Health and Healthcare

Why Dividend-Paying Large-Cap Pharmaceuticals Could Shine in Q4

Lee Jackson

Published: September 27, 2019 10:45 am

Last Updated: January 30, 2020 3:20 pm

With the final quarter of 2019 beginning next Tuesday, many investors are taking a long hard look at their portfolios and trying to make some adjustments. While the end of the quarter window dressing and a non-top political and geopolitical narrative has weighed on stocks, the S&P 500 is poised to end the third quarter up almost 20% on the year.

Some analysts have noted that the rise of Elizabeth Warren in the polls has weighed on large-cap biotech and pharmaceuticals some. But that dampening of momentum is due to an outcome that is far from guaranteed and may be giving investors a very good entry point to stocks that are normally considered very conservative.

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We screened our 24/7 Wall St. equity research universe looking for Buy-rated large-cap pharmaceuticals that look like solid ideas now, and we found four that look like very solid fourth-quarter ideas.

Abbott Laboratories

This top pharmaceutical and med-tech stock has very solid growth potential. Abbott Laboratories (NYSE: ABT) manufactures and sells health care products worldwide.

The company’s Established Pharmaceutical Products segment offers branded generic pharmaceuticals to treat pancreatic exocrine insufficiency; irritable bowel syndrome or biliary spasm; intrahepatic cholestasis or depressive symptoms; gynecological disorders; hormone replacement therapy; dyslipidemia; hypertension; hypothyroidism; Ménière’s disease and vestibular vertigo; pain, fever and inflammation; migraines; anti-infective clarithromycin; cardiovascular and metabolic products; and influenza vaccines, as well as to regulate physiological rhythm of the colon.

Its Diagnostic Products segment provides immunoassay and clinical chemistry systems; assays used to screen or diagnosis cancer, cardiac, drugs of abuse, fertility, infectious diseases, and therapeutic drug monitoring; hematology systems and reagents; diagnostic systems and cartridges; instruments to automate the extraction, purification and preparation of DNA and RNA from patient samples, and detects and measures infectious agents; genomic-based tests; informatics and automation solutions; and a suite of informatics tools and professional services.

Abbott investors receive a 1.55% dividend. Goldman Sachs has just an $81 price target on the shares, though the Wall Street consensus target is $94.32. The shares traded early Friday at $82.55.

AbbVie

This is one of the top pharmaceutical stock picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.

One of the biggest concerns with AbbVie is what might happen eventually with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. The company was concerned, so in June it announced that it has agreed to pay $63 billion for rival drugmaker Allergan, the latest merger in an industry in which some of the biggest companies have been willing to pay a high price to resolve questions about their future growth.

AbbVie may be nearing the limits of how far it can boost Humira’s price as cheaper competitors come to market, a problem Allergan is already grappling with as more alternatives to Botox emerge.

Shareholders receive a 5.76% dividend. Citigroup just raised the stock to Buy with a huge $90 price target. The consensus price target is $86.55, and the stock was trading at $74.70.

Eli Lilly

This is another drugmaker with solid upside potential. Eli Lilly and Co. (NYSE: LLY) is a global health care company with numerous core products in a number of primary-care pharmaceutical markets. The company generates revenues from its pharmaceutical product and animal health segments.

The product portfolio includes Zyprexa (for schizophrenia and bipolar disorder), Gemzar (pancreatic cancer), Evista (osteoporosis), Cymbalta (depression), Cialis (erectile dysfunction), Strattera (attention deficit hyperactivity disorder), Erbitux (cancer) and Alimta (chemotherapy). Eli Lilly also has a strong presence in the diabetes market.

Shareholders receive a 2.30% dividend. The whopping $144 Goldman Sach price objective compares with the $124.25 consensus target. The shares traded at $112.60 on Friday.

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Merck

This remains a leading health care stock pick for conservative investors. Merck & Co. Inc. (NYSE: MRK) offers therapeutic and preventive agents to treat cardiovascular issues, type 2 diabetes, asthma, nasal allergy symptoms, allergic rhinitis, chronic hepatitis C virus, HIV-1 infection, fungal infections, intra-abdominal infections, hypertension, arthritis and pain, inflammatory, osteoporosis, male pattern hair loss and fertility diseases.

The company also provides neuromuscular blocking agents for use in surgery, anti-bacterial products for skin and skin structure infections, cholesterol modifying medicines, non-sedating antihistamine and vaginal contraceptive products.

Merck offers shareholders a 2.72% dividend. The Merrill Lynch price target is $88. The consensus price target is $86.33, and shares were trading at $83.20.

These four top large-cap pharmaceutical stocks for investors to consider all pay solid dividends. It may make sense to buy partial positions now and keep some dry powder as the third-quarter earnings will be coming out soon and could move the shares.