Are you ready for the next market crash? You had better be because the next one is always just around the corner.
Short-term minded investors tend to dump their stocks at the first sign of a market crash and it’s a surefire way to underperform over the long run. Successful investors, though, know that dips, corrections, and crashes create bargain opportunities.
Products from AbbVie (NYSE:ABBV) and subscriptions to Veeva Systems (NYSE:VEEV) generate strong cash flows in good economic times and bad. Here’s why patient investors will want to scoop up their shares the next time the broad market takes a dive.
You might not realize it, but new drug patents are usually good for just 25 years. Half of this time usually gets chewed up by pre-commercial-stage development, leaving a relatively short window to generate significant profits. AbbVie is a top stock for long-term investors to buy on the dips because the company keeps coming up with ways to extend market exclusivity for treatments that are both popular and expensive.
In 2013, Abbott spun AbbVie out into a separate company to shield its relatively steady cash flows from incoming biosimilar competition for Humira. The FDA approved the first of six low-cost biosimilar versions of Humira beginning in 2016, but a thicket of patent protections continues to protect AbbVie’s hold on market exclusivity in the U.S.
Despite launching 20 years ago, global sales of the rheumatoid arthritis treatment came in at an annualized $19.6 billion in the first quarter. Biosimilar versions of Humira are widely expected to launch in the U.S. next year. Despite the dour outlook, I wouldn’t be surprised if AbbVie reports significant Humira revenue for another decade.
At first glance, the acquisition of Allergan and its Botox brand of botulinum toxin made AbbVie seem like a glutton for punishment. Botox earned its first FDA approval in 1989 but it’s been around for much longer.
Over the years, Allergan and AbbVie have bolstered Botox’s position in the market for cosmetic procedures and that’s not all. Botox has also been approved to prevent migraine headaches and severe muscle spasms. Botox sales hit an annualized $4 billion in the first quarter and could continue climbing indefinitely.
Botox, Humira, and the rest of AbbVie’s product lineup delivered a whopping $17.8 billion in free cash flow to AbbVie’s bottom line over the past year. That’s more than enough to fund a quarterly payout that offers a 4.4% dividend yield at recent prices.
To this company, drugmakers like AbbVie are valuable clients. Veeva Systems sells subscriptions to cloud-based services tailored to the life science industry and other businesses that need to record lots of details for government regulators.
In the days before electronic filing, new drug applications could fill a small office from floor to ceiling with reams of paper. The amount of data drugmakers need to keep tabs on hasn’t stopped growing, and neither has demand for Veeva Systems’ services. Some competing software vendors offer sales support and others facilitate the clinical development process, but Veeva Systems is the only cloud service provider that covers all the bases for life sciences businesses regardless of their size.
Veeva Systems’ client list includes six of the world’s 20 largest pharmaceutical companies, and it’s growing by leaps and bounds. Veeva’s relatively new suite of quality control tools had a big quarter that allowed the company to add 59 new clients in the fiscal first quarter. That was a company record that drove Veeva’s total client count past 1,000 for the first time.
Veeva plows large sums into refining its popular services and developing new ones that make it harder and harder for clients to walk away, but those investments are getting easier to manage. It didn’t happen overnight, but Veeva has reached a size that allows the company to stay several steps ahead of the competition without sacrificing profitability.
The stock is trading at a valuation of 83 times forward earnings expectations, but those earnings are rising fast. During Veeva Systems’ fiscal first quarter, which ended on April 30, 2021, operating income jumped 47% higher on revenue that rose 29% year over year.
Take your pick
Steady sales of Humira coupled with a product line dotted with rising stars have allowed AbbVie to triple its dividend payout since the stock began trading in 2013. Investors getting closer to retirement will appreciate the large and growing income stream their AbbVie shares produce, especially if they can be purchased at a steep discount to their recent price.
Shares of Veeva Systems are so highly valued at the moment that the stock could tank down the road if investors think it can’t keep growing at a breakneck pace. As a much smaller company, though, Veeva’s in a position to provide much stronger gains than AbbVie over the long run.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.