We recently published a list of the 11 Best Pharma Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Zoetis Inc. (NYSE:ZTS) stands against the other best pharma stocks to buy according to hedge funds.
Why is China the Talk of the Town in the Pharma Industry?
The US pharmaceutical sector is experiencing a distinct trend never seen before with large American pharma companies continually looking for medicines in China. According to data from DealForma, as reported by CNBC, around 30% of Big Pharma deals with at least $50 million upfront in 2024 included Chinese companies. This was up from 20% the year before and almost 0% only five years prior.
Experts are attributing several reasons to this trend. Some believe that Chinese pharmaceutical companies are attracting attention because of their advanced development capabilities that are producing effective molecules in substantial quantities. These Chinese companies are also in a position to assign a lower price to these medicines compared to the US, and are capable of initiating their testing on human subjects quicker. According to CNBC, buyers have devised a business model allowing them to import medicines through licensing deals. Biotech companies are further pushed into making these deals due to the drying up of venture funding in China.
Although the potential reasons for this trend vary, experts believe this scenario is here to stay. While it is anticipated to affect the US pharmaceutical sector, how these repercussions might materialize is unclear. Some experts believe it could ruin American startups if large pharmaceutical companies stumble upon a promising Chinese drug at a low price; others believe the competition would be fruitful for the industry. CNBC reported that Tim Opler, a managing director in Stifel’s global healthcare group, said the following about the situation:
“It’s kind of a watershed moment where the pharma industry is like, ‘We don’t really need to buy U.S. biotechs necessarily. We will if it makes sense, but we can buy perfectly good biotech assets through licensing deals with Chinese companies.”
How Will the Pharma Industry Perform in 2025?
We talked about the potential performance of the pharma industry in a recently published article on 10 Oversold Pharma Stocks to Buy According to Analysts. Here is an excerpt from the article:
“On February 20, Emily Field, Head of European Pharma Research at Barclays, appeared on CNBC to discuss the dynamics of the pharmaceutical sector, the impact of US tariffs, and the performance of obesity drugs. She believed the industry may not underperform this year, at least in the first half. However, there are still several questions surrounding the performance of obesity drugs, as major players in the domain have exhibited contrasting previous year performance.
Talking about the tariffs, she said that their materialization poses a big open question for the pharmaceutical sector as some companies assemble their products in the US after manufacturing them abroad. Manufacturing costs are thus pretty low for these companies, which is a significant point to consider when determining the impact of tariffs. She believed that absorbing the additional cost of the tariffs would be very manageable for these companies. The market has reached the tail-end of the earnings season, and the situation hasn’t come up much on earnings calls over this quarter.”
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of 25 pharma stocks. We then selected the top 11 with the highest number of hedge fund holders as of Q4 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A veterinarian administering a vaccine to a herd of cattle in a farm.
Zoetis Inc. (NYSE:ZTS)
Number of Hedge Fund Holders: 76
Zoetis Inc. (NYSE:ZTS) is a global animal health company that focuses on the discovery, development, manufacture, and commercialization of vaccines, medicines, biodevices, genetic tests, diagnostic products, and precision animal health. Its operations are divided into the United States and International segments. Each segment boasts a diversified product portfolio, including vaccines, parasiticides, pain and sedation, animal health diagnostics, and more.
The company markets its products in around 45 countries across the globe and specializes in products across eight core species: companion animals (dogs, cats, and horses), cattle, swine, livestock (sheep and fish), and poultry. Zoetis Inc. (NYSE:ZTS) delivered 11% revenue growth in fiscal Q4 2024, reflecting the strength and demand of its brands and its continued focus on execution to drive broad-based growth. Revenue in the US grew by 11%, while international revenue increased by 10% operationally, marking significant revenue milestones for the company in a competitive landscape.
It also drove operational revenue growth in its companion animal portfolio and 5% operational revenue growth for its livestock portfolio. Zoetis Inc. (NYSE:ZTS) is confident about the ability of its growth drivers to drive sustainable growth in 2025, positioning it for continued above-market growth in the mid-to-high single-digit range for 2025 and beyond. The diversity of its business model with multiple growth drivers supports this optimism.
Overall, ZTS ranks 7th on our list of the best pharma stocks to buy according to hedge funds. While we acknowledge the potential of ZTS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ZTS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
