In this article, we discuss the 13 most profitable pharmaceutical stocks to buy.
The healthcare sector encompasses a diverse range of companies, spanning pharmaceuticals, medical equipment and device manufacturers, medical insurance providers, and other healthcare service providers. Given the wide array of services, often contributing to increased life expectancy and improved quality of life, the healthcare sector holds a significant share in the global economic landscape. A report indicates that the global healthcare industry is projected to experience a compounded annual growth rate (CAGR) of 21.92%, reaching a substantial value of $7.3 trillion by the year’s end.
The pharmaceutical industry took center stage in 2020 and 2021 as the global community grappled with the devastating effects of the COVID-19 pandemic, reshaping lifestyles and economies. Amidst widespread lockdowns, pharmaceutical companies raced to develop a cure for a disease that initially overwhelmed hospitals and filled graveyards. Fast forward to 2023, and the pandemic is now a distant memory. Breakthrough vaccines, such as those from Moderna, Inc. (NASDAQ:MRNA) and Pfizer Inc. (NYSE:PFE), stand out as some of the most advanced products globally, leveraging their ability to influence cell function in the human body and provide long-term immunity against the virus.
Pharmaceutical companies are often classified as defensive due to their production of essential health maintenance and illness treatment products. The demand for these products tends to remain relatively stable, even during economic downturns. Notably, the sector delivered favorable returns to investors in the past year, a period characterized by the S&P 500’s weakest annual performance since 2008. From December 2021 to December 2022, the NYSE Arca Pharmaceutical Index recorded a gain of 4.91%, in stark contrast to the S&P 500’s significant 19.4% decline. Over the past 5 years, the index has experienced a rise of 60.79%.
According to a report by Grand View Research, the global pharmaceutical manufacturing market reached an approximate value of $516.48 billion in 2022 and is expected to witness a compound annual growth rate (CAGR) of 7.63% from 2023 to 2030. The increasing number of drug approvals sanctioned by regulatory authorities is anticipated to drive advancements in drug manufacturing processes. Notably, in 2022, the FDA approved 37 novel drugs, indicating a favorable trend. Moreover, the pharmaceutical sector has experienced a significant uptick in mergers and acquisitions (M&As) in recent years. Established companies are adopting consolidation strategies to strengthen their market position in the fiercely competitive landscape.
The global pharmaceutical industry is set for significant expansion in the future. Likewise, among the top-performing drug stocks in the sector are Pfizer Inc., Eli Lilly and Company (NYSE:LLY), and Johnson & Johnson (NYSE:JNJ), along with others listed below.
A closeup of a laboratory assistant, holding up a vial of a newly developed pharmaceutical product.
Our Methodology
In curating our selection of the most profitable pharmaceutical stocks, we extensively reviewed Insider Monkey’s Q3 2023 database to pinpoint industry leaders assessed by hedge fund sentiment. Following that, the shortlisted companies were ranked according to their trailing twelve month net income.
13. McKesson Corporation (NYSE:MCK)
Latest TTM Net Income: $3.49 billion
Number of Hedge Fund Holders: 58
Headquartered in the United States, McKesson Corporation (NYSE:MCK) specializes in pharmaceutical distribution and offers health information technology, medical supplies, and care management solutions. Remarkably, the company supplies one-third of all pharmaceuticals used in North America and maintains a workforce exceeding 78,000 employees. As of December 15, the company pays a quarterly dividend of $0.62 per share, resulting in a dividend yield of 0.56%.
In Q3 2023, the number of hedge funds tracked by Insider Monkey owning stakes in McKesson Corporation stood at 58, a slight decline from the previous quarter. The consolidated value of these stakes is over $2.95 billion.
Baron Health Care Fund made the following comment about McKesson Corporation in its Q3 2023 investor letter:
“Partially offsetting the above was favorable stock selection in pharmaceuticals and health care distributors along with cash exposure in a declining market. Strength in pharmaceuticals and health care distributors was driven by gains from Lilly and McKesson Corporation (NYSE:MCK). McKesson’s stock performed well due to strong financial results in the company’s pharmaceutical distribution and prescription technology solutions businesses, driven in part by higher volumes of GLP-1 medicines and prior authorization technology services related to GLP-1 medicines.”
Much like Pfizer Inc., Eli Lilly and Company, and Johnson & Johnson, McKesson Corporation ranks as one of the most profitable pharmaceutical stock.
