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Stock Strategist Industry Reports

Big Biopharma Capital Allocation Supports Undervalued Stocks and Dividend Growth

Our top two picks in this wide-moat industry are poised to benefit.

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Overall, the large-cap biopharmaceutical group has strong balance sheets, makes solid investment decisions, and distributes cash appropriately. All of this supports the ability to develop the next generation of innovative drugs that are critical to an almost entirely wide-moat industry. With the current portfolios of the industry likely to become generic over the next two decades, capital allocation is particularly important for biopharma companies. For this group, differentiation in capital allocation generally lies in high levels of research and development targeted toward areas of unmet medical need, with leading companies AstraZeneca (AZN) and Eli Lilly (LLY) poised to generate top-tier, industry-leading growth. Underappreciated strong capital allocation supports our undervalued stock calls for Roche (RHHBY) and Merck (MRK).

Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.