The healthcare sector has been ripping higher over the past few years thanks to a spur of innovation and greater access to healthcare worldwide. As such, it's becoming increasingly difficult to unearth compelling bargains in this heated sector.

With this theme in mind, we turned to our contributors to ask which healthcare stocks they think might be hidden gems in this high-flying market. They recommended Geron (GERN -0.20%), Sucampo Pharmaceuticals (NASDAQ: SCMP), and Inogen (INGN -7.31%). Here's why. 

Magnifying glass.

Image source: Getty Images.

This cancer company is flying way under the radar

George Budwell (Geron Corp.): In an industry chock-full of companies pursing checkpoint inhibitor antibodies, tyrosine kinase inhibitors, or adoptive cell therapies in the battle against cancer, the small-cap biotech Geron Corp. certainly stands out with its novel telomerase inhibitor imetelstat, indicated for a host of hard-to-treat blood-based malignancies.  

Geron licensed imetelstat to Johnson & Johnson in 2015 and then reduced its staff to a skeleton crew to lower its cash burn rate. Since then, imetelstat has undergone two internal data reviews for its ongoing trials in the rare blood disorders myelofibrosis and myelodysplastic syndrome.

These internal reviews have provided sufficient evidence to warrant further clinical development, although J&J has yet to commit to the partnership long term. The two companies are presently weighing the possibility of advancing imetelstat into a pivotal late-stage trial for myelodysplastic syndrome by the end of this year.

Cutting to the chase, Geron is close to becoming a late-stage developmental oncology company, it benefits from J&J's expertise, there is no direct competitor lurking in the shadows (unlike with most other experimental oncology companies), and imetelstat isn't simply another "me-too" drug -- it has a real shot at becoming the standard of care for some high-value blood disorders.  

Geron, though, is an ultra-high-risk biotech. The company, after all, has no other clinical assets beyond imetelstat, and it lacks the financial resources to reconstitute a functioning R&D wing at this point. But if you're looking for biotech stocks that aren't trading at sky-high valuations and that arguably haven't been discovered by the masses yet, Geron is a name worth checking out.   

A small-cap drugmaker that's raking in cash 

Sean Williams (Sucampo Pharmaceuticals): When I think of potentially hidden gems in healthcare, I'm looking for under-the-radar small-cap drug developers with major return potential. One profitable small-cap drugmaker that fits that description is Sucampo Pharmaceuticals.

Sucampo's bread and butter is Amitiza, a chloride channel activator that works in the small intestines to facilitate the passage of stool and alleviate the symptoms caused by chronic idiopathic constipation. In Dec. 2015, Sucampo acquired Japan's R-Tech Ueno for $275 million. R-Tech was a company that had entered into a licensing agreement along with Takeda Pharmaceuticals for Amitiza back in 2014, meaning the acquisition gave Sucampo a bigger slice of Amitiza's revenue and more control of Amitiza's supply chain. This latter point makes it easier for Sucampo to control its expenses and boost margins.

The result of this acquisition? How about an instant boost to profitability and strong cash flow? During the first quarter, Sucampo recorded a 19% increase in year-over-year sales to $56.3 million and 26% growth in EBITDA to $18 million. The company attributed much of its gains to strength in sales from Japan, but it also stood by its full-year forecast of $220 million to $230 million in sales, EBITDA of $109 million to $119 million, and free cash flow of $86 million to $96 million. In other words, it's only valued at two times the peak sales of its lead product, which is pretty cheap among biotech stocks.

However, Sucampo isn't sitting on its laurels. On top of label expansion opportunities for Amitiza to new age cohorts, Sucampo acquired Vtesse, a privately held rare-disease drugmaker, for $200 million. This was comprised of $170 million in cash on hand and 2.78 million shares of common stock. To repeat, no outside funding was needed, which is a result of its healthy free cash flow. Vtesse brings VTS-270 to the table, a treatment for Niemann-Pick Disease Type C1 that's expected to yield results in mid-2018. Rare disease therapies often bear strong pricing power.

Sporting a single-digit P/E, growing at mid-to-high single-digits, and generating plenty of cash flow, Sucampo could be a sneaky smart healthcare play.

Concentrating your returns

Brian Feroldi (Inogen): Roughly 2.5 million Americans need regular access to purified oxygen to help them live the lifestyle that they desire. However, being forced to lug around a bulky oxygen tank wherever you go isn't exactly a convenient solution.

Inogen is an innovative medical device company that came up with a unique solution to this conundrum. The company developed a portable oxygen concentrator (POC) that removes nitrogen from the surrounding air. This solution delivers a continuous flow of oxygen-rich air directly to the patient in a lightweight form, freeing them to roam wherever they choose.

Inogen's POC solution has been a huge hit with patients and providers alike. The company's revenue has grown significantly over the last few years as its solution has been introduced into new markets. All of that top-line growth has even translated into success on the bottom-line, too.

INGN Revenue (TTM) Chart

INGN Revenue (TTM) data by YCharts

While Inogen's solution has clearly been a smashing success, there is still ample reason to believe that its fast growth can continue. First, POC products only have 8% market share at the moment. Given the advantages, I think this number will increase over time. Second, the number of patients that need oxygen therapy is expected to grow by more than 7% annually. Finally, while Inogen is currently available for sale in 46 countries, there are still plenty of markets for the company to launch in.

In total, Inogen promises fast growth, and the company is already profitable. That makes this a great stock for healthcare investors to get to know.