12. Merck & Co., Inc. (NYSE:MRK)
Latest TTM Net Income: $4.61 billion
Number of Hedge Fund Holders: 85
Merck & Co., Inc. is a distinguished American multinational pharmaceutical company headquartered in Rahway, New Jersey. Originally part of the Merck Group established in Germany in 1668, it retains the name of its former parent company. Operating as Merck Sharp & Dohme or MSD outside the United States and Canada, the company holds a prominent position in the pharmaceutical industry, specializing in the development of medicines, vaccines, biologic therapies, and animal health products.
Demonstrating a consistent pattern of dividend growth for 11 consecutive years, the company currently provides a quarterly dividend of $0.77 per share, resulting in a dividend yield of 2.93% as of December 15.
Insider Monkey delved into the investment activities of 910 hedge funds in the third quarter of 2023, revealing that 85 had invested in Merck & Co., Inc., marking an increase from 78 in the previous quarter.
11. Eli Lilly and Company (NYSE:LLY)
Latest TTM Net Income: $4.99 billion
Number of Hedge Fund Holders: 102
Founded in 1876, Eli Lilly and Company is an American pharmaceutical enterprise headquartered in Indianapolis, Indiana, with a global presence spanning 18 other countries. The company is named after its founder, Colonel Eli Lilly, a pharmaceutical chemist and a veteran of the American Civil War.
Eli Lilly and Company currently pays a quarterly dividend of $1.30 per share and has exhibited a steady pattern of dividend growth for the past ten consecutive years. Impressively, the company has been providing uninterrupted dividends to shareholders for 138 years. As of December 15, the stock offers a dividend yield of 0.91%.
In Q3 2023, the number of hedge funds holding stakes in Eli Lilly and Company increased to 102, up from 87 in the previous quarter, as per data from Insider Monkey’s database, which tracks 910 hedge funds. The combined value of these stakes surpasses $9 billion.
Carillon Clarivest Capital Appreciation Fund made the following comment about Eli Lilly and Company in its Q3 2023 investor letter:
“Eli Lilly and Company (NYSE:LLY), the drug manufacturer, announced the completion of previously disclosed acquisitions of Versanis Bio and Sigilon Therapeutics, as it continues to expand its pipeline for diabetes and weight-loss medications. Shares gained after its sales and earnings per share exceeded estimates and a competitor’s study on the beneficial results of these treatments reported positive data.”
10. Abbott Laboratories (NYSE:ABT)
Latest TTM Net Income: $5.14 billion
Number of Hedge Fund Holders: 69
Headquartered in Abbott Park, Illinois, United States, Abbott Laboratories (NYSE:ABT) is a multinational medical devices and healthcare company with a diverse product portfolio that includes Pedialyte, Similac, BinaxNOW, Ensure, Glucerna, ZonePerfect, FreeStyle Libre, i-STAT, and MitraClip.
In the third quarter, Abbott Laboratories reported a 2.5% year-over-year (YoY) decline in revenues, totaling $10.14 billion, surpassing estimates by $320 million. Despite this decline, the company exceeded the anticipated earnings per share (EPS) of $1.10, posting a non-GAAP EPS of $1.14. Abbott Laboratories expects its full-year adjusted diluted EPS to range between $4.42 and $4.46 and anticipates low double-digit growth in organic sales for 2023, excluding COVID-19 testing-related sales.
As of Q3 2023, 69 out of the 910 hedge funds tracked by Insider Monkey owned shares of Abbott Laboratories. Among the leading hedge fund shareholders was Ric Dillon’s Diamond Hill Capital with ownership of 5.06 million shares valued at $490.45 million.
9. Danaher Corporation (NYSE:DHR)
Latest TTM Net Income: $5.87 billion
Number of Hedge Fund Holders: 103
Established in 1984 by brothers Steven and Mitchell Rales, Danaher Corporation (NYSE:DHR) is a diversified American conglomerate with a global footprint. Headquartered in Washington, D.C., the company specializes in the design, manufacturing, and marketing of medical, industrial, and commercial products and services. Danaher Corporation operates through three distinct segments: Life Sciences, Diagnostics, and Environmental & Applied Solutions.
Danaher Corporation released its Q3 2023 earnings report on October 24, 2023, revealing a net earnings figure of $1.1 billion, equivalent to $1.51 per diluted common share. Despite encountering a 10.5% year-over-year decline in revenues, totaling $6.9 billion, the company surpassed expectations in earnings, showcasing resilience in a challenging operating environment.
