NEW YORK (TheStreet) -- With Shire (SHPGoffering to acquire Baxalta  (BXLT) for more than $30 billion, we decided to check TheStreet Quant Ratings for stocks in the pharmaceuticals subsector that would be good investments.

Baxalta manufactures drugs which treat rare diseases. Some of the diseases those drugs help treat are for immune deficiencies and rare bleeding disorders.

Shire is a Dublin-based biopharmaceutical company that researches, develops, licenses, manufactures, markets, distributes, and sells pharmaceutical products. TheStreet Quant Ratings rated Shire as a "buy," with a "B" letter grade, a rating given prior to the news of a possible acquisition.

The pharmaceutical industry is having a strong year. Investors have benefited from the abundance of mergers and acquisitions in the industry this year. Pharmaceutical company deals are motivated by the desire to beef up the new drug pipeline and streamline heavy research costs.

So, what are the best pharmaceutical stocks investors should be buying? Here are the top four, according to TheStreet Ratings, TheStreet's proprietary ratings tool.

TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014, beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Check out which companies made the list. And when you're done, be sure to read about which managed health care stocks you should buy now. Year-to-date returns are based on August 4, 2015 closing prices. The highest-rated stock appears last.

PFE ChartPFE data by YCharts
4. Pfizer Inc. (PFE - Get Report)

Rating: Buy, A-
Market Cap: $222.4 billion
Year-to-date return: 15.9%

Pfizer Inc., a biopharmaceutical company, discovers, develops, manufactures, and sells healthcare products worldwide.

"We rate PFIZER INC (PFE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The gross profit margin for PFIZER INC is currently very high, coming in at 74.74%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, PFE's net profit margin of 22.16% compares favorably to the industry average.
  • PFE, with its decline in revenue, slightly underperformed the industry average of 4.9%. Since the same quarter one year prior, revenues slightly dropped by 7.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • PFIZER INC's earnings per share declined by 6.7% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, PFIZER INC reported lower earnings of $1.42 versus $1.65 in the prior year. This year, the market expects an improvement in earnings ($2.05 versus $1.42).
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Pharmaceuticals industry average. The net income has decreased by 9.8% when compared to the same quarter one year ago, dropping from $2,912.00 million to $2,627.00 million.

NVS ChartNVS data by YCharts
3. Novartis AG (NVS - Get Report)

Rating: Buy, A-
Market Cap: $250 billion
Year-to-date return: 11.8%

Novartis AG researches, develops, manufactures, and markets a range of healthcare products worldwide.

"We rate NOVARTIS AG (NVS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, solid stock price performance, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • NOVARTIS AG's earnings per share declined by 30.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NOVARTIS AG increased its bottom line by earning $4.32 versus $3.72 in the prior year. This year, the market expects an improvement in earnings ($5.15 versus $4.32).
  • NVS's debt-to-equity ratio is very low at 0.30 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.50 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The gross profit margin for NOVARTIS AG is rather high; currently it is at 64.90%. Regardless of NVS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 14.46% trails the industry average.

JNJ ChartJNJ data by YCharts
2. Johnson & Johnson (JNJ - Get Report)

Rating: Buy, A-
Market Cap: $277 billion
Year-to-date return: -4.6%

Johnson & Johnson, together with its subsidiaries, researches and develops, manufactures, and sells various products in the health care field worldwide. It operates in three segments: Consumer, Pharmaceutical, and Medical Devices.

"We rate JOHNSON & JOHNSON (JNJ) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • JOHNSON & JOHNSON has improved earnings per share by 6.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, JOHNSON & JOHNSON increased its bottom line by earning $5.70 versus $4.82 in the prior year. This year, the market expects an improvement in earnings ($6.16 versus $5.70).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Pharmaceuticals industry average. The net income increased by 4.4% when compared to the same quarter one year prior, going from $4,326.00 million to $4,516.00 million.
  • The gross profit margin for JOHNSON & JOHNSON is rather high; currently it is at 69.88%. Regardless of JNJ's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, JNJ's net profit margin of 25.38% compares favorably to the industry average.
  • JNJ, with its decline in revenue, slightly underperformed the industry average of 4.9%. Since the same quarter one year prior, revenues slightly dropped by 8.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • In its most recent trading session, JNJ has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.

NVO ChartNVO data by YCharts
1. Novo Nordisk A/S (NVO - Get Report)

Rating: Buy, A
Market Cap: $155 billion
Year-to-date return: 41.5%

Novo Nordisk A/S, a healthcare company, engages in the discovery, development, manufacture, and marketing of pharmaceutical products worldwide. It operates in two segments, Diabetes Care and Biopharmaceuticals.

"We rate NOVO NORDISK A/S (NVO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, notable return on equity, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 25.57% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, NVO should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 19.1% when compared to the same quarter one year prior, going from $1,191.65 million to $1,419.95 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, NOVO NORDISK A/S's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for NOVO NORDISK A/S is currently very high, coming in at 84.63%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 39.19% significantly outperformed against the industry average.
  • NVO's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that NVO's debt-to-equity ratio is low, the quick ratio, which is currently 0.52, displays a potential problem in covering short-term cash needs.