While the overall stock market has been very strong year to date, with sectors like technology outperforming, the health care sector, which encompasses everything from pharmaceuticals to biotech to medical devices and more, has been absolutely wretched, lagging the S&P 500 by a huge 9%. For many investors who own shares, there may be a degree of dismay, as traditionally health care has been considered somewhat of a safe haven.
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The analysts at Jefferies, led by equity strategist Steven DeSanctis, did a deep dive into the sector, looking for underperforming stocks that could hold some solid value going forward. Their overview of the current state of the health care sector noted this:
The pullback in Health Care has little do with fundamentals but more to do with a renewed sense of risk appetite, some unwinding of crowded themes, as well as a shift away from defensively positioned sectors showing secular growth into cyclical growth. ETF flows have sharply turned down after strong inflows in 2018 and the group is over owned by long only investors and hedge funds. Down cap, the last 12 months have seen robust IPO and secondary activity and deals may need to be digested.
We screened the Jefferies list looking for the larger cap leaders and found five that look like very solid ideas now. All are rated Buy at Jefferies.
Abbott Laboratories
This top pharmaceutical and med-tech stock has very solid growth potential. Abbott Laboratories (NYSE: ABT) manufactures and sells health care products worldwide.
The company’s Established Pharmaceutical Products segment offers branded generic pharmaceuticals to treat pancreatic exocrine insufficiency; irritable bowel syndrome or biliary spasm; intrahepatic cholestasis or depressive symptoms; gynecological disorders; hormone replacement therapy; dyslipidemia; hypertension; hypothyroidism; Ménière’s disease and vestibular vertigo; pain, fever and inflammation; migraines; anti-infective clarithromycin; cardiovascular and metabolic products; and influenza vaccines, as well as to regulate physiological rhythm of the colon.
Its Diagnostic Products segment provides immunoassay and clinical chemistry systems; assays used to screen or diagnosis cancer, cardiac, drugs of abuse, fertility, infectious diseases, and therapeutic drug monitoring; hematology systems and reagents; diagnostic systems and cartridges; instruments to automate the extraction, purification and preparation of DNA and RNA from patient samples, and detects and measures infectious agents; genomic-based tests; informatics and automation solutions; and a suite of informatics tools and professional services.
Abbott Labs investors are paid a 1.72% dividend. The Jefferies price target for the shares is $80, and the Wall Street consensus target is $82.78. The stock closed Monday’s trading at $74.51 per share.
Amgen
This biotech giant remains a top stock for investors to buy and a safe way to play the massive potential growth in biosimilars. Amgen Inc. (NASDAQ: AMGN) has been a biotechnology pioneer since 1980 and has grown to be one of the world’s leading independent biotech companies. It has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential.
Amgen develops, manufactures and markets biologic therapies for oncology and inflammation. The company’s five key marketed products are among the top-selling pharmaceutical products in the world, with expected collective revenues of more than $22 billion in 2019.
Shareholders of Amgen are paid a 3.29% dividend. Jefferies has a price target of $220, and the posted consensus target was last seen at $207.38. The shares were last seen trading at $176.36 apiece.
Becton Dickinson
This top health care stock is a solid and safer play now. Becton Dickinson and Co. (NYSE: BDX) is a diversified global medical technology company that produces medical devices, instrument systems and reagents for the health care, life sciences research, clinical, diagnostic and pharmaceutical markets.
The company has grown into a large medical conglomerate with over 49,000 employees covering nearly 50 countries worldwide. The CareFusion acquisition significantly expanded the company’s medical technology footprint in infusion and medication management.
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Shareholders are paid a 1.37% dividend. The $285 Jefferies price target compares with the $269.89 consensus target and the most recent close at $225.04 a share.
Gilead Sciences
This company is trading at a very reasonable 9.55 times estimated 2019 earnings. Gilead Sciences Inc. (NASDAQ: GILD) is a biopharmaceutical company that discovers, develops and commercializes therapies for the treatment of HIV/AIDS, liver disease, cancer and inflammation. The acquisition of Kite Pharmaceutical in 2017 allowed for entry into the CAR-T space, indicating a renewed focus in oncology.
The company’s products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.
Gilead Sciences investors are paid an outstanding 4.07% dividend. Jefferies has set its price objective at $95. The posted consensus target price is lower at $81.35. The stock closed at $61.87 on Monday.
Quest Diagnostics
With an aging population, this may be a safer way for investors to play health care. Quest Diagnostics Inc. (NYSE: DGX) is the largest provider of clinical diagnostic testing and related services in the United States, delivered through a national network of full-service clinical laboratories and over 2,200 patient service centers.
The company looks to be on track for at least 1% of incremental sales growth from mergers and acquisitions this year, and some on Wall Street feel there is a potential for additional acquisitions that could boost the second half outlook. Quest has indicated the first tranche of the anticipated United Healthcare share gain will happen quickly, but that a significant part of the volume build will span into 2021.
Investors receive a 2.49% dividend. The Jeffries price target is $107. That compares to the analysts’ consensus target of $92, as well as the latest closing share price of $85.18.
Stocks of these five top health care companies may be offering investors some solid value in what is a very richly priced stock market. With concerns over drug pricing, reimbursement and a host of other issues, the all-clear signal is hardly being sounded. However, the level these sector leaders are trading at offers some good entry points for long-term growth accounts with a degree of risk tolerance.
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