As of September 2023, 103 out of the 910 hedge funds surveyed by Insider Monkey had purchased shares of the firm.
8. Gilead Sciences, Inc. (NASDAQ:GILD)
Latest TTM Net Income: $5.88 billion
Number of Hedge Fund Holders: 55
Based in Foster City, California, Gilead Sciences, Inc. (NASDAQ:GILD) is a U.S.-based biopharmaceutical company dedicated to researching and developing antiviral drugs for conditions such as HIV/AIDS, hepatitis B, hepatitis C, influenza, and COVID-19. Notable medications produced by Gilead Sciences include ledipasvir/sofosbuvir and sofosbuvir.
On October 17, Gilead Sciences, Inc. announced a 12-year collaboration with Assembly Biosciences, a biotechnology company specializing in advanced antiviral therapeutics for critical viral diseases. The partnership aims to advance novel antiviral treatments, with an initial focus on Assembly Bio’s areas of expertise, including herpesviruses, hepatitis B virus (HBV), and hepatitis D virus (HDV).
Insider Monkey’s Q3 2023 survey covering 910 hedge funds revealed that 55 had bought and owned Gilead Sciences, Inc.’s shares. Cliff Asness’ AQR Capital Management is the biggest shareholder among these since it owns $357.7 million worth of shares.
ClearBridge Dividend Strategy made the following comment about Gilead Sciences, Inc. in its Q3 2023 investor letter:
“During the quarter we initiated positions in two new names: T-Mobile and Gilead Sciences, Inc. (NASDAQ:GILD). Gilead Sciences is a large biopharmaceutical company we have long followed given its dominant position in HIV treatment and strong intellectual property position. With pandemic-induced distortions on quarterly financials largely in the rearview mirror (Veklury — aka Remdesivir — was an overnight success as an antiviral treatment of COVID), we believe Gilead’s organic revenue growth potential over the next many years is in the mid-single digits. Gilead’s growth should be stable, as the company has no major patent expirations until the early 2030s.
While less growthy than some high-flying drug classes (e.g., diabetes/obesity), Gilead’s current valuation is undemanding, with a P/E barely in the double digits. We tend to shy away from health care investments whose valuation is dependent on pipeline drugs transforming into a large commercial opportunity, given the uncertain nature of drug discovery and the binary characteristic of the stock reactions. In Gilead’s case, we believe the market is ascribing virtually no value to its existing pipeline, in effect providing us with a “free” call option. Lastly, Gilead’s 4% (and growing) coupon should offer considerable downside support amid a more challenging market backdrop.”
7. AstraZeneca plc (NYSE:AZN)
Latest TTM Net Income: $5.9 billion
Number of Hedge Fund Holders: 49
Headquartered at the Cambridge Biomedical Campus in Cambridge, England, AstraZeneca PLC (NASDAQ:AZN) is a multinational pharmaceutical and biotechnology company with both Anglo and Swedish roots. As of the year 2022, Tagrisso stands out as AstraZeneca’s highest-grossing pharmaceutical product, primarily employed in treating non-small-cell lung carcinomas.
In the third quarter of 2023, AstraZeneca PLC reported a 13% growth in sales to $11.49 billion, surpassing expectations. This growth was driven by successes in oncology and rare diseases, key focus areas for the company. Sales of its Covid vaccine and antibody treatment remained at zero, compared to $716 million in the same period in 2022.
As of Q3 2023 end, 49 out of the 910 hedge funds part of Insider Monkey’s database had held a stake in AstraZeneca PLC. Out of these, the firm’s largest shareholder is Rajiv Jain’s GQG Partners, owning 14.04 million shares worth $951.18 million.
6. AbbVie Inc. (NYSE:ABBV)
Latest TTM Net Income: $6.47 billion
Number of Hedge Fund Holders: 73
AbbVie Inc. (NYSE:ABBV) functions as a specialized biopharmaceutical company committed to the research, development, manufacturing, and distribution of medications tailored for chronic and intricate illnesses. The company is renowned for its flagship drug, Humira, a crucial treatment for conditions like moderate-to-severe rheumatoid arthritis and Crohn’s disease.
With an impressive 50-year streak of continuous dividend growth, the American pharmaceutical giant currently boasts a dividend yield of 4.02% as of December 15.
