A buy-and-hold strategy can work really well — if you pick the right stocks. In this Motley Fool Live video recorded on Aug. 4, 2021, Motley Fool contributors Keith Speights and Brian Orelli discuss their top pharma stocks to buy and hold for 20 years.
Keith Speights: We had another question on Monday. I like this question. The person asked, “Can you both rank your top three pharma/biotech holdings to hold for 10-20 years.” Brian, I’ll let you go first with your top three and then I’ll chime in. Let’s go with that longer time horizon of 20 years to hold.
Brian Orelli: Twenty years is an awful long time to hold. I think the obvious choice here is probably Johnson & Johnson (NYSE:JNJ). Given the history and the diversity across the healthcare sector, I can almost guarantee it will be around in 20 years.
I think it’s probably also likely to beat the S&P 500 over that time frame. The company does a really good job at growing earnings faster than revenue. That should drive the stock price. Even if the growth of the revenue is a little bit slower than the average S&P 500 company.
A few years ago, I probably would’ve gone with Celgene as my number two pick. But Bristol-Myers (NYSE:BMY) obviously bought it out. A lot of that was due to the company’s ability to do deals to in-license drugs and Bristol-Myers has a lot of those same qualities and where it looks to partner with companies and invest in them early and then develop those drugs. I’m going to pick up Bristol-Myers Squibb as my second pick, the ticker there’s BMY.
Then for my third pick, I’d go for Vertex Pharmaceuticals (NASDAQ:VRTX), taker there’s VRTX. It’s a bit more risky than the other two because we don’t really know what Vertex’s next growth franchise will be after it maximizes the opportunity in cystic fibrosis.
But if you’ve been following the industry long enough and Vertex specifically long enough, you know, the Vertex was actually a hepatitis C drug developer pivoted to cystic fibrosis as its next move. That turned out to be a really good choice because Gilead came along with Sovaldi.
Basically, that was so much of a better drug that doctors just stopped prescribing Vertex’s Hepatitis C drug. But the company seemed to manage through that process fairly seamlessly. I think that they can manage through the next transition just as seamlessly, I hope.
Speights: Brian, I would definitely have to agree with you on Johnson & Johnson, it’s really diversified across healthcare. It’s a leader in nearly every market, probably every market where it operates.
The company is a cash cow. It has lots of money to invest and its own research and development plus make strategic acquisitions, and that’s what it’s done through the years. I think Johnson & Johnson is an easy number one pick to hold for 20 years. It’s just so solid.
I think I will go with Pfizer though maybe as my second pick. There’s some uncertainty for the company with losing some exclusivity for drugs in the second half of this decade. But like Johnson and Johnson, Pfizer (NYSE:PFE) has survived and thrived for a long time. It’s adapted.
The company has a huge pipeline. It’s flushed with cash, especially with more money rolling in from its COVID-19 vaccine. I fully expect Pfizer to invest, if not in acquiring other companies and beefing up its pipeline through licensing deals.
I think Pfizer is a pretty safe pick to hold for 20 years. Again, like Johnson and Johnson, it could beat the market. It might not give you these jaw-dropping returns, but I think it will be solid.
My third pick, I hate to be a copycat, Brian, but I am going to go along with you on Vertex. I own the stock. I really like the stock. I think Vertex’s monopoly in cystic fibrosis sets it up really nicely, at least into the next decade. There really aren’t many competitors that are nipping at its heels at all. I think the most advanced CF drugs outside of Vertex’s pipeline are in Phase II testing. Vertex just has a monopoly there.
Also, look for the company to rack up some pipeline wins beyond CF. I’m not sure exactly where and I look for Vertex to make some acquisitions along the way too. It also has a really huge and growing cash stock policy. I like all those three.
But you mentioned Bristol-Myers Squibb. I like it too. It’s one of the stocks in my portfolio. I think investors couldn’t go wrong with any of these stocks that we’ve mentioned.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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