Defensive sectors have done well this year, with utilities leading the way. One of the reasons is that despite the market hitting new all-time highs, there remains a wall of worry out there from a more than five-year rally off the market lows of March 2009. A new report from the global equity strategy team at Credit Suisse maintains that the best defensive sector to own and buy now is large cap pharmaceuticals. While the firm is not overly bearish on the market going forward, the analysts view the best allocation for defensive names now to be in a low-leverage, high-earnings momentum area like big pharma.
Here are the top large cap pharmaceuticals to buy at Credit Suisse. All are rated Outperform.
AbbVie Inc. (ABBV) is a top cheap pharmaceutical name to buy, trading at 13.8 times forward earnings. The company has thrown its hat in the ring in the race for oral interferon-free combination therapies for hepatitis C. AbbVie has finished up its Phase 3 clinical-trial program for its all-oral hepatitis C drug cocktail. There were six clinical trials in total, testing the drugs in different patient populations, in many cases with and without generic ribavirin. AbbVie's drugs only have to be taken for 12 weeks in most cases and do not require peginterferon. Investors are paid a very solid 3.2% dividend. The Credit Suisse price target for the stock is $58. The Thomson/First Call estimate is at $54.14. AbbVie closed Wednesday at $53.27 a share.
Bristol-Myers Squibb Co. (BMY) is an Overweight-rated stock at J.P. Morgan. The drug maker announced that its new drug nivolumab plus Yervoy will move to a Phase 3 trial in non-small cell lung cancer by year's end. Wall Street thinks that is a key data point and the drug could have $500 million in sales in 2016 and $5 billion by 2020. The company is believed to be most advanced in immune oncology given that it has multiple Phase 3 studies underway, and it is pursuing more combinations than competitors and mainly with its own assets. The company pays shareholders a 2.0% dividend. Credit Suisse has a $59 price target. The consensus target is $55.12. Bristol-Myers closed Wednesday at $48.71.
Pfizer Inc. (PFE) trades at a low 14 times earnings and is also Overweight rated at Credit Suisse. The company updated investors and physicians at a recent conference on the Phase 2 trial results on palbociclib for advanced breast cancer. The doctors on the breast cancer panel at the conference were much more optimistic than previously about the possibility of palbociclib being filed and approved on Phase 2 data in first line advanced breast cancer. Preliminary/interim overall survival data will be presented at AACR on April 6. Investors are paid a 3.6% dividend. The Credit Suisse price target is $35, and the consensus target is $34.09. Pfizer closed Wednesday at $29.57.
Novartis A.G. (NVS) is another top name to make the Credit Suisse list. The company recently signed a $1 billion deal with Ophthotech to commercialize Fovista, a treatment for wet age-related macular degeneration now in Phase 3 testing. Novartis will pay $200 million upfront, followed by a series of milestone payments related to the drug's clinical development. If it passes through the trials, Novartis will market Fovista outside the United States and pay a royalty to Ophthotech, which will sell it in the United States. The consensus price target is $89.49. Novartis closed Wednesday at $89.41
With low levels of debt and debt service, high dividend payouts and a constant demand for their products, large cap pharmaceuticals offer far greater overall growth prospects than utilities. So they make great sense for conservative growth investors concerned about a market top.