With the COVID-19 pandemic being the biggest health care story in years, it is no surprise that investors and traders have been closely watching and have been doing analysis on the top companies in the S&P health care sector, which returned a solid 3.1% in May. The underlying thesis for owning some of the companies is, of course, production of a vaccine for the coronavirus, which still appears to be a ways off.

[in-text-ad]

While the health care sector numbers were solid, the top picks at Raymond James enjoyed a much better May, rising a strong 7.9%. A new research report commented on the May performance.

Looking more closely at the Raymond James Healthcare Top Picks (two stocks per analyst plus one healthcare REIT), our list increased 7.9% in May vs. the Healthcare sector up 3.1% and the broader market up 4.5%. Nine of our 13 names outperformed the broader market, with the same number topping the sector. To this point, the healthcare sector is +0.8% year to date and the broader market is down 5.8%.

While the numbers were spectacular, Raymond James is not resting on its laurels. For June, the analysts make some big changes to the list in an effort to continue the May outperformance. Four new companies are added, and all are rated Strong Buy or Market Outperform.

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 in 2015 significantly expanded the company’s medical technology footprint in infusion and medication management.

The company recently had a large secondary offering and the analysts said this:

We are adding Becton Dickinson as we see pressure from the equity offering now past and the potential for FDA emergency use authorization of a rapid antigen test for COVID-19 over the next couple of months as a catalyst. We are removing Hill-Rom Holdings from the list as we see a more meaningful catalyst for near-term share appreciation in Becton Dickinson stock.

Shareholders receive a 1.29% dividend. The Raymond James price target for the shares is $290, and the Wall Street consensus target is $267. Becton Dickinson stock closed trading on Monday at $244.85 a share.

Boston Scientific

This top medical technology company has remained on a slow and steady grind higher over the past five years. Boston Scientific Corp. (NYSE: BSX) develops, manufactures and markets medical devices that are used in interventional cardiology, peripheral interventions, vascular surgery, electrophysiology, neurovascular interventional, oncology, endoscopy, urology, gynecology and neuromodulation.

The company posted very solid first-quarter results after underperforming peers in 2020, a testament to the deep product pipeline and solid management at the top. Raymond James noted this when adding the stock to the top picks list:

Boston has underperformed its large-cap Med Tech peer group year to date given its greater exposure to elective procedures and less favorable balance sheet positioning. With the worst months for procedure volume already behind us/priced-in and the reopening process for healthcare facilities gaining momentum, coupled with several measures Boston has taken to shore up the balance sheet, we believe there is an opportunity for mean reversion in the stock/multiple. Furthermore, we continue to view Boston’s product portfolio and pipeline as one that can drive high-single-digit revenue growth on a normalized basis, which is ahead of most diversified large-cap Med Tech peers.

Raymond James has a $43 price target, while the consensus target is $43.55. Boston Scientific stock closed Monday at $37.50.

This company is in one of the fastest-growing subsectors of the real estate investment trust industry. Omega Healthcare Investors Inc. (NYSE: OHI) is a publicly traded, internally managed health care REIT focused on owning skilled nursing facilities. Most of its assets are such facilities, but the company also owns assisted living facilities, specialty facilities and a medical office property.

[in-text-ad]

The company’s portfolio of assets is operated by a diverse group of health care companies, predominantly in a triple-net lease structure. The assets span all regions within the United States, as well as in the United Kingdom.

Omega’s tenants generally have lower exposure to Medicare, which is where the funding pressures tend to remain, and less than 10% of revenues come from tenants with rent coverage below 1.0 times. In addition, the tenant base is very well diversified.  The company also underperformed some recently, and the analyst said this:

We are increasingly constructive on Omega Healthcare shares following the recent underperformance versus peers. Our more constructive stance on skilled nursing facilities (SNFs) is driven largely by the fact these properties remain a critical – and primarily government-funded – part of the healthcare continuum, and the numerous fiscal relief packages will bridge the gap needed to cover expenses until the COVID-19 pandemic passes. We continue to believe the company’s solid balance sheet, a dividend that was “comfortably” declared in April, and management’s strong capital allocation acumen, as well as a long track record of working through operator issues, creates an attractive risk/reward profile.

Shareholders receive an 8.5% distribution. The $34 Raymond James price target compares with the $31.82 consensus target. Omega Healthcare stock closed at $31.54 on Monday.

Regenxbio

This lesser known health care name has solid upside potential for more aggressive investors. Regenxbio Inc. (NASDAQ: RGNX) is an early-stage company devoted to the development of gene therapies. The company’s NAV technology offers next-generation adeno-associated virus vectors that should improve the efficacy, safety and overall success of these gene therapies. The company has internal and partnered programs that are in various stages of development.

Raymond James is positive on upcoming clinical data potential:

REGENXBIO management plans to initiate the Phase 2 trial for RGX-314 using a suprachoroidal (SC) delivery approach in wet AMD and diabetic retinopathy during the second half of 2020, with interim data expected from the first cohorts by year-end 2020 and 2021, respectively. Additionally, management has confirmed expectations to provide additional data from both Cohorts 1 and 2 for the MPSII program (Hunter syndrome) during the second half of 2020. Management continues to expand their NAV pipeline and have ongoing clinical development plans of a potential treatment for a neuromuscular disorder using NAV AAV8 during the second half 2020.

Raymond James has set a $60 price target. The consensus figure is much higher at $75.67. The last Regenxbio trade on Monday was seen at $36.83.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

Four outstanding companies jump into the Raymond James top pick health care list. While much better suited for aggressive accounts, the REIT is a solid play for conservative investors looking for sector exposure with less risk. With the focus on health care expected to remain center stage for 2020, these top stocks all make sense now.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.