People need healthcare no matter what's happening to the rest of the economy or their portfolios. That makes strong companies in that critical industry wonderful businesses to own. We asked three Foolish investors which healthcare stocks looked like they were worth buying right now, and they picked AbbVie (ABBV -0.65%), Pfizer (PFE 1.26%), and Hologic (HOLX -0.80%).
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Something for everyone
Keith Speights (AbbVie): You can't knock AbbVie's performance. The big-pharma stock soared more than 50% last year. Even with disappointing mid-stage clinical results for experimental cancer drug Rova-T, the stock still has much better year-to-date gains than the broader market.
Can AbbVie keep the momentum going? I think so.
AbbVie claims the world's top-selling drug with Humira, one of the fastest-growing cancer drugs with Imbruvica, and a hot new hepatitis C drug with Mavyret. Then there's the pipeline. AbbVie CFO Bill Chase recently stated that the company's pipeline has "almost an embarrassment of riches." That statement was made before the Rova-T setback. However, AbbVie remains loaded with potential blockbuster candidates, including endometriosis drug elagolix and autoimmune disease drugs risankizumab and upadacitinib.
Then there's the dividend. AbbVie's dividend currently yields 3.34%. It was even higher, but the stock surged so much that even the latest dividend hike of 35% wasn't enough to keep up. Dividend increases are a way of life for AbbVie, which has raised its dividend payout by 140% since being spun off from parent Abbott Labs in 2013.
Last but not least is valuation. Despite its strong growth prospects and dividend, AbbVie's shares trade at less than 12 times expected earnings.
What's not to like about AbbVie? Like any biopharmaceutical company, it has pipeline risks -- as seen recently with Rova-T. And the company still is heavily dependent on Humira. Still, I think AbbVie has something to offer almost every type of investor.
A low-risk growth-and-income stock
George Budwell (Pfizer): Buying healthcare stocks can be tricky because of the numerous unforeseen dangers arising from patent disputes, novel competitors entering the market, and a host of potential regulatory issues that can negatively impact a company's bottom line. To safely navigate these troubled waters, investors generally are best served by picking companies with robust clinical pipelines and exceptionally strong balance sheets. And that's why I think Pfizer is arguably one of the best healthcare stocks to own right now.
Besides sporting a mountain of cash and a top-notch shareholder-rewards program, Pfizer has developed one of the richest oncology pipelines in the business. The drugmaker's PD-L1 inhibitor avelumab -- brand name Bavencio -- that it co-develops with Merck KGaA, tends to grab the headlines. But investors shouldn't ignore Pfizer's earlier stage oncology pipeline that's home to a slew of high-value experimental drugs and biologic therapies. Over the next decade, these under-the-radar drug candidates could very well transform Pfizer into a top dog in oncology.
Meanwhile, the company is presently in the process of selling -- or possibly spinning off -- its consumer healthcare unit. While a deal to get the unit sold no longer seems imminent due to a lack of bidders, Pfizer appears intent on shedding its consumer healthcare business before year's end. By doing so, the drugmaker should have yet another significant source of funds to boost shareholder rewards and merger-and-acquisition activity.
I'm bullish on Pfizer's near- and long-term prospects because of the company's superb oncology pipeline, attractive shareholder rewards program, and ongoing restructuring process that soon should culminate in a sizable influx of cash.
A leader in women's health -- at a reasonable valuation
Chuck Saletta (Hologic): Ask women which medical procedures they least look forward to, and many of them will answer mammograms and gynecological exams. Those tests have the reputation of being painful, embarrassing, and awkward, yet women line up for them year after year after year. Why? Because the tests -- and early treatment of any issues found from them -- can save their lives.
Enter Hologic, a leader in mammography technologies, devices used in gynecological surgeries, and key diagnostics for health issues like osteoporosis that frequently affect women. Hologic not only has a strong market position in those fields, it's also actively working to make the procedures less painful for the women who have to go through them.
For instance, Hologic's 3Dimension Mammography system is designed to provide both higher-quality images and more patient comfort than traditional mammography systems. Higher-quality images mean there's less need to retest due to issues with the pictures received, and better patient comfort makes the test less painful and awkward than it otherwise would have been. That sounds like a double win for the women undergoing those tests.
Hologic is worth looking at because it occupies a critical market niche, but what makes it worth considering buying right now is its reasonable valuation. Hologic is trading at less than 15 times its forward expected earnings, which are expected to grow at nearly 10% annualized over the next five years. Investors buying today are getting what looks like a solid and growing company in a key industry at a reasonable price.
