by Hilary Kramer | December 8, 2011 7:00 am
Health care is such a broad sector that you can invest in a variety of companies within it and still diversify. These 10 health care companies operate in different areas such as biotechnology, pharmaceuticals, medical devices, clinical research and staffing, administration and IT. The common theme is that these stocks all offer unique solutions to health-related issues, and this will eventually show up in their earnings growth and their stock prices.
Let’s take a quick look these health care companies and what I expect will drive them higher in 2012 and beyond:
Ariad Pharmaceuticals (NASDAQ:ARIA) is developing novel cancer treatments, and it has three promising drugs in its pipeline: ridaforolimus (which I expect to get FDA approval shortly), ponatinib (recently reported good Stage I/II results), and AP-26113 (a compound with strong potential that just started clinical testing). The stock is up nearly 50% since the early October lows, and while concerns over the possibility that Ariad will raise money could be a short-term overhang on the stock, I look for share prices to continue to climb as the company’s drugs move through the approval process.
Gilead Sciences (NASDAQ:GILD) recently transformed itself by acquiring Pharmasset (NASDAQ:VRUS), which has developed a promising treatment for Hepatitis C called PSI-7977 and has scored a perfect cure rate in clinical testing. Hepatitis C is largely an untreated disease, and the market potential is huge. The acquisition will dilute Gilead’s earnings through 2014, but GILD will remain solidly profitably through its strong roster of drugs that treat HIV.
ICU Medical (NASDAQ:ICUI), which makes intravenous devices, has a consistent growth record, thanks to its many innovative products developed over the years. Most notable is CLAVE, a one-piece “NeedleFree” device that was invented in 1993 and still accounts for over 35% of revenues. Recently, earnings growth has been somewhat limited by increased competition for critical care products. Even with that in mind, ICUI remains a good value at 15 times 2012 earnings estimates, and I think there is room for the stock to move on valuation. In addition, new products are scheduled to be introduced next year — not to mention the company is an attractive takeover candidate.
ISIS Pharmaceutical (NASDAQ:ISIS) is a small-cap company with a market capitalization of $725 million, but it has several drugs under development through its antisense drug-discovery platform. The key for the stock is whether its cholesterol drug Kynamro (previously known as mipomersen) is approved in 2012. Current indications are positive. In the meantime, ISIS has other drugs with commercial potential moving through its pipeline, and its high cash balance offers a nice margin of safety.
Mako Surgical (NASDAQ:MAKO) is adding to its game-changing knee-replacement surgery with a hip-replacement procedure that will soon be sold to surgeons. While the company has yet to achieve profitability, MAKO is gaining scale at a rapid rate, with revenues expected to grow 80% in 2011 to $79 million and another 60% in 2012.
Novo Nordisk (NYSE:NVO) has strengthened over the last couple of months and is poised to grow nicely in 2012. Diabetes is a huge problem worldwide — and is becoming a bigger problem in emerging markets — and NOV has a rapidly growing line of insulin products that should see strong sales. Earnings per share are expected to grow 23% this year to $5.39 and another 14% in 2012.
Parexel (NASDAQ:PRXL) conducts clinical research for many large pharma companies. Earnings were sluggish in fiscal 2011, as PRXL made investments to support future expected revenues. Now that these revenues are starting to be realized, as pharmaceutical industry research has entered a new upward cycle, look for EPS to improve in its June 2012 fiscal year and beyond.
3SBio (NASDAQ:SSRX) is based in China, so it has suffered from the uncertainties that have hit the stock market there, but it’s a solid company that should achieve strong growth for years to come. The majority of sales come from two strong products, EPIAO and TPIAO, which have both benefited from improved regulations and access in China. 3SBio should increase revenues in excess of 20% over the next two years, but the stock is attractively valued at only 12 times the 2012 estimate of 95 cents a share. SSRX is an attractive buy at current prices.
Teva Pharmaceuticals (NASDAQ:TEVA) is in somewhat of a transition right now, with its star multiple sclerosis drug Copaxone going off patent in a few years and disappointing clinical results for its potential replacement, laquinimod. Going forward, the recently completed acquisition of Cephalon should enhance growth potential, and don’t forget Teva’s leadership in generic drugs, which I believe will have a better year in 2012 as more big-name medications come off patent — just as Pfizer’s Lipitor did earlier this month — and more generics hit the market. The stock offers a very good value at current prices, which already more than discounts the loss of Copaxone’s patents.
Vascular Solutions (NASDAQ:VASC) is similar to ICUI in that it has created several innovative products for its specialty area (cardiovascular), such as the Pronto catheter, and has also seen difficult price competition recently. But with its below-average exposure to economic risk, I have a good deal of confidence the company will meet its 2012 earnings estimates of 54 cents a share, which would be more than 17% growth from this year. I expect continued strength in international sales and products, and with its strong cash flow, VASC is also a potential takeover candidate.
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