Growth stocks, on balance, have been dramatically outperforming value stocks since the last major financial crisis. Historically low federal funds rates (the rate at which banks lend to each other), coupled with heavy levels of fiscal stimulus by the US government, were the main drivers behind this unprecedented 14-year bull run in growth stocks.
VUG Total Return Level Data by YCharts
But as the Federal Reserve prepares to launch a series of interest rate hikes this year, value stocks are probably going to outperform growth stocks for the foreseeable future. In fact, since the start of the fourth quarter of 2021, value stocks have begun to outperform growth stocks in terms of their total return on capital.
VUG Total Return Level Data by YCharts
With this powerful trend reversal in mind, investors may want to load up on high-quality value stocks during the early weeks of 2022. Which value plays are the best right now? dividend paying pharmaceutical stocks Takeda Pharmaceutical(NYSE:Thanks) And viatris(NASDAQ:VTRS) Both are currently trading at dirt-cheap valuations. This is why investors may want to add these two drugmakers to their portfolios soon.
Image Source: Getty Images.
Takeda Pharmaceutical: An Incredibly Cheap High-Yield Dividend Stock
Japanese pharma giant Takeda was one of the few major drugmakers that lost ground during a 14-year long bull market. Various clinical failures during this period, upcoming patent expirations, a highly leveraged balance sheet due to the acquisition of rare disease specialist Shire, and a franchise-level drug shortage all weighed on its shares. In fact, Takeda shares have lost nearly a third of their value over the past three years. However, the company’s stock is now poised for a major reversal for three key reasons.
First, Takeda’s Wave 1 clinical pipeline recently started rolling out some high-value commercial products. For example, late last year, the company received two important US regulatory approvals for the post-transplant cytomegalovirus infection drug Livtensity and the niche lung cancer drug Exkivity. Takeda believes these two drugs will help drive respectable levels of top-line growth through fiscal year 2030 and keep its ongoing deleveraging process on track.
Second, Takeda’s stock is currently trading at 1.5 times FY22 estimated sales. It has one of the lowest price-to-sales ratios in the major pharmaceutical manufacturing sector right now. Takeda is, in fact, a real value stock. This should benefit the drugmaker’s share price in the current value-oriented market.
Third, Takeda pays a higher annual dividend yield of 5.6% right now. The company’s impressive yield is also well funded, as evidenced by its fairly low payout ratio of 59.4%.
All told, Takeda’s stock should shine as investors flock to pure-play value stocks and shy away from riskier growth equities.
Viatris: Sustainability and a Top Dividend Yield
Viatris is a generic and biosimilar pharmaceutical company. Since its formation 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 modest long-term outlook. After all, the company isn’t expecting sustainable top-line growth until 2024.
However, despite these adversity, Viatris stock should appeal to investors looking for value. The long and short of it is that Viatris stock is currently the cheapest among dividend-paying pharma stocks. Underscoring this point, the drugmaker’s shares are currently trading at less than a sell-off. What’s more, Viatris currently offers shareholders an above-average yield — relative to its peer group — of 3.29% on an annualized basis.
So while Viatris stock isn’t going to make shareholders rich anytime soon, this pharma stock stands out as a highly safe investment vehicle due to its bargain bin valuation and attractive dividend yield. And Viatris’ top margin of safety should prove to be a winning feature in this risk-averse market.
This article represents the opinion of the author, who may disagree with the Motley Fool Premium Advisory Service’s “official” recommendation status. We are Motivate! Questioning an investment thesis – even our own – helps us all to think critically about investments and make decisions that help us become smart, happy, and wealthy.