The Senate healthcare bill is finally making an appearance, and when all’s said and done, it looks pretty similar to the bill the House passed.
On the one hand, that’s good news because it means that reconciling the two bills won’t take a great deal of effort. On the other hand, the House bill is not very popular and has a tenuous grip on the moderates on one side and the Tea Party set on the other.
The inside-the-Beltway reality is, the Republicans want a win to take home to their constituents before the summer break next week, and they just want something done so they can say they’ve killed and buried the Affordable Care Act. How this plays back home is yet to be seen.
What it does guarantee is a lot of churn in the healthcare space as the Street figures out winners and losers. One thing is for sure, below are seven healthcare stocks to sell before they make you sick.
Healthcare Stocks: Iridex (IRIX)
Iridex Corporation (NASDAQ:IRIX) is company that specializes in laser equipment to treat retinal diseases like glaucoma, macular degeneration, detached retinas, etc.
It has two major challenges. First, it’s a small company hoping to make it in a space where there are big players. IRIX’ market capitalization is a mere $106 million in a space where it’s competing with companies that are worth billions.
Second, and more importantly, ophthalmological care usually isn’t covered well by insurers or Medicare or Medicaid. The government doesn’t place blindness as a life threatening illness, so since it has to cut somewhere, it’s usually in cases like this.
That means most customers have to pay out of pocket, which limits its ability to grow. Big firms in the space don’t rely heavily on this sector and avoid the vagaries of surviving in it.
Healthcare Stocks: Chromadex (CDXC)
Chromadex Corp (NASDAQ:CDXC) is a small company ($165 million market cap) that has an interesting niche as a product testing and quality control company for the natural products industry.
Alternative medicine is a growing business in the U.S. and the type of work CDXC does certainly has value. But there are competitors that do similar work across the entire health and beauty sector that likely can offer cheaper services because of their size.
That existential threat may be showing up in CDXC’s numbers. Its first-quarter earnings, released in early May, show revenue off 40% for the quarter compared to year-ago levels.
CDXC is also issuing more stock, which dilutes the value of shares to current stock holders. It has also purchased a company that sells a hot, natural anti-aging drug called Niogen. This makes for a lot of confusion, and a lot of risk.
Healthcare Stocks: Iradimed (IRMD)
Iradimed Corporation (NASDAQ:IRMD) seems to have everything you want in a small med tech firm. It has a monopoly in its sector — MRI-safe IV pumps and accessories. It is in a steadily growing sector that will benefit from a graying population. And it’s a market worth about $450 million a year. The problem is, for the past two quarters revenue has been down.
And now that a healthcare bill is coming out of Congress, it looks like Medicaid will be scrapped and Medicare may undergo significant changes. These are the lifeblood for companies like IRMD.
MRIs are expensive machines and that means they’re a big investment for hospitals and clinics. If they’re not sure if they can recoup the costs of using the machines, they certainly don’t need the accessories that go along with them.
It also means, they will use the machines less, which is likely what we’ve been seeing in IRMD numbers in the past two quarters.
Too small a company, too much turmoil.
Healthcare Stocks: Mednax (MD)
Mednax Inc (NYSE:MD) is a physician’s services company that focuses on neonatal to pediatric care support.
It employs about 3,500 physicians over 35 states. Basically, MD allows hospitals to have doctors on staff in specialty areas where the doctors would have a hard time making money in a private practice due to the rules and regulations they have to follow.
The business model seems like a it matches a solution to a need perfectly. The problem is, it hasn’t really worked out that way. Margins continue to decrease for MD and that means the doctors and specialists aren’t seeing the kind of pay they hoped to receive.
To remedy that, MD has continued to grow by acquisition, moving into new spaces, expanding its specialties. This is a dangerous game in good times, since Wall Street will support the growth … until it doesn’t. There is no evidence that getting bigger has helped MD become more profitable. And that’s a warning signal.
Healthcare Stocks: Allscripts (MDRX)
Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) provides IT solutions to the healthcare sector, from hospitals to private practices to clinics. The stock has been on a roll so far this year, up 26%. The challenge is, Allscripts is in a very competitive space and with the entire healthcare system up in the air, winners are hard to separate from losers right now.
There’s no doubt MDRX is a serious player in the space, but significant changes to Medicare and Medicaid would mean a lot of work for Allscripts, much of which could not be passed on to its clients.
It’s too early to tell how this will shake out, but there’s no point in buying into a growth story that is going to change and what it changes to is unknown.
What’s more, most analysts are looking for 10%-15% growth at best over the next 12 months. That’s a lot of risk for little return.
Healthcare Stocks: Mallinckrodt (MNK)
Mallinckrodt PLC (NYSE:MNK) is a U.K.-based branded and generic specialty pharmaceutical maker.
Its main source of income — some would argue that it’s Mallinckrodt’s almost sole source of income — is Acthar, a gel used for psoriatic arthritis. Now, given the demand in the space and MNK’s unique gel form of treatment, you may think that Mallinckrodt can rely on this drug.
The problem is, it can’t. Its long-time partner on getting this drug listed Express Scripts Holding Company (NASDAQ:ESRX) has recently come out and said it questions the drug’s ability and its pricing. That is not good.
Earlier this month, MNK released a statement that it was “exploring all options” regarding its business moving forward. That’s a nice sentiment, but it should have been doing that all along. Now it seems a bit desperate.
Like any drug maker, if you don’t have a solid pipeline, your fate is not in your hands. And given the debt MNK carries, it’s going to be hard to buy a pipeline at this point.
Healthcare Stocks: Perrigo (PRGO)
Perrigo Company plc Ordinary Shares (NASDAQ:PRGO) has been producing generic products for nearly 100 years. Granted, in the early days it produced private label medicines and housewares for general stores in and around Michigan. Now it’s an international business all about generics, infant nutritional supplements and over-the-counter medicines. It has a $10 billion market cap.
But generics are coming under pressure now because there’s so much turbulence in the healthcare reform. Big firms don’t like when the rules constantly shift because for many, it means there’s a potential for loss of market share.
For example, FDA Commissioner Scott Gottlieb said in late may that he wants to accelerate the review of 2,600 applications for generic drugs.
While that may sound like good news, it also cuts the other way. If you have the only generic in the space and now two others enter, your revenue gets hurt.
PRGO is off 10% for the year-to-date, and that may be the tip of the iceberg.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family 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.
