The markets may be reeling on coronavirus fears. But as shares take a slide, there may be a few buying opportunities with healthcare stocks. With earnings season in full swing, many healthcare companies could move higher if they beat analyst exceptions and guidance.
However, which names could reap the benefits?
When it comes to large-cap stocks across the healthcare sector, there are plenty of great stocks to buy. That said, the three healthcare stocks mentioned below are exposed to various parts of the healthcare sector — but they may offer material upside in the short-term.
Undervalued relative to peers and/or sporting a nice dividend yield, these stocks could see a boost after their upcoming earnings call.
While the market maelstrom may be a factor, consider these three healthcare stocks to buy when looking for opportunity in today’s market.
Healthcare Stocks to Buy: Boston Scientific (BSX)
Reporting earnings pre-market on Wednesday, Boston Scientific (NYSE:BSX) is richly priced. However, it could move higher if results beat expectations.
Analyst consensus calls for the company to report earnings-per-share (EPS) of $0.44. And last quarter, BSX stock beat on earnings by a penny, reporting EPS of $0.39.
It’s no secret Boston Scientific is moving the needle via acquisitions and organic growth. But while shares trade at a fairly-high forward price-to-earnings (P/E) ratio of 24.2, that’s still cheaper than peers like Edwards Lifesciences (NYSE:EW), which trades for 32.4 times forward earnings.
Granted, BSX stock trades at a higher forward multiples than peers Medtronic (NYSE:MDT) and Stryker (NYSE:SYK) — which go for 19.8 times and nearly 21.9 times forward earnings, respectively. Yet, Boston Scientific’s growth prospects may justify a premium. With plenty of room between it and Edwards Lifesciences, BSX stock could soar to new highs on multiple expansions.
Shares have dipped from their 52-week high of $46.62 just before the coronavirus crisis. However, if market downturn fears subside, BSX could bounce back — and then some — post-earnings.
Cardinal Health (CAH)
Another name just off its 52-week high, Cardinal Health (NYSE:CAH) reports earnings pre-market on Feb. 6.
That said, what’s the key issue with CAH stock? Opioid liabilities. In November, the company estimated their legal liability to be $5.6 billion for what the company calls “its estimated liability tied to the thousands of lawsuits filed by state and local governments against Cardinal and other wholesalers along with pharmaceutical companies over the opioid crisis that is blamed for more than 400,000 deaths over two decades.”
However, this headwind may not be as bad at it seems, as the company would pay this out over an 18-year period. So, while CAH stock may not be out of the woods completely, taking the accounting hit now likely prices in the long-term risk.
With investors less concerned, CAH stock has moved higher. But, shares may still be undervalued. Shares trade at a P/E in line with peers McKesson (NYSE:MCK) and AmerisourceBergen (NYSE:ABC). But, with a trailing 12-month enterprise value/EBITDA (EV/EBITDA) ratio of 7.76, shares trade well below McKesson’s EBITDA multiple of 9.37.
In addition, CAH stock sports a healthy 3.8% dividend yield. With 25 years of dividend growth, and a 5-year dividend growth rate of 7.6%, this may be a strong opportunity for a income-oriented portfolio.
Regarding potential post-earnings performance, analysts call for quarterly EPS of $1.22. But with the company beating earnings (excluding the opioid liability charge) by $0.18 last quarter, the company may again exceed expectations. With the stock taking a market-driven dip, Cardinal Health may be one of many healthcare stocks to buy this week.
CVS Health (CVS)
CVS Health (NYSE:CVS) doesn’t report earnings until next week before market open on Feb. 12. But, with the market dip, this week may be a great time to accumulate CVS stock.
While consensus calls for the health care giant’s earnings to fall 21.5% year-over-year, the company could surprise again with an earnings beat as we’ve seen the past four quarters.
In addition, CVS stock sells at a low EBITDA multiple. With an EV/EBITDA ratio of 10.8, shares are well below Walgreens Boots Alliance’s (NASDAQ:WBA) EBITDA ratio of 13.8. Yet, it may not be an apples-to-apples comparison.
Along with its ubiquitous pharmacy chain, CVS is also in the health insurance and pharmacy benefit management business. However, this diversification may be a double-edged sword, as proposed changes in Medicaid funding could impact CVS’s managed care business.
That said, there’s more to this opportunity than valuation. CVS stock offers investors a nice yield of nearly 3%, making it one of many great dividend stocks to buy after last week’s dip. Granted, the dividend has held steady over the past three years. But, with a payout ratio of just 28%, there’s runway for increased payouts.
All of this combined, and you’ve got another member of the great healthcare stocks to buy.
As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
