After a year of impressive gains across the board, market jitters have set in. But despite occasional pullbacks in broader markets, I expect many robust companies to continue creating shareholder value in the rest of the year. The pandemic has shown investors the importance of having a diversified portfolio that also invests in the healthcare sector. In the past 52 weeks, the Dow Jones U.S. Health Care Index is up over 27%. Therefore today, I will discuss seven healthcare stocks to consider for the rest of the year.
The U.S. spends about 18% of its gross domestic product (GDP) on healthcare. The industry includes major pharmas, smaller biotechnology firms, equipment manufacturers, telehealth businesses, healthcare providers, medical insurers and hospitals.
Most of the best healthcare stocks of the past 12 months had some sort of pandemic connection (such as vaccines, medicine or diagnostics). We can expect Covid-19 health news to make headlines in the rest of the year, too. But robust companies either have strong pipelines of revenues from diversified therapies, products or services.
With that information, here are seven healthcare stocks to buy as the world starts to reopen:
- BioNTech (NASDAQ:BNTX)
- Gilead Sciences (NASDAQ:GILD)
- Merck (NYSE:MRK)
- Regeneron Pharmaceuticals (NASDAQ:REGN)
- Quest Diagnostics (NYSE:DGX)
- Teladoc Health (NYSE:TDOC)
- Vanda Pharmaceuticals (NASDAQ:VNDA)
Healthcare Stocks: BioNTech (BNTX)
52-week range: $43.00 – $177.65
Year-to-date (YTD) change: 112%
Mainz, Germany-based immunotherapy group BioNTech focuses on developing cancer therapeutics as well as vaccines for infectious diseases, including Covid-19. BioNTech became a household name following its partnership with Pfizer (NYSE:PFE), as the two biopharma companies developed the first vaccine against the novel coronavirus.
The company released Q4 and full-year results for fiscal year 2020 at the end of March. Total 2020 revenue was 482 million euros, compared to 109 million euros in the previous year. Due to 645 million euros spent on research and development (R&D) expenses related to developing the Covid-19 vaccine, net income was only 15 million euros in 2020, compared to net loss of 179 million euros in the previous year.
CEO Ugur Sahin cited, “2020 was a transformational year for BioNTech with the development and approval of the first mRNA drug in history. As of March 2021, we had delivered more than 200 million doses of our vaccine to more than 65 countries and regions together with our partners, and we are already seeing the first signs of vaccine associated reduction of COVID-19 cases and mortality in multiple countries.”
Prior to its work on Covid-19, BioNTech focused mainly on oncology (cancer) therapies. The company went public in October 2019 at an opening price of $16.50. Since then, it has returned over 1,150%, indicating positive investor sentiment. It has become a momentum stock, reacting to news about the variants of the virus, pricing and vaccine availability of competitors.
Therefore, long-term investors need to keep a clear perspective of the potential of the shares. BioNTech stock’s price-to-sales (P/S) and price-to-book (P/B) ratios are 74.05 and 25.30, respectively. Interested investors could regard any decline toward the $160 level as an opportunity to buy into the BNTX share price.
Gilead Sciences (GILD)
52-week range: $56.56 – $85.67
YTD change: 11.7%
Biopharma group Gilead Sciences develops therapies for HIV, cancer and viral hepatitis diseases. It has also played a central role in the Covid-19 pandemic, as Veklury, Gilead’s brand-name remdesivir product, has treated a large number of hospitalized patients. The company has a market capitalization of more than $80 billion.
Gilead’s Q4 metrics show that revenue increased by 26% year-over-year to $7.3 billion, catalyzed by Veklury sales. Non-GAAP net income almost doubled to $2.8 billion. Furthermore, diluted earnings per share (EPS) went up from $1.10 in Q4 2019 to $2.19 in Q4 2020. At the end of December 2020, Gilead had $7.9 billion on hand in cash and equivalents.
Management expects a gradual recovery in underlying market dynamics starting Q2 2021. The 2021 full-year total revenue guidance currently stands in the range of $23.7 billion to $25.1 billion. In 2020, it was $24.4 billion.
CEO Daniel O’Day said, “As we head into 2021, we have many additional opportunities to help patients, especially in oncology where Trodelvy, for example has the potential to treat a broad range of cancer types. These new opportunities, together with our continued leadership in antivirals put Gilead on a clear path to growth.”
Yet the company’s two HIV drugs recently lost exclusivity in the U.S., and sales are expected to continue to decline in the near future. It is quite common for pharma groups to see increased competition for their therapies (such as generics or biosimilars by other companies) as patents expire. Nonetheless, this fact has been a drag on the the GILD share price in the past year.
GILD’s forward price-to-earnings (P/E) and P/S ratios stand at 9.21 and 3.35, respectively. With its broad range of commercial therapies, robust pipeline, strong cash flow and juicy dividend yield, this company easily belongs in your portfolio.
Healthcare Stocks: Merck (MRK)
52-week range: $71.72 – $87.80
YTD change: -5.43%
Next up on this list of healthcare stocks, pharma giant Merck develops leading treatments against cancer and infectious diseases. The company’s research and products also extend to animal health. Keytruda, an antibody used in cancer immunotherapy, is one of the leading sources of revenue for the company.
In early February, Merck released Q4 and full-year results. Worldwide sales during the quarter were $12.5 billion, up 5% YoY. Non-GAAP EPS was $1.32 for the quarter. Further, worldwide revenue for the fiscal year rose 2% YoY to $48 billion, while full-year non-GAAP EPS was $5.94. Management expects full-year 2021 sales between $51.8 billion and $53.8 billion, as well as non-GAAP EPS between $6.48 and $6.68.
