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7 Healthcare Stocks That Are Portfolio Poison

It's imperative to know the difference between good and bad medicine

If the primary lesson of the Hippocratic oath is “First, do no harm,” then these seven stocks have a lot to answer for, at least from an investor’s perspective.

7 Healthcare Stocks That Are Portfolio Poison
Source: Flickr>

There’s no doubt that healthcare (especially U.S. healthcare) is one of the promising long-term sectors out there … but that doesn’t mean all healthcare stocks are worth buying.

And this list is a exemplary of just how bad it can get in the healthcare sector.

There are some massive companies on this list that would be considered blue-chip healthcare stocks in many circles, but that doesn’t mean they are worth buying at any given time.

The shaky start to 2016 makes that even more imperative since many of these companies have been bid up over the past year or so. There are plenty of solid healthcare stocks to choose from, but with the market in the grips of the mighty bear, you have to be selective.

Healthcare Stocks to Avoid: Novartis AG (ADR) (NVS)

Healthcare Stocks to Avoid: Novartis AG (ADR) (NVS)Novartis AG (ADR) (NVS) is a major healthcare player in the pharmaceutical sector.

While it doesn’t rely heavily on blockbuster drug home runs — its varied list of efforts includes over-the-counter medicines, eye care, biosimilars and generics, as well as pharmaceuticals and surgical products — it does have a solid stable of them.

And recently, NVS has stepped up its interest in oncology drugs, buying into three small immuno-oncology biotechs.

A recent court case against NVS for providing kickbacks for prescriptions landed the company a $390 million fine from the U.S. Justice Department. That, along with the company’s lack of clear focus or any particularly promising sector, is not bullish.

Healthcare Stocks to Avoid: Merck & Co., Inc. (MRK)

Healthcare Stocks to Avoid: Merck & Co., Inc. (MRK)Merck & Co., Inc. (MRK) is also a victim of its size and diversity.

Once considered the Big Pharma blue chip of them all, MRK has seen its power, influence and market share get put to the test.

Both domestic and global revenue is falling. Many of MRK’s big drugs are coming off patent, leaving the pipeline for new blockbusters dry.

This certainly isn’t a death knell for this giant, but it’s undergoing renovations at the moment. Better to wait to see signs of improvement before looking to get in.

Healthcare Stocks to Avoid: Community Health Systems (CYH)

Healthcare Stocks to Avoid: Community Health Systems (CYH)Community Health Systems (CYH) had a very good first half of 2015 — it was the second half that turned sour. Fast.

CYH operates 196 acute care hospitals in 29 states. And this was a very hot market as Obamacare made it through the Supreme Court.

The federal mandate for all hospital and medical practices to convert paper files to electronic records is an enormous and enormously expensive undertaking. Smaller hospitals couldn’t afford it and sold out to companies like CYH that could provide these, and other services, more efficiently.

But growth has its limits, and CYH is having serious growth pains.

For example, its 52-week high was $65. It now trades below $20. The only momentum here is heading in the wrong direction.

Healthcare Stocks to Avoid: Agios Pharmaceuticals Inc (AGIO)

Healthcare Stocks to Avoid: Agios Pharmaceuticals Inc (AGIO)Agios Pharmaceuticals Inc (AGIO) is a small biotech focused on cancer metabolism and rare genetic disorder medicines that can be taken orally.

The cancer and RGD sectors are where the growth in biotech is right now. When actually effective, these drugs are life savers, thus commanding higher prices.

AGIO is pioneering drugs focusing not on the cancer but the energy that keeps the cancer growing. By disrupting the metabolism, you destroy the cancer — and it’s having promising results.

But it doesn’t have a product yet. Meanwhile, AGIO is burning through cash and not finding many partners. That’s never good in a skittish market.

For a developmental biotech, you don’t follow the balance sheet as much as you follow the momentum, which is decidedly bearish for AGIO.

Healthcare Stocks to Avoid: Puma Biotechnology Inc (PBYI)

Healthcare Stocks to Avoid: Puma Biotechnology Inc (PBYI)Puma Biotechnology Inc (PBYI) searches out cancer drugs that are already enrolled in trials with patients that have the specific human epidermal growth factor receptor type 2. PBYI then takes them through trials and licenses the technologies.

The problem is, this isn’t the kind of market that is looking for interesting breakthrough companies that haven’t turned a profit and won’t for years to come, if ever.

PBYI’s 52-week high was $253 last March. As of this writing it’s trading below $50 and has shed 37% since the beginning of the year.

PBYI is going the wrong way fast. Avoid.

Healthcare Stocks to Avoid: Puma Biotechnology Inc (PBYI)

Healthcare Stocks to Avoid: Valeant Pharmaceuticals Intl Inc (VRX)

Valeant Pharmaceuticals Intl Inc (VRX) is the poster child for biotech cautionary tales — if it’s too good to be true, it probably isn’t true.

VRX was hedge fund darling: It was the story of how a small Canada-based biotech can make it to the big time.

Starting as basically a biotech with a blockbuster drug, it then launched an extensive campaign of acquisitions to broaden and deepen its reach in the pharmaceutical space.

The problem was, once it started its great expansion it became the entire engine of the business; and sooner or later it wasn’t going to be able to expand any longer and the market was going to kill it for its errors.

That has now happened. Its 52-week high: $263. Its current trading price: $87 and falling.

Healthcare Stocks to Avoid: Brookdale Senior Living, Inc. (BKD)

Healthcare Stocks to Avoid: Brookdale Senior Living, Inc. (BKD)Brookdale Senior Living, Inc. (BKD) is one of the largest senior living operations in the country.

It has operations in 1,150 communities, in 330 separate markets, in 46 states serving 100,000 residents and employs 80,000 people.

In the past couple of years some companies have struck out in their specific sectors and, while interest rates were remarkably low, went on a real estate buying spree. BKD did this, acquiring smaller local operations as it looked to take advantage of economies of scale to grow the business.

And Wall Street loves when companies are growing. The problem is, it hate when companies stop growing. And BKD has stopped growing in this sector because now there’s a senior living housing glut in the market.

Growth meant a 52-week high in BKD at $40. No growth means a current price of $15.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/01/healthcare-stocks-nvs-mrk-vrx/.

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