Hawkish comments from former Senator, Secretary of State and Democratic presidential nominee Hillary Clinton and Democratic Sen. Bernie Sanders of Vermont, who also ran for president, regarding high drug prices placed a dark cloud above the health care sector.
But the sector is rallying following Donald Trump's victory in the presidential election.
The larger players in the sector are excellent income opportunities. With diverse market reach and large drug pipelines, companies such as Gilead Sciences (GILD) and Merck (MRK) are able to increase their earnings and yields year after year.
Founded in 1987, Gilead Sciences is one of the world's largest bio-pharmaceutical companies. The company sells 19 patented drugs that are used to treat cancer, HIV, liver disease, as well as cardiovascular, inflammatory and respiratory conditions.
Gilead Sciences also has a dividend yield of about 2.5%.
Lower revenue was forecast for Gilead Sciences last year due to competition in European and U.S. markets. The company beat analysts' estimates by working with Indian pharmaceutical companies to sell Harvoni to 91 developing countries with an estimated 100 million people infected with hepatitis, reporting revenue of $32.6 billion, up 31% from 2014.
The company also has hopes for its GS-5806, still in clinical trials. The drug is a treatment for respiratory syncytial virus, which hospitalizes 300,000 people alone in the U.S. each year. There is no treatment for RSV.
Gilead Sciences is sitting on a pile of money: $24.6 billion to be exact.
The company spent $10 billion to repurchase stock during the first half this year, but with its share price still dropping perhaps it is time to use that money to make an aggressive move into the cancer immuno-therapy field. Gilead Sciences could do that quickly by buying one of the small research and development companies that could win Food and Drug Administration approval for a promising treatment within the next year.
Meanwhile, pharmaceutical giant Merck offers a prescription for future downturns and more market volatility.
The company's health care business is buoyed by strong demographic trends, is financially sound and offers stability through its global market reach. In addition, Merck has paid a consistent dividend since 1970, which is at 3% and is growing annually.
Health care companies will benefit from a rising tide of retiring baby boomers in developed countries that will need more treatments to support their increasing lifespans. Greater demand for health care from growing middle classes in developing countries is also contributing.
Not only is its drug line expanding and diversified, its geographic diversification adds to the company's stability. Merck operates in more than 100 countries, which means that it isn't affected much by a country or region with economic problems.
Merck is also concentrating on diseases with few, if any, effective treatments. This makes the company a standout in an industry that has focused too much on making drugs for diseases that already have treatments.
Those drugs have greater competition and lower profit margins.
Merck said that in the third quarter, its blockbuster drug, Keytruda, a treatment for melanoma and a second-line therapy for lung cancer, performed well, posting $315 million in sales.
Sales of Merck's Januvia drug for diabetes grew 2% in the third quarter.
That said, Merck's Isentress for HIV and the Gardasil vaccine against human papillomavirus showed some earnings weakness. Growing competition hurt Isentress, while the Centers for Disease Control and Prevention made fewer purchases of Gardasil.
Still, Merck's new drug pipeline should offset this weakness in existing drugs.
Excluding the effect of exchange rates, the company's sales grew 3% in the last quarter.
Sales forecasts call for 2% growth for the full year. Management forecasts earnings of $1.98 a share to $2.08 a share for the full year, and the dividend yield looks likely to keep growing.
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