The pharmaceutical sector continues to attract increased investor attention due to the rising prevalence of chronic diseases, an aging population, and significant investments. Investors’ interest in this space is evidenced by the Invesco Dynamic Pharmaceuticals ETF’s (PJP) 5% returns over the past month, and 12.8% gains year-to-date.
Governments worldwide have also been focusing more on research and development in the pharmaceutical space. In the U.S., Democrats in Congress are contemplating a cut in prescription drug costs for older Americans as a part of President Biden's Build Back Better social spending plan. Furthermore, according to a Linchpin report, the pharmaceutical industry is expected to increase to $1.50 trillion by 2023.
Therefore, we think it could be wise to add fundamentally sound pharmaceutical stocks Vertex Pharmaceuticals Incorporated (VRTX) and Takeda Pharmaceutical Company Limited (TAK) to one’s portfolio now. These stocks have declined more than 20% in price year-to-date and are trading at significant discounts to their peers.
Click here to checkout our Healthcare Sector Report for 2021
Vertex Pharmaceuticals Incorporated (VRTX)
Biotechnology company VRTX develops and commercializes therapies to treat cystic fibrosis. It also invests in scientific innovation to create transformative medicines for people with serious diseases. VRTX is based in Boston, Mass.
On October 26, 2021, VRTX and Mammoth Biosciences announced a new partnership to develop in vivo gene-editing therapies for two genetic diseases using Mammoth’s next-generation CRISPR systems. David Altshuler, M.D., Ph.D., Chief Scientific Officer of VRTX, said, “We look forward to expanding our cell and genetic therapies capabilities with the addition of Mammoth’s ultra-small CRISPR systems for in vivo genome editing, which will provide us with another set of tools to tackle many of the diseases we’re interested in.”
VRTX’s net product revenues increased 29.2% year-over-year to $1.98 billion for its fiscal third quarter, ended September 30, 2021. Its non-GAAP operating income came in at $1.19 billion, up 39.1% year-over-year. While its non-GAAP net income increased 32.9% year-over-year to $926 million, its non-GAAP EPS came in at $3.56, up 34.8% year-over-year.
In terms of forward EV/Sales, VRTX’s 5.57x is 11.3% lower than the 6.28x industry average Also, its 6.28x forward P/S is 16.8% lower than the 7.55x industry average.
Analysts expect VRTX’s revenue to be $7.50 billion in its fiscal 2021, representing a 20.9% year-over-year rise. The company’s EPS is expected to increase 23.4% year-over-year to $12.74 in the current year. It surpassed the Street’s EPS estimates in three of the trailing four quarters. It has lost 21.6% year-to-date. However, the stock has gained 2.3% in price over the past month to close yesterday’s trading session at $185.41.
VRTX’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system.
VRTX has an A grade for Value and Quality, and a B grade for Growth and Sentiment. It is ranked #3 of 481 stocks in the Biotech industry. Click here to see the additional POWR Ratings for Stability and Momentum for VRTX.
Takeda Pharmaceutical Company Limited (TAK)
Headquartered in Japan, TAK engages in the research, development, manufacturing, marketing, and out-licensing of pharmaceutical products worldwide. It offers pharmaceutical products in the areas of gastroenterology, oncology, neuroscience, and certain rare diseases.
On October 27, 2021, TAK announced the exercise of its option to acquire GammaDelta Therapeutics Limited. Christopher Arendt, Ph.D., Head of Oncology Cell Therapy and Therapeutic Area Unit of TAK, said, “Collaborating with scientific innovators with unique technology platforms and deep domain expertise, such as the GammaDelta team, allows Takeda to identify and accelerate the most promising approaches that can be developed into products to impact the lives of cancer patients.”
For the first half ended September 30, 2021, TAK’s revenue increased 12.8% year-over-year to ¥1.79 trillion ($15.75 billion). Its operating profit came in at ¥ 346 billion ($3.04 billion), up 60.5% year-over-year. Its net profit for the period came in at ¥183.6 billion ($1.61 billion), representing a 112.2% year-over-year rise. Also, its EPS increased 112.2% year-over-year to ¥117.
In terms of forward EV/S, TAK’s 2.57x is 59.1% lower than the 6.28x industry average. Its 1.51x forward P/S is also lower than the 7.55x industry average.
TAK’s revenue is expected to be $30.11 million for its year fiscal 2022, representing a 3.4% year-over-year rise. The company’s EPS is expected to increase 51.9% year-over-year to $0.84 for the year ending March 2023. The stock has declined 22.6% in price so far this year. However, it has gained 2% since hitting its 52-week low of $13.81 on October 27, 2021, to close yesterday’s session at $14.08.
TAK’s POWR Ratings reflect its promising outlook. The stock has an A rating for Value, and a B rating for Stability. It is ranked #31 in the Biotech industry. Click here to see the additional POWR Ratings for TAK (Growth, Momentum, Sentiment, and Quality).
Click here to checkout our Healthcare Sector Report for 2021
VRTX shares were trading at $183.09 per share on Friday afternoon, down $2.32 (-1.25%). Year-to-date, VRTX has declined -22.53%, versus a 26.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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