Bank of America (BAC) was the latest major bank to issue a recession shock warning two weeks after the Treasury yield curve inverted. Economists at the Bank of America expect inflation to worsen as the Russia-Ukraine war drags out, while the interest rate shock is just beginning to set in. Because the Fed is expected to remain aggressively hawkish for the foreseeable future to control the 40-year-high inflation rates, the U.S. is currently on recession watch.
Thanks to the inelastic demand for healthcare products, investing in healthcare stocks can hedge some of the market’s risks. Furthermore, only 66.4% of the total population have received at least one COVID-19 vaccine dose. As economies collectively push to accelerate the global vaccination drive, healthcare companies with COVID-19 vaccines in their portfolios are expected to benefit from the robust global demand.
Given this backdrop, we believe fundamentally strong healthcare companies Pfizer Inc. (PFE), Johnson & Johnson (JNJ), AbbVie Inc. (ABBV), Eli Lilly and Company (LLY), and Merck & Co., Inc. (MRK) are expected to grow substantially even during a recession. Thus, investing in these stocks now could hedge one’s portfolio against the forthcoming potential recession.
Click here to checkout our Healthcare Sector Report for 2022
Pfizer Inc. (PFE)
New York City-based PFE specializes in biopharmaceutical products globally. Its portfolio includes medicines and vaccines served to wholesalers, retailers, healthcare providers, government agencies, pharmacies, and local communities.
On April 4, PFE agreed to acquire ReViral for up to $525 million. With this acquisition, the company would strengthen its capabilities in treating RSV disease and expand its anti-infective pipeline further.
On March 29, the FDA expanded emergency use authorization of COVID-19 vaccine booster in adults aged 50 years and older and authorized a second booster dose for individuals 12 years of age and older who have received the first shot. The second booster dose offers increased protection against severe disease and hospitalization.
Also last month, PFE announced positive results from a yearlong phase 3 trial of etrasimod, which is expected to be a best-in-class therapy in treating ulcerative colitis (UC).
PFE’s revenue increased 105% year-over-year to $23.84 billion in its fiscal fourth quarter (ended December 31). Its net income grew 300.6% from its year-ago value to $3.39 billion, while its income from continuing operations improved 464.4% year-over-year to $3.58 billion over the period. The company’s non-GAAP EPS increased 151.2% from the year-ago value to $1.08.
The $1.57 consensus EPS estimate for its fiscal first quarter (ended March 31, 2022) represents a 68.3% improvement year-over-year. The $24.55 billion consensus revenue estimate for the to-be-reported quarter indicates a 68.4% increase from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 50.7% in price to close its last trading day at $55.17.
PFE’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has a B grade for Value, Growth, and Quality. Among the 174 stocks in the Medical - Pharmaceuticals industry, it is ranked #14. Click here to see the additional POWR ratings of PFE for Momentum, Sentiment, and Stability.
Johnson & Johnson (JNJ)
JNJ in New Brunswick, N.J., is engaged in the research and development, manufacturing, and selling of healthcare products that are primarily focused on human health and well-being. The company operates through three segments: Consumer; Pharmaceutical; and Medical Devices. It offers its products to the public, retail outlets and distributors, wholesalers, hospitals, and healthcare professionals.
On March 14, JNJ was named in Fortune World’s Most Admired Companies list for the 20th consecutive year. In addition, it was also ranked #1 on the Pharmaceutical Industry list for the ninth year in a row. These honors are indicative of JNJ’s unwavering commitment and strong performance within the industry.
On January 6, JNJ announced that based on the largest study in the U.S., a single shot of the JNJ vaccine demonstrated long-lasting protection for up to six months against COVID-19 breakthrough infections, hospitalizations, and ICU admissions. Given the resurgence of COVID-19 cases of late, the vaccine is expected to remain in demand globally.
On December 30, the company announced that the booster shot of the JNJ COVID-19 vaccine reduced the risk of hospitalization among healthcare workers in South Africa when Omicron was dominant, representing 85% of effectiveness.
During its fiscal 2021 fourth quarter (ended Dec. 31, 2021), JNJ’s net sales increased 10.4% year-over-year to $24.8 billion. Its gross profit rose 14.9% from its year-ago value to $16.85 billion. Its non-GAAP net earnings grew 14.4% from the same period last year to $5.68 billion, while its adjusted EPS came in at $2.13, representing a 14.5% increase year-over-year.
Analysts expect JNJ’s revenues to increase 6% year-over-year to $23.65 billion in the fiscal first quarter (ended March 31, 2022). Its EPS is expected to increase 0.4% to $2.60 in the about-to-be-reported quarter. It is no surprise that the company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
The stock has gained 13.2% in price over the past six months to close Friday’s trading session at $182.12.
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. JNJ also has an A grade for Stability and a B grade for Value and Quality. The stock is ranked #5 of 174 stocks in the Medical - Pharmaceuticals industry.
Click here to see the other ratings of JNJ for Growth, Sentiment, and Momentum.
AbbVie Inc. (ABBV)
ABBV is engaged in research and development, manufacturing, commercialization, and global sale of medicines and therapies. The North Chicago, Ill.-based concern offers its products in various categories: immunology, oncology, neuroscience, eye care, and women's healthcare. The company markets its products to wholesalers, distributors, government agencies, health care facilities, and independent retailers.
