Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 3 stocks made the list for top value stocks in the Pharmaceuticals industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Latest Pharmaceuticals Stock News

Before choosing which top Pharmaceuticals stock to buy, be sure to conduct proper due diligence: analyze various financial metrics and look at historical data, public statements and news coverage.

The outlook for the Pharmaceuticals sub-industry is positive as the world returns to normalcy and demand for electives and improved medical utilization. COVID-19 therapies, oncology and immunology are essential aspects of pharmaceutical companies. Should COVID-19 variants continue to arise getting a COVID-19 vaccine could become a seasonal phenomenon, much like the flu vaccine. If that were to happen, it would prove to be very lucrative for pharmaceutical companies, as it would generate recurring sales. Recent FDA recommendations, such as approval for a fourth booster dose for those aged 50 or older, suggests we may be moving in this direction. Generic drug makers are expected to continue to struggle due to lower-cost emerging market competition. Despite this, policy risks are on the rise. Lowering drug prices continues to be a bipartisan issue as both parties aim to offer Americans more affordable prices. While this provides uncertainty in the long-term, it is unlikely that legislation will get passed in the near future due to more pressing issues in the political agenda. Year to date through June 3, the S&P Pharmaceuticals Index was up 1.5% vs. a 13.6% decline for the S&P Composite 1500 Index. In 2021, the S&P Pharmaceuticals Index returned a gain of 21.8%, vs. a gain of 26.7% for the S&P Composite 1500.

Why Focus on Undervalued Pharmaceuticals Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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3 Undervalued Pharmaceuticals Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 3 undervalued stocks in the Pharmaceuticals industry for Monday, June 05, 2023. Let’s take a closer look at their individual scores to see how they measure up against each other and the Pharmaceuticals industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

Elanco Animal Health Inc’s Value Grade

Value Grade:

Elanco Animal Health Incorporated is an animal health company. The Company is focused in delivering products and services to prevent and treat disease in farm animals and pets. Its portfolio serves animals across its core species consisting of dogs, cats and cattle, poultry, swine, sheep and aqua. It offers products in two primary categories: Pet Health and Farm Animal. Its Pet Health portfolio is focused on parasiticides, vaccines and therapeutics. Its parasiticide portfolios in the pet health sector include species and formulations, with products that protect pets from worms, fleas and ticks. Its over-the-counter treatments include Seresto, Advantage, Advantix, Advocate, Credelio, Interceptor Plus and Trifexis. Its Farm Animal portfolio consists of products designed to prevent, control and treat health challenges primarily focused on cattle. Its products include medicated feed additives, antibiotics, vaccines, such as Rumensin and Baytril. Its poultry products are Maxiban and others.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Elanco Animal Health Inc has a Value Score of 63, which is considered to be undervalued.

When you look at Elanco Animal Health Inc’s price-to-sales ratio at 1.02 compared to the industry median at 2.89, this company has a lower price relative to revenue compared to its peers. This could make Elanco Animal Health Inc’s stock more attractive for value investors.

Now, let’s assess Elanco Animal Health Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 9.3, when compared to the industry median of 10.7, the company may be considered undervalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. Elanco Animal Health Inc’s shareholder yield is higher than its industry median ratio of (2.55%). Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. Elanco Animal Health Inc’s price-to-book ratio is lower than its industry median ratio of 1.59. This could make Elanco Animal Health Inc more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Elanco Animal Health Inc’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Elanco Animal Health Inc’s price-to-free-cash-flow ratio is higher than its industry median ratio of 18.80. This could make Elanco Animal Health Inc less attractive because the higher P/FCF ratio indicates that Elanco Animal Health Inc is undervalued. The P/FCF ratio metric can also be viewed over a long-term time frame to see if the company's cash flow to share price value is generally improving or worsening.

