2 Pharma Stocks Forever The Motley Fool

Due to the effects of the corona virus, a veritable renaissance in pharmaceutical and biotechnology stocks has been observed in recent weeks and months. But while any price explosions due to possible cures and vaccines against COVID-19 could be of a temporary nature, there are also defensive pharmaceutical companies that you can have in your portfolio for an entire investor life. Today I will present two of these companies to you.

Just this week, Eli Lilly's stock caused a stir on the capital markets. Because an already approved active substance against advanced breast cancer was able to convince in a clinical study for a further area of ​​application.

In the future, the drug "Verzenio" could also be used for early-stage breast cancer with a high risk of recurrence. Because in a phase 3 study, important goals were achieved, after which the chances of survival of the participants increased and the risk of recurrence was reduced. Great news! Investors celebrated this with double-digit price gains.

But even after this increase, an investment in Eli Lilly stock makes sense from a valuation point of view. Because an estimated price-earnings ratio (P/E) in 2021 of 17.2 does not seem expensive for a crisis-proof business model. This crisis resistance could already be observed during the Corona crash in the spring of this year, because the share only corrected by around 18% during this period. Not a broken leg for long-term shareholders and probably a unique opportunity for those who would like to become one. Because since the crash low, the share is now back by about 28.1% in profit.

Therefore, I will probably use future price weaknesses to establish a position in this future company and keep the stock in my portfolio for the long term.

Another buy-once-and-living-life stock is Bristol-Myers-Squibb, a stock that every healthcare investor should be familiar with.

Due to the acquisition and full integration of the oncology specialist Celgene last year, Bristol-Myers-Squibb was able to diversify its own portfolio and improve operational efficiency through synergy effects.

Nevertheless, the risk discount due to high corporate debt from the acquisition of Celgene is significantly higher than at Eli Lilly. Furthermore, the expiry of the patent for the drug "Revlimid" in 2023 could lead to a drop in sales. As a result, the securities are currently valued at an estimated 2021 P/E of 7.2. For long-term investors, this cheap valuation undoubtedly opens up opportunities. Because future growth should be ensured by the broadly filled pipeline of research and development.

Should Bristol-Myers-Squibb also succeed in achieving the operating results as planned and sustainably reducing the debt burden, I do not rule out a doubling of the price of this share over a three-year period. The potential for this is definitely there.

But why do I assume that these pharmaceutical giants should be kept in the portfolio for the long term? Because these two heavyweights have a highly diversified portfolio and aren't solely dependent on one or two blockbuster drugs. Furthermore, the business model can be classified as defensive, so that a possible economic downturn would not lead to any serious losses in sales.

In addition, future growth and the resulting income also appear to be secured, as large amounts are invested in the research and development of new drugs. You can convince yourself of this by taking a quick look at the development pipelines, so that even the expiry of any patents such as "Revlimid" would not entail any lasting difficulties in the future.

In addition, the management of the two companies has already proven in the past that they consciously accept the risks of any company acquisitions in order to ensure future growth and create synergies. An important point for the shareholders. After all, management that takes a risk-oriented approach to company acquisitions is welcomed in the long term. Especially since the stable operating cash flow of Eli Lilly and Bristol-Myers-Squibb should also have a protective effect in the event of a misstep.

The post 2 Pharma Stocks Forever appeared first on The Motley Fool Germany.

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Michael does not own any of the securities mentioned. The Motley Fool owns shares of shares of and recommends Bristol Myers Squibb.

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