Due to the provisions of The Affordable Care Act, or ObamaCare, there are huge opportunities in the pharmaceutical sector for long term investors, no matter what the style. That is certainly been shown by the performance of “Big Pharma” companies such as Eli Lilly (NYSE: LLY), Merck (NYSE: MK), and Pfizer (NYSE: PFE) in recent market action. It also makes small cap biotechnology firms like CynDyn (OTC: CYDY) with promising products in the approval pipeline very appealing, too.
There are a great many similarities between “Big Pharma” and “Big Oil” stocks.
Others articles on this site have focused on the alluring income features of Big Oil stocks like ExxonMobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS-B), the two largest in the world. It is the same with Big Pharma behemoths. At present, the average dividend yield for a member of the Standard & Poor’s 500 Index is jusdt under 2 percent.
For Eli Lilly, the dividend yield is more than 3.3 percent. The dividend yield for Merck is 3.19 percent. Pfizer has a dividend yield of 3.27 percent. Big Pharma, like Big Oil, has a tradition of increasing the amount of the dividend payment annually, too. That rewards long term shareholders with larger dividend payments each year.
But, like Big Oil, the days of Big Growth are over for Big Pharma.
ObamaCare helps out in that drug costs are covered for more Americans. That will increase earnings for the pharmaceutical industry due to increased buying from more customers. But that has already been baked into the stock price of Big Pharma firms in the bull market rally. For the last year of market action, Merck is up more than 30 percent. Pfizer is up more than 16 percent for that period of time. Eli Lilly is up nearly 7 percent.
For the future, small caps like CynDyn and others could offer the most growth potential.
In a recent earnings call, CynDyn reported on positive news from the Food and Drug Administration. Its main product, PRO 140, an antiviral agent that treats HIV patients, has been “fast tracked.” CynDyn has a unique program that allows for HIV patients to take a “drug holiday.” That allows for the mind, body, and soul of the patients to recover from the toxic effects of the drugs that must be taken. The treatment substation program features an injection that the patient administers rather than constantly consuming much more expensive drugs.
Long term investors should have a variety of stocks like these from the pharmaceutical industry.
Health care is pretty much recession-proof. It is the largest component of the American economy. Pharmaceutical products are a big chunk of that. Therefore it provides a solid foundation for an investment portfolio. For income investors, it is tough to beat the dividend yield and the growth potential of the income stream from Merck, Eli Lilly, and/or Pfizer. Those seeking growth should be very bullish on firms like CynDyn, particularly after the recent news from the Food and Drug Administration.
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Jonathan Yates is a financial writer with degrees from Harvard, Johns Hopkins and Georgetown University Law Center. While much of his career was spent working for Members of Congress on Capitol Hill, he was also General Counsel for a publicly traded corporation; and worked in the research department of a brokerage house.