With the British pound and the euro both sinking after Britain's vote to leave the EU, stock markets are in turmoil, and a handful of bargain big pharma stocks just got a bit cheaper.
Not long ago I noted a handful of big pharma stocks trading at ridiculously cheap prices. Let's revisit Roche (NASDAQOTH: RHHBY) , Novartis (NYSE: NVS) and Allergan (NYSE: AGN) to see if they're a buy following the post-Brexit sell-off.
1. Roche: Still first in class
While companies that record sales in euros and British pounds may deserve the beating they're receiving, the Swiss franc has lost less than a point today, making Roche's 5% loss in afternoon trading a bit of a head scratcher. As a result, the big pharma stock is now trading at about 16 times this year's earnings expectations.
Sure, the company's two leading drugs, Rituxan and Herceptin, comprised 28% of the company's $12.9 billion in sales last year, and they're getting old -- which means their days of patent protection are numbered. The good news is that emerging products are poised to offset their eventual losses, and the company's late-stage pipeline has it well positioned for growth in the years ahead.
The company's first-in-class anti-PD-L1 drug Tecentriq, is similar to Bristol-Myers Squibb 's Opdivo except it acts on the tumor cell surface, while Opdivo acts on immune cells. Both drugs make it hard for tumors to hide from the immune system, and Opdivo's first-quarter sales this year rose a whopping 48% over the previous quarter to $704 million.
While it's relatively easy to boost sales when using your own shares to acquire other companies, the hard part is making those acquisitions work for investors. This is what sets Allergan apart from many of its industry peers. Over the past several years it has increased free cash flow per share at a rate that's on pace to overtake the dilutions.
Hypertension combination treatment Byvalson was recently approved, and an application is pending to expand Allergan's constipation drug Linzess (co-marketed with Ironwood Pharmaceuticals ) to an additional 35 million adults, which could help the drug reach peak annual sales of $2 billion. Combined, this could put Allergan in a position to provide handsome returns over the years ahead. At about 13 times forward earnings estimates at recent prices, Allergan shares are another big pharma bargain.
While the Brexit referendum results were terribly upsetting for investors, the panic it has caused in the markets -- and the losses it has dealt these three big pharma stocks -- have created bargain opportunities for investors to take advantage of.
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Cory Renauer has no position in any stocks mentioned. You can follow Cory on Twitter @TMFang4apples or connect with him on LinkedIn for more healthcare industry insight. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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