AbbVie Stock: 3 Pros and 3 Cons to Consider Before Investing in ABBV
When most people think about cannabis stocks, AbbVie (NYSE:ABBV) doesn’t immediately come to mind. But thanks to its cannabis-based drug Marinol, ABBV stock offers indirect exposure to the marijuana industry. Perhaps that’s partially why shares jumped over 2% on Dec. 21 after the new farm legislation was signed.
Most of the $867 billion farm bill is aimed at supporting the U.S. agricultural industry, which has been buffeted by commodity price deflation as a trade war escalated this year.
Tucked away, though, in the bill is hemp legalization. Not only does this open opportunities for cannabis firms and independent farmers, it also signals a more-conducive environment for cannabis-based therapies. Unwieldy regulations and protocols presently hamper those therapies. Should that change, AbbVie stock will likely move higher on alternative revenue channels.
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Still, in the bigger picture, the company hasn’t performed to its usual standard. Despite the ABBV stock price today, shares are down nearly double digits for the year. Against its 52-week closing high, the pharmaceutical giant has pared almost 30% of its value.
Given its poor market sentiment, should you buy AbbVie stock or wait for additional pullbacks? Here are three pros and three cons to consider:
Pro #1: That Crazy-High Dividend Yield
As a rule, I always question a company that features a high dividend yield. Chances are, they’re offering a “generous” payout to sucker in unsuspecting investors towards a fundamentally unsound business.
But every once in a while, you can have your cake and eat it, too. With the ABBV stock price today, the pharma giant pays out 4.81%. Given that the broader exchange-traded fund SPDR S&P 500 ETF (NYSEARCA:SPY) and the sector-specific iShares U.S. Pharmaceuticals ETF (NYSEARCA:IHE) are both down sharply for the year, ABBV is undeniably enticing.
What’s more, we’re probably going to see a continued shift to safety. The trade war may escalate, geopolitical tensions are rising, and the Trump administration is a mess. Which is to say you can easily expect more turbulence in the markets. This makes AbbVie stock a smart choice.
Pro #2: ABBV Stock’s Humira Advantage
Rheumatoid arthritis (RA) is a serious problem, affecting about 1.3 million Americans; 41 of every 100,000 people have receive an RA diagnosis.
But because it’s so prevalent, the condition represents a goldmine for ABBV stock since AbbVie introduced Humira, which has dominated the pharmaceutical market. Humira was the top-selling drug last year and is expected to retain the top spot this year.
In fact, Humira racked up more than twice the sales of second-place Revlimid, a Celgene (NASDAQ:CELG) drug. Sector stalwarts like Amgen (NASDAQ:AMGN), Pfizer (NYSE:PFE) and Regeneron Pharmaceuticals (NASDAQ:REGN) have no direct rival to AbbVie’s flagship.
Pro #3: Business-first Mentality Boosts AbbVie Stock
A recent Bloomberg article had an interesting take on Gilead Sciences (NASDAQ:GILD). Despite GILD releasing a groundbreaking hepatitis C drug that actually cured the disease, its share price unintuitively suffered. On the other hand, AbbVie introduced its own hep C therapy, albeit an ineffective one.
While AbbVie clearly had an inferior product, it performed better overall. What gives? The Bloomberg story hinted that ABBV implemented a business and shareholder-friendly structure. Gilead went for the scientific achievement, but got burnt in the markets.
I don’t necessarily agree that Gilead made a business mistake, but one thing is clear: ABBV’s focus on growth and profitability benefits AbbVie stock.
Now, on to the cons.
Con #1: Tough Competitive Environment
Although AbbVie’s leadership team runs a tight ship, the surrounding waters are hardly cooperative. Moving forward, ABBV stock could face longer-term pressures.
For one thing, the pharmaceutical industry has succeeded in delivering unprecedented breakthroughs. As biotechnologies improve over the next several years, innovations like the one Gilead Sciences advance will become more commonplace.
That’s good for patients suffering from various diseases and conditions. But it makes it more difficult for pharmaceuticals to thrive. Plus, as therapies improve their efficacy, sector players must invest more in research and development.
That will likely eat into profitability, which explains why pharmaceuticals have suffered so badly this year. To wit, that iShares U.S. Pharmaceuticals ETF mentioned above is down more than 12% while the S&P 500 is off just a hair over 9%.
Con #2: AbbVie Stock has a PR Problem
Humira is a top seller, but that metric alone hasn’t prevented AbbVie stock from attracting unwanted attention. Alleged unethical practices give ABBV a black eye at a time when it can do without distractions.
A few months ago, California filed a lawsuit against AbbVie. The Golden State accuses the pharma giant of artificially boosting Humira sales through kickbacks. Furthermore, the pharma company apparently instructed its network of prescribers and nurses to downplay usage risks. AbbVie also requested that prescribers avoid answering questions about adverse effects.
If the allegations are true, ABBV stock has serious problems ahead. But this is not the first time the company has been under scrutiny for shady practices. Like I said earlier, AbbVie is business first, which is a double-edged sword.
Con #3: Sector Weakness Will Hurt ABBV Stock
We’re in a bear market. Picking any company right now is a hazardous activity because Wall Street is extremely jittery. People don’t tend to think well when they’re panicking.
But the broader healthcare sector is a bear market within a bear market. Whether you’re talking about a blue-chip fund like the iShares US Healthcare (NYSEARCA:IYH) exchange-traded fund, or smaller, individual names, everybody is getting thrashed. ABBV stock is the fifth-largest holding in that particular ETF.
Finally, despite its dividend yield, ABBV stock isn’t the greatest safe-haven asset. Legal challenges, competitive threats, or failed drug trials can easily derail valuations.
Bottom Line on ABBV Stock
I’m going to edge slightly bullish on AbbVie stock. Although the company has significant challenges, they’re also not unique ones. Lesser organizations have faced far worse and succeeded, so I’m confident that management can rise to the occasion.
Moreover, ABBV has strong financials, which should help in navigating through the storm. Plus, opportunities in medical marijuana align with legislative and electoral trends.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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