The Affordable Care Act Supreme Court case is now over, and with it comes the economic, financial, and political fallout.
Health care remains one of the largest segments of the economy, and the best way I can demonstrate the health and dangers and opportunities of companies in this industry is to get right in and look at the fundamental strength of individual stocks.
Here’s my take on six companies in three sectors that I see as having the biggest potential impact on investor’s portfolios in the second half of 2012–for good and for bad.
1) Biotechs: The Good and the Bad
Alexion Pharmaceuticals (NASDAQ:ALXN), an A-rated stock in Portfolio Grader, is the biopharmaceutical company responsible for the most expensive drug in the world: Soliris, which costs patients a whopping $400,000 a year. But it is clear that doctors and patients recognize the value of Soliris. First, the only alternative to Soliris if you have a life-threatening blood disorder is a painful and risky bone marrow transplant. Second, this sophisticated treatment is a result of $800 million spent over 15 years of development.
Sales of Soliris continue to climb, up nearly 50% in the first quarter, and analysts are calling for 41% sales growth and 28% earnings growth for the company in the coming quarter. Alexion is a one-of-a-kind pharmaceutical company with one-of-a-kind profit potential.
Not all biotech companies are created equal. I rate United Therapeutics (NASDAQ:UTHR) as a C or hold even though it has products that are of great interest to aging: Remodulin, Tyvaso, and Adcirca treat pulmonary arterial hypertension (PAH). UTHR also has other PAH drugs submitted for approval by the FDA as well as more drugs in Phase III trials.
I like the pipeline, I like the company’s fundamentals — sales are expected to be up 16% this quarter and cash flow and return on equity are strong. But the company needs a big approval and some real buying pressure to get behind the stock. With out a major light shining on this stock, it’s just not worth investing in at this time.
2) Info Services: The Good and the Bad
Cerner (NASDAQ:CERN), a top-rated healthcare company, has products and services which allow companies in the sector to reduce costs and boost their bottom lines — with rising costs in the healthcare industry, any cost-saving measures are essential. Independent experts believe that widespread adoption of modern healthcare software and IT services could cut healthcare costs by $162 billion annually. This is why Congress has provided more than $35 billion in “meaningful use” of healthcare IT incentives, giving a meaningful boost to Cerner’s business.
In fact, in the first quarter, the company reported a 37% jump in earnings and 30% sales growth. For the second quarter, management now expects earnings in the range of 52 cents to 54 cents per share and sales between $620 million and $640 million. Meanwhile, analysts forecast earnings of 54 cents per share on $605.2 million in sales.
But when it comes to healthcare information services companies, I want you to steer clear of Cerner’s competitor F-rated, bottom-of-the barrel-in-terms-of-fundamentals Allscripts Healthcare Solutions (NASDAQ:MDRX). With a network of 1,500 hospitals and 180,000 physicians, Allscripts also specializes in streamlining healthcare to reduce costs and improve the patient experience. The company also offers document management services, electronic health records solutions and electronic prescribing.
However, Allscripts just hasn’t been able to pull off the industry-trumping profits that Cerner has. In the last quarter, Allscripts’ earnings plunged 54% compared with last year. The company also posted a massive earnings loss and cut its earnings guidance for the rest of 2012. Since that ill-fated earnings announcement, shares of MDRX have plummeted 38%. So while I give the green light for CERN, you’ll want to brake for this stock.