The past several weeks have been raucous ones for all stocks, but particularly wild ones for healthcare stocks. Not only is the future of the nation’s healthcare market in flux, drug companies are facing an inordinate degree of litigation, and biopharma names have dished out plenty of R&D updates … some good, some bad.
By and large, the bearish market-wide tide and the weakness healthcare stocks have suffered has become something of an opportunity. A handful of these names have become bargains and are ripe for recoveries.
To that end, here’s a rundown of ten healthcare stocks to buy, even if they’re surrounded by bad news and grim headlines. Some are familiar, and others are not. All of them, however, arguably boast more potential than risk at this time, even if not all of them have yet to reach their worst-case-scenario price.
Johnson & Johnson (JNJ)
Source: Sundry Photography / Shutterstock.com
Johnson & Johnson (NYSE:JNJ) has arguably faced the worst and most alarming headlines of late, facing not one but two major legal battles.
The first one of course is its liability linked to asbestos contained in its talcum powder sold under the brand name Johnson & Johnson. The other? Some states’ attorneys general are suggesting J&J was culpable for what’s turned into a nationwide opioid addiction epidemic. A closer inspection of both matters reveals the ultimate liability for both may not be as dire as is currently believed.
Though the state of Oklahoma recently won a case that will fine Johnson & Johnson $572 million for allowing opioid abuse to become a “public nuisance,” that figure was smaller than shareholders had feared, and may point to similarly small figures in other state-level cases.
As for its talcum powder woes, the company is prevailing in some state courts, and losing in others. With the exception of one case in California, the awards granted in cases it has lost have been relatively modest.
Source: Piotr Swat/Shutterstock
AbbVie (NYSE:ABBV) shares are down nearly 50% from their early 2018 high, reaching another multi-month low in August.
The underpinnings for that weakness aren’t difficult to deduce. Aside from an increasingly tough battle to defend its patents on breadwinner drug Humira, the decision to acquire Allergan (NYSE:AGN) hasn’t been a particularly popular one with shareholders.
ABBV stock owners have also been disappointed by a couple of major busts on the R&D front. The company’s work in turning Rova-T into a successful lung cancer treatment, for instance, was thrown away when AbbVie ended phase 3 trials after it failed to create meaningful results.
The punishment, so to speak, hasn’t fit the crime though. AbbVie now quietly rates as one of the top healthcare stocks to buy at its now greatly-lowered price thanks to a dividend yield of 6.44% that’s reasonably well protected, and a forward-looking P/E of only 7..
CVS Health (CVS)
Admittedly, it remains unclear which sliver of the healthcare market will be the one to bear the brunt of any cost-cutting reform. Hospitals and insurers are just as targeted as pharmacy names like CVS Health (NYSE:CVS), which is a key part of the reason CVS stock has been nearly cut in half since the middle of 2015.
That doubt is rooted in a paradigm shift that isn’t likely to happen, however, or at least not as abruptly as some are fearing.
Case in point: Just days after announcing plans to eliminate the rebate enjoyed by pharmacies and pharmacy benefits managers, President Donald Trump backpedaled. Although it’s not clear where the pressure for the reversal came from, clearly someone is in the industry’s corner.
In the meantime, CVS is preparing for all contingencies. It now owns health insurer Aetna and is tiptoeing into the medical device arena. In July the company announced it was beginning trials of an at-home kidney dialysis solution.
Bausch Health Companies (BHC)
Source: n4i Via Flickr
You may recognize the name as one that has specialized in eye care for a long time now. And Bausch — Bausch + Lomb, to be precise — certainly still makes contact lenses and eye-surgery products. This is not the Bausch Health Companies (NYSE:BHC) in question, however. While Bausch Health owns and operates Bausch + Lomb, the Bausch that has earned a spot on a list of healthcare stocks to buy is actually the company formerly known as Valeant Pharmaceuticals.
That name will also ring a bell for most investors … although not a good one. That’s the company that went on an aggressive acquisition spree, planning on buying specialty drugs to then mark their price up to unnecessarily expensive levels.
In addition to public outcry, congress got involved, ultimately forcing then-CEO Michael Pearson out, and forcing new CEO Joseph Papa to rebuild everything the company is, and does.
Surprise! He’s doing it. Though it’s still erratic and somewhat unpredictable, sales are expected to grow 1.6% this year, and 3% next. It’s not much, but it’s enough to drive real earnings growth.
Intercept Pharmaceuticals (ICPT)
Intercept Pharmaceuticals (NASDAQ:ICPT) isn’t an easy name to own. Although the biopharma outfit is driving major sales growth with its chronic liver disease drug Ocaliva, the company’s a one-trick pony that’s still losing money. Last quarter’s top line of $66.3 million — mostly Ocaliva — was up 53% year-over-year, but still let Intercept book an operating loss of $63.6 million and a total net loss of $71.4 million.
