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2 Undervalued Large-Cap Pharma Names

2 Undervalued Large-Cap Pharma Names

Damien Conover: We recently reviewed the pipelines for the large-cap pharmaceutical and large-cap biotechnology firms, and our aggregate takeaway is these firms are well-positioned for growth over the next five years. In aggregate, we think these large-cap pharmaceutical and large-cap biotechnology firms will grow at about 4% annually on the top line and through cost-cutting and through some leverage get about 6% annual growth on the bottom line. This is really important for the moats that we assign to almost all these firms. Most of these moats are wide moats. We think they are well-positioned to offset upcoming patent losses with their next generation of molecules.

When we look at stocks specifically, a couple of names that boil to the top that look specifically undervalued, Roche and GlaxoSmithKline are two names we are highlighting. Both have strong pipelines, and both are well-positioned to grow through patent losses. In Roche's case, they are well-positioned in immuno-oncology. This is the next generation of cancer drug that really helps the body find cancer and eliminate it. In Glaxo's case, they are really looking at the next generation of respiratory drugs. Not as well-positioned from a pricing standpoint, but strong enough position to support the dividend which right now is over 5%, and we think will be safe.

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Damien Conover

Director of Equity Strategy
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Damien Conover, CFA, is the director of healthcare equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is also director of equity strategy, responsible for helping to shape, package, and surface research based on Morningstar’s investment philosophy by working closely with the firm’s sector strategists and directors.

Before joining Morningstar in 2007, Conover was an equity research analyst covering the healthcare sector for Raymond James, Bank of Montreal, and Tucker Anthony.

Conover holds bachelor’s and master’s degrees in finance from the University of Wisconsin and was a member of its Applied Security Analysis Program. He also holds the Chartered Financial Analyst® designation.

Damien Conover, CFA, is the director of healthcare equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is also director of equity strategy, responsible for helping to shape, package, and surface research based on Morningstar’s investment philosophy by working closely with the firm’s sector strategists and directors.

Before joining Morningstar in 2007, Conover was an equity research analyst covering the healthcare sector for Raymond James, Bank of Montreal, and Tucker Anthony.

Conover holds bachelor’s and master’s degrees in finance from the University of Wisconsin and was a member of its Applied Security Analysis Program. He also holds the Chartered Financial Analyst® designation.

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