Forget J&J, Buy These 3 Big Drug Stocks Instead in 2019

Johnson & Johnson'sJNJ stock has declined more than 14% since Reuters reported that the pharma giant knew for decades that its baby powders contained asbestos.

J&J faces thousands of lawsuits related to its baby powders in the United States. These allege that its talc-based products, including its baby powders, contain asbestos, which causes its users to develop ovarian cancer.

The Reuters article informed that a scrutiny of J&J's internal reports and other confidential documents showed that from 1971 to early 2000s, its raw talc and finished powders at times tested positive for trace amounts of asbestos.

In response, J&J issued a statement wherein it called the reports by Reuters "one-sided, false, and inflammatory". In an interview to CNBC, J&J's chief executive officer (CEO), Alex Gorsky, said that the company "unequivocally" believes that its talc/baby products do not contain asbestos, a fact demonstrated in thousands of tests and studies conducted over decades on nearly 100k patients. Meanwhile, J&J also got ads published in leading newspapers, which stressed that the company has scientific evidence that its talc is safe.

It has been suggested that a link between talc and cancer may be due to the fact that talc and asbestos often occur together in deposits and get inadvertently mixed.

J&J is in big trouble now after losing several billion in market capitalization since the article was published. Though the company might be able to put the issue behind it, as it has more than $30 billion of cash and baby products comprise only 2% of its sales, it will take some time for the stock to recover after the massive sell-off.

In such a scenario, it is a good idea for near-term investors to avoid this Zacks Rank #4 (Sell) stock. Moreover, so far this year, the stock has declined 9.3%, underperforming the industry's decline of 1.2%. Its earnings estimates for 2019 have gone down by 0.2% over the past 60 days.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Instead, investors can focus on three large-drug stocks that may prove to be good buys. All these stocks carry a Zacks Rank #2 (Buy) and have seen their share price and earnings estimates rise this year. Moreover, the Large Cap Pharmaceuticals industry features among the top 32% of the 257 Zacks-ranked industries

A chart showing the share price movement of the three stocks this year so far is given below.

Eli Lilly & Company LLY

Lilly's earnings estimates have increased almost 3% for 2019 over the past 90 days. The company's shares have increased 31.5% this year so far.

Lilly's new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance, Lartruvo and Verzenio are driving sales growth. The company is also on a strong footing in terms of its pipeline with several positive late-stage data readouts this year along with various regulatory approvals. A key regulatory success for Lilly was the FDA approval of Emgality/galcanezumab, a calcitonin gene-related peptide (CGRP) antibody for migraine prevention, which could emerge as a significant contributor to long-term growth.

Several key regulatory and pipeline events are expected in 2019. Any positive outcome will push up share price further.

This year, Lilly also added promising new assets through business development deals including pancreatic cancer candidate, pegilodecakin, which was added with the acquisition of ARMO Biosciences. Meanwhile, the separation of its animal health unit, Elanco, via an IPO, is a prudent decision in our viewas the unit was underperforming.

Merck & Co., Inc. MRK

Shares of Merck have also risen 31.5% this year so far. Merck's earnings estimates for 2019 have moved up 1.7% in the past 90 days.

Strong performance and positive regulatory updates related to its PD-1 inhibitor, Keytruda aided the company. In a very short span of time Keytruda has become Merck's largest product. It is already approved for use in 12 indications across eight different tumor types in the United States. In fact, the Keytruda development program is also progressing rapidly. Several regulatory decisions for new indications in the United States as well as in Europe are due in 2019, which, if approved, can further boost sales.

Key recent drug approvals for Merck include Steglatro and its fixed-dose combinations for type II diabetes, two new HIV drugs - Pifeltro and Delstrigo - containing doravirine and Prevymis (letermovir) for cytomegalovirus (CVM) infection. Merck also gained several label expansion approvals for Keytruda and another cancer drug, Lynparza, which it markets in partnership with AstraZeneca AZN .

All these new drugs and line extension approvals can boost the company's pharmaceuticals sales in the future quarters.

Merck's animal health and vaccine products are also performing strongly and remain core growth drivers for Merck.

Merck also announced positive data from several late-stage studies, mainly evaluating Keytruda for further line extensions. Merck also signed a co-development deal with Japan's Eisai Co., Ltd for the latter's tyrosine kinase inhibitor, Lenvima. It also agreed to buy Viralytics Limited, an Australian pharmaceutical company that develops oncolytic immunotherapies for a range of cancers, which should strengthen its oncology portfolio.

Novartis AG NVS

Shares of Novartis have risen 1% this year so far. Merck's earnings estimates for 2019 have gone up 0.5% in the past 60 days.

Novartis has a strong oncology portfolio, which continues to boost sales. The strong performance of Cosentyx and Entresto continues to boost performance. Novartis restructured its business and plans to focus on becoming a core drug-focused company, powered by data and digital technologies. The company is looking to solidify its presence in the gene-therapy space. It acquired small biotechs AveXis and Endocyte this year, which has strengthened its pipeline.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

AstraZeneca PLC (AZN): Free Stock Analysis Report

Novartis AG (NVS): Free Stock Analysis Report

Eli Lilly and Company (LLY): Free Stock Analysis Report

Johnson & Johnson (JNJ): Free Stock Analysis Report

Merck & Co., Inc. (MRK): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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