Analyst: Sell ‘Magnificent 7’ Stocks and Buy These 3 Dividend Stocks Instead

The stock market saw something incredible in 2024, with the “Magnificent 7” tech giants leading the charge and driving a huge chunk of the S&P 500’s ($SPX) impressive 25% return. Big names like Nvidia (NVDA), Meta Platforms (META), Tesla (TSLA), Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Apple (AAPL) outperformed the rest of the market by a wide margin. In fact, Howard Silverblatt from S&P Dow Jones Indices pointed out that these companies were responsible for more than half of the S&P 500’s gains. 

Elsewhere in the market, the biopharmaceutical industry had a rough year in 2024, dealing with layoffs and restructuring. 

As we step into 2025, some analysts believe it’s time to rethink strategies and look at dividend-paying healthcare stocks with lower valuations. 

Miramar Capital has singled out Merck (MRK), Bristol Myers Squibb (BMY), and AbbVie (ABBV) as excellent options. These pharmaceutical giants offer solid dividend yields and trade at more reasonable prices compared to tech stocks. Despite challenges, they’ve focused on growing their pipelines. 

With the Magnificent 7 starting to show signs of slowing down and Big Pharma working through patent challenges with innovation and smart acquisitions, more investors are starting to notice these dividend-paying pharmaceutical stocks. 

Let’s examine why Merck, Bristol Myers Squibb, and AbbVie are becoming such attractive alternatives to the tech-heavy portfolios that have dominated in recent years.

Dividend Stock #1: Merck (MRK)

Merck (MRK) is a well-known global healthcare company that develops and sells medicines, vaccines, and animal health products. The company focuses on areas like cancer treatments, infectious diseases, and chronic conditions, operating across its pharmaceutical and animal health segments.  

Merck's stock had a mixed year in 2024, with prices ranging from a low of $94.48 in November to a high of $134.63 in June — a sharp drop of nearly 25% from its peak. 

As of Jan. 8, 2025, the stock sits at $99.85, with a forward price-earnings ratio of 12.89x, much lower than the sector average of 20.36x. This suggests the stock is undervalued compared to its peers. 

Merck’s market capitalization is $252 billion, and it offers a forward dividend yield of 3.24% with a payout ratio of 31.67%. The company has raised its dividend for 14 straight years, with the latest quarterly payout at $0.81 per share, making it an appealing option for investors looking for steady income and growth as tech stocks like the “Magnificent 7” face valuation concerns.

In the third quarter of 2024, Merck reported $16.7 billion in revenue, up 4% from the previous year. Sales of its blockbuster cancer drug Keytruda jumped 17% to $7.4 billion, while animal health revenue grew by 6%. 

For the full year, Merck expects sales between $63.6 billion and $64.1 billion and non-GAAP EPS between $7.72 and $7.77. Analysts predict Q4 earnings of $1.80 per share on revenue of $15.52 billion.

Merck has also been making strides in innovation and partnerships. It recently secured FDA acceptance for Clesrovimab (MK-1654), an investigational RSV antibody for infants, with a decision expected by June 2025. 

Additionally, it finalized a licensing deal for LM-299 with LaNova Medicines, which could bring up to $2.7 billion in milestone payments. These moves highlight Merck’s focus on growth and make it an attractive alternative as analysts at Miramar Capital suggest cutting back on tech stocks.

Analysts are bullish on Merck’s future, with 26 analysts giving it a "Strong Buy" rating — 20 recommending “Strong Buy” and six advising “Hold.” The average price target is $131.04, which suggests potential upside of about 30% from its current price.

Dividend Stock #2: Bristol Myers Squibb (BMY)

Bristol-Myers Squibb Company (BMY) is a global biopharma company dedicated to developing and delivering medicines for serious diseases. The company invests heavily in research and partnerships to stay ahead in addressing unmet medical needs.  

