President Donald Trump's trade policy sparked a stir on Wall Street. The president is calling for aggressive tariffs on imported goods in order to bring manufacturing jobs back to the country.
There was hope that certain sectors, including healthcare, would be spared, but it turns out that this is not the case. A higher obligation to import can increase the costs of a company, narrowing down margins and revenues, and significantly impairing stock price performance. But despite this threat, there are still health companies worth investing in, including Eli Lilly. (lly 1.33%)) and Novartis (NVS) -0.25%)).
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1. Eli Lily
Eli Lilly has been expanding its US-based manufacturing capacity over the years, but has recently accelerated this effort. Pharmaceutical leaders have now committed to investing or investing in $50 billion since 2020 to construct or update domestic manufacturing sites, about half of which were announced in the first quarter.
Management said that completing an ongoing project will allow for increased exports while manufacturing 100% of the drugs targeting US patients in the country. In other words, drugmakers are largely insulated from the effects of Trump's tariffs.
And there are other reasons to invest in Eli Lily. Here are three:
First, the company has demonstrated significant innovations in recent years in the core areas of diabetes and obesity. Its new launches, Mounjaro and Zepbound, have already generated billions, allowing them to increase revenue and revenue at good rates.
In the first quarter, its top line rose 45% year-on-year to $12.7 billion. Net profit was $2.8 billion, 23% higher than last year. Such results should be the norm for at least the next five years.
Secondly, the company has an extensive pipeline. Lily recently reported a positive phase 3 result for Orforglipron, an oral GLP-1 candidate. This was an important victory for the company as the current GLP-1 drugs are being administered subcutaneously. Therefore, Orforglipron can attract some patients who need more convenient options. And beyond diabetes and obesity care, there are many other exciting candidates too.
Third, the company is a great dividend stock despite an impressive forward yield of 0.8%. Payments have increased by 102.7% over the past five years. But whether you're looking for growth or income, Eli Lily is the best stock to buy now and hold for a long time despite the threat of tariffs.
2. Novartis
Novartis follows a similar blueprint to mitigate the impact of tariffs. The company announced it would invest $23 billion over the next five years to improve its US-based manufacturing footprint.
The outcome could suffer somewhat from the effects of tariffs in the interim, but the company should be able to ultimately handle them, assuming that tariffs will continue in the end. It is another great healthcare stock to consider in this environment, especially given its strong financial results and promising outlook.
In the first quarter, net sales increased 12% year-on-year to $13.2 billion. Net profit was $4.5 billion, 22% higher than last year.
Some may point out that Novartis has lost its US patent exclusivity to the suspension of heart failure medical care this year. In the first quarter, it remained the best-selling drug, generating 20% higher than last year, generating $2.3 billion in sales.
This is a huge loss, but management is prepared for it. New drugs will ultimately need to replace Fabharta, which treats paroxysmal nocturne hemoglobinuria (a rare hematological disorder), and Prost, which treats cancer drugs scemblix and plumvicto.
All were the first to receive approval in the US between 2021 and 2023. In the first quarter, the trio's bestseller, Pluvicto, generated revenue of $371 million, up 20% year-on-year. Furthermore, Novartis' deep pipeline will lead to more launches. The company currently has over 100 continuous programs.
Finally, Novartis is also a strong income stock. Drugmakers have increased their dividends for the 28th consecutive year, and currently offer a forward yield of 3.3%, significantly higher than the S&P 500's average yield of 1.3%.
Despite the potential impacts from the major patent cliffs and tariffs ahead, it should deliver solid returns for patient investors.