On the results, CEO Kenneth Frazier commented, “Our scientists continue to advance our internal pipeline of promising medicines and vaccines, including in oncology, HIV, and pneumococcal disease, and, more recently, therapeutics for COVID-19. These pipeline developments provide us with increasing line-of-sight to significant potential growth drivers later this decade and into the next.”
Merck’s forward P/E and P/S ratios are 11.75 and 4.12, respectively. This name is well-known as a reliable dividend company that also buys back shares. The current price supports a dividend yield of 3.4%. So, any decline in MRK stock would make it a strong candidate for dividend growth and passive income portfolios.
Regeneron Pharmaceuticals (REGN)
52-week range: $441 – $664.64
YTD change: 0.84%
Tarrytown, New York-based Regeneron specializes in eye diseases, allergic and inflammatory diseases, cancer, cardiovascular and metabolic diseases, pain relief, infectious diseases, and rare diseases. The Regeneron Genetics Center also conducts one of the largest genetics sequencing efforts worldwide.
According to the most recent quarterly metrics, revenue increased 30% year-over-year to $2.42 billion. Non-GAAP Q4 net income was $1.1 billion, up 26%. And non-GAAP diluted EPS for Q4 was $9.53, increased 27% YoY.
CFO Robert E. Landry stated, “In 2020, Regeneron delivered double-digit top- and bottom-line growth and significant shareholder value despite the unprecedented circumstances of a global pandemic. As we look ahead into 2021 and beyond, our business momentum and strong balance sheet give us confidence as we invest in R&D for long-term growth and execute on our capital allocation priorities.”
REGN stock is trading basically flat in the past 12 months. Forward P/E and P/S ratios are 11.24 and 6.62, respectively. Any further decline would offer better long-term value.
Healthcare Stocks: Quest Diagnostics (DGX)
52-week range: $103.26 – $134.71
YTD change: 10.7%
Secaucus, New Jersey-based DGX is a provider of diagnostic testing services stateside. Annually, Quest serves one in three adult Americans and half the physicians and hospitals in the country.
At the beginning of April, the company released Q4 and full-year 2020 financial results. In Q4, the top line grew 55.8% YoY to $3 billion. Bottom line of continuing operations rose a hefty 170% YoY from $228 million to $615 million in Q4. Additionally, adjusted diluted EPS jumped by a massive 167.7% and reached $4.48. DGX ended the year with $1.2 billion cash and equivalents. Investors were also pleased with management’s revenue guidance of $4.85 billion to $5.15 billion for the first of half of 2021. A year ago, it had been $3.65 billion.
Steve Rusckowski, chairman, CEO and president of the company said, “Given the ongoing uncertainty regarding the trajectory of the virus and its impact on COVID-19 testing trends as well as further recovery of our base business, we are providing an outlook for the first six months of 2021. We expect to provide additional updates as the year progresses.”
In the past year, DGX is up 24%. Forward P/E and P/S ratios are 11.3 and 1.73. A potential decline toward $125 would improve the margin of safety for buy-and-hold investors.
Teladoc Health (TDOC)
52-week range: $147.71 – $308
YTD change: -8.5%
Teladoc Health provides virtual healthcare services over its online platform as well as via mobile devices, video and telephone. So far, Teladoc has primarily partnered with employers, health plans and health systems to offer network access to their members. Covid-19 meant accelerated growth, as more businesses and individuals who could not visit their doctors in person used its services.
The group reported results for Q4 and full-year 2020 in late February. Q4 revenue grew 145% YoY to $383 million, compared to $156 million in the prior year’s quarter. Net loss was $394 million for the fourth quarter, compared to $19 million for the same quarter of the previous year. Net loss per diluted share was $3.07 for the fourth quarter, compared to 26 cents for the prior year’s quarter.
“As virtual care shifted to become a consumer expectation in 2020, Teladoc Health not only met the rapidly growing demand, but we transformed our company to define a new category of whole-person virtual care,” said Jason Gorevic, CEO of Teladoc Health. “By accelerating our mission to transform the health care experience, we exceeded our fourth-quarter and full-year 2020 expectations and see strong momentum across our global business in 2021.”
Investors have recently decided to take some money off the table. Given the increased vaccine take-up, individuals might want to visit their medical doctors in person again. However, the digitalization trend of the past year is likely to say with us. Nonetheless, a move toward $175 would offer a better long-term value for retail investors.
Healthcare Stocks: Vanda Pharmaceuticals (VNDA)
52-week range: $9 – $20.51
YTD change: 29.3%
Unlike the other names I discussed above, the biopharma group Vanda Pharmaceuticals is a small-cap stock. In other words, it is not yet an established name. Vanda focuses on developing therapies for diseases such as sleep-wake disorder, nighttime sleep disturbances and schizophrenia.
In February, Vanda released Q4 and full-year 2020 results. Quarterly revenue grew to $67.7 million, up 11% YoY. Q4 net income was $8.2 million, increasing 94% YoY. Furthermore, diluted EPS was 15 cents, up 87.5% YoY. Cash and marketable securities was $367.7 million as of Dec. 31, 2020.
CEO Mihael H. Polymeropoulos, M.D. cited, “We look forward to another great year of accomplishments, including further revenue growth, the commercial launch of HETLIOZ® in patients with Smith-Magenis Syndrome, and the results of the tradipitant Phase III study in gastroparesis, to highlight a few.”
In the past 12 months, VNDA stock is up over 42%. Forward P/E and P/S ratios are 30.30 and 3.77, respectively. A potential decline toward $15 might make it an appropriate addition to portfolios that are able to invest in small-caps for the long run.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.