Health and Healthcare

5 Merrill Lynch US 1 Health Care Stocks Could Be Big 2019 Winners

Lee Jackson

Published: November 9, 2018 7:05 am

Last Updated: January 11, 2020 3:09 pm

With just over six weeks left in what has been a very volatile 2018, many investors are wondering which direction the market will take now that Democrats are taking over the House of Representatives. The leaders of the party maintain that the issue that was biggest with voters, what helped to propel them to victory, was health care, and with an aging U.S. population, it’s a good bet that it was indeed high on voters’ lists.

With top pundits bullish on the health care sector for 2019, we decided to screen the Merrill Lynch US 1 stock list, which is the firm’s top stock picks for institutional and high net worth clients, for health care companies that made the cut. We found five that all look very attractive for growth investors with a degree of risk tolerance.

Allergan

This stock has taken a beating over the past month and is offering an outstanding entry point. Allergan PLC (NYSE: AGN) is a specialty pharmaceutical company that develops, manufactures and markets branded products. The company’s growth has been driven largely by acquisitions supported by internal growth.

Allergan markets a portfolio of best-in-class products that provide valuable treatments for the central nervous system, eye care, medical aesthetics, gastroenterology, women’s health, urology, cardiovascular and anti-infective therapeutic categories, and it operates the world’s third-largest global generics business, providing patients around the globe with increased access to affordable, high-quality medicines.

Allergan is an industry leader in research and development, with one of the broadest development pipelines in the pharmaceutical industry and a leading position in the submission of generic product applications globally. The Merrill Lynch analysts note the company’s Aesthetics leadership and that the substantial pipeline optionality is not priced in.

Allergan shareholders are paid a 1.70% dividend. The Merrill Lynch price target for the stock is $212, and the Wall Street consensus price objective is set at $209.44 a share. The stock closed Thursday’s trading at $169.31 per share.

CVS

This top stock may be offering an excellent entry point. CVS Health Corp. (NYSE: CVS) is one of the largest health care companies in the United States. It provides retail, mail and specialty pharmacy dispensing services and pharmacy benefits. Upon the completion of its pending acquisition of Aetna, CVS will become one of the most vertically integrated publicly traded health care companies.

The company is in the process of completing its massive $69 billion bid for health care provider Aetna. While initially there were some concerns over regulatory approval, top CVS management has confirmed recently it is making solid progress with states regulators and the deal remains on track, with management recently highlighting some opportunities around what the new combined company can accomplish.

CVS investors are paid a 2.50% dividend. Merrill Lynch has a price target of $92, and the posted consensus target was last seen at $90.70. The shares closed at $80.05 on Thursday.

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Humana

This is another huge health care provider with a stock that offers value at current trading levels. Humana Inc. (NYSE: HUM) is one of the largest managed care organizations in the United States, offering health insurance to members in the government and commercial segments.

The company has a focus on Medicare Advantage, but it also participates in other government programs, including TRICARE and Medicaid. Humana has a commercial business offering medical and specialty products as well.

The company posted solid third-quarter results, and the Merrill Lynch team sees upside to the Wall Street estimates, and they also feel that the company’s forward guidance is conservative.

Humana investors receive a small 0.59% dividend. The $415 Merrill Lynch price objective compares with a $377.54 consensus target price. The shares fell more than 4% on Thursday to close at $339.59.

Thermo Fisher Scientific

This is another top health care play for investors looking to be in the sector but without drug pricing worries or government exposure. Thermo Fisher Scientific Inc. (NYSE: TMO) is the largest and most diversified life sciences company. It offers a comprehensive product portfolio consisting of analytical instrumentation, lab equipment, consumables, software and services used for throughout research, drug manufacturing, diagnostics, food and consumer product safety, and environmental testing.

Thermo Fisher Scientific helps customers accelerate life sciences research, solve complex analytical challenges, improve patient diagnostics, deliver medicines to market and increase laboratory productivity. Through the company’s premier brands — Thermo Scientific, Applied Biosystems, Invitrogen, Fisher Scientific and Unity Lab Services — it offers an unmatched combination of innovative technologies, purchasing convenience and comprehensive services.

Merrill Lynch has set its price target at $260 a share. The posted consensus target is $266.07, and the stock ended trading on Thursday at $245.57 apiece.

Vertex Pharmaceuticals

This one has long been considered a buyout candidate, and it is the best choice for aggressive accounts. Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) engages in discovering, developing, manufacturing and commercializing small molecule drugs for patients with serious diseases in specialty markets. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis and hepatitis C.

Wall Street as a whole has remained very positive on the stock for years, and some have indicated that the company could have as much as $10 to $15 in potential earnings-per-share power going forward.

The company has upcoming clinical data that could be a huge catalyst. Vertex will report Phase 3 interim data from triple combination regimens of VX-659 and VX-445 by the end of the year and the first quarter of 2019, respectively. Interim analyses will enable Vertex to determine the best regimen to submit for FDA application by mid-2019. The Merrill Lynch team is encouraged by completion of Phase 3 enrollment of VX-659, suggesting strong demand for treatment.

The Merrill Lynch price target is $197. That compares with a consensus target of $196.32 and the most recent close at $180.26.

These are five top health care stocks that provide investors with different avenues to invest in the sector. Again, some risk tolerance is required, but they all should be solid additions to growth portfolios for 2019.