks.
Biotech stocks have not exactly had a stellar year. The SPDR S&P Biotech ETF (NYSEARCA:XBI) is down more than 12% year-to-date. After hitting a 52-week high in June, the index has tumbled more than 24%.
Chart courtesy of StockCharts.com
Other biotech ETFs are also feeling the strain. The iShares Nasdaq Biotechnology Index (NYSE:IBB) is down 4.5% year-to-date. Meanwhile, the Invesco Dynamic Pharmaceuticals Portfolio ETF (NYSEARCA:PJP)—also known as PowerShares Dynamic Pharmaceuticals—has bucked the trend, and is up by more than 2.5% year-to-date (but is down by about nine percent from its 52-week high).
Instead of running for the exits, investors might want to consider taking advantage of this price weakness and turn their attention to biotech stocks that have seen their share prices unnecessarily punished in 2018.
Biotech Stocks List
Which biotech stocks are the best? It depends on what kind of investor you are.
Some seasoned investors like the idea of buying small-cap biotech stocks that are in the development stage, hoping to ride the wave of euphoria if those companies announce encouraging test results or partnerships.
Risk-averse investors, on the other hand, would rather zero in on financially robust, fundamentally strong biotech companies with a strong, revenue-generating pipeline of products.
There are cheap (undervalued) biotech stocks in both categories. Here are three established biotech stocks that have great long-term growth potential and should do well, no matter what goes on in Washington.
AbbVie Inc (NYSE:ABBV) has sent investors on a roller-coaster ride in 2018. The stock entered the year trading at $98.41 and, near the end of January, had soared by 25% to $123.21.
It’s been mostly downhill since then. Now trading near $88.10 per share, AbbVie’s share price has fallen about 28% since its January peak.
It’s not the cheapest biotech stock, but if you like healthcare stocks that have a long history of providing strong earnings and revenue growth—and a solid dividend—put AbbVie back on your radar.
AbbVie is an international research and development-based biopharmaceutical company that operates in four therapeutic areas: immunology, neuroscience, oncology, and virology.
AbbVie’s blockbuster drug “Humira” is used to treat pain and inflammation caused by arthritis, plaque psoriasis, Crohn’s disease, and other conditions.
AbbVie’s share price got a boost early this year when it said that annual revenue from Humira should hit $21.0 billion by 2020. (Source: “J.P Morgan Healthcare Conference,” AbbVie Inc, January 10, 2018.)
There have been some concerns about Humira, however. The main U.S. patent for the drug has expired, but AbbVie has attached additional patents to the drug, which has managed to keep copycats at bay. At least six drugmakers have delayed the U.S. launch of their versions of Humira.
Back in January, AbbVie predicted that its non-Humira sales would increase from about $9.6 billion in 2017 to $35.0 billion in 2025. The company has several products that treat leukemia, hepatitis C, and HIV. It has a number of products in various stages of development
In its recent third-quarter report, AbbVie announced that worldwide revenue was up 17.8% year-over-year, at $8.2 billion. Humira sales were up worldwide by at least nine percent, and third-quarter “Imbruvica” revenue advanced 41.3%. (Source: “AbbVie Reports Third-Quarter 2018 Financial Results,” AbbVie Inc, November 2, 2018.)
Third-quarter diluted earnings per share (EPS) came in at $1.81, up from $1.01 per share in the same prior-year period. Adjusted diluted EPS was up by 51.8% at $2.14.
Furthermore, AbbVie stock has a dividend yield of almost 4.7%. Since the company’s inception in 2013, it has increased its annual dividend by about 140%.
Abbott Laboratories (NYSE:ABT) has been bucking the biotech trend in 2019. As of this writing, Abbott is up about 17% since the beginning of 2018, trading around $69.00 per share.
You might not think of this blue-chip company as a cheap stock, but it is if you think it’s undervalued or has plenty of room to run.
With a market cap of $121.0 billion, Abbott is one of the best healthcare stocks. The company has been around for 130 years and its products are available in more than 150 countries.
Abbott is ranked No. 1 for adult nutrition, blood and plasma screening, chronic pain devices, heart pumps, pediatric nutrition, point of care testing, and remote heart failure monitoring. (Source: “Fact Sheet,” Abbott Laboratories, last accessed November 20, 2018.)
One of the hottest biotech stocks, Abbott’s strong double-digit growth has been fueled in large part by acquisitions and new products. The company’s January 2017 buyout of St. Jude Medical helped boost its cardiovascular product lineup, while its October 2017 acquisition of Alere strengthened its diagnostic business.
