Health care spending in the United States is huge, and it continues to grow at a rapid pace as the population is aging, and the aging population is living longer. The demand for everything from medical devices to pharmaceuticals to biotechnology to health care information technology continues to grow, and the leaders in those areas of the market have a bright future and good upside potential for investors.
In a new report, the analysts at Jefferies are out with a synopsis of the firm’s top U.S. health care picks. With a plethora of stocks to choose from, we decided to focus in on five that are larger capitalization plays and that would work for most growth portfolios with a degree of risk tolerance. All these stocks 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.
The Jefferies team notes that the company has the potential to repatriate as much as $8.4 billion from overseas, in addition to the potential to accelerate sales growth 5% to 6%.
Abbott Labs investors are paid a 1.81% dividend. The Jefferies price target for the stock is $69, and the Wall Street consensus target is $61.47. The stock traded early Friday at $62.10 per share.
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Cerner
This solid health care stock has good upside potential, and many on Wall Street think the growth potential is not appreciated. Cerner Corp. (NASDAQ: CERN) offers hospitals and other health care providers a fully integrated scope of over 50 software applications, including its flagship Cerner Millennium solution. Software applications include traditional electronic medical record and computerized physician order entry solutions, along with other clinical information software for lab, radiology, pharmacy, emergency department and ambulatory care.
The company also develops software for financial and administrative applications such as patient accounting, registration and scheduling.
The Jefferies team sees the company coming away with big government contracts, with large orders specifically from VA hospitals around the nation. The company also could benefit from its partnership with Amazon, as the tech giant continues to expand its product offerings and capabilities.
Jefferies has a $75 price target, while the posted consensus target is $71.75. The stock traded at $63.95 a share Friday morning.
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Danaher
This top life sciences company is a favorite across Wall Street. Danaher Corp. (NYSE: DHR) is now one of the largest and most diversified life sciences companies. Its products include analytical instruments and consumables for life sciences research, diagnostics, dental instruments and consumables, as well as equipment and services used in water quality testing and product identification.
The company is known as having leading brands across many verticals, with a strong management team and a record of superior execution. The Jefferies team sees core growth continuing to accelerate via acquisitions, noting that the company is focused on growth markets with recurring revenue streams and high gross margins.
Shareholders are paid a small 0.63% dividend. The $115 Jefferies price target is well above consensus the consensus price objective of $108.41. The shares were changing hands near $102.00.
Gilead Sciences
This company is trading a very reasonable 10.6 times estimated 2018 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 recent acquisition of KITE allows 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 also has a large pile of cash overseas, which the analysts feel could come back stateside with a low repatriation rate. They also see the stock as a cheap biotech play with a 10% to 15% free-cash-flow yield, balance sheet optionality and Wall Street expectations that remain low.
Shareholders are paid a very solid 2.85% dividend. The Jefferies analysts have set their price objective at $95. The consensus price target is $88.27, and the stock was last seen at $80.45 a share.
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Horizon Pharma
The may be a great play for more speculative accounts. Horizon Pharma PLC (NASDAQ: HZNP) is a specialty pharmaceutical company based in Ireland, and through its subsidiaries, develops and commercializes medicines for the treatment of arthritis, pain and inflammatory diseases.
The company’s best-known products include Actimmune for reducing the frequency and severity of serious infections associated with chronic granulomatous disease, and Duexis, a proprietary tablet formulation for the relief of signs and symptoms of rheumatoid arthritis and osteoarthritis.
Horizon has successfully reprioritized its investment focus to specialty/orphan drugs, which now comprises 65% of its business. In 2018, many see Krystexxa (chronic refractory gout) as the primary growth driver, with opportunity beyond rheumatology into nephrology, which doubles its target audience. The Jefferies team sees a company that is rapidly transitioning from a lower margin short duration primary care business to a higher margin long duration orphan drug company.
The Jefferies price objective is $21. The posted consensus target price is $19.58, and the stock recently traded at $15.65 per share.
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These five top companies with different health care businesses all can provide nice exposure to the sector in growth portfolios. All make sense now as none trade at absurd multiples or are highly speculative.
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