Despite all the negative chatter about drug pricing, the fact of the matter is that the top companies not only produce drugs that save and change lives, they consistently reinvest millions of dollars not only to have a solid pipeline, but to protect their current franchise drugs. The combined effect of a negative year in the markets and sharp political rhetoric has made the entry point in many of the top stocks very appealing for investors.

In a new research report, Jefferies shuffles some of the pharmaceutical stocks in its coverage universe and a beaten-down dividend leader is now the top pick globally. Two other top domestic pharmaceutical stocks are in the Jefferies top five and are also priced for solid entry points for growth and income accounts looking for some new ideas.

AbbVie

This now is the top global pharmaceutical stock at Jefferies, and it is also on the Franchise Picks list. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries.

One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which generated $14 billion in sales in fiscal 2015. That $14 billion is the most any drug has recorded during a single year and represents a gigantic part of the company’s overall earnings. The problem with Humira is that biosimilars and generics are itching to enter the market, with Amgen leading the charge, and some Wall Street analysts project that AbbVie may have a difficult time stopping that trend. The Jefferies analysts have become much more positive on the stock and feel that the company’s response to Coherus’ Inter Partes Review (IPR) on key Humira patents looks solid, and an IPR denial is a very real possibility.

The company reported mixed fourth-quarter numbers but affirmed guidance, and some on Wall Street were concerned over a new hepatitis C drug from a rival company. The reported earnings per share excluding one-time items, were up 27% from the year-earlier quarter and a penny over analysts’ consensus, according to Thomson Reuters. Revenue rose 18% to $6.36 billion but came in below Wall Street estimates. Jefferies cites the company’s very cheap valuation and strong catalysts this year as reasons for moving it to the top global pick.

AbbVie investors are paid an outstanding 4.23% dividend. The Jefferies price target for the stock is $80, among the highest on Wall Street. The Thomson/First Call consensus target is $72.25. Shares were trading down fractionally at $53.82 on Monday.
Eli Lilly

This stock checks in high on the global pharmaceutical lists at many top Wall Street firms and is one of Jefferies top five global picks. Eli Lilly and Co. (NYSE: LLY) has numerous core products in a number of primary-care pharmaceutical markets. The company also 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.

Eli Lilly’s reported fourth-quarter earnings were in line with the consensus expectations. While the overall numbers were unremarkable, many analysts are still very focused on the company’s outstanding late-stage product pipeline, which they view as very undervalued. They also remain very positive on what they call the “huge growth potential” prospects for Jardiance, which is a prescription medicine used along with diet and exercise to lower blood sugar in adults with type 2 diabetes.

Shareholders receive a solid 2.81% dividend. Jefferies has a $110 price target, while the consensus target is $98.85. Shares were last seen trading at $72.71, essentially flat on the day.

Pfizer

This stock could be offering investors the best value at current trading levels. Pfizer Inc. (NYSE: PFE) has a very strong pipeline, and being the world’s largest drug manufacturer by sales value supports the Wall Street notion that the company can generate higher long-term revenues through the accelerated growth of its new drugs over the next five years. The company announced recently the details in what would be one of this year’s biggest deals, a $160 billion merger with Allergan.

The Treasury Department announced recently that it is working on new rules for corporate tax inversions, which is potentially what the Pfizer/Allergan deal would be, and that possibly could throw wrench into the negotiations. Pfizer executives maintain that the government will not scuttle the deal.

Pfizer has announced that it is starting 20 clinical trials this year and more soon after on treatments to conquer cancer, as it also seeks to gain leadership in one of the hottest, and most lucrative, areas of medicine. Pfizer currently has eight approved cancer medicines, four of them launched in the past four years. It is running late-stage patient tests on five of those drugs for additional uses and has three other drugs in late-stage testing, which is usually the last round before seeking regulatory approval. In addition, the company has 14 other drug programs in early stages.

Pfizer investors are paid a rich 4.02% dividend. The Jefferies price target is set at $45. The consensus target is lower at $39.13. Monday morning, the stock was trading up marginally at $29.93.

Health care has been hammered since the start for the year, down almost 9%, and all these top stocks to buy have been knocked down to some of the lowest trading levels in the last year. Draconian price controls are very unlikely given a Republican-controlled Congress, and investors looking for solid total return with a degree of safety should look at all three of these top companies.

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