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Welcome to Episode #416 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
Many of the large cap drug stocks have been cheap for years. Tracey has discussed Pfizer and Merck, off and on, on the podcast for a decade.
Then COVID happened and some of the drug companies had success with the COVID vaccine. Recently, weight loss drugs have also pumped up some drug company earnings.
But some of the stocks have lagged the S&P 500 for years, and even decades.
Are these companies values or are they traps?
Should value investors be taking a look at the large cap drug stocks in 2025?
Definition of a Value Versus a Trap
A value stock is usually one that has low classic value fundamentals such as a low price-to-earnings (P/E) or price-to-sales (P/S) ratio. It can also be a company that is out of favor with Wall Street or is lagging its peers.
But a low P/E doesn’t necessarily mean a company is a true “value.” Value investors still want rising earnings and other solid fundamentals. A stock could be a trap if it has a low P/E but is seeing a decline in earnings.
After all, value investors want growth just as much as growth investors. They just want to pay less for it.
5 Large Cap Drug Stocks: Are They Values or Traps?
Pfizer has been a value stock for two decades. It currently trades with a forward P/E of just 8.6. A P/E ratio under 10 indicates a company is dirt-cheap.
Pfizer shares have also lagged for years. It is trading near its 5-year low, up just 3.5% year-to-date. Pfizer is paying a large dividend, for your patience. It is yielding 6.4%.
Merck shares have sold off in the last 2 years and are down 9.3% year-to-date. Merck is trading near its 5-year lows as well.
It’s cheap on a P/E basis, with a P/E of just 10. But the earnings picture looks a bit brighter than that of Pfizer. It is expected to grow earnings by 16.7% in 2025. Merck also pays a dividend, for your patience. It yields 3.6%.
AbbVie has neither the COVID vaccine nor weight loss drugs. Yet it has managed to grow its revenue and earnings the last few years, even with the loss of its blockbuster drug Humira.
Shares of AbbVie are up 32.8% year-to-date and are at new 5-year highs. Earnings are expected to rise 18.8% in 2025. But it’s not as cheap, on a P/E basis, as Merck or Pfizer. AbbVie trades with a forward P/E of 19.3. A P/E of 15 or less usually indicates value.
Eli Lilly is one of the winners of the race to find a weight loss drug. Shares soared to new highs as earnings rose by the triple digits. But year-to-date, Eli Lilly shares are up just 9%.
Eli Lilly is not cheap. It’s the most expensive of these 5 drug stocks with a forward P/E of 33. But earnings are expected to rise 77.3% this year and another 34.4% in 2026.
Novo Nordisk is one of the top drug companies in diabetes and weight loss. But shares have plunged 30.4% year-to-date, giving up a lot of the weight loss drug rally of recent years.
Novo Nordisk is cheap. It trades with a forward P/E of just 15.4. A P/E of 15 or under usually indicates value. Novo Nordisk also has growth. Earnings are expected to rise 16.2% in 2025.
Novo Nordisk pays a dividend, currently yielding 1.4%.
Is Novo Nordisk a value or a trap?
What Else Should You Know About Big Cap Drug Stocks?
Tune into this week’s podcast to find which are values and which are traps.
[In full disclosure, Tracey owns shares of ABBV in her personal portfolio and Zacks Value Investor and also owns LLY in Zacks Insider Trader portfolio.]
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5 Large Cap Drug Stocks: Values or Traps?
Key Takeaways
Welcome to Episode #416 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
Many of the large cap drug stocks have been cheap for years. Tracey has discussed Pfizer and Merck, off and on, on the podcast for a decade.
Then COVID happened and some of the drug companies had success with the COVID vaccine. Recently, weight loss drugs have also pumped up some drug company earnings.
But some of the stocks have lagged the S&P 500 for years, and even decades.
Are these companies values or are they traps?
Should value investors be taking a look at the large cap drug stocks in 2025?
Definition of a Value Versus a Trap
A value stock is usually one that has low classic value fundamentals such as a low price-to-earnings (P/E) or price-to-sales (P/S) ratio. It can also be a company that is out of favor with Wall Street or is lagging its peers.
But a low P/E doesn’t necessarily mean a company is a true “value.” Value investors still want rising earnings and other solid fundamentals. A stock could be a trap if it has a low P/E but is seeing a decline in earnings.
After all, value investors want growth just as much as growth investors. They just want to pay less for it.
5 Large Cap Drug Stocks: Are They Values or Traps?
1. Pfizer Inc. (PFE - Free Report)
Pfizer has been a value stock for two decades. It currently trades with a forward P/E of just 8.6. A P/E ratio under 10 indicates a company is dirt-cheap.
Pfizer shares have also lagged for years. It is trading near its 5-year low, up just 3.5% year-to-date. Pfizer is paying a large dividend, for your patience. It is yielding 6.4%.
Earnings are expected to rise just 1% in 2025.
Is Pfizer a value or a trap?
2. Merck & Co., Inc. (MRK - Free Report)
Merck shares have sold off in the last 2 years and are down 9.3% year-to-date. Merck is trading near its 5-year lows as well.
It’s cheap on a P/E basis, with a P/E of just 10. But the earnings picture looks a bit brighter than that of Pfizer. It is expected to grow earnings by 16.7% in 2025. Merck also pays a dividend, for your patience. It yields 3.6%.
Is Merck a value or a trap?
3. AbbVie Inc. (ABBV - Free Report)
AbbVie has neither the COVID vaccine nor weight loss drugs. Yet it has managed to grow its revenue and earnings the last few years, even with the loss of its blockbuster drug Humira.
Shares of AbbVie are up 32.8% year-to-date and are at new 5-year highs. Earnings are expected to rise 18.8% in 2025. But it’s not as cheap, on a P/E basis, as Merck or Pfizer. AbbVie trades with a forward P/E of 19.3. A P/E of 15 or less usually indicates value.
AbbVie pays a dividend, currently yielding 2.8%.
Is AbbVie a value or a trap?
4. Eli Lilly & Company (LLY - Free Report)
Eli Lilly is one of the winners of the race to find a weight loss drug. Shares soared to new highs as earnings rose by the triple digits. But year-to-date, Eli Lilly shares are up just 9%.
Eli Lilly is not cheap. It’s the most expensive of these 5 drug stocks with a forward P/E of 33. But earnings are expected to rise 77.3% this year and another 34.4% in 2026.
Eli Lilly also pays a dividend, yielding 0.7%.
Is Eli Lilly a value or a trap or neither?
5. Novo Nordisk A/S (NVO - Free Report)
Novo Nordisk is one of the top drug companies in diabetes and weight loss. But shares have plunged 30.4% year-to-date, giving up a lot of the weight loss drug rally of recent years.
Novo Nordisk is cheap. It trades with a forward P/E of just 15.4. A P/E of 15 or under usually indicates value. Novo Nordisk also has growth. Earnings are expected to rise 16.2% in 2025.
Novo Nordisk pays a dividend, currently yielding 1.4%.
Is Novo Nordisk a value or a trap?
What Else Should You Know About Big Cap Drug Stocks?
Tune into this week’s podcast to find which are values and which are traps.
[In full disclosure, Tracey owns shares of ABBV in her personal portfolio and Zacks Value Investor and also owns LLY in Zacks Insider Trader portfolio.]