It’s that time of the year when investment professionals provide their prognostications for 2020. Some are forecasting a continuation of the long-running bull market, while others think a 15% to 20% correction may be on the horizon. Of course, as the saying goes, “Opinions are like…well, you know—everyone has one.”
A New York Times article said investors should ignore all these predictions. It is true that the prophets are usually right more than they’re wrong. But that’s only because most of the so-called experts say the market will rise the next year, and seven out of 10 times it does.
Big banks and brokerage houses have a “dismal” track record in calling the market, according to a recent Forbes article. The reason is forecasters only take a one-year view, not the average performance, and there’s a big difference.
Let’s take a look at how some of the biggest members of the pharmaceutical industry might fare in 2020. If you subscribe to the theory that the past is prologue and that Newton’s first law of physics applies, that is, an object in motion tends to stay in motion, the stocks that have done well could be appealing. On the other hand, some investors might believe the big movers might be overvalued and the best bets lie with industry laggards that have more upside potential.
Shares of the Indianapolis-based Eli Lilly and Co. (LLY, Financial) slightly outpaced the nearly 13.5% growth in the Dow Jones U.S. Pharmaceutical Index in 2019. At over $131, Lilly isn’t far from its 52-week high and has rallied since October, when it was trading at about $108. Based on eight analyst ratings, the company is a strong buy with an average price target approaching $144.
GlaxoSmithKline PLC (GSK, Financial) investors have scored a healthy 21% gain in the value of their investment in this member of Big Pharma that calls the U.K home. The only analyst chiming in on Glaxo has the company as a moderate buy, with a target of $53, $6 higher than the current price. The company offers investors an attractive dividend yielding more than 4%.
Sanofi SA (SNY, Financial) rewarded its faithful with a 17% gain in 2019. At more than $51, that is just about at its high for 2019. However, the French company hasn’t inspired confidence with the two analysts covering it. They give the stock a modest sell rating, with an average target price just about where the stock is now. Sanofi’s dividend yields about 3.5%
AstraZeneca PLC (AZN, Financial) stock is is just about at its 52-week high, with its shares up more than 28% since the beginning of 2019 to about $50. It traded as low as $35 last year. The U.K.-based company has a price target about $4 higher than what it’s at now, yet the three analysts following the company rate it a strong buy. AstraZeneca returns a dividend of just over 2.75% to its shareholders.
AbbVie Inc. (ABBV, Financial) stock is just about where it was at the beginning of last year—just more than $89. To some, the company appears to be a bargain at that price. One is Wall Street veteran Tom Hutchinson. In a November article in the Cabot Wealth Network, he called AbbVie “the very best company in its industry selling at an absurdly cheap valuation and yielding 5.3% with strong upward momentum.” He conceded the overall market may be overbought, but there are rare pockets where it’s 2010 again, and AbbVie stock occupies one of those pockets.
Hutchinson contended that Wall Street is concerned that AbbVie has too many eggs in one basket with Humira, the best-selling drug in the world that accounts for half of the company’s revenue. While Humira is facing generic competition, Hutchinson says AbbVie has a pipeline filled with promising new drugs. Perhaps the financial community is overlooking the company’s potential. Although it is rated a strong buy, five analysts set an average target price of only $94.
Disclosure: The author has a position in Eli Lilly.
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