10 Cheap Pharmaceutical Stocks to Buy According to Short Sellers

6. Haleon plc (NYSE:HLN)

Short Interest as % of  Shares Outstanding: 0.34%

Number of Hedge Fund Investors In Q2 2024: 18

Haleon plc (NYSE:HLN) is a British firm that sells over the counter drugs and consumer healthcare products. This makes it a relatively stable company that doesn’t have to compete by investing heavily in R&D or taking the risk of regulatory headwinds. Its business model also means that Haleon plc (NYSE:HLN) can benefit from beefy margins. The firm’s trailing twelve month gross margin is a strong 59%, which makes it important for it to maintain this trend in order to maintain its current trailing P/E valuation of 32. Haleon plc (NYSE:HLN) is also currently aiming to bring the erectile dysfunction drug Eroxon to the US, which has contributed to a slight margin erosion this year. The margins can drop in the future too, given that the firm has benefited from pricing power over the past months due to historic inflation in the UK and worldwide. Along with margins and pricing power, volume is another key factor in Haleon plc (NYSE:HLN)’s story.

Haleon plc (NYSE:HLN)’s management commented on its margins during the Q2 2024 earnings call:

“So when you look at last year, last year Half 1 was 9 and Half 2 was 12, so we’re cycling over a much stronger Half 2 from prior year. And then there’s really 4 reasons why organic profit growth is going to be lower than the 11% we’ve seen in Half 1. And I think you already mentioned 2 of – or one of them in your question, Iain. So I think the biggest one really, and I’m going to do the order of sort of sizing and magnitude. The first reason it’s going to be lower is the phasing of the cost inflation. Cost inflation was really at its highest point in Half 1 of last year, and then, we saw costs starting to come down in Half 2 of last year. And you saw that come through in our Q4 margin last year when gross margin started to grow than – ahead of the rate of sales growth.

So Half 1 was really a low prior gross profit comparator. So as we get into Half 2 this year, we’re going to start lapping the benefit of those lower costs. And usually, you have this normal time lag when the costs come in until they run through inventory to come up. So that won’t repeat in Half 2 of this year. Then the second reason is the one you mentioned, Iain. So yes, A&P growth will be higher in Half 2 than it was in Half 1. And also here, a reminder, last year, A&P in Half 2 was only up 1%. So – and then in addition, we’re going to fully support the launch of Eroxon in addition to continue investing in the brands that deliver the growth, so continued high and strong investment into the launches we made, especially clinical wide on Sensodyne and on the high-growth drivers like Centrum, plus all the geographic expansion that is running.”