Political uncertainty has recently created some solid buying opportunities among blue-chip healthcare stocks, particularly those that pay sizable dividends. With the nomination of Robert F. Kennedy Jr. as Secretary of Health and Human Services for the incoming administration, there is some concern over potential regulatory changes, especially within pharmaceutical and healthcare companies. This uncertainty has caused a pullback in several stocks, creating an enticing chance for long-term investors to buy in at lower prices.
Here are three healthcare stocks that have been hit by the market’s reaction to political risk but are positioned to offer strong dividends and growth potential moving forward:
AbbVie (ABBV): A Strong Dividend Stock at a Discount
AbbVie (ABBV) is down over 18% from its recent highs, primarily due to the failed clinical trials of its acquired schizophrenia drug, emraclidine, which raised doubts about its $8.7 billion investment in Cerevel. However, AbbVie remains a well-diversified company with a solid dividend yield of 3.7% and a payout ratio of just 56% of its expected 2024 earnings. Despite challenges from the loss of Humira’s patent protection, AbbVie’s other growing products offset these losses. Analysts project long-term earnings growth of 8% to 9%, which, combined with the dividend, could deliver total returns averaging 11% to 13% annually. With a forward P/E ratio of 15 and a PEG ratio of 1.7, this is a great opportunity to pick up a high-quality dividend stock at an attractive valuation.
Pfizer (PFE): A Bargain Stock with a High Dividend Yield
Pfizer (PFE) has seen its stock price hit hard post-COVID, with declining earnings and unfavorable sentiment in the healthcare sector. Currently trading at less than 9 times earnings, Pfizer’s stock is a bargain for investors willing to look beyond short-term setbacks. The company’s 6.7% dividend yield is its highest since the 2008 financial crisis, but the dividend payout ratio is only 58% of 2024 earnings estimates, indicating strong financial health. Pfizer has pivoted its focus to oncology, with a promising pipeline that should drive 10% to 11% annualized earnings growth in the coming years. As the political noise dies down, sentiment should improve, making Pfizer a contrarian pick with upside potential.
Johnson & Johnson (JNJ): A Dividend King with Solid Fundamentals
Johnson & Johnson (JNJ), a staple in many investors’ portfolios, has dropped 18% from its highs, largely due to ongoing talcum powder litigation. However, this temporary setback does not diminish the company’s strong fundamentals. With over $20 billion in cash on hand and a robust balance sheet, J&J can weather the storm of any potential settlement. The company remains a Dividend King, with a 3.2% yield and a modest 50% payout ratio based on expected 2024 earnings. Analysts expect J&J’s earnings to grow by 5% to 6% annually over the next few years, ensuring steady dividend growth. The stock is trading at just 15 times earnings, making it an attractive long-term hold for those seeking steady, reliable growth.
