Most investors ensure that they hold defensive stocks in their portfolio. These are stocks from well-established companies with goods that consumers buy out of necessity such as household staples and healthcare, whether economic times are good or bad. They are favored as they generate stable cash flow and provide predictable earnings and dividends to investors.
Defensive stocks are also known as non-cyclical stocks, as they do not correspond with any business cycle. They are used to hedge portfolios, have no correlation whatsoever to market volatility and are much less likely to go bankrupt. Pharmaceutical companies and medical device makers fall under defensive stocks.
What defensive stock options are the best?
We have considered a number of companies with consistent dividends and solid earnings. This has led to our understanding of why Eli Lilly (LLY) and Pfizer (PFE) have been held in a number of hedge fund portfolios.
We considered Eli Lilly’s numerous reasons for growing earnings at 38.6% over the last 3 years, such as the higher demand of medication for diabetes, reduced risk of breast cancer recurring, Prozac, psychiatric use, and the latest news regarding a drug that slows cognitive decline in Alzheimers. Although donanemad, as it is known, is at this stage awaiting the go-ahead, extremely positive results have been achieved from trial testing. They are presently seeking accelerated approval of the drug from the Food and Drug Administration (FDA). The drug can decrease amyloid plaques, which develop in the initial stages of Alzheimers in areas affecting memory and mental abilities. With drug prices continuously rising, this pharmaceutical company’s book revenue growth rose by 10.39%.
We reviewed Pfizer’s valuation and present focus on the vaccine for the virus adding to record revenues. Eli Lilly’s increase was progressive over a couple of years, rising 26.7% compared to Pfizer’s rise of 19.7%. Projected sales from the Covid-19 vax are expected to be more than $26 billion meaning that gross figures are expected to skyrocket over 90%, with a second annual shot required for further protection. Beside sales from the vaccine, Pfizer’s cancer drug Ibrance and blood thinner Eliquis further boosted its growth.
It is not known whether the pandemic will begin to dissipate thanks to the rollout of these vaccines. With booster shots further boosting the share’s growth and a continued revenue contributor in years to come, Pfizer is set to reach new heights. It will be able to maintain its liquidity as operating cash flows and financial assets remain strong and we believe it is a quality stock to hold in your portfolio.