2 Pharmaceutical Stocks That Look Like No-Brainer Buys Right Now

There are several compelling reasons to invest in pharmaceutical companies, especially when the economy isn't doing well. Since they belong to a defensive industry, drugmakers tend to perform better than most companies even in the worst economic downturns. Additionally, long-term trends, such as the world's aging population, will drive a rising demand for pharmaceutical products over the coming decades, positioning the industry for long-term growth.

Not just any pharmaceutical stock will do, though. They aren't all created equal. Let's discuss two leaders in the industry that look like strong buys right now: Pfizer (NYSE: PFE) and Eli Lilly (NYSE: LLY).

1. Pfizer

The threat of tariffs has weighed on most sectors, including those in the pharmaceutical industry, this year. Many drugmakers do at least some manufacturing abroad, and if these products are subject to heavy duties when imported into the U.S., it could lead to increased costs for these corporations and for patients.

However, Pfizer recently announced a deal with the White House that will help it avoid this potential challenge, at least for several years. The company will be exempt from tariffs for three years, in exchange for boosting its local manufacturing capacity and selling certain medicines in the U.S. at reduced costs.

That's great news for Pfizer and its shareholders. But is that enough to make the stock a buy? After all, the company has been struggling to grow its revenue at a steady pace in recent years, and it needs to address this issue. In my view, it's well-positioned to do so given its extensive pipeline.

Pfizer's most recent announced acquisition, of Metsera, grants it access to a highly promising mid-stage GLP-1 asset called MET097i. This candidate performed well in phase 2 studies and may offer some advantages over currently approved weight loss medicines, such as better tolerability and a monthly dosing schedule.

Pfizer has a long list of candidates in oncology as well, at least some of which should, eventually, earn approval. The company's newer launches, such as RSV (respiratory syncytial virus) vaccine Abrysvo, aren't contributing significantly to top-line growth yet, but they should make progress in the coming years. So, Pfizer is slowly but surely righting the ship.

However, here's the real reason it's a no-brainer: Pfizer was recently trading at 8.7 times forward earnings, a significant discount compared to the average of 17.3 for the healthcare sector. Even if Pfizer has been struggling, its initiatives to improve its business have put it on the right track to recover over the long term. And at current levels, the stock is highly attractive.

2. Eli Lilly

Eli Lilly is not exactly a cheap stock, with a forward price-to-earnings ratio of 27. What, then, makes it a no-brainer buy?

First, Lilly has earned its premium by delivering blowout financial results consistently for a while now. For the past two years, the company has maintained an average year-over-year revenue growth rate of over 20%, an outstanding performance for a pharmaceutical giant.

LLY Revenue (Quarterly YoY Growth) data by YCharts.

Second, it has had an impressive streak of clinical and regulatory wins. Eli Lilly is performing exceptionally well in its core therapeutic areas of diabetes and weight management, thanks to products such as Mounjaro and Zepbound.

But even outside of that, Lilly's work has been impressive. In neuroscience, it achieved a feat that few companies specializing in that field have; it developed an effective medicine for Alzheimer's disease (AD), and launched its AD treatment Kisunla last year. In immunology, Lilly launched Ebglyss, a promising treatment for eczema, another therapy that should eventually hit blockbuster status.

Third, Eli Lilly has an attractive pipeline. Its candidate orforglipron could break new ground as one of the first approved oral GLP-1 therapies for weight management, and it has several other exciting candidates in the field of obesity as well.

Elsewhere, the drugmaker has been quietly working on a gene therapy for one type of hearing loss while also making strides in oncology. So, Lilly should maintain the kind of top-line growth it has demonstrated over the next few years, at least, while launching new products and continuing to invest in the future.

Lastly, Pfizer's deal with the U.S. government signals that other drugmakers, including Lilly, may also sign similar agreements -- so tariffs might not be a significant problem for this company either. For all those reasons, I think Eli Lilly is a table-pounding buy.

Prosper Junior Bakiny has positions in Eli Lilly. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.