UBS Makes Big Health Care Swap in Top Performing Q-GARP Portfolio

By Lee Jackson Updated Jan 11, 11:40PM EST · Published May 14, 9:55AM EDT

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UBS Makes Big Health Care Swap in Top Performing Q-GARP Portfolio — © Thinkstock

Over the years, we have continued to cover the UBS Quality Growth at a Reasonable Price (Q-GARP) portfolio, and with good reason. The portfolio managers have always focused on high-quality U.S. growth companies that they believe are trading at attractive valuations. They continue searching for these top stocks, and they maintain that the recent volatility in the market has had no impact on their process.

The Q-GARP portfolio has consistently outperformed the S&P 500 since inception in 2007, and it offers investors an outstanding portfolio using an initial quantitative screen of stocks based on:

Quality metrics: high and stable profitability
Growth: high expected earnings growth
Valuation: low valuation relative to peers

The final list is a compilation of quality growth stocks that it believes are trading at attractive valuations.

Recently the managers removed AmerisourceBergen Corp (NYSE: ABC) and used the proceeds from the sale to increase the position they already held in Unitedhealth Group Inc. (NYSE: UNH).

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These three other top health care stocks also are in the Q-GARP portfolio.

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. UBS 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 receive just a 0.65% dividend. The UBS price target on the shares is $115, while the Wall Street consensus target is $111.44. The shares traded at $102.25 early Monday.

Medtronic

This company is based in Ireland after the gigantic combination with Covidien three years ago. Medtronic PLC (NYSE: MDT) is a medical devices giant, and many on Wall Street saw its historical merger with Covidien, probably one of the largest in the med tech industry, as a momentous event, leading to the creation of a unique company that combines the extensive and innovative abilities of both companies. The combined company officially has joint forces of over 85,000 employees in more than 160 countries.

Top analysts feel that the contributions from Medtronic’s three growth drivers, which they cite as therapy innovation, globalization and services/solutions, should support a 5% or greater constant currency top-line growth this year and beyond.

Medtronic investors are paid a 2.15% dividend. The consensus price target was last seen at $91.37. Shares were last seen trading at $85.40.

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Thermo Fisher Scientific

This is another top health care play for investors looking to be in the sector but without drug pricing worries. 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.

Investors are paid a tiny 0.31% dividend. The posted consensus price target is $245.47. The stock traded at $216.40.

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The Q-GARP portfolio managers feel these top stocks hit the firm’s criteria for solid growth potential at a price that is not stretched. In a market where most valuations are, these all make good sense for the rest of 2018.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.