Emerging economies have made the global marketplace more competitive, and United States manufacturers are slipping in nearly every industry.
However, there is one area where the US maintains worldwide leadership: pharmaceutical research and development.
US pharmaceutical companies are willing to make the investments of time and money that are necessary to deliver groundbreaking solutions to the most complex medical problems.
This industry presents an appealing opportunity for investors, as all signs point to continued expansion and increased profitability. In 2015, global revenues for pharmaceuticals surpassed the $1 trillion mark, and that number is expected to reach $1.5 trillion by 2021.
Innovation and improvements in the speed to market are contributing to the industry’s success, as are demographic factors like the growing population and the fact that the median age is rising.
The main question facing investors isn’t whether to buy pharmaceutical stock. It is which stock to buy. Chicago-based AbbVie, an industry leader, presents a compelling option.
Three Reasons Investors Like AbbVie
AbbVie’s mission is to combine science and innovation to develop therapies for some of the most difficult medical conditions.
The company has made significant strides in the areas of oncology, immunology, and neuroscience, among others, and investors have been rewarded by the on-going success.
Three of the most persuasive reasons to buy AbbVie stock include the following:
Dividend – Reliable income stock is hard to come by, but it seems AbbVie (NYSE: ABBV) has found a secret to success. Investors have enjoyed dividends of nearly four percent, which is more than double the S&P 500 Index’s dividend yield of less than two percent.
The dividend has increased by 140 percent since 2013, which is a sign that leadership puts a priority on rewarding investors.
In addition, the company has reliably paid quarterly dividends since 1924, and the dividend payout has increased for 46 consecutive years. While past dividends do not guarantee future dividends, all signs point to AbbVie’s continued ability to supply impressive payouts.
Earnings – Exceeding the industry average for earnings requires AbbVie to demonstrate strong growth in coming years.
Fortunately, the company has multiple products that are expected to generate substantial revenues. First, AbbVie has a number of impressive medication therapies on its roster. For example, Humira is a unique solution for serious arthritis conditions, as well as Crohn’s disease and colitis.
This drug alone has accounted for much of AbbVie’s historical growth. The cancer medication Imbruvica is projected to have the fourth-highest sales of all cancer medications by 2022, and another cancer drug, Venclexta, is expected to generate up to $3 billion in revenue.
Second, AbbVie has several groundbreaking therapies coming to market. The company anticipates FDA approval for Elagolix to treat endometriosis in late 2018 or early 2019, and two new autoimmune disease medications, risankizumab and upadacitinib, may receive approval in the upcoming year.
Pricing – Perhaps the most convincing factor in investors’ decision to purchase AbbVie (NYSE: ABBV) is its low share price.
Considering the company’s potential for growth, which many analysts appear quite confident about, the price per share of $87.58 in December 2018 is a bargain.
These three points make AbbVie a strong option for investors interested in the pharmaceutical industry. However, as with any investment, there are certain risks to consider.
Two Risks to Consider Before Buying
Predicting a company’s future depends on examining its history of successes and failures, as well as potential challenges the business could face in future years.
This leads to a significant concern. Much of AbbVie’s historical success is based on sales of Humira, which has been a unique and effective solution for certain conditions.
However, biosimilar drugs are coming to market in Europe as soon as late 2018, and they will arrive in the US by 2023.
This could impact sales of Humira, which will impact earnings. AbbVie must succeed in bringing new medications to market in intervening years to maintain its competitive edge.
The second risk presented by the purchase of AbbVie stock is the risk that newly released drugs and drugs in the pipeline don’t perform as expected.
In fact, those that have not yet come to market risk setbacks with FDA approvals that could prevent them from being released at all.
While there is no information to suggest that this will happen, the possibility cannot be completely eliminated.
Final Thoughts: Is AbbVie Stock a Buy?
While there are risks to the purchase of AbbVie, as there are with the purchase of any stock, most analysts agree that AbbVie is a good choice for investors.
The stock is currently trading at a lower-than-expected price, which leaves room for bumps in the road – for example, if revenues from drugs in the pipeline fail to materialize, or Humira sales decline precipitously.
AbbVie’s long history of strong dividends indicates a commitment by the company to reward investors.
There is no reason that should change in upcoming years. More important, the company’s potential for above-average growth makes it a good choice for investors looking to buy.