AbbVie is a top choice in an uncertain market
A A host of macro issues have rocked the stock market and the economy so far in 2022. Major US indexes are down for the year. Some, like the Nasdaqare down more than 10% since the beginning of the year in a context of trade volatility.
AbbVie (NYSE: ABBV), on the other hand, has been on a tear, gaining more than 20% over the past six months and more than 6% since the start of the year. Investors recognize that AbbVie can be a strong dividend mainstay in their portfolios during times of uncertainty.
Why AbbVie in today’s market?
Inflation reached 7.5% in January, the highest rate in 40 years. Americans are paying higher prices and the current rate of inflation is unsustainable. The Federal Reserve will soon act with interest rate hikes and other hawkish policies. As if that were not enough, it now appears that Russia is likely to take military action in Ukraine and impose significant international sanctions. Because Russia exports so much energy, one likely outcome would be a sharp rise in gasoline prices.
As prices continue to rise, consumers will become more price conscious and often forgo luxury items while focusing on necessities. Investors will also seek a safe haven in areas such as consumer staples, utilities, defense stocks and pharmaceutical companies like AbbVie.
Having products protected by patents allows AbbVie to have enormous pricing power in the market; having essential products and pricing power makes the business highly inflation resistant. This is why AbbVie stock has made substantial gains in the current market while many other sectors have suffered.
Solidify the future
AbbVie is perhaps best known for Humira, a highly successful drug that treats moderate to severe Crohn’s disease. The drug is a blockbuster that has made AbbVie billions and billions of dollars; Humira achieved $5.33 billion in global sales in the last quarter alone. The problem for AbbVie is that biosimilars are now available in Europe and will arrive in the United States in 2023. Thanks to biosimilars, European sales of Humira have already fallen significantly, and sales in the United States will undoubtedly fall in 2023 and next.
AbbVie management is tasked with finding new product lines to maintain its success, and it has done just that. In May 2020, AbbVie announced that it had completed the acquisition of Allergan. This massive deal brought the Botox and Vraylar franchises, among other products, to AbbVie. In 2021, sales of these two products alone reached $4.2 billion for the year. AbbVie has also developed Skyrizi and Rinvoq, which treat plaque psoriasis and rheumatoid arthritis, respectively. When reporting full year 2021 results, AbbVie reaffirmed its forecast that total sales of these two drugs will reach $15 billion combined by 2025.
AbbVie has steadily reduced its reliance on Humira while increasing its overall revenue. As shown in the chart below, AbbVie’s total quarterly revenue grew from $8.6 billion in Q1 2020 to nearly $14.9 billion in Q4 2021:
Meanwhile, the company’s reliance on Humira fell from 55% to 36% during this period. This clearly illustrates that AbbVie can continue to thrive without relying too heavily on Humira.
A strong and growing dividend
AbbVie’s stock dividend is also a big draw, currently standing at $1.41 per quarter or $5.64 per year. Since AbbVie’s inception in 2013, the dividend has increased every year. The dividend yield, currently 3.87%, is still attractive despite the recent rise in the share price.
Dividends are a great way to navigate choppy market waters; even if the market goes down, you can count on income every quarter until the market recovers. You can also reinvest dividends and enjoy compounding gains.
In 2021, the company generated $22.8 billion in cash flow from operations and paid $9.3 billion in dividends. Additionally, AbbVie’s dividend payout ratio is well below 50%, making its dividend quite secure, as shown below:
As the global market remains uncertain, AbbVie is taking all necessary steps to provide shareholders with a safe place to invest their hard-earned money and achieve consistent and growing returns. AbbVie shares have posted strong gains recently and will likely continue to reward long-term investors going forward.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.