As of the close of the third quarter in 2023, Insider Monkey’s database, monitoring 910 hedge funds, indicated 73 holdings in AbbVie Inc., marking a slight decrease from the 74 hedge funds in the previous quarter. The collective value of these holdings surpasses $3.27 billion.
AbbVie Inc. joins the ranks of Pfizer Inc., Eli Lilly and Company, and Johnson & Johnson as one of the most profitable pharmaceutical stocks to buy now.
5. Amgen Inc. (NASDAQ:AMGN)
Latest TTM Net Income: $7.57 billion
Number of Hedge Fund Holders: 60
Amgen Inc. (NASDAQ:AMGN) is a global biopharmaceutical company engaged in the research, development, manufacturing, and distribution of human therapeutics. Recognized as one of the notable pharmaceutical stocks, the company focuses on key areas such as oncology/hematology, inflammation, bone health, cardiovascular diseases, nephrology, and neuroscience. As of December 15, Amgen Inc. offers a quarterly dividend of $2.25 per share, resulting in a dividend yield of 3.27%.
In Q3 2023, the number of hedge funds tracked by Insider Monkey reporting stakes in Amgen Inc. stood at 60, marking an increase from the previous quarter’s 57. The consolidated value of these stakes is over $2.16 billion.
Aristotle Capital Value Equity Strategy made the following comment about Amgen Inc. in its Q3 2023 investor letter:
“Amgen Inc. (NASDAQ:AMGN), the biopharmaceutical company, was the top contributor for the quarter. The company continues to leverage its innovative platform to strengthen its product portfolio, offset maturing products, such as Epogen and Neulasta, and increase market share. Over the past year, Amgen has reported double‐digit volume growth, operating margin expansion to over 40% and record levels of sales for cholesterol drug Repatha, bone‐strengthening drug Prolia and cancer drug Blincyto. Additionally, the company remains well positioned to benefit from the continued development and commercialization of biosimilars such as Amgevita, the first biosimilar to Humira, and the successful integration of Otezla to bolster its inflammation segment. Lastly, the FTC agreed to allow Amgen to proceed with its $27.8 billion acquisition of Horizon Therapeutics. We note that this is yet another unsuccessful attempt by the FTC to block an M&A transaction of one of our holdings (see below re: Activision Blizzard). The transaction closed on October 6, 2023 and brings expertise in rare disease therapies (including bulging eye‐drug Tepezza), as well as adds to Amgen’s immunology portfolio.”
4. Bristol-Myers Squibb Company (NYSE:BMY)
Latest TTM Net Income: $8.29 billion
Number of Hedge Fund Holders: 65
Bristol-Myers Squibb Company (NYSE:BMY) is a global biopharmaceutical firm involved in various aspects of the biopharmaceutical industry, including research, development, licensing, manufacturing, marketing, and distribution of biopharmaceutical products. These products are designed to address a wide range of medical conditions, encompassing hematology, oncology, cardiovascular, immunology, fibrotic, and neuroscience diseases.
On October 8, Bristol-Myers Squibb Company announced its entry into a definitive merger agreement to acquire Mirati Therapeutics, Inc. (NASDAQ:MRTX), in an all-cash transaction valued at $4.8 billion. This strategic acquisition is anticipated to enhance and diversify the company’s oncology portfolio.
As of the conclusion of the third quarter this year, Bristol-Myers Squibb Company attracted investments from 65 out of the 910 hedge funds examined in Insider Monkey’s research.
RGA Investment Advisors made the following comment about Bristol-Myers Squibb Company in its Q3 2022 investor letter:
“Bristol-Myers Squibb Company, which we referenced above, boasts a double digit free cash flow yield that gets divided roughly equally between repurchases, a dividend and M&A in what is the best environment for acquisitions perhaps ever. In 2019, BMY acquired Celgene, who had one of the better corporate development programs in the industry. We view this as a great outlet for us as generalists considering a company like BMY should truly thrive with the ability to acquire outstanding assets and science at depressed valuations. We touched on the Turning Point acquisition above and we expect the company to be increasingly active in the M&A landscape. Importantly, Celgene also came to BMY with a phenomenal CAR-T platform. CAR-T is a cell therapy that activates the body’s immune system to target cancers. This will be a key growth vector alongside M&A in overcoming the company’s patent cliff.”
