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A look at big pharma stocks as vaccine hopes rise

Vaccine hopes have helped support market sentiment and have put pharmaceutical stocks in focus. We look at some of the big names in the US and UK.

Pharma stocks remain popular

The Covid-19 crisis has brought pharmaceutical stocks back into focus for investors. Hopes of a vaccine have centred on efforts by a variety of firms, of varying sizes, but the sector’s appeal goes well beyond the hunt for a vaccine.

Big pharma stocks have impressive cash generation capabilities, as shown by their strong dividend yields. While they have to spend plenty of cash on development of new drugs, their existing drug portfolios help to provide the necessary cash flow to support their pay-outs for investors.

In addition, while not particularly low, their price-to-earnings (P/E) ratios also provide support – in an era of record-low bond yields - investors have been prepared to be more forgiving of higher valuations if they come with strong dividend yields.

Dividend yield P/E ratio
AstraZeneca 2.50% 39.00
GlaxoSmithKline (GSK) 5.10% 19.50
Pfizer 3.95% 11.40
Gilead 3.97% 31.80
Merck 3.01% 20.60

AstraZeneca share price: technical analysis

AstraZeneca is one of the strongest performers in the sector. It has rallied consistently since late 2016, and recently hit a new record high at £100.

The sharp pullback in March provided a very strong buying opportunity, and while the shares have dropped back to £85, if a higher low forms then we may see fresh bullish momentum develop.

GSK share price: technical analysis

For GSK the picture has changed. The strong uptrend from late 2017 has come to an end, at least for now, and while the shares recovered from their March lows, they have since lost ground and remain unable to break trendline resistance from their January highs.

A break above £16.50 would certainly mark a bullish development, but for now the sellers appear to be in charge.

Pfizer stock price: technical analysis

While Pfizer has seen two huge rallies since March, it remains contained by trendline resistance from the late 2018 peak.

The price did manage to move above May’s peak, but has run into resistance at $39.80. Bulls will therefore hope that any pullback can be stifled before it moves below $32.00, or finds support at trendline support from the March lows.

Gilead stock price: technical analysis

Gilead’s huge rally from the January lows, which continued during March when the rest of the market was in meltdown, has been mostly eroded.

Hopes of a continued rally were buoyed in May and June as the stock price stubbornly held the 100-day simple moving average (SMA) as support, but in late July this gave way and the price fell back to levels last seen in early March. In addition, trendline resistance from the mid-July high has acted like a stone wall, preventing any meaningful attempt at a rally. Until this is broken the sellers will continue to drive the price lower.

Merck stock price: technical analysis

Merck has returned to the $82 zone that has marked the peak since April.

The stock found support around $75, and a break above $84 opens the path back to the highs from the beginning of the year at $91. Rising trendline support from the June low has helped prevent any significant downside, helping to reinforce the bullish view.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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