gGrowth stocks, on the whole, have significantly outperformed value stocks since the last major financial crisis. Historically low federal funds rates (the rate at which banks lend to each other), combined with huge levels of fiscal stimulus by the US government, were the main drivers of this unprecedented 14-year bull run in growth stocks.
But with the Federal Reserve poised to launch a series of interest rate hikes this year, value stocks are likely to outperform growth stocks for the foreseeable future. In fact, value stocks have already started beating growth stocks, in terms of total capital return, since the start of the fourth quarter of 2021.
With this powerful trend reversal in mind, investors may want to stock up on high-quality value stocks in the early weeks of 2022. Which value plays are the best buys right now? Pharma stocks paying dividends Pharmaceutical Takeda (NYSE:TAK) and Viatris (NASDAQ: VTRS) are currently trading at very cheap valuations. Here’s why investors may want to add these two drugmakers to their portfolios soon.
Takeda Pharmaceutical: An Incredibly Cheap High-Yielding Dividend Stock
Japanese pharmaceutical giant Takeda was one of the few major drugmakers to lose ground during this 14-year bull market. Various clinical setbacks, upcoming patent expirations, a heavily leveraged balance sheet due to its acquisition of rare disease specialist Shire and the lack of a franchise-level drug all weighed on its shares during this period. . Takeda shares, in fact, have lost nearly a third of their value in the past three years alone. However, the company’s shares now look poised for a major reversal for three main reasons.
First, Takeda’s Wave 1 clinical pipeline has recently begun to yield high-value commercial products. Late last year, for example, the company won two major U.S. regulatory approvals for post-transplant cytomegalovirus infection drug Livtencity and niche lung cancer drug Exkivity. Takeda believes these two drugs will help drive respectable levels of revenue growth through fiscal 2030 and keep its ongoing deleveraging process on track.
Second, Takeda shares are currently trading at 1.5x forecast sales for fiscal year 2022. This is easily one of the lowest price-to-sales ratios in drug manufacturing right now. current. Takeda, indeed, is a true stock of value. This should benefit the drugmaker’s share price in the current value-driven market.
Third, Takeda is currently paying a whopping 5.6% annualized dividend yield. The company’s outstanding performance is also well funded, as evidenced by its fairly low payout ratio of 59.4%.
All in all, Takeda shares should shine as investors turn to pure value stocks and away from riskier growth stocks.
Viatris: Stability and an excellent dividend yield
Viatris is a generics and biosimilars company. Since its inception just over a year ago, the company’s shares have fallen more than 10.4%. Viatris’ stock has so far failed to excite investors due to its debt-laden balance sheet, lack of clear growth products and rather modest long-term outlook. The company, after all, doesn’t expect sustainable revenue growth until 2024.
Despite these headwinds, however, Viatris stock should appeal to value-conscious investors. In summary, Viatris shares are currently among the cheapest in dividend-paying pharmaceutical stocks. Underscoring this point, shares of the drugmaker are currently trading less than one-times forward selling. Additionally, Viatris is currently offering its shareholders an above-average return – relative to its peer group – of 3.29% on an annualized basis.
Thus, even if the Viatris share will not enrich the shareholders any time soon, this pharmaceutical share appears to be a very safe investment vehicle, thanks to its advantageous valuation and its attractive dividend yield. And Viatris’ top-notch headroom should prove to be a winning feature in this risk-averse market.
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George Budwell has no position in the stocks mentioned. The Motley Fool recommends Viatris Inc. The Motley Fool has a Disclosure Policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.