Many billionaires are active on Wall Street and largely built their wealth that way. So, paying attention to their moves and the stocks they invest in can teach us a lot. Of course, blindly following the lead of anyone — billionaire or not — isn’t an advisable strategy when looking to grow wealth. It’s essential to do some research of our own.
With that said, let’s look at two dividend stocks that at least a couple of billionaires bought during the last quarter: Pfizer (NYSE: PFE) and Merck (NYSE: MRK).
1. Pfizer
Pfizer hasn’t performed well recently. Despite its important role in developing effective vaccines and medicines for COVID-19 — efforts that were handsomely rewarded — the company’s shares have significantly lagged the market over the past couple of years.
Still, some billionaires are going against market sentiments with this drugmaker. Two Sigma Investments, a hedge fund managed by billionaire John Overdeck, added 10.5 million shares during the first quarter. Elsewhere, Citadel Advisors, headed by billionaire Ken Griffin, bought just under 880 thousand shares of Pfizer.
So should investors follow suit here? In my view, the answer is yes. True, Pfizer’s revenue and net income have been dropping as its coronavirus-related tailwind has now mostly subsided. However, the pharmaceutical giant was able to significantly expand its pipeline thanks to its success in the COVID-19 market.
The result is that Pfizer is quickly developing newer products that will eventually replace not just its coronavirus vaccine and medicine but also other therapies that will run out of patent protection soon. That includes anticoagulant Eliquis, whose patent will expire by the end of the decade. Eliquis is currently one of Pfizer’s top-selling products. It generated about $2 billion in revenue in the first quarter, an increase of 9% year over year.
Still, by the time generics enter the U.S. market, Pfizer’s portfolio will look entirely different. Last year alone, the company earned seven brand-new approvals, more than twice that of any of its peers. Thanks to a rejuvenated pipeline, investors should expect more than the one or two new approvals per year the company used to dish out, at least for a while.
Let’s not forget the acquisition of Seagen for $43 billion, which significantly expanded Pfizer’s capabilities in oncology. Pfizer’s dividend streak looks attractive, too. It has consistently raised its payouts over the past decade to the tune of 61.5% over this period. Pfizer’s forward yield of 5.86% is well above average, too.
The stock is still an excellent income pick for long-term investors despite lagging the market of late.
2. Merck
Merck is another major drugmaker that found a few billionaire buyers during the first quarter. Citadel Advisors, already mentioned above, added 1.26 million shares. Millennium Management Holdings, another hedge fund headed by a billionaire named Israel Englander, bought 4.02 million shares of Merck. Once again, long-term investors should follow the lead of these billionaires on this one.
Merck currently has one of the best-selling therapies in the world in its portfolio. That is none other than Keytruda, which has earned a slew of indications in treating various types of cancer. Keytruda continues to be Merck’s biggest growth driver by some margin. In the first quarter, the drugmaker’s total sales increased by 9% year over year to $15.8 billion. Keytruda’s revenue was $6.9 billion — or just under 44% of the company’s total sales — an increase of 20% year over year.
Some could perceive Merck’s reliance on Keytruda as a problem, especially since it will run out of patent exclusivity by 2028. The company is working on a subcutaneous formulation of its crown jewel (it is currently administered intravenously). Management thinks there is a market here as the subcutaneous formulation could have some advantages, including a longer-lasting effect. Beyond its main franchise, Merck can count on other products, such as its HPV vaccines Gardasil and Gardasil 9.
The company’s latest brand-new approval, Winrevair, looks promising. Winrevair is a treatment with a novel mechanism of action that targets pulmonary arterial hypertension. Some analysts say Winrevair’s peak sales should exceed $2 billion. Elsewhere, Merck remains active in the M&A field to boost its pipeline further.
The company recently announced it would acquire EyeBio, a privately held clinical-stage biotech focusing on developing medicines for sight-related conditions. Merck will pay $1.3 billion upfront in cash and up to $1.7 billion in development milestones. Whether through acquisition or internally developed products, Merck will likely move past the massive patent cliff ahead. What about the company’s dividend?
It has raised its payouts by 75% in the past decade, and its forward yield tops 2.45%. Income seekers can’t go wrong with this one.
Should you invest $1,000 in Pfizer right now?
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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 and Pfizer. The Motley Fool has a disclosure policy.
2 Dividend Stocks Billionaires Are Buying: Should You? was originally published by The Motley Fool
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