In this case though, the company’s fiscal trajectory against the backdrop of an obesity epidemic translates into a bright future. Intercept Pharmaceuticals is also working on a nonalcoholic steatohepatitis (NASH) drug that takes aim at what is expected to be the leading cause of liver failure by 2020. That under-served market could be worth $50 billion, if not more, leaving this company amazingly well-positioned for growth.
Source: Manuel Esteban/Shutterstock
Stripping out last month’s 20% stumble, Pfizer (NYSE:PFE) has been a pretty good bet in recent years. Thing is, the aspects that have made PFE stock one of the best healthcare stocks to buy for a long while now are still in place. That is, a diverse portfolio that doesn’t lean too much on any one drug. No one product accounts for more than 10% of the company’s total revenue.
The selloff, for the record, was spurred by the decision to sell its ‘off patent’ drug business operating as Upjohn to rival Mylan (NASDAQ:MYL). The downside of that exit appears to be fully priced in now though, and then some.
In the meantime, a $500 million investment in a North Carolina manufacturing facility pushes the company deeper into gene therapy waters, which may offer more upside than existing business lines.
PRA Health Sciences (PRAH)
When investors thinks of healthcare stocks, PRA Health Sciences (NASDAQ:PRAH) isn’t a name that generally comes to mind. Indeed, most investors may have never even heard of it.
The one who have heard of it, meanwhile, might be wishing they hadn’t. Even with this year’s choppy rebound effort, shares of the contract research organization are still down 19%.
A bet against PRA Health Sciences hasn’t been a particularly wise bet in the grand scheme of things. Contracted research is a key part of the future of healthcare, as outsourcing R&D becomes the more cost-effective solution.
PRA Health has the numbers to prove it, too. This year’s expected 6.4% revenue growth isn’t jaw-dropping, but it’s reliable, as will be next year’s projected 8.4% top-line growth. Better still, that progress is driving even greater profit growth. Per-share profits are expected to reach $5.03 this year, up from last year’s $4.28, and grow 13% to $5.68 per share next year.
Alexion Pharmaceuticals (ALXN)
Last week, Alexion Pharmaceuticals (NASDAQ:ALXN) shares started what would end up becoming a 14% plunge. The selloff may not be done yet either. The prod? Amgen (NASDAQ:AMGN) is challenging Alexion’s patent on Soliris, which is used to treat a trio of rare diseases. It makes up the bulk of Alexion’s sales.
It’s an alarming development, although not one that’s necessarily devastating. Right or wrong, running patent-based interference meant to disrupt other companies is the new norm within the pharmaceuticals arena, and there’s not necessarily any assurance that Amgen will prevail. The chatter that Amgen could make an acquisition bid for Alexion still has its merits as well.
In the meantime, the forward-looking P/E of 9.9 suggests ALXN is priced cheaply enough to survive any profit-sharing agreement that Amgen may end up pursuing instead of an outright legal victory.
While pharmacies and pharmaceuticals are certainly vulnerable to any sweeping overhauls in the way the United States healthcare industry works, it’s not like the insurers are particularly well-shielded. Cigna (NYSE:CI), for instance, is down more than 30% since its early 2018 high on concerns about insurers’ futures, after they all had a pretty good run between 2013 and 2017.
Not everyone is concerned about one of a myriad of ‘maybes’ that could impact Cigna though.
Alliance Bernstein analyst Lance Wilkes is one of those optimists. He recently upgraded CI stock while it was down, re-rating it at an “Outperform,” explaining “We are increasing our price target and rating on [Cigna] based upon earnings growth driven from deal synergies and its low valuation, which we believe offset our [long term] concerns on policy risks and strategic position.”
CI stock is trading at only 14 times its trailing earnings, and only 8.2 times next year’s expected profits.
Eli Lilly (LLY)
Finally, add drugmaker Eli Lilly (NYSE:LLY) to your list of healthcare stocks to buy despite a recent wave of bad news.
For Lilly, that’s mostly been spurred by pipeline and portfolio questions. In March it announced it would launch a cheaper alternative to its own top-selling Humalog insulin, and early this year it decided to acquire Loxo Oncology at an unpopularly frothy premium.
There’s a reason that slide suffered during the first half of the year has started to reverse course beginning in early August. Not only did Lilly win the outcome it wanted in a recent arbitration claim regarding a collaboration it entered with Adocia to develop rapid-acting insulin, a phase 3 trial of its oral JAK inhibitor Baricitinib as a therapy for atopic dermatitis showed tremendous promise with last month’s update.
They’re little victories that can really add up in investors’ heads.
As of this writing, James Brumley held no position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.