Investors looking for a solid investment in healthcare stocks don't need a bagful of cash. Shares in Takeda Pharmaceutical (TAK 0.99%), Grifols SA (GRFS -2.55%), and Bayer AG (BAYR.Y 2.47%) all trade for $20 or less. Of course, being inexpensive doesn't go hand in hand with being a good stock. In fact, often the opposite is true. However, these companies are bucking market trends by gaining in share price this year, and have thriving balance sheets as well as reasonable price-to-earnings (P/E) ratios.
On top of those pluses, these three companies all have a history of offering above-average dividends, making them solid long-term value bargains.
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1. Takeda Pharmaceutical
Takeda is a Japanese biopharmaceutical company that focuses on gastroenterology, oncology, neuroscience, and rare diseases. The company's stock is up more than 9% this year, currently trading at just shy of $15. The company's P/E is about 22, roughly half the pharmaceutical sector average of 46. Over the past 10 years, the company has grown its revenue by 68%.
Earlier this month, Takeda reported its earnings from fiscal year 2021, and the results were mixed. While revenue was up 11.6% over 2020 to a reported $27.9 billion, net income fell 38.8% to $1.8 billion. The company did give bullish guidance, however, for 2022. It said it expected annual revenue to grow by 3.4% to $28.9 billion and for net annual income to reach $1.8 billion, up 26.9% annually.
The company has seen strong growth in several of its segments, led by its plasma-derived therapy immunology segment, which saw annual revenue rise 14% to $3.97 billion in 2021 thanks to boosted demand for Flexbumin, a solution used to treat blood volume loss caused by trauma. Takeda also saw 10% growth in its neuroscience segment to $3.8 billion in annual revenue, thanks to increased demand for Vyvanse, the attention deficit hyperactivity disorder (ADHD) drug. It also posted $3.8 billion in annual revenue in oncology, up 8% over 2020, thanks in large part to non-small cell lung cancer therapy Exkivity, which just launched in 2021. One concern, however, is that Vyvanse faces a patent cliff in August 2023, when it will face generic competition for the previously patent-protected treatment and a consequent decline in revenue.
Takeda has a generous semiannual dividend of $0.69 a share, giving it a yield of a little over 5%. The dividend is well covered, as the company's annual cash dividend payout ratio is only 30.27%.
2. Grifols
Grifols focuses on making plasma-derived medicines and transfusion medicine. The company's stock is up more than 13% so far this year and is trading at right around $13, but its P/E ratio is still a relatively low multiple of just under 16. The company has increased earnings per share (EPS) by 260% over the past 10 years while growing annual revenue by 73% over that period.
Plasma is the lifeblood of Grifols' business, as it operates 87 plasma centers in Europe and 410 worldwide. Grifols turns plasma into medicines to treat various medical conditions. It also is a leader in transfusion medicine, and supplies tools, information, and services to hospitals.
The pandemic cut into Grifols' business because people were concerned about going to plasma collection centers during COVID. Now that COVID appears to be waning, Grifols reports that plasma collections are up 16% year-to-date and 9% sequentially thus far in the first quarter.
Grifols has generally paid a twice-yearly dividend, which it has raised by 180% over the past five years. Last year, however, because revenues were down due to the pandemic, it offered just one dividend of $0.46 a share, still giving it a dividend yield of 5.03%. The company has said it is discontinuing cash dividends this year until it decreases its debt-to-EBITDA ratio below 4.0. Its current debt-to-EBITDA ratio over the trailing 12 months is 4.6, so it is possible it may issue a dividend again later this year.
3. Bayer
Bayer is a German pharmaceutical and life sciences company with three segments: crop science, pharmaceuticals, and consumer health. The stock has taken a beating in recent years, thanks to lawsuits regarding the pesticide Roundup, which is sold by its subsidiary Monsanto. Bayer ultimately settled most of the lawsuits for $11 billion in 2020. So far this year, however, the stock is up more than 29%, trading at $17. That share price increase has raised Bayer's P/E to about 30, but the stock still appears to be a bargain.
In the first quarter, the company reported revenue of $15.46 billion, up 14.3% YOY, with net income of $3.47 billion, up 57.5% over the same period in 2021, while EPS was $3.73, up 36.3% YOY. The company's crop science division saw the biggest gain, with quarterly EBITDA up 49.9% to $3.87 billion.
Bayer has an enormous pipeline and expects to see increased sales from its newly launched drug Kerendia (finderenone), which is designed to treat adult patients with kidney disease caused by type 2 diabetes.
The company cut its quarterly dividend from $0.74 to $0.53 two years ago and has maintained that level for the past two years. That still works out to a yield of 3.10% and a cash dividend payout ratio of 43.24%, easily sustainable.
BAYRY PE Ratio data by YCharts
Finding momentum in the market
All three of these healthcare companies present solid value plays, which is why their shares have risen this year. But which is the best fit for the spare $20 you're looking to put into the market?
Of the three, Takeda has the most dependable dividend and highest dividend yield. However, both Bayer and Grifols could offer the biggest surprises if they continue to bounce back this year. Bayer in particular is a huge company that has been able to increase its market cap by 29% so far this year. Its size gives it long-term strength, as it is able to handle short-term market upheavals that would disrupt smaller companies. Depending on what you're after, any of these stocks could make a promising new addition to your portfolio.