Abbott has launched a number of new products, include the “FreeStyle Libre” glucose monitoring system and the “Confirm Rx” cardiac monitor. It’s the first smartphone-compatible insertable cardiac monitor that helps physicians identify cardiac arrhythmia remotely.
“MitraClip NTR” and “MitraClip XTR,” the latest versions of Abbott’s leading heart valve repair device, were approved in the U.S. during the third quarter.
In the third quarter, Abbott posted strong sales and double-digit EPS growth.
Third-quarter global sales advanced 12.1% to $7.7 billion, EPS from continuing operations came in at $0.31, and adjusted EPS from continuing operations was $0.75. (Source: “Abbott Reports Third Quarter 2018 Results,” Abbott Laboratories, October 17, 2018.)
Merck & Co., Inc.
Merck & Co., Inc. (NYSE:MRK) is another biotech stock that has been bullish in 2018, and there’s no reason to believe that the company will give up this momentum in 2019.
Trading around $74.90, Merck’s share price is up about 27% since the start of 2018 and the stock continues to trade well above its 50-day and 200-day moving averages.
The Kenilworth, New Jersey-based biotech firm operates in four segments: “Pharmaceutical,” “Animal Health,” “Healthcare Services,” and “Alliances.” The company’s core product categories include cancer, diabetes, vaccines, and hospital acute care.
Merck has products in various stages of development to treat Alzheimer’s disease, antibiotic-resistant infections, cancer, HIV, HPV, and hepatitis C. Merck also researches drugs for global pandemics like ebola.
The company’s biggest drug right now is “Keytruda,” which was approved by the U.S. Food and Drug Administration (FDA) to treat a number of different cancers. Keytruda is the leading immunotherapy drug for a certain type of lung cancer and it continues to win FDA approval for a growing number of conditions.
Most recently, Merck announced that Keytruda was awarded FDA approval as a treatment for hepatocellular carcinoma (HCC), the most common form of liver cancer. (Source: “FDA Approves Merck’s KEYTRUDA (pembrolizumab) for the Treatment of Patients with Hepatocellular Carcinoma (HCC) Who Have Been Previously Treated with Sorafenib,” Merck & Co., Inc., November 9, 2018.)
Merck has a number of other well-known drugs too, including “Gardasil.” Its new diabetes drugs, “Steglatro,” “Steglujan,” and “Sujanu” should help bolster its revenue in the near term.
In addition to these drugs, Merck is waiting for European approval for one of its HIV drugs and U.S. approval for a pediatric vaccine. The company has 10 products in late-stage development.
Merck recently announced strong financial results for the third quarter. Global sales increased five percent year-over-year to $10.8 billion. Sales of Keytruda advanced 80.4% to almost $1.9 billion. (Source: “Merck Announces Third-Quarter 2018 Financial Results,” Merck & Co., Inc., October 25, 2018.)
Merck reported net income of almost $2.0 billion, or $0.73 per share, compared with a loss of $56.0 million, or $0.02 per share, a year earlier.
Looking ahead, Merck raised its full-year adjusted earnings forecast to $4.30–$4.36 per share, from its prior view of $4.22–$4.30 per share.
Thanks to its strong cash position, Merck increased its fourth-quarter dividend to $0.55 per share. Merck’s annual dividend yield currently stands at almost 2.9%. Thanks to robust Keytruda sales, investors should be able to look forward to annual dividend hikes.
In early 2018, investors soured on biotech stocks because of fears that President Trump would get rid of Obamacare. Biotech stocks were also muted due to concerns that Trump would move ahead with his plan to cut drug prices. Some of the best healthcare stocks also faced headwinds amid concerns about rising interest rates.
Even if there weren’t issues in Washington and rising interest rates, biotech stocks would still be volatile. That’s because their share prices hinge on positive test results, FDA approvals, and good financials.
Investing billions of dollars in a drug only to have it fail is not something that will help boost a company’s share price. That said, larger biotech companies can weather that kind of storm better than smaller, development-stage healthcare stocks.
That’s why it’s a good idea to get reacquainted with some of the larger biotech stocks that investors have turned their backs on. Investors might want to look beyond the turmoil that has plagued the biotech market this year and consider the long term.
From that viewpoint, biotech stocks like AbbieVie, Abbott, and Merck remain very bullish, and not nearly as expensive as the up-and-coming healthcare stocks that are praying for their first FDA approval.