By Marc Lichtenfield, Chief Income Strategist
I was very fortunate early in my career to have been trained by one of the greatest contrarian investors of our time.
So when I look at the market, especially in sectors that are white-hot, I’m not interested in the same questions everyone is talking about on CNBC or chatting about online.
I look for stocks that others are blind to… while they chase the hot stock of the moment.
There’s a company investors are making a huge mistake by ignoring. It sits on the convergence of the artificial intelligence (AI), healthcare and pharmaceutical industries.
There’s a ridiculous amount of money in all of those, and all three industries are growing rapidly.
The AI market is set to be worth over $826 billion by the decade’s end. McKinsey & Company predicts AI technology could add $2.6 trillion to $4.4 trillion in economic benefits annually.
Healthcare is a $5 trillion in the United States alone. The pharmaceutical industry generates more than $1.6 trillion in revenue annually worldwide.
And this company is set to profit from trends in all of them. It’s called Amgen Inc. (Nasdaq: AMGN), and it’s my #1 AI dividend stock right now.
The Future of Drug Development
Amgen, founded in 1980 and headquartered in Thousand Oaks, California, is solving one of the biggest problems in the modern pharmaceutical industry: drug development.
See, as it stands, drug development is incredibly time-consuming and expensive. The average cost to develop a new drug across the top 20 global biopharma companies is $2.3 billion, but it can go all the way up to $12 billion.
And it normally takes 10 to 12 years for a new drug to get to market. And that’s if it even sees the light of day. A full 90% of new drugs fail in trials. On average, of every 5,000 compounds that enter preclinical testing, only five make it to human trials. Of those five, only one makes it to market. That’s one successful drug for every 4,999 failures.
Modern drug development is a frustrating and expensive exercise in trial and error.
The scientists working for these companies spend countless hours testing thousands of molecules, hoping that one will show promise. But only a tiny fraction of possible drug candidates can actually be tested, and all the other potential molecules have to be ditched.
These companies are wasting years and billions of dollars to maybe find a drug that can both help people and make a profit (after recouping the money spent on development, of course).
What Amgen is doing is using the power of AI to rapidly calculate vast quantities of data and produce usable information to develop new drugs faster and with a higher hit rate.
With AI, scientists don’t have to waste time and money testing drug candidates that won’t amount to anything. They can analyze vast quantities of human datasets and potential molecules and proteins, eliminating much of the trial and error of drug discovery by focusing only on what Amgen’s AI has identified as potentially useful.
AI can conceivably cut the time between concept and product for new drugs in half. A drug that would have taken 12 years to develop without AI will take only six with AI assistance. And it can save companies hundreds of millions of dollars that could be better spent developing more new drugs. Costs could be reduced by 25% to 50%, leading up to the preclinical trial stage of development for new drug candidates.
It also means more drugs can be developed for rarer diseases. Drugs for the diseases with smaller addressable markets could be produced at lower costs, saving or improving thousands of lives the world over.
For example, Uplizna is one of Amgen’s drug candidates. It’s currently in Phase 3 trials for treating myasthenia gravis. This autoimmune condition causes the body’s own antibodies to destroy the communication between nerves and muscle, causing severe muscle weakness. The condition affects about 200,000 people per year in the United States and has no known cure. But thanks to Amgen, a treatment is potentially right around the corner.
AI is even capable of seeing things scientists can’t and dreaming up molecules the human mind never could. Instead of searching for a needle in a haystack, scientists could have the proverbial needle handed to them by a machine that was able to sift through all the straw in a matter of minutes.
The benefit to humanity – not to mention the profit potential – is enormous… especially considering Amgen’s partnerships.
Friends in High Places
Amgen announced a partnership with tech and AI giant Nvidia early in 2024. It will be installing Nvidia’s DGX SuperPOD full-stack data center platform in its deCODE genetics headquarters in Reykjavik, Iceland.
The system, which Amgen is calling Freyja, after the Norse goddess of fertility with the ability to predict the future, will be used to build a human diversity atlas. The purpose of it will be targeted drug development and disease biomarker discovery.
Ultimately, the goal here is to help develop precision medicine models for various populations and even individualized therapies for patients with serious diseases.
Since it was founded in 1996, the deCODE facility has curated 200-plus petabytes of anonymous human data from nearly 3 million individuals (1 petabyte is equal to 1 million gigabytes). It’s a treasure trove of genetic medical data that, paired with the power of AI and Nvidia hardware, will now be able to be used to its full potential.
And Nvidia is far from the only big player Amgen has partnered with. It’s also paired up with Amazon, using the Amazon Web Services’ cloud platform to analyze its manufacturing capabilities and bring the new drugs it develops using Nvidia’s technology to market.
Not only is Amgen using AI to develop new drugs, but it’s also using it to produce the drugs it develops in state-of-the-art facilities.
Speaking of, Amgen already has a considerable pipeline of treatments showing promise for conditions ranging from migraines and inflammation to tumors and osteoporosis. In all, it has drugs in its pipeline, with AI set to continue growing that number.
In October, Amgen announced positive results from the Phase 3 trial evaluating the efficacy and safety of UPLIZNA® to treat adults with generalized myasthenia gravis (gMG)… a rare autoimmune disorder. Due to the clinically significant results from the data, Amgen is planning to file for drug approval in the United States. All indications that the company could be adding another drug to its rapidly advancing pipeline soon.
On top of that, Amgen is pretty far from a cash-strapped biotech startup aiming to get acquired by one of the industry giants like Pfizer or AstraZeneca. The company’s balance sheet and its healthy dividend yield are proof of that…
The Financial Elephant in the Room
All the fantastic technology in the world doesn’t make a stock a #1 pick for me. But Amgen combines its sophisticated technology with one of the best balance sheets you’re likely to see in the modern stock market…
In2023, Amgen raked in revenue of $26.9 billion, up 8.5% over 2022’s. Net income for 2023 topped $6.7 billion, up 2.5% over 2022’s. Earnings per share for 2023 came in at $12.60, up 3.1% over 2022’s.
The strong growth and momentum continues in 2024. Amgen reports total revenues of $8.5 billion in the third quarter, a 23% increase year over year.. The company’s gross margin is sitting at 60% at the time of this writing, and it holds cash reserves of $9 billion. The company grew its cash on hand by 43.5% in 2023. That cash is paid out to shareholders via a considerable dividend.
For 2024, Amgen will pay its shareholders $9 per share in dividends. It has raised its dividend every year since 2012. At present, with the share price sitting just above $315, that’s a yield of 2.%.
In short, the numbers here speak for themselves. Amgen is a steady growth machine and a regular dividend raiser situated at the convergence of AI, healthcare and pharmaceuticals.
Action to Take: Buy Amgen Inc. (Nasdaq: AMGN) at market. Set a 25% trailing stop to protect your principal and your profits.
A Fine Addition to Your Portfolio
There isn’t much more an investor can ask of a stock than what Amgen offers. It’s got the technology of a tech startup, the balance sheet of a blue chip, a long trend of steady growth and a healthy dividend that it raises regularly.
In fact, with 10 years of dividend raises under its belt, Amgen is well on its way to becoming a Dividend Aristocrat in 15 years. And given how well positioned it is to capitalize on the rise of AI, it should have no problem continuing its trend of dividend raises.
This is a rare opportunity that just about has it all. It’s the right stock in the right place at the right time, and that’s why it’s my #1 AI dividend stock right now… and why you ought to add it to your portfolio.
