The pharmaceutical industry plays a crucial role in most of our everyday lives. From life-saving medication we need when we need it, to everyday pain remediation or allergy medications, big pharma companies have played a big role in providing the medicines we all need to stay happy and healthy on a daily basis. 

Most investor attention around this sector has either been negative (tied to higher prices in the U.S.) or has been placed on innovative treatments for various degenerative diseases such as Alzheimer’s, diabetes treatments, weight loss drugs and various cancer treatments. Many of these particular business lines are certainly very lucrative, and have a high implicit and explicit value for their patients, and can be charged for accordingly.

Thus, companies that are able to build out sustainable drug pipelines and continue to benefit from patents and other protective measures this sector benefits from, there’s a lot of money to be made. Experts suggest that the entire pharma sector could see projected revenues hit $1.6 trillion by 2028, meaning this is a big pie to try to take a bite out of.

For those looking for the best bets this sector has to offer, here are three of my top picks right now.

Key Points About This Article:

• Big pharma companies may be getting a bad rep in the news, but they continue to pump out predictable and growing profits over time.
• Here are three of the biggest and best ways to play the long-term potential growth of this sector in the coming years.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Eli Lilly (LLY)

Eli Lilly (NYSE:LLY) is a top pharmaceutical giant that is absolutely rocketing higher this year. The company’s share price has surged by approximately 60% this year, and even more impressively, the stock has skyrocketed more than 730% over the past five years. Those are the kinds of returns investors might expect to see from a fast-growing startup, not a company with a market capitalization near $800 billion.

Eli Lilly’s ride to investor fame has largely stemmed from its popular drug, tirzepatide, which treats diabetes under the name Mounjaro and has recently been approved for weight loss as Zepbound. 

This drug is expected to see peak sales of around $50 billion according to analysts, with expectations that additional indications could be added on over time. I’ve seen the impact on others and can vouch that this drug is revolutionary in its nature. But with such a revolutionary drug, there will most certainly be competition from others, which Eli Lilly is already seeing.

That said, given current shortages and expectations of pricing increases for insurance companies, this is a drug that could certainly have plenty of pricing power in the market. The company has continued to attract growth investors with impressive sales, reporting $11.3 billion for the quarter ending June 30. This amounted to a 36% increase year-over-year, and a 31% rise year-to-date.

I think this momentum can continue over the long-term, given Eli Lilly’s strong drug pipeline. This is a long-term winner I think is worth the plump valuation right now. 

AbbVie (ABBV)

On July 25, pharma giant AbbVie (NYSE:ABBV) was among the top players that raised their 2024 profit forecast following strong results driven by the company’s immunology drug sales. AbbVie reported quarterly results that surpassed Wall Street expectations, propelling its shares to a record high. As part of its report, the drug giant increased its earnings estimate by 10 cents, projecting between $10.71 and $10.91 per share for this fiscal year.

Those results certainly were impressive, but I don’t think enough attention has been paid to the company’s overall dividend profile. AbbVie stock currently yields 3.2%, and is among the dividend-paying pharma giants I think is worth owning for the long-term. That’s in part due to the fact this drug giant has increased increased its dividend payout by 270% over the past decade, far surpassing most of its peers. Thus, those looking for an income-generating investment in this highly-profitable space can certainly bank on this stock for excellent total returns. 

AbbVie continues to effectively reinvest its profits, launching Skyrizi for psoriasis and Rinvoq for arthritis in 2019, which together generated $7.3 billion in sales during the same period. Over the long-term, this is a top pharmaceutical stock I think is worth owning here. 

Merck (MRK)

Merck (NYSE:MRK) is another major U.S. pharmaceutical company that is focused on providing a range of vaccines and cancer care drugs. Notably, the company has 52 drugs in its pipeline as of last year, and the number is growing. Additionally, Merck’s top cancer drug generated $26.3 billion in sales over the past year. This represented 16% year-over-year growth, and positions the company well in this core segment.

Furthermore, the company continues to enhance its portfolio via acquiring early-stage drugs and turning them into blockbusters. Merck’s acquisition of EyeBio to develop retinal treatments is among the key deals worth noting, as well as the company’s expansion of its Animal Health segment through the purchase of Elanco’s aqua business, reinforcing its leadership in these markets.

The company also solidified its industry leadership with a $30.5 billion investment in research and development in 2023. Its expansive infrastructure enables cost-effective drug and vaccine production, enhancing its competitive advantage. Analysts remain optimistic, with a 12-month median price target of $140, suggesting a 20% upside from here.

I think this top pharma stock will be a long-term winner, but that’s not just my view. Wall Street seems to be aboard this train. I like that.

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