2 Beaten-Down Healthcare Stocks to Buy Hand Over Fist

Every company faces challenges. Sometimes, those issues are deeply damaging to a corporation's investment thesis. Other times, though, that's not the case, and the price drop represents a great buying opportunity for long-term investors. There are always companies in the second category on the market; it's just a matter of finding them.

For those looking for great candidates, here are two in the healthcare sector: Merck (NYSE: MRK) and Pfizer (NYSE: PFE). Neither has performed well this year, but both could reward patient investors down the road.

1. Merck

Is Merck's Keytruda empire crumbling? The company's famous cancer drug is by far its biggest growth driver and typically accounts for over 40% of its revenue. However, in September, Summit Therapeutics, a clinical-stage biotech, reported that a medicine called ivonescimab performed better than Keytruda in a phase 3 study conducted in China on patients with non-small cell lung cancer (NSCLC) with a PD-L1 protein overexpression.

NSCLC is Keytruda's most important market. This result, albeit from a Chinese study, suggests that the blockbuster medicine could soon face serious competition. Investors are rightly worried, but there is more to the story. First, ivonescimab just started late-stage studies in the U.S. It will take a couple of years (at least) before the medicine earns approval in the country, if it goes that far.

In the meantime, Keytruda should continue its march forward. Second, Merck's crown jewel was set to face a patent cliff by 2028 anyway. Even if ivonescimab is approved in the U.S. in two years, by the time it takes significant market share away from Keytruda, its patent exclusivity may have expired. True, Merck's goal is to develop a subcutaneous version of Keytruda that will earn many of the same indications and extend its patent life beyond 2028.

So, ivonescimab could still be a threat. Merck agrees. The company recently penned a licensing agreement with China-based LaNova Medicines for an investigational therapy called LM-299. Like ivonescimab, LM-299 is a bispecific antibody, a newer class of cancer drugs that could prove more effective than the older checkpoint inhibitors, the category to which Keytruda belongs. Merck's licensing agreement with LaNova shows it isn't resting on its laurels. It will seek to remain a force in oncology.

Elsewhere, Merck continues to deliver decent financial results and earn brand-new approvals. In the third quarter, the company's revenue increased by 4% year over year to $16.7 billion. Earlier this year, it earned approval for Winrevair, a new therapy for pulmonary arterial hypertension. Merck's pipeline features several dozen programs, and it has the means to acquire smaller drugmakers or sign licensing agreements with them, just as it did with LaNova Medicines.

Merck is a solid dividend stock, too, with a forward yield of 3.2%. Its payouts have increased by 71% in the past decade. The stock might be 12% since 2024 started because of Keytruda-related issues, but it is still worth buying for long-term investors.

2. Pfizer

Pfizer has yet to win back investors. Once it stopped generating mouthwatering sales from its coronavirus franchise, its shares fell off a cliff and have hardly recovered since. However, Pfizer has made plenty of progress. It has earned several new approvals, including RSV vaccine Abrysvo, alopecia areata treatment Litfulo, and hemophilia therapy Hympavzi.

Pfizer also remains a leader in what is left of the COVID-19 vaccine market. In the third quarter, Pfizer's revenue grew by 31% year over year to $17.7 billion. Even excluding the $854 million in sales generated by products from its November 2023 Seagen acquisition, Pfizer's revenue grew by about 25% compared to the year-ago period. Investors might feel as though Pfizer is still too dependent on its COVID-19 products -- they were the biggest reason for its Q3 performance, but they are somewhat seasonal items.

That's especially true of Pfizer's vaccine, Comirnaty. So, perhaps the drugmaker can't count on it to drive this kind of top-line growth every quarter. The good news is that Pfizer's innovative wheel keeps rolling. In oncology, the company plans to bring its number of blockbusters to more than eight by 2030 from the five it currently has in this therapeutic area. In weight loss, the hottest field in the industry, Pfizer is developing danuglipron. Pfizer's pipeline features 108 compounds across many studies.

Even a handful of approvals or label expansions per year would allow the company to significantly upgrade its lineup and decrease its exposure to the coronavirus market.

Lastly, Pfizer is also worth considering for its dividend program. The company's forward yield is a juicy 6.77%, while its payouts increased by 50% in the past 10 years. Pfizer is slowly but surely planning for the future. It might require patience, but the company could deliver rich returns to investors who buy its shares today and hold them for more than five years.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck, Pfizer, and Summit Therapeutics. The Motley Fool has a disclosure policy.