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(0:30) – Can You Find Strong Value Investments In Drug Stocks Right Now?
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(3:40) – Breaking Down The Recent Industry Performance
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(9:00) – Tracey’s Top Stock Picks
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(30:00) – Episode Roundup: PFE, MRK, ABBV, LLY, NVO
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Podcast@Zacks.com
Welcome to Episode #416 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
Many of the large cap drug stocks have been cheap for years. Tracey has discussed Pfizer and Merck, off and on, on the podcast for a decade.
Then COVID happened and some of the drug companies had success with the COVID vaccine. Recently, weight loss drugs have also pumped up some drug company earnings.
But some of the stocks have lagged the S&P 500 for years, and even decades.
Are these companies values or are they traps?
Should value investors be taking a look at the large cap drug stocks in 2025?
A value stock is usually one that has low classic value fundamentals such as a low price-to-earnings (P/E) or price-to-sales (P/S) ratio. It can also be a company that is out of favor with Wall Street or is lagging its peers.
But a low P/E doesn’t necessarily mean a company is a true “value.” Value investors still want rising earnings and other solid fundamentals. A stock could be a trap if it has a low P/E but is seeing a decline in earnings.
After all, value investors want growth just as much as growth investors. They just want to pay less for it.
1. Pfizer Inc. (PFE)
Pfizer has been a value stock for two decades. It currently trades with a forward P/E of just 8.6. A P/E ratio under 10 indicates a company is dirt-cheap.
Pfizer shares have also lagged for years. It is trading near its 5-year low, up just 3.5% year-to-date. Pfizer is paying a large dividend, for your patience. It is yielding 6.4%.
Earnings are expected to rise just 1% in 2025.
Is Pfizer a value or a trap?
2. Merck & Co., Inc. (MRK)
Merck shares have sold off in the last 2 years and are down 9.3% year-to-date. Merck is trading near its 5-year lows as well.
It’s cheap on a P/E basis, with a P/E of just 10. But the earnings picture looks a bit brighter than that of Pfizer. It is expected to grow earnings by 16.7% in 2025. Merck also pays a dividend, for your patience. It yields 3.6%.
Is Merck a value or a trap?
3. AbbVie Inc. (ABBV)
AbbVie has neither the COVID vaccine nor weight loss drugs. Yet it has managed to grow its revenue and earnings the last few years, even with the loss of its blockbuster drug Humira.
