The Covid-19 pandemic brought a renewed interest into the healthcare sector, and with the surging Delta variant raging across the country, that interest isn’t expected to dissipate anytime soon. Due to that attention, many healthcare stocks have reached sky-high valuations. It’s not just companies that offer vaccines and therapies for Covid, either.
In fact, the healthcare sector is one of the largest in the U.S. economy. It makes up close to 20% of gross domestic product (GDP). As the baby boomer generation gets older, there will be an increased need for pharmaceuticals, biotech therapies, and hospital stays. Approximately $3.8 trillion is spent on healthcare in the U.S., which is only expected to increase in upcoming years.
While healthcare stocks certainly deserve a place in your portfolio, it’s best to avoid stocks with high valuations. That’s why investors should consider healthcare stocks with an overall grade of “buy” and a Value Grade of A in our POWR Ratings system.
Let’s highlight three stocks that meet that criteria below.
- Ironwood Pharmaceuticals (NASDAQ:IRWD),
- Nu Skin Enterprises (NYSE:NUS)
- Bristol-Myers Squibb (NYSE:BMY)
Healthcare Stocks: Ironwood Pharmaceuticals, Inc. (IRWD)
IRWD is a specialty and generic drug manufacturing company that operates a human therapeutics segment. The company is focused on advancing innovative product opportunities in areas of large unmet need, including irritable bowel syndrome with constipation, chronic idiopathic constipation, hyperuricemia associated with uncontrolled gout, and vascular and fibrotic diseases.
The company benefits from strong sales of Linzess, a drug used to treat irritable bowel syndrome with constipation and chronic constipation. It sees strong demand and expansion in new patient populations as well as geographic regions.
ITWD is also focused on further label expansions of the drug to new indications and patient populations.
It is expected to grow double-digits in upcoming quarters. Linzess is the leader in its category with a 42% market share. The drug should even hit blockbuster status this year. Plus, it is well protected by patents, so it shouldn’t face generic competition until March 2029. Management is also focusing on its telemedicine efforts to boost its sales.
The separation of IRWD’s sGC pipeline into another entity, Cyclerion, also bodes well as it increases operational performance. IRWD has an overall grade of B, which translates into a Buy rating in our POWR Ratings system. The company has a Growth Grade of B as earnings per share rose 403.2% over the past year.
Plus, analysts expect earnings to grow 21.7% year over year in the current quarter. IRWD also has a Value Grade of A, which isn’t surprising, with a trailing price-earnings ratio of only 3.96. Its price-to-free-cash-flow ratio of 9 is also considerably less than the industry average. We also provide Momentum, Stability, Sentiment, and Quality grades for IRWD, which you can find here.
IRWD is ranked No. 21 in the Medical – Pharmaceuticals industry. For more top stocks in this industry, click here.
Nu Skin Enterprises, Inc. (NUS)
NUS is a health and beauty direct-selling company with a comprehensive product line that includes anti-aging skin products, peels, masks and scrubs, plus body care, hair care and cosmetics. The company has three main product divisions: anti-aging, skin, and pharmaceuticals. Its pharmaceuticals division offers nutritionals, weight-management products and food supplements.
The company has been benefiting from a focus on innovation and efforts to strengthen its sales leaders. This resulted in a strong second quarter where earnings per share of $1.15 surged 42% year over year. In the quarter, NUS saw consistent strength in its beauty device systems and further adoption of its social commerce strategy.
Due to this, management has revised its 2021 earnings per share guidance higher. Management now expects EPS between $4.30-$4.50, an 18%-24% increase in guidance. While the company sells and distributes through a network of sales leaders and customers, it has been conducting promotional seminars online and even rolled out its Velocity sales compensation plan and enJoy rewards program.
Both of these programs have aided growth. Plus, its person-to-person affiliate marketing channel has created more brand awareness and helped the firm acquire customers at a higher rate. NUS has an overall grade of B and a Buy rating in our POWR Ratings system. The company has a Value Grade of A due to low valuation metrics.
For instance, it has a trailing P/E of 9.34, and its price-to-sales ratio of 0.8 is well below the industry average of 4.6. NUS also has a Quality Grade of A due to a rock-solid balance sheet. The company has a current ratio of 1.6, which indicates it has more than enough liquidity to handle short-term obligations. NUS also has a low debt-to-equity ratio of 0.6.
For the rest of NUS’s grades (Growth, Momentum, Stability, and Sentiment), click here. NUS is ranked No. 5 in the B-rated Medical – Consumer Goods industry. For more top stocks in this highly rated industry, click here.
Healthcare Stocks: Bristol-Myers Squibb Co. (BMY)
BMY discovers, develops, and markets drugs for various therapeutic areas, such as cardiovascular, oncology, and immune disorders. A key focus for the company is immuno-oncology, where it is leading in drug development. The firm has also exited several nonpharmaceutical businesses to focus on its branded specialty drugs, which have strong pricing power.
The company is seeing strong performance from Revlimid and Eliquis. Its Celgene acquisition added multiple myeloma drug Revlimid to its portfolio. It is currently approved for several indications and is seeing longer treatment duration and market share gains in key markets. Empliciti, an IgG1 monoclonal antibody medication co-developed with AbbVie (NYSE:ABBV), also contributes to top-line growth.
BMY is also benefiting from a return to growth for its immuno-oncology drug Opdivo. The drug has received approval for several cancer indications. The drug has seen an increase in demand from commercial acceptance for several indications, including melanoma, hepatocellular carcinoma (HCC), renal cell carcinoma, and second-line non-small-cell lung cancer.
The company is also working on expanding the label of Opdivo. BMY has an overall grade of B, translating into a “buy” rating in our POWR Ratings system. The firm has a Growth Grade of B, as it has shown consistency in its revenue growth. Sales have grown an average of 20.3% per year over the past five years.
Analysts expect earnings to jump 19% year over year in the current quarter. BMY also has a Value Grade of B, which makes sense with a forward P/E of only 7.59. Its price-to-free-cash flow of 11.7 is also well below the industry average. To access all of BMY’s grades, including Momentum, Stability, Sentiment, and Quality, click here.
BMY is ranked No. 14 in the Medical – Pharmaceuticals industry.
On the date of publication, David Cohne did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
