Forget Pot Stocks – Buy This Instead

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The further pending legalization of medical marijuana has stirred up an investor feeding frenzy. Like sharks smelling blood, investors have gone crazy over the upside potential of legal pot. And for good reason — early investors in the space are likely to earn handsome returns.

Hundreds of companies have sprouted up to exploit the excitement surrounding the coming regulatory changes. However, most of these innovative new players are only suitable for risk-loving speculators. While substantial profits may be earned in the short term, many of these small-caps are one-trick ponies with questionable long-term prospects.

Fortunately, there is a solution for cannabis investors who prefer relative security and a long-term outlook. Several large, established firms are actively adding legal medical marijuana-based products to their pharmaceutical lines.

The Safest Stock In The Cannabis Space
Believe it or not, the plant form of cannabis is not approved by the FDA for pharmaceutical use. This came as a surprise to me as I firmly thought that cannabis was approved as a pharmaceutical ingredient, given all the positive press hype.

The FDA has only approved the synthetic form of cannabis in three medications. These medications are Marinol, Syndros, and Cesamet. Marinol and Syndros are built on the active ingredient dronabinol, a synthetic delta-9-tetrahydrocannabinol (THC). Cesamet contains nabilone, another synthetic with a chemical structure similar to THC.As we patiently await FDA approval for plant-based cannabis medicines, my favorite large company in the space is AbbVie (NYSE: ABBV). The company is actively marketing Marinol as a treatment for chemotherapy-induced nausea and as an appetite stimulant for AIDS sufferers. And while Marinol’s current sales are only a drop in the bucket for AbbVie, this is a huge growth opportunity that represents one reason among many to like the stock.

A Best-In-Class Pharma Giant
Formed in 2013 as a pharmaceutical spinoff of the giant Abbott Labs, AbbVie boasts a $143 billion market cap with $27 billion in annual revenue. Best known for its heavily marketed flagship drug Humira, the company creates, manufacturers, and markets pharmaceuticals targeting complex and severe ailments. Specifically, AbbVie has a presence in treatments for rheumatoid arthritis, cancer, psoriasis, Crohn’s disease, HIV, hepatitis C virus (HCV), testosterone, thyroid disease, Parkinson’s disease, ulcerative colitis, and chronic kidney disease areas.

Both growth and income investors can find compelling reasons to own AbbVie. Not only are shares higher by over 40% this year, but the stock also throws off a nearly 3% annual dividend yield. These metrics can only be expected to increase, with an authorized $5 billion increase in share buybacks and a history of dividend boosts. AbbVie has also reported climbing revenues and improving operating income over the past four years.

Ready For The Future
While a lawsuit settlement just granted Amgen (Nasdaq: AMGN) the rights to license a product similar to Humira in 2023 in the United States and October 2018 in the eurozone, AbbVie’s sales ramped higher by over 16% in 2016. The settlement terms were favorably received, as shares rocketed nearly 6% on the news.

Recently, Humira has indicated the potential to treat the skin condition hidradenitis suppurativa, which has been forecasted to add another $1 billion to top-line sales projections. Total sales for the company are expected to top $17 billion by 2020. However, future competitive pressure of the lawsuit settlement will likely quash these projections a little.

The old corporate adage “expand or die” is particularly accurate in the highly competitive pharmaceutical industry. AbbVie aggressively pursues acquisitions and collaborations to strengthen its position. Major sector names have become partners with AbbVie. These companies and products include Biogen (Zinbryta for multiple sclerosis), Roche (Venclexta for cancer), and Boehringer Ingelheim (risankizumab for psoriasis), among several others.

But the acquisition that could help ABBV the most is the 2015 buyout of Pharmacyclics for $21 billion. The deal is expected to be earnings neutral for this year with a $1.00 EPS boost in 2021. The improvement is thanks to Imbruvica. Called a “pipeline in a molecule,” Imbruvica targets autoimmune diseases. It is forecasted to boast peak sales of over $7 billion and revenues of about $5 billion by 2020. The drug has FDA approval for a number of indications, creating multi-billion-dollar upside potential.

AbbVie is an extremely well-diversified company providing exposure to the medical synthetic cannabis sector via Marinol. Interestingly, AbbVie’s cannabis interest extends beyond its marketed product. The company holds multiple cannabis-related patents, including combination therapy for reducing side effects, a method for treating receptor-related diseases, and a process for preparing cannabinoid receptor ligands. Cannabis investors can fully expect additional cannabis-related products to flow from AbbVie over the long term.

Risks To Consider: Competition is the major risk with AbbVie. Just like in the high-tech industry, pharmaceutical companies are always challenged by new and improved medications and treatments. Always use stop-loss orders and position size properly no matter how compelling an opportunity.

Action To Take: As this article was being written, the Amgen/Abbvie legal settlement hit the newswire, sending shares higher by over 6%. Wait for upside momentum to settle into a long-term uptrend before investing. Enter the trade on a break of $91 per share with an initial stop-loss order set at $81.92 and a target price of $155.

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David Goodboy does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.