Are stocks expensive? Many of them are. Valuations are skyrocketing after massive gains generated over the past decade. Not all stocks trade at nosebleed levels, however.
We asked three Motley Fool contributors to choose pharmaceutical stocks which remain well valued. Here's why they think Bristol Myers Squibb ( NYSE: BMY ) , Novartis ( NYSE: NVS ) , and Viatris ( NASDAQ: VTRS ) are too cheap to ignore.
Image source : Images.
A valuable stock with strong growth potential
Prosper Junior Bakiny (Bristol Myers Squibb): Investors are sometimes wary of undervalued companies. A cheap stock could be a sign of an unhealthy business that the market has rightly punished, the argument goes. But when it comes to Bristol Myers Squibb, the exact opposite happens.
Yes, this drug maker is very cheap. It is currently trading at just 7.6 times forward earnings and its price relative to Free Cash Flow (FCF) is only 8.8. As a benchmark, the pharmaceutical industry's average futures price-to-earnings ratio was 13.9 as of November 17, while a FCF price lower than 20 is widely considered good.
But Bristol Myers' business is going very well. The company claims no less than eight drugs that generate at least $ 1 billion a year. In particular, Opdivo and Eliquis still have considerable room for growth. Both should be among thes three best-selling drugs in the world by 2026, according to market research EvaluatePharma.
More winners could be on the way. Bristol Myers Squibb has over 50 clinical compounds in its pipeline.
With its rich current product line, Bristol Myers generates enough cash flow to maintain its healthy S&P 500 of 1.29% - with a cash payout ratio of 29.6%. This makes Bristol Myers a solid option for investors looking for pidendes.
With attractive valuation metrics, a strong portfolio coupled with a strong pipeline and a juicy
A cheap buy with solid fundamentals anda
David Jagielski (Novartis): Investing in stocks with strong fundamentals that trade at low prices is one way to set your portfolio up to des long term earnings . Multinational pharmaceutical giant Novartis won't be a leading stock that will rise in price spontaneously, but you can expect it to be an investment that steadily increases in value over time.
Since the start of the year, its shares have fallen 13% while the S&P 500 has risen 25%. But there is no glaring reason to be bearish on the stock because the company has bees n performing well. In the first nine months of 2021, Novartis' net sales of$ 38.4 billion increased 7% year-on-year. And his net income of $ 7.7 billion rose 29%. Free cash flow of $ 10.2 billion is also 23% higher than it was a year ago.
What is also great about Novartis is the
Overall, the company looks strong. Lower prices this yearis an opportunity for value-driven investors to recoup a great investment. Today, Novartis shares are trading at a futures price / earnings a multiple of just 13. Industry giant Johnson & Johnson , by comparison, is at a multiple of over 16.
Another motivation for buying Novaris right now is its
Novartis stock is near its 52 week low and can be a great investment to buy and forget to add to your portfolio today.
Wall Street think this cheap pharmaceutical action could skyrocket
Keith Speights (Viatris): I agree that Bristol Myers Squibb and Novartis have some interesting valuations. If you are looking for an relative bargain , however, see Viatris. Its stocks are trading at just 3.6 times expected earnings.
Normally, such a cheap stock would have major pitfalls. Not Viatris. It's profitable. The company recently raised its forecast for the year 2021. Probably the only real downside for Viatris is that it is not likely to generate meteoric growth anytime soon.
This outlook The lower growth rates are mainly due to the company 's focus on biosimilars and generics. Just because income may not skyrocket doesn't mean the stock won't. Wall Street analysts have high expectations of Viatris. The goal12-month consensus price reflects a 54% premium over the current share price.
Longer term, Viatris should be able to deliver stronger growth to investors. The company's pipeline includes several biosimilars and complex drugs in development that may gain regulatory approvals in the coming years.
In the meantime, Viatris rewards patient shareholders with an attractive yield of
Viatris will not be the first choice for growth investors. But for value and income oriented investors, I think this is something that should definitely be considered.