In this piece, we will take a look at the 13 most undervalued pharmaceutical stocks to buy according to analysts. If you want to skip our overview of the pharma industry, then check out 5 Most Undervalued Pharma Stocks To Buy.
The pharmaceutical industry is one of the biggest in the world and one that has operations in nearly every corner of the globe. It is also one of the most diverse segments in terms of products, as its offerings range from generic drugs that can be made by any company willing to foot the production bill and high end genomic treatments that seek to rework the very building blocks of the human body.
These factors make the global pharmaceutical segment quite lucrative. According to market research estimates, the industry was worth $1.25 trillion in 2021, making it stand shoulder to shoulder with other big industries such as crude oil and real estate despite the fact that pharma products are often quite cheaper than a barrel of oil or a house. From the $1.25 trillion valuation, the sector is expected to grow at a compounded annual growth rate (CAGR) of 8% between 2021 and 2025 for an estimated value of $1.7 trillion by the end of the forecast period. Just like oil and real estate, the pharmaceutical industry also requires large capital investments in new products; however, unlike oil and real estate which often have customers ready to scoop up the end product, pharmaceutical players often have to make a gamble and invest the money before they can secure a guaranteed market for their products.
These high research costs run into billions of dollars, with a research report from 2014 suggesting that it takes $2.5 billion on average per drug to see through its journey from the mind of a researcher into the body of a patient. Cumulatively, the Congressional Budget Office (CBO) estimates that the top drug companies spent more than $83 billion in research and development in 2019, which sits right at par with the costs to set up a new chip manufacturing plant - one of the most capitally intensive facilities in the world. For more investment and other details about the pharmaceutical industry, you can check out Top 20 Most Profitable Pharmaceutical Companies In The World.
Naturally, these sizeable investments and lucrative values should lead to the pharmaceutical companies themselves raking in billions of dollars in profit every year. After all, no one spends billions of dollars without expecting to make multiples in revenue in return. Well, we took a look at 25 Biggest Pharmaceutical Companies in the World in terms of market capitalization and discovered that the range for their trailing twelve month revenue as of March 2023 started at $8.7 billion for the Japanese drug company Daiichi Sankyo, and ended at a whopping $100.3 billion for the U.S. pharma giant Pfizer Inc. (NYSE:PFE). Lagging Pfizer were Johnson & Johnson (NYSE:JNJ) and Roche Group who had raked in $94.9 billion and $68.5 billion, respectively.
Fast forward to October 2023, and right now it's earnings season. Firms of all sizes are due to report their financial reports soon, and these come at a time when analysts are hungry for any and all data that can provide clues about the current state of the American economy. The economic state is more important now than perhaps ever since it holds the key to determining when the Federal Reserve will start to cut interest rates and give businesses, investors, and consumers some breathing room.
However, most pharma firms are yet to start their earnings cycle, but their performance in fiscal year 2022 has been quite impressive. According to data gathered by Accountable, the top five pharmaceutical firms in America grew their revenue by $8.8 billion in FY 2022. This hefty revenue growth also saw investors rewarded with hefty stock buybacks and dividend payouts, as these grew by $4.4 billion and $2.5 billion during the same time period, respectively. Yet, this growth might be slowing down as the coronavirus pandemic recedes and vaccine sales drop. At least that's what the message was from Pfizer in October as the firm cut its 2023 revenue guidance by $9 billion on the top end for a 13% reduction that is also accompanied by $3.5 billion in cost cuts. On a positive note, JNJ's latest quarterly results saw it beat analyst EPS and revenue estimates, as it saw its skin cancer and immune system disorder drugs perform well and make up for dropping sales of the COVID vaccine.
So, as the industry recovers from its coronavirus boom and the economy remains a tricky creature, we decided to take a look at some undervalued pharma stocks out which the most notable ones are Perrigo Company plc (NYSE:PRGO), Viatris Inc. (NASDAQ:VTRS), and Organon & Co. (NYSE:OGN).
13 Most Undervalued Pharma Stocks To Buy According To Hedge Funds
A healthcare professional discussing a treatment plan with a patient in an outpatient clinic. Editorial photo for a financial news article. 8k. --ar 16:9
Our Methodology
To make our list of undervalued pharmaceutical stocks, we ranked the 26 constituents of the VanEck Vectors Pharmaceutical ETF by the percentage upside of their average share price target over the current trading price. Out of these, the top 13 stocks with the highest upside were picked as the most undervalued pharma stocks.
13 Most Undervalued Pharma Stocks To Buy According To Analysts
Sanofi (NASDAQ:SNY) is a French pharma company that sells treatments for heart diseases, cancer, and other ailments. It marks a strong start to our list as the shares are rated Strong Buy on average. On the earnings side, Sanofi (NASDAQ:SNY) is struggling as of late since it has missed analysts EPS estimates in three of its four latest quarters.
