It’s been a rough year to invest in pharma stocks. The industry is adjusting to a sector that is less reliant on Covid-19 vaccines and is adapting to the effects of inflation as well as pressure from regulators to cap the price of many drugs.
However, there are many reasons to be optimistic about the sector’s future. For starters, several companies are leaning into artificial intelligence (AI) as a way to develop drugs in a fast and more efficient manner. Unfortunately, new strains of Covid make updated coronavirus vaccines necessary. That plays into the hands — and the balance sheets — of many pharma stocks under pressure during the past year.
There are many ways to measure if a stock is undervalued. The pharma stocks in this article sold off heavily in the last 12 months, are trading near their 52-week lows and are enjoying recent bullish sentiment from analysts.
Moderna (MRNA)
Moderna (NASDAQ:MRNA) is one of the companies that received FDA approval for a vaccine to address the new variants of COVID-19. Even if vaccine demand is not as strong as in 2021 and 2022, it should still boost the company’s top and bottom lines.
Moderna’s Covid vaccine was its only commercially approved vaccine. And for the last two quarters, the company’s revenue and earnings dropped sharply as demand for the vaccine waned.
However, with the vaccines just rolling out in mid-September, the financial results won’t hit MRNA’s balance sheet until it reports fourth-quarter numbers.
Nevertheless, the larger story with Moderna has always been mRNA technology. The thinking was that after the Covid vaccine was approved, it would be easier for the company to get other mRNA vaccines into clinical trials.
That’s exactly what’s happening. On September 13, 2023, Moderna announced positive clinical results for several of its pipeline candidates, including several for treating cancer and other rare diseases.
At the time of this writing, MRNA stock is trading at $110.77. But analysts, while lowering their price targets, still give the stock over 50% upside. And most of the price targets were issued before the new Covid vaccine approval announcement.
Pfizer (PFE)
Pfizer (NYSE:PFE), in partnership with BioNTech SE (NASDAQ:BNTX), also received FDA approval for a new Covid-19 vaccine. Like Moderna, the vaccine should help the company’s revenue and earnings in the short term.
But the bigger story for Pfizer is in its pipeline. In the next 18 months, the company has over a dozen candidates that will likely be approved. That will make the company less reliant on revenue from a Covid vaccine or Paxlovid — the company’s therapeutic pill used to treat Covid symptoms.
And that pipeline doesn’t include the benefits the company may receive from its acquisition of Seagen (NASDAQ:SGEN). The $43 billion acquisition gives Pfizer access to Seagen’s line of oncology products.
Pfizer is trading near the bottom of its 52-week range and has a forward price-to-earnings (P/E) ratio of 10.3x. Analysts project a 32% upside for PFE stock. Plus, investors get a safe dividend. Pfizer has increased its dividend for 12 consecutive years and currently has a 4.79% yield.
Bristol-Myers Squibb (BMY)
Bristol-Myers Squibb (NYSE:BMY) is the one company on this list of pharma stocks that doesn’t have a direct tie to the latest Covid-19 vaccine. However, BMY stock is still down more than 17% in 2023. The immediate problem is expiring patents on many of its popular drugs.
However, the company has already introduced a handful of drugs that appear to be gaining traction. And it recently announced a partnership with Schrodinger (NASDAQ:SDGR), a company that uses artificial intelligence to help speed up the drug discovery process.
That means opportunistic investors should pay attention to the company’s favorable valuation. BMY stock trades at just 8x forward earnings. Like the other two pharma stocks on this list, it is trading near the bottom of its 52-year range. And this is also a company offering an attractive dividend with a 3.83% yield.
On the date of publication, Chris Markoch held a long position in PFE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
