Health care is supposed to be a very defensive sector in investing. After all, diseases and conditions such as cancer, diabetes, heart disease, kidney failure, dementia, joint damage and spinal issues are just a small percentage of the ailments that have to be routinely treated. Almost every aspect of health care was turned upside down as the novel coronavirus turned into the COVID-19 pandemic, and all forms of elective medical procedures and other procedures were either suspended, delayed or just skipped out of fears of the virus.
Credit Suisse has assembled its favorite health care recovery stocks that go well beyond COVID-19. The firm listed its favorite companies for a recovering base of elective surgeries and for the risk of rising hospitalizations. There is some COVID-19 overlap in the companies, but some companies are not tied to COVID-19 at all, other than that their core businesses have been damaged due to fears of patients wanting to avoid most health care settings.
According to the Credit Suisse team, the current favorites are those that are more defensive in the near term, with lower exposure to elective surgeries, and that are likely to outperform if the trends in infections, hospitalizations
and reported deaths continue to get worse. That may be inclusive of companies in opposite themes on the surface, but those named were Abbott Laboratories (NYSE: ABT) and Baxter International Inc. (NYSE: BAX), as well as Johnson & Johnson (NYSE: JNJ) and Medtronic PLC (NYSE: MDT).
Credit Suisse believes the four companies named there are attractive in the face of rising risks related to a cyclical downturn in the second half of 2020 and in 2021.
Edwards Lifesciences Corp. (NYSE: EW), Boston Scientific Corp. (NYSE: BSX) and Stryker Corp. (NYSE: SYK) were listed as positive names for growth. Two others listed in more “growth” were mid-caps such as Globus Medical Inc. (NYSE: GMED) in medical devices for musculoskeletal disorders and NuVasive Inc. (NASDAQ: NUVA) for minimally disruptive surgical products for spine surgeries such, as spinal fusion and its Maximum Access Surgery as a minimally disruptive surgical platform.
These higher-growth names are expected to benefit from a sustained recovery in elective surgeries that should be coming in the next 12 months to 24 months, but Credit Suisse did warn that these are all facing greater risk of near-term volatility if reported COVID-19 deaths and hospitalizations trigger bolder and more restrictive actions taken by states and hospitals. Those would put the elective recovery themes at risk, but the firm noted that trends have been encouraging over the past 10 days.
As for Abbott Labs, Credit Suisse sees it continuing to benefit from increased volumes of COVID-19 testing and from the array of new and forthcoming tests, which should help to drive estimates higher for the rest of 2020 and into 2021.
Alcon Inc. (NYSE: ALC) and Boston Scientific were shown to be the best-positioned companies to benefit if strong growth trends in ambulatory surgery center and outpatient surgeries continue. The firm noted that virtually all U.S. ophthalmic surgeries are performed in the outpatient setting and that roughly two-thirds of Boston Scientific’s business is tied to outpatient procedures.
The potential for a recession in the second-half of 2020 and 2021 is expected to drive relative valuations for most large-cap medical-tech names in Credit Suisse’s coverage universe higher. That is particularly the case for Abbott Labs, Johnson & Johnson, Medtronic, Baxter and potentially Boston Scientific.
Here is how Credit Suisse’s latest ratings appear in these companies:
- Abbott Labs: Outperform with a $109 target price
- Alcon: Outperform with a $63 target price
- Baxter: Outperform with a $97 target price
- Boston Scientific: Outperform with a $43 target price
- Edwards Lifesciences: Outperform with a $92 target price
- Johnson & Johnson: Outperform with a $163 target price
- Medtronic: Outperform with a $117 target price
- NuVasive: Outperform with a $74 target price
- Stryker: Outperform with a $237 target price
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