30 out of the 910 hedge funds tracked by Insider Monkey were Sanofi (NASDAQ:SNY)'s investors as of Q2 2023. Ken Fisher's Fisher Asset Management owns the largest stake among these, which is worth $698 million and comes via 12.9 million shares.
Just like Viatris Inc. (NASDAQ:VTRS), Perrigo Company plc (NYSE:PRGO), and Organon & Co. (NYSE:OGN), Sanofi (NASDAQ:SNY) is a top undervalued stock that hedge funds are piling into.
AstraZeneca PLC (NASDAQ:AZN) is a British firm with treatments for kidney problems, respiratory illnesses, and other diseases. The firm scored an important win in October when the FDA approved its lung cancer drug for review.
By the end of this year's second quarter, 41 out of the 910 hedge funds polled by Insider Monkey were the firm's shareholders. AstraZeneca PLC (NASDAQ:AZN)'s biggest investor in our database is Rajiv Jain's GQG Partners through its $1.5 billion stake.
Merck & Co., Inc. (NYSE:MRK) is a global pharmaceutical giant that sells drugs for both humans and animals. While its shares are rated Buy on average, the company has beaten analyst EPS estimates in all four of its latest quarters and analysts have penned in a $20 upside based on the average share price target.
As of June 2023, 78 among the 910 hedge funds part of Insider Monkey's database had bought and owned Merck & Co., Inc. (NYSE:MRK)'s shares. Ken Fisher's Fisher Asset Management is the firm's largest shareholder out of these as it owns $1.4 billion worth of shares.
Teva Pharmaceutical Industries Limited (NYSE:TEVA) is an Israeli firm that is one of the oldest companies in the world since it was set up in 1901. The firm faced a setback in September when a U.S. judge overturned an earlier ruling that would have awarded Teva Pharmaceutical Industries Limited (NYSE:TEVA) $176 million in a patent infringement lawsuit.
After digging through 910 hedge fund holdings for their investments during 2023's second quarter, Insider Monkey discovered 42 Teva Pharmaceutical Industries Limited (NYSE:TEVA) shareholders. Out of these, David Rosen's Rubric Capital Management owns the largest stake which is worth $140 million.
Bristol-Myers Squibb Company (NYSE:BMY) was set up in 1887 and it develops treatments for serious diseases such as thalassemia and cancer. Its cancer drug Opdivo was approved by the FDA for use by children and adults with skin cancer.
By the end of this year's June quarter, 66 out of the 910 hedge funds polled by Insider Monkey had held a stake in the firm. Bristol-Myers Squibb Company (NYSE:BMY)'s biggest shareholder among these is Richard S. Pzena's Pzena Investment Management as it owns 4.3 million shares that are worth $276 million.
Bausch Health Companies Inc. (NYSE:BHC) is a Canadian firm that sells pharma and eye care products. Its eye care subsidiary expanded its treatment portfolio in September 2023 by acquiring a range of eye drops for dry eye disease.
Insider Monkey's Q2 2023 survey covering 910 hedge funds revealed that 37 were Bausch Health Companies Inc. (NYSE:BHC)'s shareholders. Carl Icahn's Icahn Capital LP is the biggest investor among these since it has invested $277 million in the pharma company.
Zoetis Inc. (NYSE:ZTS) is a pure play animal pharmaceutical company that sells medicines for cattle, poultry, fish, and other animals. Seems like Wall Street is quite bullish about the animal health sector, as its shares are rated Strong Buy on average and analysts have set a $223 average share price target.
By the end of June 2023, 65 out of the 910 hedge funds polled by Insider Monkey had bought the firm's shares. Zoetis Inc. (NYSE:ZTS)'s largest hedge fund shareholder is William Von Mueffling's Cantillon Capital Management due to its $251 million stake.
Pfizer Inc. (NYSE:PFE) is one of the biggest pharmaceutical firms in the world. As it heads to its third quarter results, the firm had some troubling news for investors as it cut down 2023 revenue estimates by 13%.
73 out of the 910 hedge funds surveyed by Insider Monkey had held a stake in Pfizer Inc. (NYSE:PFE) as of Q2 2023. Jim Simons' Renaissance Technologies owns the largest stake among these since it owns 8.4 million shares that are worth $308 million.
Perrigo Company plc (NYSE:PRGO), Pfizer Inc. (NYSE:PFE), Viatris Inc. (NASDAQ:VTRS), and Organon & Co. (NYSE:OGN) are some undervalued pharma stocks on the hedge fund radar.
