The global pharmaceutical industry will generate more than $1.16 trillion in sales in 2023, according to Statista. The oncology segment alone is expected to generate $202 billion in sales this year. The pharma industry is expected to grow 5.4% annually, reaching $1.44 trillion by 2027.
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Not only are pharmaceutical stocks excellent defensive investments in an uncertain economy, but some pharma stocks also pay sizable dividends that can be a source of steady income and help offset the impact of inflation.
Here are seven Morningstar-recommended pharmaceutical stocks to buy with forward dividend yields of at least 2%:
| Stock | Dividend yield |
| Roche Holding AG (ticker: RHHBY) | 3.4% |
| Pfizer Inc. (PFE) | 4.5% |
| Sanofi SA (SNY) | 3.6% |
| Gilead Sciences Inc. (GILD) | 4% |
| GSK PLC (GSK) | 3.9% |
| Bayer AG (BAYRY) | 4.8% |
| AbbVie Inc. (ABBV) | 4.4% |
Roche Holding AG (RHHBY)
Roche is a Swiss pharmaceuticals and diagnostics company. Its leading products include cancer drugs Avastin, Herceptin and Rituxan. Analyst Karen Andersen says foreign-exchange headwinds and slumping pandemic-related sales weighed on Roche’s sales growth in the first quarter, but biosimilar competition impacts are fading and sales of ophthalmology drug Vabysmo and spinal muscular atrophy drug Evrysdi have been strong. Andersen projects overall revenue will drop 3% in 2023, but Roche shares are attractively valued given the company’s increasingly diversified biopharmaceutical portfolio and its potential for long-term diagnostics growth. Morningstar has a “buy” rating and $57 fair value estimate for RHHBY stock, which closed at $37.79 on July 6.
Pfizer Inc. (PFE)
Pfizer is one of the world’s largest pharma companies and has a diversified portfolio of drugs for treating a variety of conditions. Its top drugs include its Comirnaty COVID-19 vaccine, its Paxlovid COVID-19 oral treatment and its Prevnar pneumococcal vaccine. Analyst Damien Conover says Pfizer has strong cash flows, a diversified product portfolio and an impressive drug candidate pipeline. In addition, he says Pfizer’s size gives the company significant drug development advantages. Andersen predicts Pfizer will bring a GLP-1-based obesity drug to market as soon as 2025. Morningstar has a “buy” rating and $48 fair value estimate for PFE stock, which closed at $35.63 on July 6.
Sanofi SA (SNY)
Sanofi is a French pharmaceutical company that specializes in atopic allergic disorders, oncology and rare diseases. Its leading drugs include diabetes treatment Lantus and Dupixent for treating atopic dermatitis, asthma and chronic rhinosinusitis with nasal polyps. Sanofi also recently acquired Provention Bio, which adds Tzield to Sanofi’s existing diabetes treatment portfolio. Conover says investors don’t seem to fully appreciate Dupixent’s potential cash flow upside. He says the upcoming commercial launches of hemophilia drug Altuviiio and respiratory syncytial virus (RSV) drug Beyfortus could also be bullish catalysts. Morningstar has a “buy” rating and $61 fair value estimate for SNY stock, which closed at $51.86 on July 6.
Gilead Sciences Inc. (GILD)
Gilead Sciences is a biopharmaceutical company specializing in treatments related to HIV/AIDS, hepatitis C, liver disease, hematology and oncology, and inflammation. Its leading drugs are HIV drugs Biktarvy and Genvoya and antiviral medication Veklury. Andersen says Gilead’s 15% overall product sales growth in the first quarter, excluding COVID-19 sales, was a solid performance. She says 13% HIV sales growth and 59% oncology sales growth supported by strong new product launches were particularly impressive. Andersen projects Gilead can return to low-single-digit revenue growth in 2024. Morningstar has a “buy” rating and $97 fair value estimate for GILD stock, which closed at $76.24 on July 6.
GSK PLC (GSK)
GSK is one of the world’s largest pharma companies. Leading products include Advair for asthma, Ventolin for bronchospasm and Theraflu for cold and flu symptoms. Conover says Wall Street isn’t fully valuing GSK’s core sales growth, which he expects to continue for at least the next several years. In addition, he anticipates a Zantac litigation settlement of roughly $1 billion, which could remove a major overhang and potentially be a bullish catalyst. Conover projects peak annual sales of more than $2 billion for GSK’s RSV vaccine. Morningstar has a “buy” rating and $54 fair value estimate for GSK stock, which closed at $34.09 on July 6.
Bayer AG (BAYRY)
Bayer is a diversified life sciences company with pharma, crop sciences and consumer divisions. Top products include blood thinner Xarelto and Eylea for treating age-related macular degeneration, macular edema and diabetic retinopathy. Conover says falling glyphosate prices ate into Bayer’s herbicides earnings in the first quarter, but non-glyphosate crop science product pricing remains strong. He says strong launches of cancer drug Nubeqa and cardiovascular drug Kerendia are offsetting declines in more mature drug sales. Conover expects new CEO Bill Anderson to accelerate Bayer’s new product development. Morningstar has a “buy” rating and $22.50 fair value estimate for BAYRY stock, which closed at $13.23 on July 6.
AbbVie Inc. (ABBV)
AbbVie is a global pharmaceutical company. Its key drug is Humira for treating rheumatoid arthritis, psoriasis, Crohn’s disease and other conditions. Conover says Humira is facing increasingly intense competition from biosimilars. Given Humira accounts for about 40% of the company’s total sales and an even higher percentage of its total earnings, Humira’s ability to fend off competition will be a key part of AbbVie’s growth trajectory in coming years. Fortunately, Conover says AbbVie’s next-generation immunology drugs, including Skyrizi and Rinvoq, could ultimately fully replace peak Humira sales. Morningstar has a “hold” rating and $120 fair value estimate for ABBV stock, which closed at $137.25 on July 6.
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7 Best Pharmaceutical Stocks to Buy for Income originally appeared on usnews.com
Update 07/07/23: This story was published at an earlier date and has been updated with new information.
