Baxter International (BAX) spun off its drug business last month to create Baxalta Inc. (BXLT) and firmly focus its business on medical devices like pumps and surgical tools.
As one Wall Street insider puts it, Baxter is at a turning point, and BAX stock could very well be one of the best healthcare stocks to buy now.
Activist investor Dan Loeb of Third Point is seeking two board seats on Baxter, with hopes of making a big profit on a large stake in BAX stock. It’s part strategic benefit of spinning off BXLT and part news that long-time CEO Robert Parkinson will be departing, allowing for an influx of fresh talent at the top positions of the company.
But most importantly, it’s the long-term potential of a $20 billion healthcare stock — one that’s susceptible to streamlining and acquisitions — to undergo a massive surge in demand.
BAX Stock — Low Risk, High Growth
BAX stock is in the unique position of being a low-risk stock in a recession-proof sector, but also a company with high-growth potential. Baxter makes a lot of money from dialysis tech, a treatment that is in high demand as Baby Boomers in America continue to need more care as they age.
And since illness and surgeries are not dependent on broader economic cycles, investors can be sure that Baxter stock will hang tough even in a downturn.
Still, this doesn’t mean BAX is sleepy. Baxter is actually up by double digits after the Baxalta spinoff, and has gained about 15% annually over the last five years.
Interestingly enough, however, this is underperformance, as BAX stock compares to its peers like Cardinal Health (CAH), which is up 150% in five years for about 30% annual returns on average.
That’s why Loeb and Third Point want a stake — and a say — in the future of Baxter stock. The demographic tailwind and stability of medical device sales makes this a prime company to own, and a great opportunity if BAX stock can welcome a strong leader and make a few good acquisitions to fuel growth and gain some efficiencies in the space.
Loeb has made other high-profile moves lately with Third Point, including a big bid for KFC and Pizza Hut parent, Yum Brands (YUM). But the track record of the firm is mixed, including stakes in Yahoo! (YHOO) and Alibaba (BABA) that relied big on the leadership of CEO Marissa Mayer to provide some pop … with limited success.
Time will tell whether Baxter is a better move. But given the power of healthcare stocks over the past few years and the demographic trends going forward, BAX stock seems a very safe bet.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