BMY’s stock had a strong recovery in 2024, bouncing back from a 52-week low of $39.35 in July to a high of $61.08 in November. As of Jan. 8, 2025, the stock is trading at $56.81, up 44% from its mid-year lows and off to a steady start in 2025. 

With a market capitalization of $115 billion and a forward P/E ratio of 62.30x — much higher than the sector average of 20.36x — the stock looks expensive based on earnings expectations. 

However, its forward dividend yield of 4.34% and a payout ratio of 39.35% make it attractive for income-focused investors, especially as analysts suggest reducing exposure to the “Magnificent 7” tech stocks. BMY has been increasing its dividend for 17 straight years, with the latest quarterly payout raised to $0.62 per share.

In Q3 2024, BMY reported $11.9 billion in revenue, an 8% year-over-year increase. Key drugs like Opdivo and Eliquis continued to drive growth, with sales rising by 8% and 7%, respectively. The company raised its full-year revenue guidance to $47 billion and expects EPS between $7.10 and $7.40 for 2024, exceeding analyst expectations.

BMY is also making strides in innovation. The FDA recently approved Opdivo Qvantig, a subcutaneous version of its cancer immunotherapy drug Opdivo, which offers quicker administration and more convenience for patients. The company also partnered with Prime Medicine (PRME) to develop advanced gene-editing T-cell therapies, potentially strengthening its oncology portfolio.

Analysts have mixed opinions on BMY, with a “Moderate Buy” consensus from 25 analysts. Seven rate it a “Strong Buy,” 17 recommend “Hold,” and one suggests “Sell.” The average price target is $59.52, offering modest upside potential of about 4% from current levels.

Dividend Stock #3: AbbVie (ABBV)

AbbVie (ABBV) is a global biopharma company known for its treatments in areas like immunology, oncology, neuroscience, and virology. Since splitting from Abbott Laboratories (ABT) in 2013, AbbVie has built a strong lineup of therapies for complex diseases, with drugs like Skyrizi and Rinvoq driving growth in its immunology segment. 

Over the past year, AbbVie’s stock has had its ups and downs, ranging from a low of $153.58 in May 2024 to a high of $207.32 in October 2024. As of Jan. 8, 2025, it’s trading at $178.50. 

With a forward P/E ratio of 16.51x, lower than the sector average of 20.36x, AbbVie fits Miramar Capital’s call for lower-valuation dividend stocks as an alternative to overvalued tech giants. Its forward dividend yield of 3.68%, annual payout of $6.56 per share, and a 53-year streak of dividend increases make it especially appealing to income-focused investors.

In Q3 2024, AbbVie brought in $14.46 billion in revenue, up 3.8% from the previous year. Immunology contributed $7 billion, while neuroscience added $2.36 billion. Adjusted EPS rose slightly to $3.00 despite acquisition-related costs, though full-year EPS guidance was revised to $10.02–$10.06 due to these expenses. Still, AbbVie remains confident about its long-term growth.

AbbVie’s recent acquisitions underscore its focus on innovation. It bought Nimble Therapeutics for $200 million upfront to strengthen its immunology pipeline with preclinical assets targeting autoimmune diseases like psoriasis. It also acquired Aliada Therapeutics for $1.4 billion, gaining ALIA-1758, an Alzheimer’s treatment using cutting-edge blood-brain barrier technology — a move that could significantly boost its neuroscience portfolio.

Analysts are optimistic about AbbVie’s future, with a consensus “Moderate Buy” rating from 24 analysts. Two suggest “Strong Buy” and five advise “Hold.” The average price target is $205.63, offering potential upside of about 14% from current levels.

Conclusion

In a market dominated by the high-flying “Magnificent 7” tech stocks, shifting focus to reliable dividend-paying companies like Merck, Bristol-Myers Squibb, and AbbVie offers a refreshing balance of growth, income, and stability. These healthcare giants boast attractive valuations and consistent dividend growth, strong pipelines, and solid earnings potential to weather market volatility.