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Opioid Overdose Crisis in US Likely to Affect These 3 Stocks

Sreyoshi Mukherjee

Opioids are a diverse class of moderately strong, addictive and cheap painkillers, whose misuse claims more than 130 lives daily in the United States. Notably, the opioid epidemic began in the late 1990s and the death rates have increased manifold since then. Though The Centers for Disease Control and Prevention expects these deaths to drop in 2019, pharmaceutical giants are ending up facing increasing number of lawsuits for allegedly aggravating the opioid crisis.

Now this might raise the alarm for potential investors.

Opioid Lawsuit Wave Rattles Industry

August ended on a bitter note for the pharmaceutical industry as drug giant Johnson & Johnson JNJ was slapped with a penalty of $572 million in a landmark opioid trial. Notably, the company has been alleged to have spread highly addictive painkillers in the state of Oklahoma. Earlier this year, Oklahoma also settled disputes over opioid use with Teva Pharmaceutical TEVA for $85 million.

That’s not all. Privately-held Purdue Pharma, a maker of OxyContin, is offering $10-$12 billion to settle more than 2,000 lawsuits. Notably, the lawsuits from various states, cities and counties have alleged the company of fostering the opioid crisis.

The scenario is clearer when we look at the total consumer spending on medicines in the United States. Spending totaled $482 billion in 2018, significantly up from $316 billion in 2010 (per Statista).

Remedial Measures Likely to Baffle Investors

In the wake of the recent events, President Trump announced $1.8 billion in new grants earlier this month, to help fight the opioid epidemic. This, along with the FDA’s latest stance on combating the epidemic, might further vex investors about the future of opioid makers and distributors.

Notably, the FDA suggested the consumption of a life-saving drug called naloxone to reverse the effects of an overdose. In fact, most states have passed laws or made rules to allow pharmacists to provide over-the-counter naloxone to consumers. Although this creates a remedial scope for pharmaceutical companies, the glare of opioid lawsuits is likely to remain and impact drug manufacturers, pharmacy operators and distributors.

Stocks Likely to Bear the Brunt

Given the present situation, we have zeroed down on three stocks which rake in billions from drug retailing and prescription drug monitoring, and thus might be impacted by the recent turn of events.

First on our list is Walmart Inc. WMT. This Arkansas-based operator of retail stores and supermarkets carries a Zacks Rank #3 (Hold). Walmart Pharmacy, a subsidiary of Walmart, is committed to providing affordable healthcare through initiatives like its $4 generic drug price program. Last October, the company joined a saver plan along with CVS Pharmacy to provide affordable access to more than 2,800 commonly used medications while offering an expanded preferred pharmacy network.

Also last year, the company planned to restrict acute opioid prescriptions to a seven-day supply.

Over the past year, the stock has rallied 25.9%, outperforming the industry’s 21.2% gain.

Next on our list is CVS Health Corporation CVS. The Rhode Island-based bigwig is a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care. The company’s Pharmacy Services segment provides a full range of pharmacy benefit management solutions, retail pharmacy network management services and mail order pharmacy. The segment also sells and distributes prescription drugs.

The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past year, the stock has slipped 20.5% compared with the industry’s 23% decline.

McKesson Corporation MCK comes next on our list. The California-based health care services and information technology company distributes branded and generic pharmaceutical drugs along with other healthcare-related products on a global basis worldwide through its Distributions Solutions segment. In addition, the segment provides specialty pharmaceutical solutions for pharmaceutical manufacturers including offering multiple distribution channels.

In May, the Zacks Rank #2 company settled litigation with the State of West Virginia to resolve claims regarding McKesson’s operations in the state, citing significant enhancements to how it monitors and controls the distribution of controlled substances.

Over the past year, the stock has rallied 8.1% against the industry’s 9% decline.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

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