The pharma/biotech industry was plagued by drug pricing issues last year. However, it bounced back and made a considerable headway this year, courtesy of a slew of FDA approvals. Particularly, large-cap players in the industry raked in stellar returns, up 16.5%, not to forget that the same space posted a decline of 5.2% in the year earlier.

Upbeat quarterly results, rise in demand on new product sales, successful innovation and product line expansion, strong clinical study results as well as a continued strong performance of legacy products propelled the large-cap drug sector to new highs this year. Moreover, these encouraging factors are expected to drive the sector’s growth in 2018.

Meanwhile, jubilant Republicans passed the tax overhaul bill for the first time in 30 years. The bill slashes corporate tax rates from 35% to 21%. Such tax reduction is likely to further boost profit margins of these companies in the large-cap pharma sector with more cash left in hand. This, in turn can also be used for striking strategic deals. It is to be remembered that mergers/acquisition activities lagged in the previous year.

Notably, the Large Cap Pharma sub-industry carries a Zacks Industry Rank of #104, placing it among the top 39% of the 265 plus Zacks industries. Our backtesting shows that the top 50% of the Zacks ranked industries outperforms the bottom half by a factor of more than two to one.

Banking on such positive trends, investing in sound large-cap pharma stocks seems judicious. To top it, such stocks are fundamentally lucrative and ensure a steady stream of cash inflows. We have selected four such companies that have outperformed the broader S&P 500 index this year and are also poised to continue their winning streak heading into the New Year.

Johnson and Johnson, Inc. (JNJ – Free Report)

The New Jersey-based biotech giant Johnson and Johnson has outperformed the S&P 500 this year. Shares of the company have rallied 22% while the broader market has increased 20.2%. The stock’s earnings are further expected to grow 7.8% in 2018.