We recently published a list of the 10 Best Drug Stocks to Buy Now. In this article, we are going to take a look at where Zoetis Inc. (NYSE:ZTS) stands against other best drug stocks to buy now.
Is China the Next Big Thing in the Pharmaceutical Industry?
Large American pharmaceutical companies are showing a distinct trend never seen before: they are increasingly looking for medicines in China. According to data from DealForma, as reported by CNBC, around 30% of Big Pharma deals with at least $50 million upfront in 2024 included Chinese companies. This was up from 20% the year before and almost 0% only five years prior. The surge in China deals is materializing when US policymakers and President Donald Trump are pursuing protectionist policies in technology, such as semiconductors and AI.
Various reasons are being attributed to this trend. Experts believe that Chinese companies are developing more effective molecules than ever before, that too in large quantities. They are in a position to begin testing these molecules on human subjects quicker and at a lower price than the US. Buyers have devised a business model allowing them to essentially import the medicines through licensing deals, according to CNBC. Biotech companies are further pushed into making these deals due to the drying up of venture funding in China.
Despite varying opinions among experts, there is an industry-wide consensus that this unique trend is here to stay. How this trend might affect the US biotech sector remains unclear at the moment. While some people believe it could potentially ruin American startups if large pharmaceutical companies stumble upon a promising Chinese drug at low price, others believe the competition would be fruitful for the industry. Either way, this trend is anticipated to metamorphose the landscape of the American biopharma sector. CNBC reported that Tim Opler, a managing director in Stifel’s global healthcare group, said the following about the situation:
“It’s kind of a watershed moment where the pharma industry is like, ‘We don’t really need to buy U.S. biotechs necessarily. We will if it makes sense, but we can buy perfectly good biotech assets through licensing deals with Chinese companies.”
What Does the Future of the Pharmaceutical Sector Look Like?
EY believes the pharmaceutical sector is expected to see more deal activity in 2025 compared to 2024, especially if interest rates remain low. Although the industry may see an increase in larger acquisitions to address growth gaps, smaller strategic deals are expected to persist throughout the year. The policy environment in the US is undergoing changes due to political impacts on business, such as re-regulation, lower corporate taxes, continued drug pricing reforms, and the possibility of higher tariffs. Other factors that may affect the biotech and pharmaceutical industries include changes in leadership within health agencies and immigration.
A survey by Deloitte showed that drug pricing and access are the top concerns among executives in 2025. The survey also showed that the primary concerns include competition from generic drugs and biosimilars and the looming patent cliff, with over $300 billion in sales at risk due to expiring patents by 2030. Due to this trend, executives anticipate an increase in mergers and acquisitions in 2025.
“According to McKinsey, the healthcare industry is expected to continually undergo a shift in growth dynamics. Health services and technology (HST) revenue pools are anticipated to grow at a compound annual growth rate of 8% between 2023 and 2028, supported by double-digit growth in software platforms and advanced data and analytics. The sales of innovative technologies such as generative AI to payers and providers are further supporting this growth.
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of 30 drug stocks. We then selected the top 12 most popular stocks among elite hedge funds as of Q3 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A veterinarian administering a vaccine to a herd of cattle in a farm.
Zoetis Inc. (NYSE:ZTS) is a global animal health company that focuses on the discovery, development, manufacture, and commercialization of vaccines, medicines, biodevices, genetic tests, diagnostic products, and precision animal health. Its operations are divided into the United States and International segments. Each segment boasts a diversified product portfolio, including vaccines, parasiticides, pain and sedation, animal health diagnostics, and more.
The company markets its products in around 45 countries across the globe and specializes in products across eight core species: companion animals (dogs, cats, and horses), cattle, swine, livestock (sheep and fish), and poultry. Zoetis Inc. (NYSE:ZTS) delivered 11% revenue growth in fiscal Q4 2024, reflecting the strength and demand of its brands and its continued focus on execution to drive broad-based growth. Revenue in the US grew by 11%, while international revenue increased by 10% operationally, marking significant revenue milestones for the company in a competitive landscape.
It also drove operational revenue growth in its companion animal portfolio and 5% operational revenue growth for its livestock portfolio. Zoetis Inc. (NYSE:ZTS) is confident about the ability of its growth drivers to drive sustainable growth in 2025, positioning it for continued above-market growth in the mid-to-high single-digit range for 2025 and beyond. The diversity of its business model with multiple growth drivers supports this optimism.
Overall, ZTS ranks 9th on our list of best drug stocks to buy now. While we acknowledge the potential of ZTS, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ZTS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
