Tags: coronavirus | vaccine | stocks | dividend

Avoid Vaccine Stocks, Buy This Dividend Aristocrat

Avoid Vaccine Stocks, Buy This Dividend Aristocrat
(Piotr Trojanowski/Dreamstime)

By Monday, 31 August 2020 05:59 PM Current | Bio | Archive

The race for a coronavirus vaccine is on, and is increasingly looking like a modern-day gold rush. Several pharmaceutical companies, ranging from tiny microcaps to established giants are competing to be first to market with an effective and safe coronavirus vaccine.

The urgency is easily understood, as the coronavirus pandemic continues to represent a significant threat both to public health and the global economy.

While many of the pharmaceutical companies working on a coronavirus vaccine have seen their stock prices skyrocket over the course of 2020, risk-averse income investors such as retirees should resist the temptation to buy.

Many of the coronavirus vaccine players are highly speculative, with unstable business models that will likely see their stock prices plunge if they are not successful in bringing a vaccine to market.

Instead, income investors should focus on high-quality companies with stable cash flow, diversified business models, and high dividend yields.

The New Gold Rush

Many pharmaceutical manufacturers are racing at a breakneck speed to develop a coronavirus vaccine. Anticipation of the potential rewards has sent many of these stocks surging this year. Not surprisingly, this has caught the attention of some high-profile institutional investors such as noted hedge fund RA Capital, which owns a large portfolio of small pharmaceutical stocks.

Among others, RA Capital has a high concentration of its portfolio in coronavirus vaccine developer Novavax (NVAX). In fact, as of the most recent 13F filing, RA Capital owned ~$700 million of Novavax stock, representing approximately 16.5% of its equity portfolio. Novavax stock has performed extremely well, rising an astonishing 2,660% year-to-date.

But income investors should continue to avoid these speculative pharmaceutical stocks, especially those investors with a higher level of risk aversion such as retirees. Instead, income investors and retirees interested in the healthcare sector should buy shares of high-quality Big Pharma companies with established business models, stable cash flow, and high dividends. One Big Pharma stock we believe is a top stock for retirees is AbbVie (ABBV).

Don’t Buy Novavax, Buy AbbVie

Put simply, it stands to reason that many companies currently working on a coronavirus vaccine will ultimately not be successful. Not only is it extremely challenging to bring a vaccine to market successfully, it is even more difficult when so many different companies are working on it at the same time. Rather than try to win the coronavirus vaccine race, income investors should focus on companies that already have strong pharmaceutical portfolios.

AbbVie is a high-quality Big Pharma stock focused on Immunology, Oncology, and Virology. AbbVie was spun off by Abbott Laboratories in 2013 and now trades with a market capitalization of $169 billion. Its most important product is Humira, which by itself represents ~60% of annual revenue but poses a challenge as Humira has lost patent exclusivity in Europe, and will lose patent protection in the U.S. in 2023.

Fortunately, AbbVie has a large pipeline of products set to replace Humira. In the 2020 second quarter, AbbVie generated 26% year-over-year revenue growth. AbbVie earned $2.34 per share during the second quarter, up 4% from the previous year’s quarter.

AbbVie’s massive $63 acquisition of Allergan will also help it offset declines from Humira moving forward. Allergan’s flagship product is Botox, which diversifies AbbVie’s portfolio with exposure to global aesthetics. The combined company will have annual revenues of nearly $50 billion.

AbbVie stock has a high dividend yield of 5%, and a long history of dividend growth. The company qualifies as a Dividend Aristocrat going back to its days as a subsidiary of Abbott, which is also a Dividend Aristocrat. With a strong business model, long-term growth potential and high dividend yield, AbbVie stock is a buy for retirees and income investors.

Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.

 

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BobCiura
The race for a coronavirus vaccine is on, and is increasingly looking like a modern-day gold rush. Several pharmaceutical companies, ranging from tiny microcaps to established giants are competing to be first to market with an effective and safe coronavirus vaccine.
coronavirus, vaccine, stocks, dividend
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2020-59-31
Monday, 31 August 2020 05:59 PM
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