3. CVS Health Corporation (NYSE:CVS)
Latest TTM Net Income: $8.47 billion
Number of Hedge Fund Holders: 64
Headquartered in the United States, CVS Health Corporation (NYSE:CVS) is a prominent healthcare organization overseeing an extensive network of retail pharmacies and clinics nationwide. The company manages various brands, including CVS Pharmacy (a retail pharmacy chain), CVS Caremark (a pharmacy benefits manager), and Aetna (a health insurance provider).
The third quarter of 2023 witnessed CVS Health Corporation achieving sales of $89.76 billion, indicating a nearly 11% increase from the corresponding period in the previous year. The company disclosed a net income of $2.27 billion, or $1.75 per share, for the third quarter. This marked a significant turnaround from the net loss of $3.40 billion, or $2.59 per share, reported for the same period a year ago. Excluding specific items such as amortization of intangible assets and capital losses, the adjusted earnings per share for the quarter stood at $2.21.
As of the conclusion of the third quarter in 2023, data from Insider Monkey’s database, monitoring 910 hedge funds, indicated that 64 hedge funds had positions in CVS Health Corporation. The firm’s largest shareholder was John Overdeck and David Siegel’s Two Sigma Advisors, which owned $344 million worth of shares.
Coho Partners Relative Value Equity Fund made the following comment about CVS Health Corporation in its second quarter 2023 investor letter:
“In December of 2017, CVS Health Corporation (NYSE:CVS) agreed to buy Aetna, which broadened its offering by entering the managed care business. CVS has been moving its portfolio to a more value-based outcome model, and Aetna was a major move in that direction. We were willing to accept the leverage that came with the deal because CVS has a very cash generative model, and we anticipated the free cash flow would enable the company to de-lever fairly quickly.
By mid-2022, CVS was in a position to use the free cash flow that had been going to debt repayment to do bolt-on deals to further prepare for the value-based outcome model and/or return more cash to shareholders in the form of higher dividends or share repurchases. However, CVS lost a “star” in its largest Medicare plan in late 2022 and this will adversely impact earnings in 2024. This was a surprise and disappointment to us, but management should be able to regain the “star” in the back half of 2023, which will then give the company a nice tailwind in 2025…” (Click here to read the full text)
2. Pfizer Inc. (NYSE:PFE)
Latest TTM Net Income: $10.47 billion
Number of Hedge Fund Holders: 73
Established in 1849 by German entrepreneurs Charles Pfizer and Charles F. Erhart, Pfizer Inc. is a renowned multinational pharmaceutical and biotechnology corporation headquartered at The Spiral in Manhattan, New York City. Recognized globally for its extensive contributions to medical research, development, and production, Pfizer operates across various medical fields, including immunology, oncology, cardiology, endocrinology, and neurology. In 2022, Pfizer Inc. achieved remarkable success with its COVID-19 vaccine Comirnaty, generating an impressive $37.8 billion in alliance revenues and direct sales.
As of the conclusion of Q3 2023, data from Insider Monkey’s database revealed that 73 hedge funds maintained stakes in Pfizer Inc., a figure unchanged from the previous quarter. The combined value of these stakes exceeds $2.4 billion.
1. Johnson & Johnson (NYSE:JNJ)
Latest TTM Net Income: $13.99 billion
Number of Hedge Fund Holders: 84
Established in 1886, Johnson & Johnson is a prominent American corporation celebrated for its groundbreaking innovations in medical devices, pharmaceuticals, and consumer packaged goods. The multinational giant boasts an impressive 61-year track record of consistent dividend growth, currently offering a quarterly dividend of $1.19 per share.
On October 17, Johnson & Johnson announced adjusted earnings and revenue that exceeded the forecasts of Wall Street, subsequently increasing its full-year guidance due to robust sales in both its pharmaceutical and medical devices divisions. The pharmaceutical company also disclosed net income of $4.31 billion, equivalent to $1.69 per share. This figure remained consistent with the net income of $4.31 billion, or $1.62 per share, reported for the corresponding period in the previous year.
In the third quarter of 2023, the number of hedge funds tracked by Insider Monkey with holdings in Johnson & Johnson declined to 84, down from 88 in the prior quarter. The collective investments by these hedge funds surpass a total value of $4.15 billion. A leading hedge fund investor in Johnson & Johnson is Bridgewater Associates, managed by Ray Dalio, with a substantial stake valued at approximately $424.3 million.
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This article is originally published at Insider Monkey.
