Most drug stocks have been out of favor in 2023.
Pfizer
was down 43.4% as of the market close Monday, while
Johnson & Johnson
is down 16.4%. Despite
Eli Lilly’s
monster 66.8% gain on the year, amid investor frenzy over its weight-loss drugs, the S&P 500 Pharmaceuticals index is down 2.3%.
As drugmakers have reported their quarterly results over the past few weeks, investors have consistently dumped shares, even when the results seemed positive. A handful of pharma companies are currently trading near 52-week lows, including
Pfizer
(ticker: PFE) and
Bristol Myers Squibb
(BMY).
There are good reasons for investors to be wary of pharma stocks: The new Medicare drug-price negotiation program will tie their hands on drug pricing for some medicines, their relatively high dividend yields are less attractive as interest rates climb, and many of the companies are facing significant patent expirations over the next few years.
The selloff, however, has been extreme, and raises the possibility that there might be some value hiding in the sector.
To dig that value out, we screened the
VanEck Pharmaceutical Exchange Traded Fund
(PPH), which includes both U.S. and foreign drugmakers, for stocks with a market value over $10 billion. Among those, we picked out the five with average analyst target prices as calculated by FactSet that imply the largest potential upside relative to their recent prices.
| Company / Ticker | Recent Price | YTD Change | Market value (mil) | Average price target | Implied potential upside |
|---|---|---|---|---|---|
| Pfizer / PFE | $28.98 | -43.4% | $163,633 | $39.71 | 37.0% |
| Viatris / VTRS | 8.95 | -19.6 | 10,737 | 11.74 | 31.2 |
| Bristol Myers Squibb / BMY | 50.15 | -30.3 | 102,043 | 64.65 | 28.9 |
| Zoetis / ZTS | 168.83 | 15.2 | 77,512 | 216.96 | 28.5 |
| Astrazeneca / AZN | 63.70 | -6.0 | 194,645 | 81.07 | 27.3 |
Source: FactSet
The stocks that passed the screen are Pfizer,
Viatris
(VTRS), Bristol, the animal health company
Zoetis
(ZTS), and the U.K.-based drugmaker
AstraZeneca
(AZN).
Pfizer topped the list, with a recent price of $28.98 and an average target price of $39.71, according to FactSet. The company has been struggling to divert investor focus away from its cratering Covid-19 vaccine and therapeutic sales, and toward its new drug launches and pipeline. A key event will come when Pfizer announced new data on its experimental weight-loss pill danuglipron, as Barron’s reported earlier this month. Results could come before the end of the year.
Viatris, which was created in 2020 through the combination of the generic drugmaker Mylan and a division of Pfizer that sold older branded drugs, has an average target price of $11.74, implying a 31.2% potential upside from its recent price. Some of the positive ratings on the stock are older, however, and more recently a number of analysts have soured on Viatris. On Oct. 23,
Bank of America’s
Jason Gerberry downgraded the stock to Underperform from Neutral, writing that the company could have trouble executing on its M&A plans.
AstraZeneca, meanwhile, which also passed the screen, is something of a Wall Street analyst darling. While much of the excitement for the stock has been over its cancer pipeline, the company also last week announced a licensing deal that it hopes will allow it to compete against companies like Eli Lilly (LLY) and
Novo Nordisk
(NVO) in their efforts to develop new weight-loss pills.
Write to Josh Nathan-Kazis at [email protected]
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