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Are ASX pharmaceutical shares a bargain buy right now?

pills spilling from bottle

Unfortunately, coronavirus-induced panic buying has not only been limited to supermarkets. Pop into your local chemist and you will be greeted with the same, grim picture of empty shelves. Consumers have flocked to the pharmacy on their way from the shops to stockpile on refills for prescriptions and anything they think will help them in the COVID-19 pandemic.

Given this surge in demand, pharmaceutical companies could follow in the steps of supermarkets and lock in record sales figures. So, are the ASX pharmaceutical shares a bargain?

Government implements purchase limits

Frenzied shoppers have been raiding pharmacies, with Ventolin, face masks, thermometers, painkillers, hand sanitiser and vitamins flying off shelves. Drug wholesalers have reported that demand for over-the-counter and prescription medications has exceeded forecasts as the COVID-19 pandemic throws consumers into a buying frenzy.

In order to combat panic buying at pharmacies, the government has had to intervene and place a purchase limit on pharmaceutical goods in order to prevent medical shortages. Under the restrictions, pharmacies have been instructed to dispense only 1 month’s worth of prescription medicines and limit the purchase of some over-the-counter products.

Which ASX shares should you be watching?

The Sigma Healthcare Ltd (ASX: SIG) share price closed nearly 13% higher yesterday after the company released a market update regarding a supply agreement and the COVID-19 pandemic. Management addressed the increased demand for products and the impact this may have on supply chains. Shareholders were assured that Sigma is working with suppliers to help ensure that medicines are fairly distributed to consumers. The Sigma share price also surged on the back of the company’s 5-year supply agreement with Pharmacy Alliance for all over-the-counter products.

AFT Pharmaceuticals Ltd (ASX: AFP) is another company that could benefit from the buying panic. AFT released a trading update last week outlining the strong consumer demand for cold and influenza medication. According to the update, AFT had quickly built up stocks on key medicine in Australia and is being rewarded with the foresight. The company remains confident that any impact on global supply chains will be offset by local sales gains.

Should you buy?

As we have seen, it has not all been doom and gloom for investors as the market will always provide us with new opportunities. Just as how the shares in supermarket giants have managed to stabilise, pharmaceutical companies could offer the same price action.

I think a prudent strategy would be to compile a larger watchlist of pharmaceutical and biotech companies and let positive price action dictate before making an investment decision.

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As of 2.11.2020

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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