These two pharma stocks have followed distinct paths of late. Which is the better investment?
The pharmaceutical industry has been a whirlwind of highs and lows for investors over the past two decades. The high-risk, high-reward nature of drug development, coupled with the cyclical pattern of new drug launches and patent expirations, has seemingly lost its allure for many investors over the past 20 years.
However, amid this challenging landscape, some early stage biotech firms have still managed to deliver life-changing returns for their early shareholders. At the same time, several big pharma companies continue to offer attractive valuations and dividend yields.
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Pfizer (PFE 0.04%) and Viking Therapeutics (VKTX 3.60%) perfectly embody this situation. Pfizer’s shares offer a rock-bottom valuation and a sky-high dividend yield. Viking Therapeutics, for its part, has emerged as a top growth stock, thanks to its high-profile weight-loss candidate.
Which stock is the better buy? Let’s compare these two pharma equities to find out.
Pfizer: A reliable income stock
Pfizer’s shares have taken a hit in the post-pandemic era, recently printing a fresh 52-week low. As a result, Pfizer’s stock trades at less than 12 times forward earnings, a steal compared to the industry’s average multiple of 17. Its dividend has also swelled to a whopping 6.4% in 2024, which is the highest yield among big pharma stocks.
Why consider Pfizer as a buy-and-hold investment? While Pfizer may not outperform the S&P 500 this decade because of its modest growth, the company is optimistic about generating mid-single-digit growth for the rest of the decade, thanks to its potent cancer pipeline. Still, Pfizer’s primary appeal arguably lies in its potential as a stable source of passive income.
So, is the drugmaker’s sky-high dividend yield safe? Pfizer’s approach to revenue growth has historically been a strength in numbers strategy; different from many other pharmaceutical companies who rely on one or two drugs. This strategy makes Pfizer one of the less risky big pharma stocks, albeit limiting its appeal as a pure growth play.
On the bright side, Pfizer’s strategic decision to avoid major revenue shortfalls by aiming to bring large numbers of drugs to market safeguards its dividend program. To highlight this point, Pfizer has consistently paid dividends for an impressive 85 straight years. Pfizer’s dividend should thus be a fairly safe bet over the long term.
Viking Therapeutics: A promising growth play
Viking Therapeutics, on the other hand, has emerged as an intriguing growth play. The biotech recently unveiled mid-stage trial data for VK2735, a dual GLP-1 and GIP receptor agonist, as a treatment for obesity, which lit a fire underneath its shares. The core reason is that some analysts have pegged the drug’s peak sales at over $20 billion per year.
Although VK2735 still has to pass muster in a large, randomized trial, the drug’s emerging clinical profile suggests it might be a noteworthy competitor in this potentially $100 billion market. To put Viking’s value proposition into the proper context, the company currently sports a market cap of only $7 billion.
What’s the risk? Eli Lilly and Novo Nordisk, the current market share leaders in obesity, aren’t standing still. Both companies are developing next-generation weight-loss medications that could outflank VK2735 in its drive towards the market.
There is also no guarantee that VK2735 will be able to replicate its mid-stage trial results in a larger study. Furthermore, Amgen is also making headway in the clinic with its obesity-care injectable, MariTide.
The verdict
In this match-up, Pfizer arguably stands out as the more attractive investment. The company’s stock is less risky, offers a substantial yield, and is currently priced attractively. Conversely, Viking has the potential to outperform Pfizer in this decade, contingent on the success of VK2735.
However, it’s crucial to remember that any clinical setbacks with VK2735 could negatively affect Viking’s prospects. In contrast, Pfizer’s stock appears to be reaching a bottom, given its near-record low valuation and hefty yield.
Tags: Buy Pfizer Viking Therapeutics
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