On April 5, ABBV’s subsidiary, Allergan, announced positive results from its Phase 3 VIRGO trial evaluating twice-daily administration of VUITY (pilocarpine HCl ophthalmic solution) 1.25% in adults with presbyopia. The successful trials should strengthen the role of VUITY in treating patients with blurry near vision.
On March 17, the company received Health Canada's approval of SKYRIZI to treat adults with active psoriatic arthritis. This approval should accelerate the expansion of ABBV’s immunology portfolio in Canada.
On March 15, ABBV and Scripps research collaborated to develop oral antiviral treatments to combat the new variants of Covid-19.
ABBV’s net revenues increased 7.4% year-over-year to $14.89 billion in the fourth quarter, ended Dec. 31, 2021. The company’s non-GAAP net earnings increased 13.3% from the year-ago value to $5.92 billion, while its operating earnings grew 35.2% year-over-year to $5.07 billion. ABBV’s adjusted EPS rose 13.4% from the prior-year quarter to $3.31.
Analysts expect ABBV’s EPS and revenue to increase 6.3% and 5.2%, respectively, year-over-year to $3.14 and $13.61 billion in its fiscal first quarter, ended March 31, 2022. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of ABBV have risen 62.7% in price over the past year to close Friday’s trading session at $174.96.
ABBV has an overall A rating, which translates to a Strong Buy in our proprietary rating system. Also, it has a B grade for Sentiment and Quality. Also, it is ranked #8 in the Medical - Pharmaceuticals industry.
In addition to the POWR Ratings grades I have just highlighted, one can see the ABBV ratings for Growth, Value, Momentum, and Stability here.
Eli Lilly and Company (LLY)
LLY is a drug manufacturing company. Its offerings include Basaglar, Humalog, Humulin, Jardiance, Trajenta, Erbitux, Retevmo, Tyvyt, Emgality, and Reyvow, among various others. The Indianapolis, Ind.-based company distributes its products in the U.S. and eight other countries.
On April 8, LLY delivered its first shipment of diabetes medicine to Ukraine amid the devastating war there. The company will make additional deliveries of medicines, including cancer treatments and COVID-19 treatments, to ease human suffering in that war.
On March 26, the company announced that adults with alopecia areata who took OLUMIANT 4-mg saw at least 90% scalp hair coverage at 52 Weeks in LLY’s Pivotal Phase 3 Studies. With such remarkable results, OLUMIANT could become the first medicine ever approved to treat alopecia areata in 2022.
On January 13, the WHO recommended LLY’s baricitinib, sold under the brand name Olumiant, in combination with corticosteroids, for patients with severe COVID-19. The drug has been observed to improve the survival rate and reduce the need for ventilation.
In the fourth quarter, ended Dec. 31, 2021, LLY’s revenue increased 8% year-over-year to $8 billion. Its non-GAAP net income increased 8% from the year-ago value to $2.27 billion, while its non-GAAP EPS came in at $2.49, representing an 8% year-over-year improvement.
The $2.15 consensus EPS estimate for its fiscal first quarter (ended March 31, 2022) represents a 15.1% improvement year-over-year. The $7.04 billion consensus revenue estimate for the to-be-reported quarter represents a 3.4% increase from the same period last year.
LLY has gained 69% in price over the past year, closing Friday’s trading session at $311.69.
The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. It is no surprise that LLY has a B grade for Growth, Stability, Sentiment, and Quality. In the Medical - Pharmaceuticals industry, it is ranked #10.
Beyond what we have stated above, we have also given LLY grades for Momentum and Value. Get all the LLY ratings here.
Merck & Co., Inc. (MRK)
MRK is a global provider of health solutions through its prescription medicines, vaccines, biological therapies, and animal health products. The Kenilworth, N.J.-based company operates through two segments: Pharmaceutical; and Animal Health. It offers its products to drug wholesalers and retailers, hospitals, government agencies, and other health care providers.
On April 4, MRK expanded its vaccines manufacturing facility in Elkton to increase the supply of the company’s HPV vaccine and enable broad equitable access. With this expansion, MRK should help meet the growing global demand for vaccines.
On March 25, MRK received a positive opinion from EU CHMP for KEYTRUDA for patients with microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR) tumors in five distinct types of cancer. This positive opinion reflects MRK’s advancement in the development of cancer treatments.
On March 2, WHO recommended MRK’s COVID-19 antiviral pill (molnupiravir), for high-risk patients, such as the immunocompromised, the unvaccinated, older people and those with chronic diseases.
During the fourth quarter, ended Dec. 31, 2021, MRK’s net sales increased 24% year-over-year to $13.52 billion. The company’s non-GAAP net income increased 84% year-over-year to $4.58 billion, while its non-GAAP EPS grew 84% from the prior-year quarter to $1.80.
Analysts expect MRK’s revenues to increase 20.5% year-over-year to $14.56 billion in its fiscal first quarter (ended March 31, 2022). Its EPS is expected to increase 27.8% to $1.79 in the about-to-be-reported quarter. Shares of MRK have gained 20.4% in price over the past year.
MRK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. MRK also has a B grade for Value, Growth, Sentiment, Quality, and Stability. The stock is ranked #2 in the Medical - Pharmaceuticals industry.
In addition to the POWR Ratings I have just highlighted, click here to see the MRK ratings for Momentum.
Click here to checkout our Healthcare Sector Report for 2022
PFE shares were trading at $54.01 per share on Monday afternoon, down $1.16 (-2.10%). Year-to-date, PFE has declined -7.84%, versus a -6.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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