Since bottoming in late December, the U.S. markets have risen sharply, led by strong economic data, optimism for a Chinese trade deal and solid, if not stellar fourth-quarter earnings.
In 2019, the S&P 500 has risen about 6 percent with some sectors like technology and financials up more than 10 percent. One sector which has lagged the overall market is health care — only up 4 percent in the past month and down 12 percent in the past year.
[See: 10 of the Best Health Care Stocks to Buy for 2019.]
This article will explore some overlooked names which may be poised for future growth.
The screen. We used the Trading Central Strategy Builder to search for large-cap U.S. health care stocks. The focus was on companies with market capitalization of more than $10 billion to limit the results to the largest and most stable stocks in the market.
To select companies that appear to be well-valued, we searched only for companies with forward price-earnings ratios of 24 or less. Note that the average P/E ratio of companies in this sector is around 35.
To focus on companies with profitable business and a track record of growing earnings, we selected only stocks with five-year EPS growth rates of 8 percent or more annualized.
Finally, to select stocks getting positive attention from industry analysts, we picked only stocks with ratings of either “buy” or “strong buy” based on a consensus of analysts.
Merck & Co. (ticker: MRK). The list of companies matching the above screen contains an outsized number of pharmaceutical companies — due mainly to their low valuation levels. One of the largest of these is Merck & Co., with a forward P/E ratio of 17.1 and a five-year EPS growth rate of 8.2 percent. Merck was up almost 35 percent in 2018, outpacing most its industry peers. Merck’s fourth-quarter earnings are expected Feb. 1.
[See: 9 Health Care Stocks to Buy for Income.]
Zimmer Biomet Holdings (ZBH). Medical device maker Zimmer Biomet Holdings also passes the screen with a market cap of $21 billion and a forward P/E ratio of just 13.2. After hitting a 52-week high last September, the stock went on to lose more than a quarter of its value by late December. Despite rallying in January, the stock still looks very reasonably valued in an overall expensive industry. A consensus of industry analysts also rates the company a “buy.
UnitedHealth Group (UNH). “The largest company to make this list is health insurance and managed care provider UnitedHealth Group ( UNH) with a market cap of more than $255 billion. After a strong run upward over the past five years, the stock took an atypical nosedive in December, selling off almost 20 percent in three weeks. The stock has recovered some in the past month but still trades at a reasonable forward P/E ratio of 20.9. UnitedHealth has a five-year EPS growth rate of 16.3 percent and has beaten analyst earnings estimates nicely in each of the past four quarters.
Biogen (BIIB). Biotechnology firm Biogen is the only biotech stock to make this list. Often, biotech stocks have little to no earnings and have very high P/E valuations. Biogen is a more established player in the biotech space having been in business since 1978. Biotech specializes in therapies for autoimmune diseases and neurodegenerative conditions such as multiple sclerosis. The company has a five-year EPS growth rate of 19.7 percent and a forward P/E ratio of 13.2.
Stryker Corp. (SYK). Medical devices firm Stryker also weighs in with a forward P/E ratio of 23 and a five-year EPS growth rate of 17.3 percent. Stryker provides a wide range of medical products including implants used in joint replacement as well as surgical and trauma equipment. After five years of solid stock price performance, the stock moved mainly sideways in 2018 until undergoing a 16 percent decline in the first three weeks of December. The company carries an analyst “buy” rating and has beaten analysts’ earnings expectations for the past four quarters.
[See: 7 Top Investing Strategies for an Uncertain Market. ]
Disclosure: The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
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5 Health Care Stocks Ready to Rebound originally appeared on usnews.com