Elite Pharmaceuticals Inc’s Value Grade

Value Grade:

Elite Pharmaceuticals, Inc. is a specialty pharmaceutical company that develops niche generic products. The Company is engaged in developing and manufacturing oral, controlled-release drug products. The Company owns multiple generic products which have been licensed to Lannett Company, Prasco, LLC, Epic Pharma, LLC, and TAGI Pharma. The Company’s segments include Abbreviated New Drug Applications (ANDA) and New Drug Application (NDA). The Company’s products include Phentermine HCl 37.5 milligram tablets (mg), Phendimetrazine Tartrate 35mg tablets, Phentermine HCl 15mg and 30mg capsules, Dantrolene 25mg, Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Dextroamphetamine Saccharate, Amphetamine Aspartate, Amphetamine Sulfate Immediate Release 5mg, Trimipramine Maleate Immediate Release 25mg, 50mg and 100mg capsules, Oxycodone HCl Immediate Release 5mg, 10mg, 15mg, 20mg and 30mg tablets, Isradipine 2.5mg and 5mg capsules and Naltrexone HCl 50mg tablets.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Elite Pharmaceuticals Inc has a Value Score of 81, which is considered to be undervalued.

Elite Pharmaceuticals Inc’s price-earnings ratio is 4.9 compared to the industry median at 19.1. This means that it has a lower price relative to its earnings compared to its peers. This makes Elite Pharmaceuticals Inc more attractive for value investors.

Elite Pharmaceuticals Inc’s price-to-book ratio is higher than its peers. This could make Elite Pharmaceuticals Inc less attractive for value investors when compared to the industry median at 1.59.

You can read more about Elite Pharmaceuticals Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Pfizer Inc.’s Value Grade

Value Grade:

Pfizer Inc. is a research-based biopharmaceutical company. The Company is engaged in the discovery, development, manufacture, marketing, sale and distribution of biopharmaceutical products around the world. The Company operates through two segments: Biopharma and PC1. Biopharma is engaged in the science-based biopharmaceutical business. PC1 is its global contract development and manufacturing organization and supplier of specialty active pharmaceutical ingredients. The Company?s primary care products include Eliquis, Nurtec ODT/Vydura and the Premarin family; the Prevnar family, Nimenrix, FSME/IMMUN-TicoVac and Trumenba; Comirnaty, and Paxlovid. Its specialty care products include Xeljanz, Enbrel (outside the United States and Canada), Inflectra, Eucrisa/Staquis and Cibinqo; the Vyndaqel family, Oxbryta, BeneFIX and Genotropin, and Sulperazon, Medrol, Zavicefta, Zithromax, Vfend and Panzyga. Its oncology products include Ibrance, Xtandi, Inlyta, Retacrit, Lorbrena and Braftovi.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Pfizer Inc. has a Value Score of 62, which is considered to be undervalued.

Pfizer Inc.’s price-earnings ratio is 7.6 compared to the industry median at 19.1. This means that it has a lower price relative to its earnings compared to its peers. This makes Pfizer Inc. more attractive for value investors.

Pfizer Inc.’s price-to-book ratio is lower than its peers. This could make Pfizer Inc. more attractive for value investors when compared to the industry median at 1.59.

You can read more about Pfizer Inc.’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other Pharmaceuticals Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about Pharmaceuticals stocks as well as other industrys.

Choosing Which of the 3 Best Pharmaceuticals Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• Elanco Animal Health Inc stock has a Value Grade of B.
• Elite Pharmaceuticals Inc stock has a Value Grade of A.
• Pfizer Inc. stock has a Value Grade of B.

Now that you have a bit more background about each of the 3 undervalued stocks in the Pharmaceuticals industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About Pharmaceuticals Stocks

Want to learn more about Pharmaceuticals stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 3 Undervalued Pharmaceuticals Stocks for Monday, June 05
• 6 Undervalued Pharmaceuticals Stocks for Friday, June 02
• Why Biomarin Pharmaceutical Inc’s (BMRN) Stock Is Up 5.78%
• Why Elanco Animal Health Inc’s (ELAN) Stock Is Up 7.21%

AAII Disclaimer

We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because past, hypothetical or simulated performance is not necessarily indicative of future results. Before making an investment decision, you should consider your circumstances and whether the information on our content is applicable to your situation. This information was prepared in good faith and we accept no liability for any errors or omissions. The full disclaimer can be read here.